Today's Role of Management Accountants - Essay Example

Table of Contents EXECUTIVE SUMMARY 2 Introduction 3 The Changing Roles of Management Accountants 3 Traditional Roles of Management Accountants 4 Contemporary Roles of Management Accountants 5 Improved Decision Support System for Tesco by Management Accountants 8 Benchmarking 8 Value Addition 8 Performance Management 9 Strategic Analysis 9 Assessment of the Competitive Position of Tesco 10 Challenges of Implementing a Business Partner Model at Tesco 10 Conclusion 12 References 13 Appendices 16 EXECUTIVE SUMMARY Below is report about Tesco Plc. The report is aimed at analyzing the changing role of management accountants in the 21st century. The report will examine how the contemporary roles contrast with the traditional duties of management accountants. The report highlights how the emergent roles of management accountants overemphasize leadership and decision-making skills as opposed to technical and financial acumen. The report further examines the current situation of Tesco and comprehensively elaborates on how management accountants could improve on the decision support system of Tesco. In conclusion, the report will highlight on challenges that are likely to undermine successful implementation of the business-partnering model in Tesco Introduction According to a report by (CIMA, 2009), leading companies are increasingly transforming the traditional roles of financial accountants to match current global trends in the market. There are emergent debates and concerns over the traditional roles of finance professionals and their significance in the current dynamic market. Leading companies are slowly integrating decision-making elements and management efficiency within the domains of finance accounting roles (Gabriels, 2002). This present report is aimed at examining the changing roles of the management accountant in the 21st century and further evaluating how management accounting business partners could better support decision making within the firm. Therefore, the report will highlight on the changing roles of management accountants in the 21st century. Similarly, the discussions will comprehensively evaluate how better decision making could be achieved by management accountants. Finally, the report will conclude with the examination of the challenges of implementing the business partnering model in Tesco. The Changing Roles of Management Accountants (Burns and Baldvinsdottir, 2007) defines management accountant roles as entailing analysis of the information relating to costs and operations of an organization in order to advise managers on how to make profits and achieve savings goals. Therefore, unlike other accountants, management accountants are expected to seamless integrate management, accounting and financial skills in order to provide advice to the top managers of an organization effectively. (Accenture, 2011) hence noted that management accountants performed the following tasks, study the business environment and hence advice on the financial implications of key projects. Also to advice and explain financial consequences of managerial decisions, develop business strategies, control and monitor spending by the organization. Lastly conduct and oversee internal audit of a firm, assess and advice on competitive trends in the market. However (Murphy, 2004) defined business partner as commercial entities that have formed commercial alliance through partnership. While finance business partnership refers to a business structure in which two or more partners legally share the ownership, profits and losses of a business entity. Traditional Roles of Management Accountants According to (Boer, 2000) the provision of information through reports characterized the roles of the traditional management accountant. Traditional management accountants paid little regards to operational and managerial aspect of an organization. Management accountants were solely preoccupied with the provisions of financial information. This information was majorly in the form of month end and statutory reports, budgeting reports and the recordings of transaction related activities. (Murphy, 2004) further noted that management accountants poor conceptualization of the operational and managerial issue resulted to ineffective utilization of the financial information presented by the accountants. Lack of operational knowledge by the book-keeping department meant that the financial statistics were adequately interpreted and transformed in decision support data sets (Accenture 2011). The traditional management accountants never played a pertinent role in the formulation and implementation of management strategies. Traditional management accountants were further alienated from operational activities by the structure of the organization (Burns et al., 2003). The alienation played a key role in the definition of the relationship between management accountants and operational managers. Majorly known as book-keepers, management accountants mostly operated in highly centralized units that were independent from other units . Similarly, accounting roles were also recognized as independent functions from managerial duties hence accounting information could only be accessed within the function of the accountants (Davis and McLaughlin, 2009). Due to the limited interaction between management accountants and operational departments only served to widen the gap between accountants and operational activities. The long-term effect of separating the functions was that management accountants were highly deterred from engaging in the advisory and consultative duties in an organization (Davis and McLaughlin, 2009). Contemporary Roles of Management Accountants According to (Horngren et al, 2003) the labor market of management accountants is awash with unprecedented trends that cannot be ignored. The role of management accountants have been brought to the public attention following financial scandal of the Tesco Plc. Emergent debates continue to scrutinize the role of management accountants and the financial fraternity at the leading retail supermarket in the UK (Thesing, 2014). In line with the contemporary roles management accountants in the 21st century, the currently witnessed financial crisis of overstatement by tesco management raises questions over application of the emergent functions. The roles and functions of management accountants are increasingly being defined by the core changes in the transaction processes, information analysis, accounting techniques and financial reporting. According to (Byrne and Pierce, 2007), one of the key drivers of the changing roles of management accountants has been the technology. The integration of technology with core business operations has led to a development of new accounting functions. One of the primary shifts in these roles are due to the advancing of technology that has changed the way information is processed. It is hence paramount that management accountants of the 21st century equally priorities the knowledge of both technological and financial skills. Studies