An examination of contextual factors and individual characteristics affecting technology implementation decisions in auditing

While computer-assisted audit techniques (CAATs) have the potential to increase efficiency and effectiveness of audit engagements, research in this area suggests that such techniques are under-utilized in public accounting. We propose that this condition is due to performance evaluation pressure and the use of budgets for multiple purposes, which result in the misalignment of firm and individual employee goals. We apply technology acceptance and budgeting theories to test this contention as well as potential organizational strategies for reducing the impediments to technology acceptance in the audit profession.Results from an experiment with experienced auditors suggest that firms have the ability to influence the implementation of new technology by using longer-term budget and evaluation periods and by communicating the approval of remote superiors regarding the software. In the absence of such firm interventions, the individual characteristics of the auditor (risk-aversion and perceptions of budgetary pressure) determine implementation decisions. Specifically, risk-seeking individuals are more likely to implement technology regardless of budget pressure perception, but for risk-averse individuals the decision to implement is positively related to perceived budget pressure.     

Implementing budgetary control in the performing arts: games in the organizational theatre

When administrators or political bodies try to enforce implementation of new management control systems on organizations, various forms of conflicts and games may be observed in the implementation process. Different rationalities are brought face-to-face in the discourse on implementation, and the process will be influenced by some form of political behaviour. A political perspective will call attention to such issues as the players, power and games. By adopting the concept of budget games in an analysis of the actions related to the implementation process we try to show how we can gain a better understanding of the behaviour exhibited by the various groups involved and of the outcome of the process. Observations from a case study of the Royal Danish Theatre show how different budget games emerge in a process in which the Theatre, the Danish Treasury Department, and various actors inside and outside the theatre have been engaged over a period of 15 years, in an attempt to implement a new management control system at the theatre. The management control system being implemented is a combination of a new accounting system and a new planning and budget system. First, we will discuss the strengths of the concept of budget games and the possibilities that it offers for a better understanding of organizational actions related to the implementation of budgeting systems. In addition, we will look at reforms in the public sector with a special view to the role of budgetary control systems. A framework for using budget games as an analytical tool in understanding implementation processes is developed and applied to the case. The analysis shows how various budget games emerge in the organizational field. The budget games start when an individual or a group wants to address an issue and encounters opponents. The analysis also demonstrates how one budget game may create a counter-game. Finally, the findings and their implications are discussed. The analysis demonstrates the usefulness of the budget game perspective in understanding the implementation of accounting systems and the behaviour of the various groups involved or af fected by the system.     

The effort and risk-taking effects of budget-based contracts

We investigate how the budget levels embedded in budget-based contracts affect individual effort and risk-taking. We show that, from a wealth maximization perspective, a tradeoff exists between motivating effort and encouraging risk-taking. We illustrate an inverted-U relation between budget levels and effort. Budget levels and effort are positively correlated until budgets become very difficult, at which point individuals “give up.” We illustrate an opposing, U-shaped, relation between budget levels and risk-taking. Low budgets provide the flexibility to take greater risks, whereas high budgets induce individuals to “play it safe” to ensure budget attainment. Risky projects provide the greatest probability of reaching very high (stretch) budgets. We conduct a laboratory experiment to empirically test this economic proposition vis-à-vis extant psychology research. Consistent with security-potential/aspiration theory, we find that individuals are willing to sacrifice expected wealth to either meet the budget or increase their potential payoffs. Our results suggest that the effort-risk tradeoff is mitigated at low budget levels, thereby increasing firm welfare, but is exacerbated at high budget levels, reducing firm welfare. Collectively, our results highlight the importance of understanding how managerial accounting practices such as budgets affect the various determinants of performance and not just performance per se. Our results also help reconcile conflicting evidence regarding where budget difficulty levels should be set.     

