Section A
Traditional management accounting techniques track an organization’s business performance on the basis of long-established systems and standards. Despite this, these techniques sometimes fail to respond to the rapidly changing business environment. Advanced and innovative business practices make certain current accounting practices obsolete or unfit. Numerous problems with traditional management accounting techniques include ineffective and inaccurate measurement of business performance in non-conventional manner. Over time, these practices need to adapt to the changing business characteristics which they tend to measure .
Traditional management accounting is useful for those businesses offering narrow range of products/services and do not manufacture based on customized designs. Traditional management accounting emphasizes reporting of costs and efficient utilization of fixed assets to reflect conventional businesses traits like machine usage and incremental labor and disregard business as well as production activities . These days, modern businesses are less reliant on extensive labor usage and refrain from keeping their machines and fixed assets busy all times for delivering better financial results.
Instead, businesses resort to advanced technological innovation emphasizing more on quick inventory turnover in days and qualitative customer service for boosting the business performance to maintain fixed use of existing labor and machines. Such dramatic and rapid changes in the prevailing business environment result in creation of more problems for traditional management accounting techniques when any of the accounting technique lacks appropriate and effective measures to track business performance leading to inaccurate measures in wrong corporate areas .
Section B
Confronted with problems related to performance measurement caused by traditional accounting techniques, organizations must match their existing management accounting practices to the shifting business processes. As any business becomes leaner, the accounting practice should become more efficient as well. The management accountants can shift from traditional to Activity-Based Costing for adapting the new and changing business environment. Moreover, they can employ the Just-in-Time (JIT) technique to manage their inventory levels at an optimal level to compete in the advanced business environment. For this, it is necessary for management accountants to employ the continuous improvement plan of Total Quality Management (TQM) to keep up with the existing and new business environment .
References
Chapman, C. S., Hopwood, A. G., & Shields, M. D. (2011). Handbook of Management Accounting Research. Elsevier.
Hoque, Z. (2006). Methodological Issues in Accounting Research: Theories, Methods and Issues. Spiramus Press Limited.
Mazumder, B. C. (2007). Application of Management Accounting Techniques in Decision. The Cost and Management - The Institute of Cost and Accounting Management Bangladesh , /-10.
Way, J. (n.d). Problems With Traditional Accounting Practices. Retrieved December 10, 2014, from The Houston Chronicle: http://smallbusiness.chron.com/problems-traditional-accounting-practices-39533.html