by (Gabriels, (2002) indicated that the integration of the enterprise resource planning systems (ERP) highly impacted on the efficiency and effectiveness of management accountants’ decision-making skills. According to (Burns et al., 2003) ERP are integrated software programs that manage personnel, material, finance and the production process. The growth of the ERP in organisations have positively impacted on the collection, analysis, interpretation and implementation of accounting information to guide organisational management (CIMA 2009). In light of the widespread adoption of the ERP, management accountants are hence expected to be at the forefront of ERP implementation and management in the organisation. Similarly, (Boer, 2000) noted that the new management roles have been characterized with the following aspects; companies are increasing placing less emphasis on the technical and traditional skills of management accountancy and replacing the roles with decision support and advisory responsibilities. Furthermore, management accountants are highly encouraged to undertake non-financial roles such as leadership and management. Globalized management accountants have further been tasked with the duty of adding value to the operations and management of an organisation (Burns and Baldvinsdottir, 2007). Management accountants have become fundamental integral of the decision making process of an organisation. Burns et al., (2003) added that Modern management accountants are actively participating in the formulation and execution of management strategies. Management accountants coupled with the accounting system provide vital information that relate to every level of management and department of an organization. Similarly, current management accountants’ engage in the direction and control of operational activities in order to achieve the objectives of the firm. The accountant provides useful information that underpins the formulation of strategic policies and goals of the firm (Murphy, 2004). Contemporary accountants are also involved in the estimation of the competitive position of the firm (Deloitte, 2013). Through the assessment of the financial performance of the firms and projection of future revenue, management accountants accurately determine the current competitive position of the firm. Hence add value to strategic management planning by guiding the decision makers on the relevant aspect of the internal and external environment to influence. According to Byrne and Pierce (2007) management accountants in the 21st century have also been observed to actively participate in the development and implementation of fraud prevention and internal control systems. Management accountants collect vital information that relates to the activities of employees of the firm and key processes that take place. The accountant hence has the duty to report cases of financial misconduct to top management in case of any fraud. Management accountants have further undertaken leadership roles in organizations (Horngren et al., 2003). Management accountants have profoundly become an intricate component of the management team. Actively engaged in the performance evaluation, strategic analysis and motivation of other employees. By being at the forefront of these undertakings, management accountants have become the source of guidance and direction to other employees. Siegel et al., (2003) added that the accountants have been active supporters of the implementation of new policies and also adapting new organisational culture. Management accountants have assumed leadership roles in organisations and as a result become role models. (Murphy, 2004) noted that management accountants provided suitable leadership skills in the implementation of total quality management system (TQM). He stated that management accountant highly counteracted factors that could lead to the failure of the system. Their team efforts have allowed communication of cost saving figures, knowledge of operational activities and managerial policies within a firm (Davis and McLaughlin, 2009). This gives them an active participation in the decision making process. Improved Decision Support System for Tesco by Management Accountants Tesco, the largest food retailer in the UK have been experiencing management crisis in the form of an accounting scandal. According to (Wearden, 2014), the giant UK retail store overstated its first half profits by £263million for period ended September 2014. In spite of the scandal, it is imperative that Tesco integrate decision support tools of the emergent management accounting practices. Benchmarking Management accounting business partners at Tesco should first underline decision-making support systems by benchmarking the performance of the company (May, 2001). In light of the declining revenue and market share by the retailer, it is paramount that the management accountant implements best benchmarking practices to match up with emerging market trends. (Davis and McLaughlin, 2009) defined benchmarking as the practice of evaluating the business process of other companies and adopting their strategic practices to achieve the best performance, generate innovative ideas and develop competitive advantage. Therefore, business partners at Tesco should examine strategic management of leading retailers such as Wal-Mart and Carrefour to gain insight into their operating practices (Wearden, 2014). Value Addition Management accountants are further expected to facilitate value addition to goods and services of an organization. Tesco has recorded the steepest decline in revenue for the last twenty years with a 4.5 % decline for the last 12 weeks ended September 2014 (Thesing, 2014). As core business partners, management accounts should effectively improve the services of Tesco and further develop innovative ideas from their analysis of operations and process through ERP systems (Gabriels, 2002). The business partners should constantly undertake productivity auditsto identify relevant sources of consumers’ value addition in the retail store industry. Similarly, management accountants should further formulate best pricing strategies through cost assessment of the industry in order to develop a competitive advantage. Performance Management Decision support systems of Tesco could further be improved by management accountants through performance management (Accenture 2011). Performance management by the management accountants involves presentation of each months financial performance, evaluation of the performance in relation to set budgets and projection of the statistics against long-term goals and objectives (Burns et al., 1999). Additionally, the management accountants should implement related systems such as budgeting and performance control systems. According to Burns et al., (1999 through performance management business partners will showcase financial measures that indicate the current position of Tesco thereby improving on their decision-making process. Strategic Analysis Following technological advancement, global competition and emerging markets in the developing