The Change in Management Accounting Technique - Essay Example

A Review in Change Management Technique Change in Management Technique Introduction Research inmanagement accounting has recently taken an up-scale as the scholars and practitioners in this field have realized the importance of the study to various companies, businesses and learning institutions. It is also a fact that, an accounting system which is well designed can provide a better competitive advantage to a company than as its competitors. It is a fact that management accounting has a lot of importance to companies, however, experts in this field have reported that management accounting has changed more slowly than enough to provide solutions to the gap presented in the present organizational environment (Sorensen, 2009). It is for this reason that many researchers are now working towards the process of management accounting change. Looking at the sentiment from Briers and Chua, that, ‘’the success of a center of calculation lies not in the hands of designers but in the hands of those who come after,’’ it is much supported by the current research in the field of management accounting (Briers & Chua, 2001, p.265). The center of calculation had been designed in management accounting field, however, for these centers to fulfil the demand for information found in the present organizational environment, change must be effected due to the much research being done (Burns, 2000). Being a new area of research, investigations have been based on a wide range of contemporary techniques and practices in management accounting. These techniques and new practices have been developed over the years in order to catch up with the changes in the manufacturing and production units. The aspect of technological advancement in the area of accounting and management have also made it easier and less expensive for entrepreneurs and owners of businesses to make decisions that are data-based about their organizations. Therefore, understanding management accounting change has helped in incorporating technology in providing solutions to the tough challenges of business. This essay is therefore aimed at discussing such modern techniques that have been developed to fit the change encountered in the field of management accounting. Contemporary Techniques in Management Accounting Change 1. Standard Costing This technique defines a method in accounting that is used in recording transactions made in the business field through the use of their expected costs. After recording the costs of transaction, there’s the aspect of analyzing the differences in the actual and standard costs. In as much as this technique is not a new one, the change here is the fact that, the speed at which information in currently analyzed under standard costing technique has really changed (Drury, 2004). Through the use of contemporary accounting information system, it is possible for business owners to examine and determine the variances that occur between the actual and standard cost, as soon as the materials are secured and goods are manufactured, or in real-time. The difference here being that, in the past, determination of variances would require a calculation to be done using a calculator. However, in the modern world of management accounting, there are accounting packages with in-built functionality that can automatically do the calculations once the actual and standard values have been keyed in. While this might look more convenient for businesses as it reduces time wastage and more accurate values can be obtained, business owners are cautioned to be careful while dealing with such software applications as there are technicalities involved while using such applications. It is therefore wise to first undergo a training to understand how the process works in order to interpret the standard costing variances with ease and carefully. These applications made by human beings are normally prone to error (Scarlett, 2005). Therefore, with adequate understanding of how the application works, one can easily identify the sources of error and correct them as they appear. The applications also require an accurate and careful input of correct data in various required areas for them to provide correct variance analysis. For example, in case one inputs values of actual costs in place of values of standard cost by mistake, the variance analysis will not be correct and the business owner will have wrong interpretations and implications of the interpretations to the business (Walker, 2006). This might lead to wrong decision making that might affect the business performance. Therefore, a deep understanding of the system is required before one embarks on adopting the technique. When an organization uses the standard costing application, it will keep the exact accounting information hence remit exact taxes to the government. 2. Balanced Scorecards This is a management tool on performance dealing with both financial and non-financial measure to give a holistic report on performance by an individual or a firm. This balanced scorecard technique is considered a fairly new technique in the history of management accounting. Its emergence in the practice of management accounting can be dated back to 1990s. It is therefore a real example of management accounting change. Several companies around the world have been on the move to transform themselves for information based competition. As they strive to do so, they have realized that their ability of exploiting intangible assets has become more decisive than the ability to invest in, and at the same time manage physical assets (Kaplan & Norton, 2007). Due to this change in the management accounting field, the balanced scoreboard technique was introduced. This technique is used to supplement the traditional measures of performance that were financial based. With the introduction of a balanced scoreboard, performance can now be measured in three additional perspectives including the customer perspective, internal business processes as well as learning and growth as represented in the exhibit below. With this change recognized in the field of management accounting, there has been even more improvements to this technique. This has been evidenced when some companies have moved beyond the vision of just the scoreboard, to even discover the values of it. This has acted as the cornerstone of new strategic management system that see management accounting improve over the years (Kaplan, 2010). When this is applied, the scoreboard technique determines a serious deficiency that has been with the use of the traditional method of measuring performance. In this way, the traditional management accounting system was unable to link a company’s short-term and long-term actions. It is a common practice that most companies’ operational and management control systems have been built around measures attributed to by financial and target aspects. This has been found to bear inadequate relation to the progress of the company which are vital in achieving the company’s long-term strategic objectives. This makes most companies put more effort on achieving short-term strategies, hence leaving a gap between the development of short-term strategic development and implementation. However, with the use of a scoreboard, companies do not have to rely only on the short-term financial measures to determine the performance of their businesses. This is because the scoreboard covers four management segments that are able to link the short-term actions of the business with its long-term strategic objectives. In as much as the use of a balanced scoreboard technique has been popularized in management accounting, there are some bad sides of it that business owners should be cautious about. The technique is normally used in compensation process depending on the scoreboard results. However, this might have negative results on the performance of a business. Awarding bonuses to the employees, for example, is a very powerful action to motivate them. When the business owners are not so sure about the metrics of bonuses by the balanced scorecard, then they need to be cautious in the even they’re using this technique to award compensation. This is because, when incorrect behaviors are emphasized, performance may be hindered where it was intended to be improved. Through the use of balanced scoreboard system, an organization will be able to remit equal and exact compensation to its employees. 