Identifying and Managing Control System Benefits and Costs

A well‐functioning management control system is essential to ensure the organization's strategy is executed as planned. While accounting students are provided many opportunities to master the design of management control systems, students are provided fewer opportunities to practice applying management control systems. This interactive role play allows students to experience the challenges managers face when applying organizational control systems. The role play fits best at the end of the unit where instructors have reviewed management control system design and application and is best suited for undergraduate and MBA students who have little or no supervisory experience. Students rated the role play as highly effective, as 97 percent (n = 38) of the students recommend that instructors at other institutions adopt this exercise.     

Mountain City Transit: Management Control and Performance Measurement

Mountain City Transit (MCT) is a short in‐class case based on a real‐life city transit department, a context with which students are very familiar. The case allows three delivery options for instructors. A first option is for instructors to use the case to introduce various elements of management control—the case is rich, thereby allowing students to identify multiple issues facing the organization. As a second option, instructors can use it as a performance management case wherein students build a balanced scorecard and receive a completed strategy map to analyze. As a third delivery option, the case can be used twice during the course, both to introduce management control and to discuss performance measurement. Students will also discuss real life implementation challenges that MCT and other organizations face.     

Dr. PC: A Multimedia Management Control Case*

Dr. PC is a 50–80‐minute, in‐class management control case. The case asks students to develop a management control system for a small computer repair business. Informed initially by personal experiences, and then from viewing a consumer affairs video that depicts an employee repeatedly violating his firm’s code of conduct, students work together to outline key management controls. After viewing the video and discussing key management controls, students are then exposed to Simons’s levers of control framework and asked to develop a comprehensive management control system for the small business. The case was developed over three years with the help of 344 undergraduate, master’s, and executive students. Student feedback from earlier versions of the case indicates they found the case stimulating and effective at reaching its learning objectives of understanding the purpose of and how to design a management control system for a small business.     

To Tip or Not to Tip,That Is the Question: Rewarding Customer Service Encounters

This instructional case deals with compensation schemes in service industries, specifically with managerial intervention in tipping schemes in a restaurant. The case provides an opportunity to explore the interaction of direct client feedback and management control systems in controlling service encounters and to develop an understanding of management control systems in a team production environment. While the case focuses on compensation issues and requires some quantitative analysis, it also provides an opportunity to introduce the concept of “management controls as a package” and an assessment of the linkage between organizational strategy and the overall package of management controls. Case guidance is provided for alternative approaches to using the case.     

Sustainability Northwest: An Integrative Case of a Not‐for‐Profit Organization

Sustainability Northwest (SNW) is a fictional not‐for‐profit organization (NPO) that seeks to develop thought leaders for a sustainable future. This instructional case allows professors to assign students with up to six different roles, including SNW's chair of the board, executive director, volunteer treasurer, and the external auditor. Unique learning objectives include (i) the application of the CPA Canada Handbook, Accounting—Part III to prepare an NPO's financial statements using fund accounting, (ii) the development of recommendations to improve an NPO's board of directors, (iii) the analysis of system flow documents to identify control weaknesses, and (iv) the preparation of an audit planning memo. Instructors can use this case in several milieus. First, professors can foster a student's ability to integrate technical knowledge by (i) assigning students all six roles in a capstone course to promote integration within an individual course or (ii) assigning multiple roles across multiple courses to promote integration across a program of studies. Second, instructors can focus on a particular technical skill by assigning specific roles. This case is ideal for senior‐level undergraduate students or graduate students.     

CVS/Caremark: The Costs and Strategy of a Tobacco‐Free Pharmacy

This instructional case presents CVS/Caremark's decision to discontinue tobacco sales at its U.S. pharmacies effective October 1, 2014. The case provides data on the strategic issues underlying the decision and examples of the nonfinancial factors that affect product‐line decisions. The case illustrates the use of the broad array of costs in management decision making, including hidden costs, contingent costs, reputational costs, and social costs. It also provides data to explore the decision from the perspective of customer profitability analysis and the differential costs of serving tobacco customers compared with general retail customers.     

Viasystems Group,inc.

Viasystems Group, Inc. (Viasystems) is an international supplier of electromechanical assemblies and components. It specializes in manufacturing printed circuits and assembling electric cables and industrial metal cabinets. The case concerns the Printed Circuit Division at Viasystems and its need to adapt its costing system to the relocation of its manufacturing activities to China under its strategic planning, begun in 2001. Planning and controlling operating costs and the presentation of the financial statements have therefore become major issues. The case is set in 2006, six years after the start of progressive offshoring of manufacturing to China. It describes: 1) how external environmental pressures and the need for profitability have led to a critical strategic decision; and 2) how this new business model has changed upper management's informational needs, leading them to rethink their costing system, particularly at the Chinese plants. Setting the case in 2006, when all the plants have been relocated to China, enables discussions of the challenges that management will have to cope with in the future, after the operations transfer has been completed and the consequences on the management control system.     

