Management accounting concept - Essay Example

?Accounting Research THESIS MENT This paper intends to discuss about a particular area of moral hazard which is associated with the management accounting concept. It further intends to elaborate about how this area delivers significant benefits to the managers and the organizations as a whole. Moreover, the paper will also entail the affiliation between moral hazard and decision making along with relevant information. QUESTION 1 Moral hazard is an interesting area of research in management accounting as it deals with various significant aspects concerning the perception of the managers in making effective decisions, determining disciplinary aspects and mitigating ethical issues. The area of moral hazard forecasts that the activities of the managers are hard to monitor and the compensation along with the financial decisions are linked with the performance of individual managers. It can be affirmed that moral hazards differ from one person to other based on the mental attitudes and the intention of the individuals to perform various operational functions. The moral hazards mainly occur due to the unethical practices that perform by the individuals or the managers belonging to any organization in order to attain personal along with organizational benefits. In this similar context, moral hazard can be explained from various aspects such as a company is running in loss. In order to recover such loss, the manager of the company arranges for fire to destroy the building and claim the money from the insurance sector. This denotes the conduct of unethical practices by the manager, resulting in causing moral hazard. The decision making with regard to moral hazard may lead towards the occurrence of several disciplinary actions and also data forgery. The decision concerning data forgery, at certain times may lead towards the conduct of unethical practices by the employers towards the employees. In management accounting, decision making mainly motivates the employees to perform their respective operational functions effectively (Sprinkle and Williamson 414-448). The area concerning moral hazard is evident particularly at the time when the managers belonging to any organization acquire valuable information from the accountants regarding financial data and misinterpret those for personal gain. This practice ultimately raises the conduct of moral hazard affecting the managerial compensation level of the organizations at large. It can be affirmed that the conduct of moral hazard in the management level hinders in forecasting true and real picture of organizational performance. The area of moral hazard within the context of management accounting research is quite interesting as it can be eliminated through making effective decisions and also through following ethical principles by the stakeholders and the employees ethically. It is worth mentioning that the judgment regarding the morality of business and management is quite crucial. The area concerning moral hazard delivers significant benefits to the managers and the organization as well. In the context of management accounting research, the intention of the managers is often to adopt effective decisions without forging valuable data, resulting in motivating the employees to perform better. This behavior might certainly support an organization to increase its overall performance by a certain degree (Sprinkle and Williamson 414-448). QUESTION 2 In order to determine about how the area of moral hazard could benefit the managers, it can be affirmed that it depends on the perception and the mental thought process of the managers. A manager, who is honest might work in accordance with the information provided and formulate accurate data. Moral hazard is when, the manager for his/her personal benefit forges the data provided and capitalizes on it. The managers might not take proper disclosure of policies for availing personal benefit. In this regard, moral hazard benefits the managers in terms of implementing policies that would provide them personal benefits by not revealing accurate data or misrepresenting any valuable information. The lack of disciplinary measures would support the managers to adopt decisions that are not ethical based on financial and human ground. Managers often face moral hazard as they keep their personal needs above the organizational goals. The information provided by the accountants can be forged and the data regarding finance can be modified in order to hide the real financial status of the organizations. This is done by the managers in order to earn attractive compensation and rewards for personal use (Gayle and Miller 1740-1769). The issue concerning moral hazard generally arises at the time when the owners cannot observe along with measure the performances of the employees and provides compensation to them based on their assumptions. It can be affirmed that moral hazard mainly occur due to the persistence of adverse relation between the owners and the employees. Hence, the chances for conducting unethical practices certainly increase for availing personal benefits. The decision of making appropriate budget is also taken by the managers which may not disclose real information, resulting in data forging. Thus, the employees tend to be less motivated towards performing their respective works effectively. It can be stated that in order to avail greater personal benefits the managers might change the financial data, show the company running in a loss and also not providing appropriate compensation to the employees. On the other hand, in order to make extensive investments, the managers might portray the company to become much profitable and gain monetary returns (Gayle and Miller 1740-1769). Thus, based on the above discussion, it can be affirmed that the area of moral hazard could provide significant benefits to the managers. QUESTION 3 Apart from providing significant benefits to the managers, moral hazard can also deliver benefits to the organizations by conducting certain unethical practices. One of the practices in this regard can be stated as that when a company is experiencing loss, but to gain profit and earn investments, managers often forge data and misrepresent valuable financial information in order to gain substantial profits in terms of making greater investments. It is worth mentioning that mitigating moral hazard can be beneficial for the organizations in terms of enhancing their overall performance and raising profitability along with productivity. With regard to determine that moral hazard could provide benefits to the organizations, it can be affirmed that the employers should share the interests of their respective organizations with the employees in order to motivate them and keep them in loop while making effective decisions. Moral hazard can benefit the organizations when it is identified and help is rendered from