MULTILEVEL FRAMING: AN ALTERNATIVE UNDERSTANDING OF BUDGET CONTROL IN PUBLIC ENTERPRISES

This paper addresses the question as to why there tends to be recurring budget deviations in public sector service organizations. In the public sector, budgets and actuals are loosely coupled, and budgets may serve other institutional functions than control purposes. However, little research has addressed how the framing of budget information may explain the different functions of the budgets as control devices. The paper argues that the valence of budget deviations varies between organizations, and that organizations that have a positively oriented valence towards budget surpluses have a propensity to underspend the budgets. Consequently, organizations that have a positively oriented valence towards budget deficits tend to overspend the budgets. The empirical part analyses the budget situations in the Central Bank of Norway and in a large university hospital in Norway. In the case of the Bank, it was found that underspending of budgets was framed as performance measures indicating high organizational efficiency. The Hospital, on the other hand, showed a different picture as budget deficits were the situation during all years studied. One main finding was the key actors’ roles as translators of the society's expectations as to the fulfilling of the organizations’ missions. These translators function as mediators between the institutional context and pressures, the organizations’ goals and the internal budget processes. The conventional wisdom that the budget also acts as a means of communication and as symbols and ritual acts that reflect the institutional contingencies of the organizations, is further developed by describing how organizations’ goals valence the role of budgets.     

会计师事务所的内部治理:理论、原则及其对发展战略的含义

会计师事务所的内部治理是专业人士自主协调核心资源的过程,而品牌资源作为事务所的最核心资源,具有准公共物品属性(竞争性和非排他性),因此事务所内部治理是私人部门中出现的公共治理问题。相应地,本文引入了自主治理理论及其原则作为会计师事务所内部治理的理论基础和应用原则,并讨论了事务所内部治理原则对若干发展战略的含义。     

Fee pressure and the longitudinal dynamics of audit engagement budgeting and reporting

Using longitudinal data from an international accounting firm, this paper investigates how budgeted and reported audit hours change in response to prior budget variances, fee pressure, and budget pressure imposed by audit firm management. This investigation is motivated by concern regarding the association between these factors and quality-reducing audit behaviors. The results for audit firm management budgeting show that budgets increase following unfavorable variances, and that fee pressure does not affect the budgeting process. Regarding engagement team reporting behavior, we find that both prior unfavorable variances and fee pressure are associated with subsequent reduction in reported audit hours. Further, when audit firm management imposes budget pressure on engagement teams, they respond by reducing reported hours. Overall, the results provide evidence on the interplay between audit firm management and engagement teams in responding to prior variances, fee pressure, and budget pressure during the period 2001-2003.     

The differential effect of environmental dimensionality,size, and structure on budget system characteristics in hotels

Whilst the service sector is a major component of world economies, research into, and thus our understanding of, how management control systems function in the service environment is limited. To advance our knowledge and understanding of the role of budgets in service organizations, this organizational level study extends prior manufacturing context research investigating the influence of contextual variables on budget system characteristics (BSC) to hotels. Since the nature of service firm operations is highly dependent on the external environment, perceived environmental uncertainty (PEU) is likely to be a key contextual variable. Consistent with the organizational theory literature, this study conceptualizes PEU more correctly as a multi-dimensional construct and seeks to ascertain the influence of components of PEU on the BSC of hotels, the chosen service industry. Based on a sample of 106 hotels and using path analyses, the results indicated that: (1) different dimensions of PEU have differential effects on BSC and organizational structure, (2) hotel size has a significant effect on BSC, (3) hotel size does not significantly influence structure, and (4) hotel organizational structure has significant influences on BSC. The finding for PEU raises implications for future researchers studying PEU.     

Alignment of performance measurement to sustainability objectives: A variance-based framework

Meaningful incorporation of environmental and social responsibility goals into organizational strategic plans requires a mechanism to measure and reward performance contributing to that objective. This paper formulates such a framework using management accounting concepts. We demonstrate that the benefits of pursuing sustainability objectives can be decomposed into three parts. The first consists of what might be considered a natural outcome of pursuing the traditional economic goal of efficiency through cost-minimization (a “waste” variance). The second part consists of sustainability gains that produce societal benefit but may be incongruent with short-term economic goals (a “sustainability” variance). The third part stems from a change in optimal output level when that is considered endogenous to the firm (a “volume” variance). While elimination of waste variances can be encouraged using a traditional performance evaluation and reward structure, elimination of sustainability and volume variances requires redesign of performance evaluation tools and reward structures. We demonstrate that failure to recognize and incorporate the difference between the three variances can lead to inefficient allocation of resources, over- or under-production, and only partial fulfillment of environmental goals. Further, availability of shadow price information is essential to implementing such a performance measurement system; thus it is a public policy imperative to develop markets that establish such prices.     