economies, non- financial roles have become ubiquitous to management accountants (Siegel et al., 2003). As a result of these changes, management accountants at Tesco should extensively undertake strategic analysis of the internal and external environment in order to improve on the decision support system of the retail stores. As business partners, management accountants should perform long range forecasting, shareholders value analysis, industry analysis, competitive position analysis, value chain analysis and product/service life cycle analysis of the Tesco (Deloitte, 2013). Implementation of the strategic analysis practices by management accountants will result in improved decision-making systems with a refined focus on the critical business process that will revamp its economical status. Assessment of the Competitive Position of Tesco Management accountants at Tesco could further add value to it’s decision making process through the study of the competitive position of it’s retail store (Burns and Baldvinsdottir,2007). Through a survey, their accounting team will be able to document relevant information with regards to consumers’ satisfaction and their preferences. This may also give Tesco’s an idea of what and what not to produce in volumes. It may even hint the retailer on how to stack shelves so they know what to put within arms length of consumers and what to put in lower shelves (Thesing, 2014). The analysis of their competitive position could further be conducted to compare the level of technological integration into the operations of the retailer against emerging technology in the industry (Deloitte,2013). The process should also determine Tesco’s application of social platforms such as facebook and Twitter in comparison to key rivals in the market. Similarly, Murphy, (2004) added that the assessments of the competitive positions of Tesco will also lead to identification of organizational culture, on whether the retail giant is innovative. Shareholders’ access to this information highly improves on the relevance and adequacy of the operational and managerial decision that will be made. Challenges of Implementing a Business Partner Model at Tesco Financing projects may prove rather very difficult for Tesco. To undertake a business-partnering model it needs to have enough finances and a larger market share. There has to be an analysis of whether to get funds from its shareholders or seek loans from financial institutions. It is evident that the determination of the source of revenue constitutes a future challenge for the leading retail store (Burns et al., 2003). Technologys impact has been part of our life and it is important for Tesco to find the right system to undertake the business-partnering model. The integration of the services and policies of the business needs to go hand in hand. It is crucial that Tesco ensure the capability of its technology is the best as it serves the global market (Gabriels, 2002). Another key challenge to successful business partnership in Tesco is the limited availability of strategic business partners (Davis and McLaughlin, 2009). Business insight and strategic expertise show the success of any business partnership. However, Tesco is likely to be limited by availability of partners who are willing to enter into a partnership agreement. The plummeting revenues and subsequent financial scandals will likely deter major partners from considering Tesco as a candidate (Davis and McLaughlin, 2009). Similarly, organisational resistance to change may hinder the implementation of the business-partnering model. Tesco line managers and staff members might not welcome a shift in the current status quo. (May, 2001) noted that the business partnership model highly disrupts the traditional hierarchy of managerial roles thereby in most cases will interfere with line managers. Therefore, it will be important that the top leadership oversees the dissemination of truthful information regarding the transition period. Faced with a financial crisis, the management is currently undergoing unprecedented changes, as the top management struggles to maintain a positive image (Thesing, 2014). However, the success of Tesco is hugely underpinned by the leadership structure and the subsequent organisational culture that their management develops (Murphy, 2004). It is necessary that the management of Tesco embrace change by integrating technology and emerging managerial concepts such the evolving roles of management accountants. Conclusion The traditional role of management accounting mainly entails the collection, analysis and communication of financial information for the decision-making processes (Boer, 2000). The traditional management accountants profoundly shunned away from non- financial operations of the organisation. Therefore, traditional roles of management accountants were characterized with definite demarcation and distinction of the functions of accountants and operational duties (Deloitte LLP (2013). The traditional management accountant mainly provided financial information without offering interpretation and advisory assistance on the subsequent managerial actions to be implemented. However, advancement in technology, globalization and heightened competition has remodeled the roles of management accountants to include non-financial roles that constitute of leadership and value addition practices. According to Burns et al., (1999) contemporary management accountants are actively engaged in the leadership roles, risks and fraud prevention and value addition to the decision-making system. The dynamic of roles of the management accountant should further be implemented at Tesco retail stores in light of the outrageous financial scandal and declining revenues (Wearden, 2014). As strategic business partners at Tesco, management accountants should improve on the decision-making system. This may be done through the provision of effective information on benchmarking, performance evaluation, strategic analysis, value addition practices and timely assessment of the competitive position of the company (Byrne and Pierce, 2007). The profound adaption of the contemporary management accountancy roles promises unprecedented improvement in the implementation of strategic management practices. References 1. Accenture (2011) Achieving High Performance: The Value of Benchmarking, Accenture: London [Online] [Accessed 15th December 2013] http://www.accenture.com/Microsites/finance-mastery/Documents/pdf/Accenture- Value- of-Benchmarking-USLo.pdf 2. Boer, G. (2000) ‘Management Accounting Education: Yesterday, Today and Tomorrow ’,Issues in Accounting Education, May, Vol. 15, No.2, p.313 3. Burns, J. and Baldvinsdottir, G., (2007) The Changing Role of Management Accountants, in Issues in Management Accounting (Eds. Hopper, T., Northcutt, D. and Scapens, R.). Pearson: Harlow 4. 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Strategic management accounting: how far have we come in 25 years?.Accounting, Auditing & Accountability Journal, 21 (2), 204-228. http://dx.doi.org/10.1108/09513570810854400 Read More