The Changing Role of Management Accountants - Essay Example

The Changing Role of Management Accountants The Changing Role of Management Accountants Introduction Over the year, management accountants have had to change their role in order to fit in changing business environments. Several researchers have tried to analyze the changing role of management accountants to determine whether the position has any role to play in contemporary businesses. Management accountants seem to be moving from their traditional roles of being scorekeepers and controllers in an organization to playing a strategic role. This essay will analyze the changing role of management accountants in modern day businesses by looking at the factors that have necessitated such changes (Yazdifar, and Tsamenyi, 2005). The essay will also look at the role played by management accountants today and assess whether this is relevant to modern day business requirements. Management accounting is concerned with identification, measurement, analysis and communication of information necessary to help an organization achieve its objectives. Management accountants are usually senior managers in a company and have the responsibility of supervising junior accounting staff who deal with basic accounting for the firm. Unlike financial accountants, managerial accountants prepare and analyze data for purposes of deacon making within the organization (De Loo, Verstegen, and Swagerman, 2011). Financial accountants on the other hand prepare data and financial statement for third parties such as shareholders. Changes in the traditional role of management accountants has been necessitated by developments within the business environment such as changes in consumer preferences, technological changes, socio-economic changes and volatile political environment. In this scenario, businesses and organizations have had to reorganize themselves in order to responds to changes in the external environment (Scapens and Jazayeri, 2003). This reorganization involves examining the significance of various departments and employees in relation to modern day business requirements. Management accounts have faced strong challenges over the years over whether they deserve to be part of contemporary business structures. Such pressures were significant in driving changes within the managerial accountants’ role that have made the position relevant today. This paper will start by examining the traditional roles that management accountants play in organizations. The essay will further look at the changes that have taken place in modern day organization and the difficulties that traditional accountants encounter in executing their traditional roles. The essay will then conclude by looking at the modern role played by managerial accountants and assess whether such a role meets modern day business requirements. Traditional role of managerial Accountants Traditional management accounting is based on theories, approaches, techniques and tools that date back in to the early 20th century. Traditional management accounts work within the General Accepted Accounting Principles (GAAP) framework and mainly focuses on responding to financial requirements as opposed to providing solutions for management decision making. Another important characteristic of traditional management accounting is that it defines cost behavior in terms of sales or production volumes (De Loo, Verstegen, and Swagerman, 2011). The traditional role played by management accountants is also very technical and tends to focus only on the internal performance of a business while ignoring other factors such as issues with the external environment of the business. Management accountants are charged with the responsibility of ensuring financial security and dealing with all financial matters in order to promote the organizations overall business and management strategy (Scapens and Jazayeri, 2003).Management accountants determine the financial status and success of the organization because of the management decisions they make from analyzing financial data. The specific roles played by traditional managerial accountants include analyzing costs, cost estimation, analyzing cost behavior, analyzing profitability of different products, assessing the effectiveness of distribution channels and financial analysis. Managerial accountants are also involved in budgeting, internal, tax management and managing a company’s assets. Senior management accountants supervise junior accountants in management of financial matters. This traditional role of management accountants has come under constant criticism for its rigidity and unresponsiveness to changes in the business environment. Traditional management accounting has remained unchanged since its beginning in the early 20th century, despite other departments responding positively to external changes. Sharp criticism on the role of managerial accountants emerged in the early 21st century with some people questioning the relevance or the position in modern day business environment. This forced management accountants to re-examine the discipline and try to reorganize the knowledge in the field to make it relevant to modern business needs (Atrill, & Eddie, 2012). This led to major changes in the role of management accountants. Modern day accountants play a more innovative and strategic role in the company, which not only looks at financial history of the firm but also focuses on future developments in the organization and its industry trends. Drawbacks of Traditional Managerial Accounting Traditional management accounting encountered many challenges that made it difficult to cope with the volatile and fluid business environment. There was need for rapid changes within the profession in order to make the field more responsive to changes within the business environment and make managerial accounting relevant today. Traditional managerial accounting has various drawbacks that make its approaches, tools and techniques irrelevant in modern day business. Traditional management accounting does not take in to account contemporary business needs such as the need to analyze competitors, social responsibility and other issues in an organization’s external business environment. Techniques used in traditional management accounting such as single overhead allocation base and analyzing costs based on production and sales volumes had become obsolete. Newer techniques such as activity based costing and variance analysis are more effective in cost management that the traditional techniques. Traditional management accounting does not meet the competitive and manufacturing needs in today’s business environment. Traditional product costing methods are also inefficient because they provide misleading information that cannot be relied upon for decision-making purposes today. Changes in the Business Environment Business organizations are strongly affected by changes in their internal and external environments. As a result, these organizations have to respond to these changes positively in order to remain relevant, grow and expand their market share. Among the changes that organizations have had to go through over the years, include incorporating technology, employee training, and aligning their departments to modern day market demands (Atrill, & Eddie, 2012). The role of management accountants has also undergone significant changes in order to remain relevant under modern day business requirements. The modern day business environment differs from the traditional environment in various ways. Modern day business environment is characterized by increased competition, globalization, efficient processes, advanced technology, social responsibility and increased power of consumers (Atrill, & Eddie, 2012). These factors have been very instrumental in driving organization from traditional ways of doing business in to the modern methods of working. These characteristics of modern day business environments have exerted a lot of pressure on the profession of managerial accounting in various ways. This pressure has forced managerial accountants to make changes in the profession to make it conform to modern day business requirements. The changes in the profession included changing the training modules and curriculum for managerial