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 reputation and variance investigations on the creation of budget slack

Experimental research and survey studies have yielded conflicting findings about the conditions under which budget slack is likely to arise. This study begins to reconcile the contradictory evidence by examining the impact of two features of the organizational context in which budget decisions are made: reputation concerns and variance investigations. The results of a laboratory experiment show concern for maintaining a favourable reputation leads to lower budget slack as does the existence of a variance investigation policy. The findings extend the agency theory framework by incorporating both pecuniary and non-pecuniary features that influence behavior when budgets have consequences beyond the immediate period. The results also suggest reputation concerns and control system features may serve as cost-effective substitutes for exhaustive incentive contracting in practical settings.     

Antecedents of Budget Participation: Leadership Style,Information Asymmetry,and Evaluative Use of Budget

This study explores the causes or antecedents of budget participation to understand more fully the role of participation in the workplace. The study focuses on the reasons why superiors encourage the budget participation of their subordinates and draws upon several theoretical perspectives including leadership theory, agency theory and organizational justice. To examine the issues, a survey was administered to managers and supervisors in several companies. Results of path analysis suggest that superiors encourage subordinate participation when the superior's leadership style is considerate. This implies that budget participation may mediate the relation between leadership style and work outcomes. Results also suggest that superiors encourage participation when budget goals are used in the performance evaluation of subordinates, in which case, the study argues, the superiors encourage participation because of concerns about organizational justice. This finding implies that budget participation may mediate the relation between the evaluative use of budget and those work outcomes that prior research has linked to organizational justice. The proposed relation between information asymmetry and budget participation is not supported.     

Make-or-buy in the presence of uncertainty and private information

In textbook discussions of the make-or-buy problem, outsourcing is often justified on technological grounds. Suppliers may have better equipment, more capacity, or benefit from economies of scale. This teaching note demonstrates that even when technological issues are absent, outsourcing can be preferred. The benefit to outsourcing arises because the price set by a self-interested supplier can convey information to a buyer. Information conveyed by a supplier allows the firm to better tailor its production to the circumstance. The case also provides students an opportunity to apply basic concepts from economics, statistics, and mathematics to a common managerial accounting problem.     

Multiple facets of budgeting: an exploratory analysis

This paper investigates four potential reasons for budgeting in organizations (operational planning, performance evaluation, communication of goals, and strategy formation), their antecedents (e.g., organizational strategy and structure), and several budgeting characteristics (e.g., target difficulty and budget emphasis) that potentially influence these reasons-to-budget's performance. While the idea of multiple uses of budgets in organizations is not new, the rationale for this study is that prior research has tended to look at the same (one) reason for budgeting (primarily performance evaluation), or at only one reason in isolation. Based on survey data from 57 managers responsible for preparing the budget for their organizational unit, our analyses suggest that while the four reasons-to-budget exhibit overlap, they are also substantively unique in their own use. Moreover, we demonstrate that the reasons-to-budget arise in different circumstances and that each reason-to-budget's performance is associated with different budgeting characteristics. We also demonstrate a link between the performance of the individual reasons-to-budget and overall budget satisfaction and organizational unit performance.     

Management Accounting and Service Industries: An Exploratory Account of Historical and Current Economic Contexts

Management accounting's development between 1880 and 1930 was rapid but subsequently truncated. This development was notable for its synergy with coincident economic and social changes and a reliance on impetus from the practical experiences of the members of other disciplines. Since World War II, advanced economies have become increasingly dependent upon their service sectors. The characteristics of service firms differ from those of manufacturers on a number of criteria including average number of employees. The accounting implications of these circumstances may include reappraisal of: the behavioural assumptions of management accounting; the roles of budgets; appropriate budget use styles; the utility of management accounting in ambiguous situations; and qualitative research into organizational contexts.     