Antecedents and Consequences of Eco‐Control Deployment: Evidence from Canadian Manufacturing Firms

Environmental issues have become an important consideration for a growing number of organizations. Eco‐control may represent a valuable tool to help organizations address such issues. The aim of this study is to provide an overview of the eco‐control practices adopted by Canadian organizations and to understand the antecedents and consequences of their adoption. More specifically, this study examines (i) the extent to which eco‐control practices are deployed within organizations, (ii) the factors and motivations that lead organizations to implement eco‐control practices, and (iii) the impact of adoption on firms’ managerial and operational environmental actions as well as on environmental and economic performance. Using survey data from a sample of 249 Canadian manufacturing firms, this article shows that environmental missions, environmental policies, environmental strategic planning, environmental budgets and environmental performance indicators are the most frequently adopted eco‐control practices among the investigated firms, while environmental incentives seem to be less frequently adopted. The results of this study also suggest that competitive and ethical motivations as well as size, environmental exposure and stakeholder pressure are all important factors in explaining eco‐control practice adoption by Canadian manufacturing firms. Moreover, the results of this study show that organizations that have undertaken more intensive managerial and operational environmental actions have also adopted more intensive eco‐control practices. Organizations adopting more intensive eco‐control practices perform better both environmentally and economically performance than firms adopting less intensive eco‐control practices.     

The Impact of Better‐than‐Average Bias and Relative Performance Pay on Performance Outcome Satisfaction

Drawing on equity and expectancy theories, we hypothesize that the perception of accountants about their ability to contribute relative to a peer (operationalized as the better‐than‐average [BTA] bias) negatively influences their satisfaction with the outcomes of the performance evaluation process (operationalized as performance outcome satisfaction [POS]). We hypothesize further that this negative influence is mitigated by the amount of relative performance pay. We test these hypotheses using data collected from a survey of and an experiment involving 164 entry‐level accountants. We found that in general our participants rated themselves better than the average audit professional and their immediate work associate; that is, they displayed a BTA bias. Moreover, we found that both the BTA bias and performance pay individually influenced POS; we also found a moderately significant interaction effect. In their entirety, the results indicate that the greater an entry‐level accountant believes that she or he is better than average the more likely her or his performance outcome satisfaction will fall.     

Budget Development and Use in Small‐ and Medium‐Sized Enterprises: A Field Investigation

We examine the process by which operating budgets are developed and how they are used for control, evaluation, and reward purposes in small‐ and medium‐sized enterprises (SMEs). SMEs (i.e., fewer than 500 employees) represent the dominant organizational form in North America but surprisingly little research has examined how these companies develop and use management controls. Our study focuses on a key element of the management control system, operating budgets, because prior research on SMEs indicates this as an important and commonly used control tool in such companies. Prior research on budgeting practices, while extensive, has almost exclusively examined larger companies. We conduct in‐depth field interviews at 12 participating SMEs to address four theory‐based research questions intended to provide insights regarding the development and use of budgets by SMEs. Our first question examines how budgets are developed, top‐down versus collaborative. Our second, third, and fourth research questions examine, respectively, whether budgets are used tightly or loosely for results control, performance evaluation, and reward purposes. As a first step in providing a deeper understanding of budget development and use in SMEs, our results have implications for practice, theory development, and management accounting education.     

The Impact of Disclosures of Internal Control Weaknesses and Remediations on Investors' Perceptions of Earnings Quality

We hypothesize and find that firms making SOX‐mandated disclosures of material weaknesses in internal control over financial reporting (ICOFR) exhibit lower investor‐perceived earnings quality (IPEQ) than nondisclosers. We measure IPEQ using e‐loading, a market‐returns–based representation of earnings quality developed by Ecker, Francis, Kim, Olsson, and Schipper (2006). Firms do not exhibit decreases in IPEQ after initially disclosing material weaknesses. This is consistent with investors having anticipated ICOFR strength based on observable firm characteristics. However, firms exhibit increases in IPEQ after receiving their first clean audit reports that confirm the remediation of previously disclosed weaknesses. This indicates that, although investors do not find initial weakness disclosures to be incrementally informative, SOX motivates firms to remediate weak controls and provides a venue for credible remediation disclosures, thus enhancing investors' perception of financial reporting reliability. These findings are consistent with the existence of regulatory benefits associated with SOX's internal control disclosure and audit requirements.     

The Use of Management Accounting Techniques by Small and Medium‐Sized Enterprises: A Field Study of Canadian and Australian Practice

Small and medium‐sized enterprises (SMEs) represent a large and important part of developed economies. However, little is known about the extent to which SMEs use contemporary management accounting (MA) techniques such as costing systems, budgets, responsibility center reporting, and analysis for decision making. To address this gap in the literature, we conducted in‐depth field interviews at 22 SMEs to: (1) determine the extent to which common MA techniques and tools are being used by SMEs; and (2) explore the underlying reasons why specific MA techniques are not being used. We find that of the 19 common MA techniques covered in our interviews, a very small number are moderately or highly used by our respondent companies. Moreover, we find that manufacturing companies in our study are more likely to use a broader set of techniques such as costing systems, operating budgets, and variance analysis and that smaller, early‐stage SMEs are the lightest users of MA tools overall. We identify three main factors affecting the adoption and use of MA techniques: (1) the perceived decision‐usefulness of the technique; (2) the complexity of the SMEs’ operating environment; and (3) the age of the SME. We discuss the contributions of our study and its potential implications for MA educators, developers of professional education programs, designers of SME control systems, and textbook authors.