accountants as well as shaping the role played by the accountants in modern day organizations. One factor that has exerted a lot of pressure on managerial accounting profession is globalization or internationalization (Atrill, & Eddie, 2012). Globalization has led to creation of a single market all over the globe. It has eradicated geographical boundaries and promoted inter-cultural corporation among individuals. Globalization is facilitated by the internet, which promotes communication among individuals in different geographical locations. With globalization, business location has now become an irrelevant factor in marketing and business planning. This has transformed the management accounting profession into a multi-disciplinary field operating across different cultures across the globe. Deregulation and privatization has also had an impact on managerial accounting. Creation of new laws has regulated industries in terms of how they ought to be structured. New legislation also demands business to review their practices and processes in order to conform to new legal frameworks. With new regulations, businesses are expected to balance cost reduction strategies and their service delivery. Management accountants are expected to comply with new legal requirements in order to effectively execute their role. Advancements in technology have also facilitated changes in the managerial Accounting discipline. Modern day technology makes accounting much easier and less skillful since computers perform most of the accounting tasks. In this regard, management accountants have more time at their disposal to focus on other strategic roles as opposed to spending more time on record keeping. Management accountant have time to play roles such as decision-making, diagnosing problems in the business and excising control of assets of the organization (Yazdifar, and Tsamenyi, 2005). Various information systems complement the role played by managerial accountants thereby making the profession friendlier. Changes in contemporary business organizational structures have led to organizations adopting flexible patterns and structures in order to respond to environmental changes as quickly as possible. Accountants have also had to change their strategies and become more flexible I order to change with the organizations needs from time to time (Yazdifar, and Tsamenyi, 2005). Changes in the business environment have also led to a rise in non-accounting competitors taking up the role played by managerial accountants. Individuals with qualifications such Masters in Business Administration (MBA) can also take up responsibilities of management accountants. This is because technology has contributed to deskilling the profession by letting computers do most of the work. Ownership of financial data in an organization is also changing from management accountants to other senior managers in the organization (Kholeif and Jack, 2008). In response to these changes, professional accounting organizations require their members to be holders of Masters Degrees in business such as MBAs. The Changing Role of Management Accountants Given the blatant changes in modern day business environment, the role of management accountants has changed drastically over the years. The advent of better accounting systems and corporate restructuring among other factors has all contributed to shaping the new role of management accountants. According to a study by Scapens and Jazayeri (2003), the role of management accountants has changed in four main areas namely; elimination of job routines, creation or a wider role for accountants, availability of forward looking information, and emergence of line managers with knowledge of accounting. Information systems and other technology have eliminated some job routine played by managerial accountants over the years. Managers do not have to spend time analyzing financial data since thee are available management information systems to support analysis and decision making process for the managers. The managers also have a wider role to play in the organization. Contemporary managerial accountants have a bigger role in management decision-making, planning, strategic positioning of the business, and overseeing control of the company’s assets and liabilities. The managers make use of technology to perform various tasks as opposed to traditional management accountants whose main role was to manage financial information, budgeting and internal control of the firm. Contemporary management accountants have a wider role involving controlling factors within the organization’s external environment. Contemporary management accountants have a lot of information available to them for planning and decision-making. Traditional management accountants focused more on historical data of the company while the contemporary role has shifted to a forward-looking planning activity. Contemporary accountants have a lot of information at their disposal from both the internal and external environment to plan and strategies on the future of the business. The role of management accountant today has greatly changed and has attracted other individuals outside the professional realm of management accounting. There is the emergence of other line managers with accounting knowledge who can also play the role performed by management accountants (Yazdifar, and Tsamenyi, 2005). Managers from other areas of specialization such as business administration, business management and human resource management have some information about management accounting and can easily execute such roles if called upon (Pierce, and O’Dea, 2003). This situation has led to two main changes in the traditional role played by management accountants. First, data and financial information have become accessible by all top managers of the organization. Such information is no longer the preserve of management of management accountants like in the past. Other managers have access to financial information stored in information systems and use it to make judgments and strategies regarding the direction that the firm is taking. Secondly, management accountants have had to change their training curriculum and require accountants to get masters degrees in order to be at the same educational level with other top managers. This has led to emergence of highly qualified managerial accountants capable of executing their roles in a highly volatile environment (Tayles and Ma, 2009). There have also been newer theories, approaches and techniques in the contemporary role that managerial accountants play. Newer approaches in managerial accounting put emphasis on innovation and technology in identifying, analyzing, measuring, and communicating information to relevant people in the organization. Traditional variance analysis method is now used together with other new methods such as life cycle cost analysis. Contemporary management accountants are also expected to have a wide range of skills in benchmarking, target costing, economic value analysis and re-engineering (Pierce, 2001). Conclusion The role of management accountants has changed over the years in order to remain relevant to changes in the business environment. There have been many changes and developments in the business environment over the years that have had a huge impact on shaping the profession of managerial accounting. Among such changes include globalization, technological advancements, corporate social responsibility, new laws, and changes in consumer preferences. These factors have shaped the profession of managerial accounting from a simple, rigid and internal role to a global, multidiscipline, and flexible role in modern day business. Contemporary management accountants have a wider role to play in the organization in addition to their traditional role. Bibliography Atrill, P & Eddie M. Management Accountant for Decision Makers with My Accounting Lab Access Card, 7th edition. Canada, Pearson Education, 2012. De Loo, I. Verstegen, B. and Swagerman, D. 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Management accounting change and the changing roles of management accountants: a comparative analysis between dependent and independent organisations, Journal of Accounting and Organizational Change, 1(2), 180-198, 2005. Read More