Testing a Model of Cognitive Budgetary Participation Processes in a Latent Variable Structural Equations Framework

Previous accounting research has suggested that subordinate participation in the budgetary process has two cognitive aspects: (1) participation enhances budget quality, and hence the utility of budgets, by allowing subordinates to introduce private knowledge into the budgetary process, and (2) participation enables subordinates to obtain information that is relevant to performing their jobs. This study tests a model that encompasses both cognitive aspects of budgetary participation. Data were gathered with a questionnaire distributed to managers from a variety of different national origins who were working in many different global locations. The data were analysed with latent variable structural equation modelling, which provides several advantages over more conventional analytic methods generally used in budgetary participation and other behavioural accounting research. The results indicated that participation enhances budget quality and that budget quality, in turn, has a positive effect on budget utility. Participation was also found to have a direct and positive effect on job-relevant information. The results failed to support a proposed indirect effect of participation on job-relevant information through the enhancement of budget quality.     

The power of accounting: a field study of local financial management in a police force

This paper describes the introduction of management accounting change in the form of local financial management in a police force, West Mercia Constabulary, using an ethnographic study. The study applies institutional theory to understand the context, process and consequences of the introduction of devolved budgeting systems to the organization.The field study explains how the devolution of budgets in West Mercia was accompanied by a shift in power that helped to reconcile the interests of those pursuing a legitimating accountability with those who prioritized operational policing.This paper makes two contributions to institutional theory. First, is the development of understanding of relations of power, particularly where interests coincide and shifts in power are a by-product of legitimating processes. Second, is an explanation of how loose coupling can take place through accounting, in which a devolved budget can satisfy both institutional and technical demands.     

Perceptions of the learning context and learning approaches: Implications for quality learning outcomes in accounting

This study analyses learning approaches, course perceptions and learning outcomes of a group of second year accounting students at an Australian university using qualitative data analysis techniques. The research method involves the development of a series of matrices linking types of motives and strategies used by students in their study, together with their perceptions of the learning context associated with learning outcomes. The study focuses on assessing the links between learning approaches and a qualitative assessment of students' conceptual understanding of aspects of financial accounting studied at the undergraduate level. The results confirm how individual differences in the perceptions of the learning context relate to study motives and strategies. The findings show how different forms of memorisation relate to study strategies and how the completion of accounting tasks link to students' perceptions of course requirements. There was also some evidence that, in terms of learning outcomes, students with sophisticated levels of understanding of concepts, tended to have consistent deep and achieving approaches to learning. This result was compared with students' academic performance as a measure of learning outcome. Discrepancies between these two measures of learning outcome are highlighted in the conclusions. The findings strengthen the case for further investigation of the use of measures other than academic performance in examining relationships between learning approaches and learning outcomes.     

Fostering deep and elaborative learning and generic (soft) skill development: the strategic use of case studies in accounting education

It is vital that accounting educators take responsibility for the development of students' generic (soft) skills in conjunction with, discipline-specific skills. Research indicates that the typical learning styles of accounting students are not suited to the acquisition of generic skills. In this paper learning theory is used to provide a framework to support the use of case studies as a tool to promote appropriate learning styles and thereby enhance generic skill development. The paper details a number of strategies that may be implemented with case studies to achieve these goals. The implications for accounting educators, which are significant, are discussed.     

Compass Point University: how many spring/summer classes should be offered?

This case poses the issue of marginal costing for a service that occurs regularly, but is not the primary function of the organization. The setting is a university and the service is courses offered during spring/summer semesters, a situation familiar to many students. In this case, students must decide whether spring/summer courses are analogous to a special order or whether such costs should be considered integral to the institution’s programming. Students are asked to identify relevant costs and revenues and to devise a decision rule which takes into consideration the implications of various cost assumptions.After completing the case students should be able to apply the concepts of incremental revenues and costs in decision-making. They should also be able to justify using incremental costing in a recurring setting. Students will be able to explain how managerial incentives, in the form of fixed budgets, can interfere with the application of incremental cost and revenue concepts. During class discussion, the broader implications of changing institutional responsibility reporting and budgeting policies may be raised. This case is suitable for introductory courses at both graduate and undergraduate levels and in the first upper-division undergraduate course in managerial accounting.     

Budgeting and profit variance analysis using a financial planning language

This note describes an alternative to typical budgeting and variance analysis exercises. As a term project, students use financial planning software to prepare budgets and then use “what-if” techniques to facilitate profit variance analysis. The method enhances understanding of the relationships among budgets, eliminates formula-driven variance analysis, and elucidates the relationship between budgeting and variance analysis.