Introduction
Management accounting (MA) involves collection and dissemination of accounting information for purposes of decision making. Over the recent past, management accounting has experienced significant changes, an aspect that is explained by different scholars (Sven, 2007, p. 336). The topic has attracted different concerns from various stakeholders, linking recent changes to globalization and changes experienced in the organizational settings. The concept of MA is understood to have significant impacts on organizational management as it is used in making strategic decisions (Arroyo, 2015, p. 287). This paper evaluates various theories explaining factors influencing change in management accounting. To achieve study objective, the paper starts by highlighting key factors that are known to influence management accounting and appreciates the associated theories and how they affect MA.
Articles’ Summary
Article 1: Managing accounting change by Sven Model
The article starts by recognizing that management accounting techniques are experiencing change due to various challenges encountered in management of organizations. Different theories are used in explaining change in management accounting over the years (Sven, 2007, p. 335). The article reviews the topic of management accounting change and informs on perceptions of different scholars on the subject. The study sought to explain the existing gap amid conventional wisdom and observation of management accounting practice (Sven, 2007, p. 336). The exploration led to a deeper insight on deviation between the practice and MA notion.
The article indicates that different factors contribute to change in management accounting techniques embraced by organizations, through the factor study. Implementation of ABC is understood as a key driver in the change experienced in MA, and other organizational issues that contribute to the change include; the process need to be supported by the top management, need to develop a competitive advantage, performance evaluation, internal resources, and facilitators (Sven, 2007, p. 338). The theory suggested that factors behind the change are further classified into three categories which include motivators, catalysts, and facilitators.
The chapter is based on two specific issues which are understood to cause a change in management accounting and includes factor studies, an aspect that is explained through implementation of ABC in organizations. Another area that is discussed is the process-oriented research to account for the change in management accounting, a thought that is based on institutional theories (Sven, 2007, p. 344). However, the article indicates that literature on the topic is yet to be fully exploited hence need to engage in future research.
Article 2: Contemporary Issues in Management Accounting
This article is based on the fact that changing business setting and globalization are contributing to changes experienced in management accounting. The study recognizes management accounting as an important tool used for gathering and disseminating information used in decision-making process. However, the study indicates that management accounting deals only with internal issues of an organization other than external issues (Hoskin, Macve & Stone, 2006). The tool is thus considered useful for estimating future cost of an organization, evaluating performance and in strategic decision making.
However, the field of management accounting has experienced increased changes, an aspect that has led to transformation of the process. Some of the significant issues that have contributed to such a situation include political changes, introduction of new techniques of management, globalization forces and increased desire to engage in knowledge management (Hoskin, Macve & Stone, 2006). The book explores different aspects of management accounting with an analysis of various theories that sight evolution of the concept. Modern organizations are considered to develop a desire to accomplish competitive advantage and other attributes that can be employed in management of modern day organizations. Introduction of information systems is considered to have a significant contribution to management accounting. Other important attributes explained include need for organizations to embrace lean production, ethics, and total quality management aspects to enhance efficiency.
Critical evaluation of the theories that have been proposed to explain the factors that drive changes in management accounting practices
Institutional theory
Change in management accounting can adequately be explained by theoretical knowledge especially by evaluating concerns of the neoclassical theory. According to Guerreiro, Alberto and Frezatti, (2006 p. 197), the institutional theory is adequate to explain the change in management accounting, which is a norm in the current global setting. The concept is against assumptions of the neoclassical theory which supports the normative approach of management accounting. The concept, therefore, indicates that management accounting should be within the business which shows that it should be the routine practice. The theory is further classified into old institutional economics (OIE) and new institutional economics (NIE) which have contributed to changing of management accounting.
With OIE, new concepts are integrated into an organizational system through the process of institutionalization as new values or habits are made routine practices (Guerreiro, Alberto and Frezatti, 2006 p. 198). Therefore, evaluation of this theory will indicate change in management accounting from an institutional perspective. The theory is built on different social science concepts and further divided into NIE and OIE. Various scholars suggest that changes in management accounting are incorporated in OIE.
The theory holds that people’s behavior is usually influenced by set standards of an organization which is shared among different stakeholders. An organization then enforces the standards as rules for it to function in the most efficient way possible. The theory, therefore, indicates that behavior of an individual is not controlled by individual decisions but by institutional laws. The scholars, however, have different definitions of an institution but with a common understanding that an institution is a way of thinking or how individuals conduct themselves. Therefore, groups of people are governed by an institution which is otherwise considered as an administrator of a given group. Habits are made routines through the institutionalization process hence by repeating over and over, actions of people comply with the set rules of an organization. Therefore, from the institutional perspectives, companies can conduct themselves in an acceptable behavior. Individuals’ behavior, therefore, ought to be justified and meet the social obligation of the concerned stakeholders.