different sources to meet the damage and motivate the employees by providing true and real picture about financial performance. Additionally, incentives and policy help from the government to follow a common goal might help the organizations by a certain degree. The efficacy of budget and the standards against which the employees are evaluated can contribute in lessening the conduct of moral hazard, providing greater benefits to both the employees and the organizations. According to various observations, it is the monetary aid which does not only prove much beneficial for solving moral hazards, but the interaction between the management and the employees at certain times can resolve the issues concerning moral hazard. It can be stated that social motives and values of individuals also help in mitigating moral hazards, which could in turn provide significant benefits to the organizations. The depiction of true information about managerial accounting and making effective decisions by the manager are normally executed used to motivate employees and most vitally to mitigate moral hazards at large (Holmstrom 74-91). QUESTION 4 Decision making in management accounting provides valuable information which aids in aligning employees’ interests with organizational objectives. The decision making in this form of accounting supports in motivating the employees. It is worth mentioning that the aspect of management accounting provides essential information to the managers in making effective decisions towards management control and mitigation of moral hazards. The decisions that are taken on ethical grounds are beneficial for both the organizations and the employees. In order to determine the interrelation between moral hazard and decision making along with relevant information, it can be apparently observed that moral hazards lead to information breach and data forging. This eventually results in making effective decisions that might not be ethical for the employees of diverse companies and their respective stakeholders. It can be affirmed that the decision making concerning reward system and compensation are hindered, when these are associated with the conduct of the moral hazards. The activities of the manager are often not very predictable as the decisions taken by them are affected by their own perception, mentality and the data provided. The accuracy level of the data provided gets affected due to moral hazard. Relevance is regarded as a significant characteristic of good management accounting. This means that information produced for every manager must relate to decision making at the right time ethically. The utilization of managerial accounting based information for decision-influencing objective is intended to resolve various organizational control based issues, making sure that the personnel demonstrate organizationally enviable behaviors. This is only possible when it is done in a disciplined and in a fair manner. Management accounting deals with financial data which are used to formulate effective decisions that are considered to be rational for the organizations and employee welfare. Moral hazard can be mitigated by taking decisions that are fair and involve no forging of data. This is possible only when proper incentives are provided by the employers to the employees and with the implementation of relevant policies. Moreover, decision of evaluating the performance of the employees on frequent basis could reduce moral hazard and help in enhancing decision-making procedure. Managerial accounting is engaged to motivate employees in order to apply efforts and take necessary actions towards maximizing firm value (Sprinkle and Williamson 414-448). QUESTION 5 The reading of the article of Sprinkle and Williamson (2006) represents the analysis about the role of managerial accounting in making effective decisions. The affiliation between the managers and the employees on the basis of cost control, budget and compensation has been discussed here. The major research questions that come to mind are that whether the individuals behave opportunistically, keeping the personal desires above the organization. Moreover, the other question which is relevant in this area of research is that whether the notion of managerial accounting helps in mitigating the problems regarding moral hazard. The above framed questions can be regarded as quite interesting as these deals with mitigating moral hazards along with making effective decisions and provide relevant financial information to organizational members. The role of a manager is to take requisite steps with honesty, which would provide the employees with rewards and motivate them to perform better. The managerial role should also be considered to avoid the problem of moral hazard and take decisions that are beneficial for both the organizations and the employees. If employees’ performance is measured on a regular basis, it would help to increase their productivity and mitigate moral hazards in an organization at large. The aspect of managerial accounting provides information regarding financial data of the organizations and the optimistic approaches of the managers that helps in combating against the prevalence of moral hazards. The choices of decisions that make by the managers largely depend on how the managers formulate the information of management accounting. The usage of managerial accounting based information for decision-making objective plays an imperative role in influencing the judgment and the overall performance of individuals within an organization. The question regarding the perception of the managers as a decision maker is an important aspect. The decision regarding the compensation and the budget influences the work environment of an organization in terms of affecting its profitability. Managerial accounting related information is often found to impose noteworthy impact especially on the judgment and the decision enactment of individuals. The decision making capability largely depends on the individuals’ knowledge along with skills to make better judgments. The management accounting information which provide by the accountants is quite important as it helps the managers to take accurate decisions, proving much beneficial in motivating employees, increasing revenues and controlling costs among others (Sprinkle and Williamson 414-448). Thus, on the basis of the above discussion, it can be affirmed that the above depicted questions are quite interesting. Works Cited Gayle, George-Levi and Miller, Robert A. “Has Moral Hazard Become a More Important Factor in Managerial Compensation?” American Economic Review 99 (2009): 1740–1769. Print. Holmstrom, Bengt. “Moral Hazard and Observability.” The Bell Journal of Economics 10 (1):74-91. Print. Sprinkle, Geoffrey B. and Williamson, Michael G. “Experimental Research in Managerial Accounting.” Managerial Accounting 1 (2006): 414-448. Print. Read More