Management Accounting Issue - Essay Example

Research and Analyze a Management Accounting Issue Name: University: Course Title: Instructor: Date: Word count: 1,927. Research and Analyze a Management Accounting Issue Introduction Management accounting is a practice that can be said to be the process that involves the preparation of management accounts. This is usually done with the aim of provision of both timely and also very accurate financial and also statistical information. Such information is usually required by agents in management accounting in a company setting. The information is mostly used by either the departmental managers or the chief executive officers of the companies and also organisations for making strategic decisions and also decisions of fundamental importance to the companies. However, management accounting varies from one company to another based on the policies held by the companies and also the structures of the companies. This is due to the fact that in the recent past, there have been innovations in management accounting. This paper attempts to answer a question of how and why management accounting innovation has been one of the core themes driving modern organisations. This is because of its role in the success of various modern companies that have embodied management accounting innovation in their operation and practice. Research and Analyze a Management Accounting Issue There has been several management accounting innovations that have been developed in the past few years that are of great importance to many modern organisations and also other organisations that have embraced it in the world. One of them is referred to as activity-based costing (ABC). The other one is referred to as balanced scorecard (BSC). The use of these two, the Activity-based costing and balanced scorecard, in addition to other innovative strategies has been fundamental to the growth and development of a number of organisations and companies. ABC ensures that activities that are known to have value addition effects to organisations are distinguished from those that do not (Kaplan & Anderson, 2007). This is done with the aim of allocating the costs that are indirect to such activities that are of value addition. On the other hand, the balanced scorecard is used to indicate that an array of factors have to be put under consideration and not only money in the operation of organisations and companies (Bloem et al, 2005). Due to the understanding of the importance of management accounting to organisations and companies, the management of these companies and organisations have to appreciate the importance that innovations play in the performance of the respective companies. Traditional methods that were applied in management accounting have to be replaced with newer and more innovative means. Failure to do this would have detrimental effects on the management and operation of the companies. Traditional methods that were applied in management accounting became ineffective. The ineffectiveness was in the key aspects of an organisation. Hence, companies and organisations ignored them. This then attracted several companies to implement these management accounting innovation strategies in different parts of the world and in an array of ways. An example is in Sweden where a study conducted on the implementation of the management accounting innovation indicated that up to 27 percent of companies had implemented the balanced scorecard, with more of them being expected to have them with time. Other countries like Germany and Japan have had the systems implemented. This is due to the success that is associated with having them implemented (Bjørnenak & Christian, 2005). The success of the implementation of management accounting innovation has been highly attributed to the roles that management accountants play in creating the environment for their success. According to research that has been conducted in an array of companies, management accountants have led to either the failure or success of the implementation of such innovations. Accounting practices have been quite rigid in the past, although experts and intellectuals in the field are working to change that. This has had negative impacts on the newer and more innovative means of management accounting. It therefore calls for the management accountants to pave way and make it easy for more innovative means of management accounting to come into practice. Research conducted on the role of management accountants and their roles in management accounting has shown that lack of interest in the managers of companies to conform to new practices hinder the development and acquisition of newer and more innovative practices to the specific companies. This is said to be more common in those companies where the parent companies operate far from their branches. Here, the managers to these branches, and mostly the financial officers and management accountants may be reluctant in adopting such innovations, which would have detrimental effects on the performance of the companies. However, with the companies where the innovations have been taken positively by the management accountants and other fundamental authorities, their success has been astounding (Yazdifar & Tsamenyi, 2005). Innovations have also become more of administrative in companies rather than technical. They bring in the development of newer policies in the companies that have implemented them and also newer procedures of doing business. They have had effects of changing the organisational structures of organisations. Depending on the manner in which companies take up innovations, they can either be organic or mechanical where the mechanical organisations find it more complex to take up innovations as compared to the organic ones which have more specialization and also higher levels of horizontal differentiation. However, whichever manner the companies take up innovations, they become important in the long term as they lead to the reduction of costs that are incurred by the companies and at the same instance saving time (Chapman et al, 2007). These benefits are in most cases not felt directly or instantly in the companies and organisations where they have been implemented. They are felt in an indirect manner through factors such as the change of behaviour of the organisation as a whole, which