Institutionalization plays a significant role in modern organizations as it is concerned as the change agent for management accounting. Management accounting indicates the particular way of accomplishing organizational objectives which are attached to historical circumstances and the process is usually unquestioned. Some of the important attributes of an institution include the fact that they embrace some degree of assumption, stability, are collective in nature, define standard behavior and indicate the normative rules.
However, it is important to acknowledge that institutional approach is not the only way of understanding management accounting as various theories explain the concept (Guerreiro, Alberto and Frezatti, 2006 p. 199). Different facets of institutional theory help shape management accounting hence contributes toward turning of accounting concepts to routines. Moreover, with time, the routine practices are considered by the respective organizations as beliefs. Therefore, the accounting practices and routines are further institutionalized and considered as an approach to management control. In summary, OIE is an institutional approach that changes management accounting through the process of institutionalization. However, the effectiveness of the process is dependent on different aspects and takes time before they play a role in influencing organizational operations.
Factor Studies
According to this approach, management accounting is understood to be influenced by different factors. The approach contributes to the literature on management accounting as it identifies the drivers of change in MA by appreciating implementation of cost management system. However, the drivers of change in management accounting are further classified into three distinct classes which include motivators, catalysts, and facilitators (Arroyo, 2015). Motivators have an influence on the entire process and offer decision makers with a justified reason to support change. Some of the changes made include developing strategies to enhance organizational competitive advantage, embracing technology, changing the organizational setting and the business structure. Catalysts are factors that are directly linked to organizational issues such as poor performance, decreased market share, introduction of a new product or other significant organizational changes. Facilitators, on the other hand, refer to the aspects that create a good environment to accommodate change such having competent staff, resources or knowledge on a subject.
For management accounting to experience change, motivators and catalysts have to work together while catalysts support implementation of the change. Therefore, the change drives become interrelated because of the role they play in implementation of change in an organization. However, the desired change may experience several barriers that may hinder the process from taking place. The expectation by people that the change will take place is the momentum while the leaders of change have a significant impact on management accounting. Therefore, the relations between various aspects of the process influences whether the change will take place or not.
According to (Arroyo, 2015), the barriers to change can further be classified into different categories which include confusers, frustrators and delayers. Confusers indicate the individual issues that may prevent change from taking place, frustrators indicates the organizational challenges such as cultural issues and delayers shows the technical issues that may limit the process from taking place. Therefore, based on the different types of barriers, management accounting change may take place or not.
Contingency Theory - It is based on the fact that correct match amid contingent factors and firms control activities and lead to achievement of organizational goals. Therefore, it accounts how an ideal information system can be designed to meet the specific needs of a firm. The theory was a response towards scientific management and human relations which were issues raised by previous scholars. Some of the issues taken into account by the theory include external setting of an organization, organizational structure, size, and age. Further, the theory also takes account of the competitive strategy used by a firm, its mission, and culture (Finance Students Inn, 2011). The above variables, therefore, have an influence on the management accounting although to a varied degree.
Factor studies have a significant contribution to development of management accounting change as it offers scholars with a broader organizational context (Arroyo, 2015). It thus shows that MA change is subject to the implementation process as well as a wide range of factors, usually beyond the control of the firm. However, the theory is limited by the fact that it ignores socio-political aspects yet they have a significant influence on MA practices. The approach does not account for conflict of interest and most of the change drives are related to economic or technical attributes.
Strategic accounting
It is the last theory on accounting and touches on various issues of management accounting with concerns from different scholars. While one group of scholars sought to understand cause and effects, the other strived to understand approaches to cost control and decision making. The concept led to the development of the just in time and total quality management aspects which were thought to enhance organizational efficiency. The theory assumes that organizational managers can use management accounting to identify threats and opportunities dictated by uncertain environmental changes. Moreover, it seeks to understand the cost structure of a firm, a concept that has been appreciated by different scholars.
The theory starts by defining the value chain of a given firm with a clear analysis of the cost incurred by the business. In the second step, the cost drivers are evaluated as a strategy to control the different organizational activities. The process is done to establish a competitive advantage for the firm by either managing the cost drivers or modifying the value chain.
However, from the analysis, it is evident that the environment in which management accounting is practiced has received significant changes over the recent past (Wanderley and Cullen, 2013 p. 295). Some of the important aspects that have led to the change include globalization and market liberalizations which have led to intense competition among firms. The change in business setting has therefore contributed to the need for organizations to appreciate use of timely and quality information in their organizations. Furthermore, organizations have come up with different organizational structures and managerial strategies. Organizational leaders are therefore using their accounting systems with more flexibility based on the evaluation of both financial and non-financial measures.
Conclusion
Bibliography
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