Modern Innovative Approaches to Management Accounting - Coursework Example

Issues in Management Accounting Student Name: Institution: Date: Introduction Over the past many years, different innovations have been developed in the field of management accounting. Management accounting innovations are perceived as ideas and practices recognized as new by individuals or organizations adopting innovative initiatives. In this case, management accounting has developed into a practice of measuring as well as reporting both the financial and non-financial information required by managers to make decisions directed towards the attainment of the goals and objectives of an organization (Seal, 2009). Modern management accounting practices differ from the traditional management accounting. This is because managers can make sound decisions that help to reduce costs and add value to their products and services so as to meet the customers’ needs and reduce wastes. Today, managers are required to make day-to-day decisions regarding their future performance as well as how to survive and develop into energetic market place despite the increased uncertain circumstances. It is relevant to mention that systems that are currently being used in management accounting enable the entire organization to develop flexible and innovative capacities to make continual changes, improve its financial performance and non-financial aspects of performance (Ussahawanitchakit, 2012). Modern innovative approaches to management accounting The different innovative initiatives that have been implemented in management accounting include the adoption of balanced scorecards where financial, internal business process, learning and growth as well as customer perspectives have been used as key performance indicators in managerial accounting. The beyond budgeting approach has also been considered to challenge the traditional budgeting approach through maximizing the use of more flexible and varied processes. Furthermore, Total Quality Management (TQM) has been emphasized on as a process of continued quality enhancement in the organization. However, managers have discovered that total quality management can be achieved only if activity-based management approach to the actual causes of costs to incur can be evaluated to make effective forecast as well as control costs. Life cycle costing technique has been used to determine the costs of products over their entire life cycle to avoid focusing on the initial developing costs. Modern organizations make use of zero-based budgeting to re-think their budgets in a justifiable manner and prioritize the entire items of expenditure (Seal, 2009). Effective implementation of managerial accounting innovation involves providing executives with valuable information to support and improve decision-making. Modern dimensions of the managerial accounting innovation such as cost allocation concentration, performance evaluation competence, activity-based management, customer profitability and target pricing have been adopted to implement managerial accounting innovation in modern organizations. Lamminmaki and Drury (2001) examined that successful dimension of cost accounting implementation has focused on product costing accuracy. This clearly indicates that accuracy in product costing has become a critical area of concern for accounting practitioners. Today, managers want to determine whether the costing systems are providing them with accurate information before they can estimate the uncertainty of the decisions they would make based on that information (Chan & Lee, 2003). The need to understand customer profitability is also another dimension adopted by modern organizations in implementing managerial accounting innovation. Companies that are knowledgeable about customer profitability are improving in their decision-making. In particular, they have developed in the aspects of products and services marketing, pricing as well as communication links of marketing and promotion. Such organizations rely on these developments to make accurate evaluation of their revenue and marketing support changes across-customers to make their marketing decisions (Mulhern, 1999). Activity-based management is a major technique that has also been used by modern organizations to implement management accounting innovation. It involves creating and implementing various activities through the performance measurement as well as resource-based management framework to enhance continuous decision-making processes in the organization (Armstrong, 2002). Accounting learning as a focus on developing skills and knowledge to understand accounting is encourage through provision of funding to accountant practitioners for training to improve their accounting performance levels. It is important to note that accounting learning has led to a deep expertise of new knowledge in contemporary organizations by potentially influencing learning behaviors and encouraging accountants to utilize the new managerial knowledge to enhance their accounting performance (Ussahawanitchakit, 2012). The focus on target pricing is an important dimension of implementing management accounting innovation. Modern organizations consider pricing factors such as, the consumer expectations, product life cycle, and competitors’ strategies of production, price levels of the related consumer goods and services as well as the sales volume expectations when setting their selling prices. Therefore, target costing has been considered an important technique for ensuring effective economic rate on return for higher productivity and profit margin particularly for the dealers (Yazdifar & Askarany, 2012). Studies indicate that target pricing has been a key practice for successful performance of Japanese Manufacturers where cost-reduction expenses have been shared, enabling the manufacturers to make use of the supply-side method to achieve competitive advantage (Li et.al. 2011). Performance evaluation competency is used to appraise the