as stated earlier are felt after a period of time and not instantly. This was experienced by a company, Shat-R-Shield, which implemented the balanced scorecard. According to its chief executive officer, the results of the implemented balanced scorecard were beneficial to the company, although it was felt after a longer period of time (balancedscorecard.org, 2010). For the companies that have had success in the implementation and running of management accounting innovation, they had to have a clear understanding of the entire process of innovation. This is because of the fact that innovation plays a major role in the business strategy of organisations and companies (Needles & Crosson, 2011). It is true that for many companies and organisations, the process of innovation normally finds them in an unaware state where they do not know what is required of them before taking up the innovations. However, there are certain fundamental factors that have to be put in mind before deciding to take up such innovations for there are some costs that are associated with them. The process is normally a cycle that goes from screening of the concept, through to its experimentation and through other steps to the final implementation (Chenhall, 2005). An example of Shat-R-Shield could be used where the chief executive officer indicated that with the implementation of the balanced scoreboard meant the employment of extra members of staff like three new vice presidents. To her, this seemed to be metrics that came up without any clear logic that explained the reason for the additional staff. Companies that do not have a clear articulation of the requirements that come up with the implementation of such innovations could be faced with such problems and challenges (balancedscorecard.org, 2010). Due to the sensitivity of the roles that management accountants play in companies, management accounting innovations provide information and are accountable to the finance as well as the business part of companies and businesses securely. The management accountants are also responsible for the preparation of reports that are required by these sectors in the business environments. Due to management accounting innovations, the management accountants in the respective companies and organisations benefit from the simplification that the systems come in with like in the preparation of reports like the financial reports and also in the reconciliation of data from different sources. They also play a big role in the activities that are performed by the management accountants like forecasting, planning, analysis of variance among others. Such information from the innovations are necessary in ensuring that businesses operate at the most preferred manner and that the decisions made are also geared towards the achievement of the same (Drury, 2008). The management accounting innovations have also been fundamental in the measurement of the performance of members of staff of companies and organisations. This is of great importance to companies and organisations especially when they are considering compensations or promotion of members of staff. With the use of such innovations, it is possible for the management to set the targets that employees are required to achieve. The management also uses these innovative methods in the determination of the importance that is assigned to each and every perspective of work and the objectives that are aimed to be achieved. Hence, through the use of management accounting innovations, it makes it easier for companies and organisations to do reviews of the performance of their staff. They also allow for conducting reviews of the companies and organisations as a whole without necessarily using financial measures. This leads to motivation on the parts of the employees and on the other hand correctional measures on employees who do not perform as required in their work. Furthermore, the targets that would be set by the managers would be reliant on the weighting placed on the measures. The benefit of this is that the weighting would be done such that the targets would be attainable by the employees hence motivating them to perform better due to the fact that they would be working towards achieving attainable goals (Epstein & Lee, 2010) Conclusion For the companies that went ahead with the implementation of the management accounting innovations earlier, they are currently feeling their positive effects. Most of the companies and organisations that took up such innovations are the modern ones that have organisational structures that allow for innovations. However, there are also other companies that have been in operation for longer periods of time that were forced by the market forces or competition to take up such innovations. They are these management accounting innovations that drive them. References Balancedscorecard.org. (2010). A Balanced Scorecard Journey. Retrieved on 13th May, 2012 from http://www.balancedscorecard.org/LinkClick.aspx?fileticket=Qd7wk08IcWE%3d&tabid =57 Bjørnenak, T. & Christian, A. (2005). Bundling and Diffusion of Management Accounting Innovations. The Case of the Balanced Scorecard in Sweden. Management Accounting Research 16 (2005), 1-20. Bloem, J. et al. (2005). Making IT Governance Work in a Sarbanes-Oxley World. Hoboken: John Wiley & Sons. Chapman, C. S. et al. (2007). Handbook of Management Accounting Research. Amsterdam: Elsevier publishers. Chenhall, R. H. (2005). Integrative Strategic Performance Measurement Systems, Strategic Alignment of Manufacturing, Learning and Strategic Outcomes: An exploratory Study. Accounting, Organisations and Society, 30, (5), 395-422. Drury, C. (2008). Management and Cost Accounting. London: Cengage Learning Centre. Epstein, M. & Lee, J. Y. (2010). Advances in Management Accounting. Bingley: Emerald Publishing Limited. Kaplan, R. S. & Anderson, S. R. Time-Driven Activity Based Costing: A Simpler and More Powerful Path to Higher Profits. Boston: Harvard Business School Publishing Corporation. Needles, B. E. & Crosson, S. V. Managerial Accounting. Mason: Cengage Learning Centre. Roles of Management Accountants: A Comparative Analysis between Dependent and Independent Organisations. Journal of Accounting & Organisational Change 1(2), 180- 198. Yazdifar, H. & Tsamenyi, M. (2005). Management Accounting Change and the Changing Read More