3. Real-time Inventory Management Inventory management has adversely changed by the invention of a technology in Radio-Frequency Identification (RFID) in the last decade. Before this invention, companies and businesses used to use either perpetual or periodic inventory systems (Porter & Kramer, 1999). Periodic inventory system could record the inventories purchased in, bulk, and the cost of goods sold could be determined from this record by the end of the month. On the other hand, perpetual inventory system could update the cost of goods sold of the company with every transaction in inventory. However, with the advent of RFID, RFID tags can be attached to products in the company, and this can make identification and tracking of each and every inventory in the company easy and without much problem. With this technique, as the RFID tags are being scanned during when the inventories are dislocated and sold, the company is able to update the accounting information system instantly. This makes work easier and efficient, hence effective and efficient accounting system. This has since reduced much work that used to be there in keeping and recording inventory manually (Wylie, 2012). Through this old system, there were a lot of loss of inventory that could not be accounted for or traced easily. At the same time, much work and confusion was involved while keeping the records either through periodic or perpetual inventory systems. The new system that uses radio frequency can now be used catch shoplifters and unnecessary theft of inventory. There’s therefore better inventory management and recording, hence higher profits can be gained by business owners. This technique uses different real-time inventory management software to manage inventory. For example, many businesses have adopted Point of Sale software that is used to record inventory at the point of sale using the radio frequencies (Jenifer, 2014). Through this software, a business owner can monitor real-time transactions at the point of sale, control inventory, manage warehouse and inter-store real-time inventory transfer. This therefore makes a business maximize on its return on investment by minimizing laxities and drawbacks in inventory management and control. In the more recent changes in management accounting, real-time inventory management applications can nowadays check and control inventory in real-time as well as checking sales and make inventory reports instantly, making it easy for the business owners to make instant decisions concerning the business that can be helpful in instant management of inventory and stock taking. The business owners can therefore communicate with their suppliers in real-time in order to make their supply orders appropriately in time to avoid wastage of time and inappropriate supplies. The new technology now allows for a wireless system that is able to do warehouse inventory management. However, this system still requires a human being to control it and interpret the reports it produces. It therefore requires proper understanding of the workability of the system in order to have proper interpretation of the reports. As usual, there are software drawbacks that require continuous update and adjustment to meet the expectation of the users. When inventory is recorded within the real-time, it reflects the accounting information of all the inventory in the warehouse and those that were sold, therefore the organization will stay faithful in remitting exact revenues. 4. Process Management Great changes experienced in management accounting field have also been encountered in the process management segment of management accounting. In this technique, there’s the ability to do away with the system of management by exception that used to be the traditional way of process management. This approach was used to attract the attention of the management only when there was a reason to say that the process was not correctly working. In this case, there would be a lot of laxities in checking the process system until something could have gone wrong. The management would not therefore be able to realize if anything go wrong with the system in time to be able to correct it without further destructions. There was the tendency also, in the past, for a company to measure the quality of products through the use of every 100th units produced (Jensen, 2001). This bunch of products would be checked per the unit if it meets the required specification. But according this specification, it is not easy to know which products does not meet the standardized specifications since they are checked as a group of products. However, with the modern changes in management accounting, there are machineries that can be used to measure any unit of finished products. This is able to identify any product that does not meet the required specifications and remove it outside the assembly line. This works instantly and automatically, hence, enables real-time monitoring, control and management of products as they are manufactured and assembled. This technique is therefore able to bring efficiency in production and processing as it will be easy to control products as per the required specifications, hence reducing wastages and losses that would otherwise result from production of products outside the specifications (Fredrick, 2013). This also maximizes on the usage of materials as well as on the revenue that would be collected from the products sale of the products. Such changes in the process management result into better materials management and reduction of wastage. However, the machine, just like all machines have errors and faults, hence, caution must also be taken. There is mechanical related failure may occur hence making process management be prone to errors. When an organization is able to determine condition of products exactly when they occur, the exact amount will proceed to the assembly point, hence to the selling point to determine the exact amount of revenues to remit. Conclusion In a nutshell, management accounting has experienced a lot of change, and is still undergoing changes that are expected to bring even more success in the future. The changes that are experienced in the management accounting field are mostly technology oriented. It therefore means that, advancement of technology has advanced the field of management accounting. Such changes experienced in this field are majorly those that either make work easier, save on time or increase efficiency with which management accounting is carried out. All these advantages by changes in management accounting therefore can be said to aim at maximizing profits of the business owners. In as much as these changes have positive effects on businesses through effective and timely decision making, they are also accompanied by certain drawbacks, which can otherwise make the new techniques be ineffective. The drawbacks are however, fewer than the advantages and can easily be monitored and corrected to allow the techniques work effectively. With these changes and successes in the management accounting field, it is therefore evident that the success of a center of calculation, indeed does not lie in the hands of designers, but in the hands of those who come after. Bibliography Burns, J., 2000. The Dynamics of Accounting Change: Theoretical and Emperical Reflections Inter-play between new Practices, Routines, Institutions, Power and Politics. Accounting, Auditing and Accountability Journal, 13(5), pp. 3-25. Drury, C., 2004. Management and Cost Accounting. 6th ed. London: Cengage. Fredrick, 2013. Business Process Management. The Global Community of Injformation Professionals, 2(3), pp. 21-24. Jenifer, K., 2014. Real-Time Point of Sale. Real-TimePOS, 1(1), pp. 1-3. Jensen, M., 2001. Value Maximization, Stakeholder Theory ans the Corporate Objective Function. 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