On the emergence of strategic management accounting: An institutional perspective

Strategic management accounting (SMA) has been presented as an efficacious approach to strategy formulation and implementation. It also suggests accountants move away from purely financial concerns to give consideration to wider business issues. Management accounting change has attracted significant research attention in recent years. This case study explores the issues which surround change and which enable the adoption of SMA and the repositioning of management accountants to become more strategic. The empirical enquiry is based in one company through a prolonged series of interviews and meetings which enabled activities over a number of years to be reviewed. This revealed an increasing strategic role for management accountants in informing strategic decision‐making and how this role came into being. The research is informed by institutional theories and neoinstitutionalism in particular, to interpret the external and internal influences on the change in roles of some management accountants and the outputs of their work.     

Smart work and hard work: explicating a learning orientation in strategic management accounting

This paper examines the skills and aptitudes necessary to undertake a strategic management accounting project. It argues that individuals involved in such projects are required to work both smart and hard. This argument is developed theoretically by reference to the work of educational psychologists who have identified two different types of goal orientation which people pursue in achievement situations: the learning orientation and the performance orientation. Evidence that strategic management accounting requires a learning orientation is provided by means of a case study which describes its use in a competitive tendering situation. This is followed by a discussion of the potentially symbiotic relationship of strategic management accounting and organizational learning. The discussion leads to the specification of a research agenda that may have significant implications for the practice and learning of management accounting.     

Pedagogical cases in the strategic development of management accounting systems

Discussion of the ‘lost relevance’ of management accounting and the ‘gap’ between theory and practice has focused the criticism that management accounting education is built round a set of techniques applied in simplified settings. One reason for this may be the scarcity of case studies, discussing management accounting practices, which may be adopted in classroom situations. The recent promotion of ABC, throughput accounting, just-in-time (JIT) methods and performance measures to support modern manufacturing provide additional educational challenges relating to the integration of these into the accounting curriculum. There is a danger that these may also be developed as other techniques to be learned in isolated situations rather than to be applied selectively by organizations in appropriate situations. This paper offers two case studies which support class discussion of accounting requirements within a modern manufacturing and commercial environment. The cases emphasize that any one technique is inappropriate to all situations. They force examination of manufacturing and marketing policy and strategy in the development of appropriate management accounting information. The authors' experiences of using the case studies is evaluated, to determine the strengths and weaknesses of using the non-numerical cases as a basis for class discussion of contextual factors in accounting system design.     

Exploring a `non-financial' management accounting change

Many normative calls have appeared for including strategic non-financial measures into management accounting systems. This paper explores the emergence of non-financial measures in the organizational context of Lever Industrial-U.K., a service-oriented British chemicals company. Tracing the mechanism of this management accounting change, the study identifies the dynamic forces which are driving it. The paper points at the systematization of non-financial measures as an essential phase of the change process. However, the paper also suggests that non-financial measures become a powerful vehicle for focusing interactive management control into the organization's strategic uncertainties. This interactive `Focus Potential' of non-financial measures goes beyond their diagnostic role as strategic controls.@e$g0     

New development: China promotes government financial accounting and management accounting

In late 2013, China's political leadership decided to require the government to practice accrual accounting and prepare whole-of-government financial reports. This decision was codified in the new budget law and followed up by a State Council directive endorsing the reform proposal of the Ministry of Finance. Some basic government accounting standards have been made public for comment. In the same timeframe, the ministry also decided to promote management accounting in order to raise the competency and contributions of China's millions of accounting personnel.     

Risk and risk management in management accounting and control

Recent world events, most notably the global financial crisis, have refocused and intensified interest on risk and the nature of systems that operate to manage risk. One area that has received relatively little attention is the interrelation between risk, risk management and management accounting and control practices. This editorial provides an introduction to the special issue of the journal on “Risk and Risk Management in Management Accounting and Control”. It argues that risk and the way it is managed has become a feature of organizational life in both the public and private sectors. By changing organizational practices risk management can facilitate and legitimise certain ways of organizing. It has the potential to change lines of responsibility and accountability in organizations, representing a particular way of governing individuals and activities. The argument is further made that risk management has moved away from being an issue of narrow concern to finance (value at risk, derivatives, etc.) or accountants (financial statement disclosure, etc.) to an issue about management control and therefore a key area in which management accountants need to engage. This editorial also highlights the potential side-effects of risk management, including issues around trust and accountability, but also the focus on secondary or defensive risk management and the rise of reputation risk.     