performance of management accounting and control systems. This is enabling the contemporary organizations to manage their resources in a more effective way as well as measuring the effectiveness of their organizational goals. Performance evaluation is required to monitor and evaluate the significant role of management accounting. Therefore, it can be noted that financial and non-financial measures have been adopted to measure the management accounting performance based on finance, internal processes, learning and growth as well as customer perspectives (Chan & Lee, 2003). Role involvement and suitability of innovative approaches Role involvement may affect the level at which innovative activities are implemented in the organization particularly if knowledge on the value of innovation is provided to the members or employees. Research indicates that knowledge about the appropriateness of innovations as well as how managers in varied business units perceive innovation greatly affect the management accountants’ ability to involve in innovative activities. Management accountants also need to be motivated with incentives geared to the implementation of innovative practices in the organization. It is quite apparent that successful innovation requires the management accountants to evaluate the importance of innovation appropriateness to specific needs of each business unit and every manager in an organization (Emsely, 2005). The extent to which managerial accounting innovation can be accepted within the organization determines how adequate the management accountants are driving innovation. Based on a study carried out to determine how managerial accounting practices have been disseminated particularly in the public sector. It can be noted that management accounting innovations within the public sectors have been greatly influenced by the government. As a result, accounting experts are making every effort to modify those accounting practices that are redundant where suggestions have been made on the need to adopt more dynamic and innovative approaches to accounting, for example use of cost accounting in the management of accounting information (Durry, 2008). Research indicates that management accountants that are business unity oriented are positively related to innovativeness, suggesting that they can be entrusted with tasks that involve problem solving such as cost-reduction. Therefore, it is important for the management accountants to understand that role involvement and innovation are inseparable (IFAC, 2010). In general, innovations can be viewed either as administrative or technical initiatives but accounting innovations need to be purely radical and administrative in nature. It is important to note that implementation of the management accounting innovation may not directly and necessarily provide benefits instead they can be achieved indirectly through behavioral change within the organization. It is evident from the research findings that improved management accounting information can have a long run impact on the organizational performance once put into practice. Banker, Chang and Pizzini (2004, p.5) argue that since innovation has been considered an essential component of the organization’s business strategy, effective organizational plan that promote innovative practices requires a firm to understand the innovation process. Cost accounting has been applied as the central method in contemporary management accounting practices. Management accounting information has been considered a core component of all management systems. This implies that poorly handled and analyzed management accounting information may influence the managers to make wrong decisions that can negatively affect the operation of the organization. It has become important to the accountants that before they engage in the management all management accounting plans and controls, they should take into consideration that accounting information is currently affected by the dynamic, turbulent and more complex business environment. Therefore, accounting systems need to be designed in a manner that can enable organizations to continue with their business activities even in such uncertainty environmental conditions (Coombs et.al. 2005). Conclusion Based on the above discussions, it can be concluded that effective implementation of managerial accounting innovation is achieved if the executives are provided with valuable information to improve their decision-making processes. Management accountants require motivation incentives geared to their implementation of innovative practices in the organization. Companies that are knowledgeable about customer profitability are making great improvements in their decision-making. Accounting learning has contributed to a deep expertise of new knowledge in contemporary organizations by potentially impacting learning behaviors and encouraging accountants to utilize the new managerial knowledge to enhance their accounting performance. Performance evaluation competency is important in the appraisal of the performance management accounting and control systems. Management accounting has developed into a practice of measuring and reporting both the financial and non-financial information relevant for managers to make decisions geared to the achievement of the goals and objectives of an organization. References Armstrong, P., (2002). Costs incurred from Activity-Based management. Accounting, Organizations and Society, 27(1), 99-120. Banker, R, Chang, H & Pizzini, M. J., (2004), Use of the balanced scorecard. Evaluative effects of the performance measures related to strategy. The Accounting Review, l79 (1), 1-23. Chan, S. Y. and Lee, D. S., (2003). The practical investigation of costing systems and overhead Cost Structure. The Journal of Managerial Auditing, 18(2): 81-89. Coombs, H., Hobbs, D. & Jenkins E., (2005). Principles and use of Management accounting, McGraw Hill, Pp 1-30. Durry, C. (2008). 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