Responsibility cost control system in China: a case of management accounting application

This paper introduces the responsibility cost control system installed at Han Dan Iron and Steel Company in the People’s Republic of China. The Company has adopted a series of management accounting techniques or procedures in its cost control system, including target costing, responsibility accounting, standard costing, flexible budgeting, internal transfer pricing, behavior motivation, performance evaluation, variance analysis, and so on. In particular, the system has integrated responsibility accounting and cost control by introducing market mechanisms to substantially reduce production costs and raise profitability. The successful experiment reveals that the responsibility cost control system is an effective tool for cost control under the changing Chinese business environment. The Han Dan experience demonstrates that management accounting can play a positive role in improving business management and profitability in China or other developing countries. In addition, this study casts light on effective diffusion of management accounting practices under different social and economic systems.     

The development of management accounting in UK clearing banks, 1920-70

There is a perception that, in the British banks which dominated the industry for much of the twentieth century, management accounting was limited in scope and contributed to a general inefficiency in these institutions. Various official reports published from the 1960s until very recently have reinforced this view. However, some authors have argued that the banks were more sophisticated in their management than such criticisms would imply. This paper investigates the role, development and limitations of management accounting in the sector, drawing on archival evidence and relating this to the more general development of management accounting. In advancing our understanding, evidence is found to support both views.     

Teaching management accounting in a competencies-based fashion

Traditionally, management accounting has been regarded as a monodisciplinary field of study that mainly focuses on calculating costs and prices. Today, it is seen that the field encompasses an ever-increasing number of knowledge domains including, for example, economics, sociology, psychology, and ethics. Modern-day management accountants have to be able to apply elements from all of these domains when solving concrete, real-life problems. The Open University of the Netherlands has therefore tried to construct a competencies-based management accounting curriculum that uses the well-known case method and integrates issues from various knowledge domains. In the curriculum, a unique problem-solving strategy is introduced that helps students to tackle as management accountants problems they may encounter during their studies, as well as the decision-making in their daily practice. This paper aims to give an overview of one of the courses in this curriculum, highlighting the use of the aforementioned problem-solving strategy.     

The impact of contingencies on management accounting system development

Four hypotheses relevant to the contingency theory of management accounting are presented. Data relate to the period 1994–98 for a sample of new Scottish microfirms. First, correlation analysis is applied to test the hypothesis that the introduction of management accounting system (MAS) developments is related to the timing of contingent events such as cashflow crises, shortfalls of finance, and innovation. Second, cluster analysis is used to test the hypothesis that contingencies cluster to form three configurations of small firms, adaptive, running blind, and stagnant. Third, regression analysis is used to test the hypothesis that an index of organizational form, measured by weighted headcount, is explained by aspects of the generic contingencies, technological uncertainty, production systems, business strategy and market environment. The fourth hypothesis is that MAS complexity is determined by sub-unit interdependence, market dynamics, and work methods. The four hypotheses tested support several aspects of contingency theory, as modified to a small firms context.     

Water management accounting and the wine supply chain: Empirical evidence from Australia

Sustainable water management in the supply chain is critical to the long term viability of wine producing organisations. Yet despite its potential importance as a link to convert good intentions of managers into sustainable water use, thus far knowledge concerning how environmental management accounting can assist is largely non-existent. Drawing on contingency theory and new institutional sociology a telephone survey was used to investigate the current use of water-related environmental management accounting information (here termed water management accounting) for assessing the long term implications associated with water management in Australian wine supply chains. Organisational size, regulatory pressure and corporate environmental strategy were found to be consistent drivers of water management accounting use. However, other drivers of supply chain-oriented water management accounting differ depending on whether the information considered is monetary or physical. Existence of a certified environmental management system and involvement of managers with industry associations are points of difference. These findings indicate a two-step incentive process for implementation is likely to be the most effective for promoting the collection and use of physical and monetary information for environmental management in the wine industry.     

The evolution of management accounting routines in small businesses: a social construction perspective

This paper explores the development of management accounting in small firms through a social construction perspective. Taking Dirsmith’s (1998) (Dirsmith, M. W. 1998. Accounting and control as a solution to technical problems, political exchanges and forms of social discourse: the importance of substantive domain, Behavioural Research in Accounting, 10 (Supplement), 65–77) lead we examine the evolution of control and decision-making processes within four growth-orientated service sector businesses. Key to the perspective is the notion of the owner–manager and his/her employees as creators of management accounting routines that form through a cycle of action, externalization and habitualization. These routines still remain in the control of the originator and are flexible in nature. As the business grows these routines may become objectified into localized management accounting ‘facts’ and they may also be challenged by externally imported accounting conventions. This paper explores the creation of idiosyncratic accounting knowledge and the effects of its transmission over the history of the businesses.     

Ethics matters: the integration of ethical considerations in management accounting textbooks

This paper examines the integration of ethical considerations in management accounting (MA) education. Drawing on the work of Alisdair MacIntyre, it is argued that MA instruments such as performance measurement are not morally neutral, but instead bear moral implications. Therefore, this paper contends that MA students should be trained to take these moral implications into consideration alongside MA's technical aspects. A content analysis is carried out to examine the integration of ethical considerations in top-ranked MA textbooks. The findings indicate that these textbooks, particularly the introductory textbooks, marginally integrate ethical considerations. Furthermore, the findings point to the risk of detaching ethical considerations from the discussion of MA's technical aspects, which may weaken the potential of the ethical considerations and turn them into ‘afterthoughts’. Finally, this paper offers practical suggestions for the improvement of the integration of ethical considerations in MA education and concludes with directions for future research.     

The complexity of management accounting change: Bifurcation and oscillation in schizophrenic inter-organisational systems

This paper discusses and reconceptualises the role and practice of accounting in dynamic and complex business networks. The paper conceptualises change in complex inter-organisational systems as a process where various perturbations from the environment or installation of management accounting affect the system. This initiates two types of development. Firstly, the system searches the inter-organisational space, and branches out into new inter-organisational configurations—the system bifurcates. Secondly, the systems studied in this paper did not stabilise to the new order and inter-organisational configuration—rather they oscillated between institutional orders. The inter-organisational system is therefore schizophrenic in a sense, since it can shift between fundamentally different behaviours and orders within a short span of time. Management accounting in this complex evolving inter-organisational system is a source of instability rather than stability, a source of emergent, unintended order rather than planned or institutionalised change.     

Inter-and intra-organizational stakeholder arrangements in carbon management accounting

This research investigates the role of inter-organizational arrangements and intra-organizational activities as sub-parts of carbon management accounting to reduce greenhouse gas (GHG) emissions. We apply the concept of stakeholder engagement, normally utilized in sustainability reporting, to carbon management accounting and performance. We also examine if carbon management projects that encompass many functional areas aid in GHG emissions performance. Using a sample of firms headquartered in the United States with data available from the CDP, we apply the three-stage least squares (3SLS) method to test for the endogeneity of GHG emissions reporting and performance. We find that both inter-organizational and intra-organizational arrangements improve GHG emissions performance through carbon management processes and procedures. Our research contributes to the literature by providing insight into how companies work externally with their stakeholders and internally with multiple functional areas to implement carbon management projects that reduce GHG emissions.     

Environmental management accounting in local government: Functional and institutional imperatives

The challenge of using environmental management accounting (EMA) tools such as full‐cost accounting to improve waste and recycling management has been acknowledged for over a decade. However, research on assessing and understanding local government use of EMA, especially broader levels of EMA, is lacking. This study investigates the link between the nature and drivers of EMA practice for waste and recycling services based on a survey conducted with local governments in New South Wales, Australia. The study finds that although social and organisational factors are related to the uptake of EMA, local governments are subject to stronger functional demands than institutional pressures in their use of more expansive EMA such as indirect and external costs and impacts. This implies that the use of EMA in local government is viewed more as an adaptive activity to cope with functional challenges and achieve efficiency, than as an institutional imperative to achieve social acceptance.     

The association between qualitative management earnings forecasts and discretionary accounting in the Netherlands

This paper examines whether there is an association between discretionary accounting and the accuracy of long-run forecasts of annual earnings disclosed voluntarily by Dutch companies in the directors’ report. In particular, investigations were made of the consistency in the sign and direction of discretionary accounting techniques and qualitative earnings forecasts. Long-run forecasts are defined, for the purposes of this paper, as forecasts made at least seven months before the year-end. Although not mandatory, qualitative forecasts are released by well over 60% of the listed companies in the Netherlands. Empirical results indicate that there is consistency in the sign and direction of qualitative earnings forecasts and discretionary accounting. After adopting discretionary accounting, the forecast errors are reduced if the company can reach the management earnings forecast (target). In the event that reserves are insufficient to accomplish this goal, managers choose their next best option and take an earnings bath in order to maximize reserves available for future use. By partitioning the sample in various sub-sets it is shown that earnings management and forecast errors occur most in the extreme ranges of financial performance. Overall, the study shows that management engages in discretionary accounting to present results in line with the disclosed qualitative earnings forecasts in their directors’ reports. Whilst discretionary accounting may clearly improve the consistency of companies’ earnings forecasts released via the directors’ reports and the actual earnings, managers’ earnings forecasts are sometimes disclosed in anticipation of planned discretionary accounting actions.