Management Accounting Innovation in Modern Organisations - Coursework Example

Management Accounting Innovation Name Institution Name Word count: 1975 Introduction Modern organisations are largely being driven by management accounting innovation; they can achieve competitive advantage, maintain continued performance and thus manage to prosper through constant gradual innovations. Management accounting in its own setting can be described as the process of preparing management accounts with a singular objective of providing precise and accurate as well as timely financial and statistical information required by accounting management agents for decision-making. Accounting reports normally indicates the amount of available cash, outstanding debts, accounts receivable, raw materials and in-process inventory. The art of accounting management vary from one firm to another depending on the company’s policy and structure (Schaltegger, 2008). Experts have established that management accounting use accounting, management, and finance coupled with high end accounting techniques required for delivering business success. This management entity is highly instrumental in aiding managers about monetary implications with regard to different undertaken business projects; in essence, the latter is extremely helpful in explaining the financial consequences particularly with regard to the company’s business decisions (Smith, Abdullah and Razak, 2008). In the same line of discussion, management accounting is a useful tool in the business strategies formulation especially those aimed at improving the company’s desirable performance and management. Similarly, it not only offers an essential platform for the company’s internal auditing and checks, but also used as a parameter for explaining the effects of the competitive landscape surrounding the firm. This paper extensively discusses Management Accounting Innovation; in this essence, the paper will discuss management accounting innovation in modern organisations, role of management accounting in driving innovation, the role involvement and sustainability of innovation, and management accountants and innovation acceleration. Management Accounting Innovation in Modern Organisations Management accounting innovations for the past years were developed and used by several companies including Activity Based Costing (ABC) and Balanced Scorecard (BSC). The adoption and use of BSC and ABC together with other management accounting innovations have vastly helped companies to improve their performance (Alcouffe, Berland & Levant, 2008). Currently, companies have either adopted these innovations, are in the process of acquiring these innovations, and/or are vetting the net benefit that will result from adoption of management accounting innovations. ABC initiative fully recognizes that today’s production companies avoid production disruptive events rather than just reducing raw materials costs (Cadez & Guilding, 2008). For instance, ABC deemphasizes direct labour as a cost driver; however, efforts are directed towards activities driving costs including service provision, or product production. With regard to the management control theory, management accounting is a mechanism for management control that provides surveillance within the organisation (Rikhardsson, 2006). It is central to management and control processes, which are essential in defining the organisation’s objectives, measure progress, and above all punish or reward performance within the organisation. Given this understanding, management accounting must have the capacity to respond to present or upcoming changes in the business industry because failure to do so will negatively impact the company’s performance. This is mainly because; it limits management perceptions, actions, together with reactions to the events of an organisation (Cadez & Guilding, 2008). In this regard, modification of management accounting information to include unproductive and productive elements of the system will automatically influence the actions of the management in a way that may or may not create a positive decision especially on the information contained in the statistics (Alcouffe, Berland & Levant, 2008). In accordance with this, organisations have shifted their focus from traditional management accounting practices that were taken to singularly influence management decision. The traditional management accounting had the following implications: i. Labour efficiency was the main focus as the basic production determinant and capacity utilisation ii. Variations from standards was used as the main information point, which was then added to cost of goods and inventory to return accounts that resulted into actual cost values. iii. The measurements were mainly tied to monthly financial cycle thus raising questions with regard to relevance and timeliness of standard cost based information (Macintosh & Quattrone, 2010). iv. The emphasis was on the productive time and effort of the organisation v. There was minimum link to other internal performance measurement forms. vi. Inadequate treatment of indirect cost based on variation caused difference in products or services. The traditional management accounting measures were ineffective given the fact that the key features of the company were ignored; for instance, the performance trends were not factored in to provide a long term monitoring system, instead they were neglected which on the other hand gave unrealistic image of the organisation. Role of Management Accounting in Driving Innovation Management accounting innovations are described as those practices, ideas, and/or objects, which are recognized to be new by the company adopting the innovations. In this regard, innovations involve change but it should be noted that not all changes involve innovations (Naranjo-Gil, Maas & Hartmann, 2009). Given this view, management accounting can be described as the process of measuring and reporting financial and non-financial information needed by top management to make decisions focused on improving the company’s performance to achieve its goals and objectives. It is important to note that the role of management accounts has been inadequate in driving management accounting innovation in organisations (Alcouffe, Berland & Levant, 2008). For instance, various studies have established that the role of CFOs with regard to adoption and implementation of management accounting systems show conflicting outcomes. Differences between individual CFOs largely determine how a company uses innovation in management accounting. Accordingly, CFOs characteristics always moderate the extent to which a company adapts rationally to environmental contingencies. From late 80s various experts in accounting have and still are working hard to change the redundant accounting practices; most of them have recommended for dynamic and innovative approach to management accounting. Modern management accounting practice, cost accounting is the core method. Cost accounting in this regard is used to systematically compare actual cost and raw material budgeted costs together with the labour costs. This approach is still being used in various current companies but is incorporated with innovative techniques like life cycle cost analysis and activity based costing that is designed to conform to specific aspects of modern business conditions. Life cycle costing fully understands that the manager has the power and capacity to change the cost of manufacturing a product at the designing the stage. Modern factories manufacturing costs are mainly determined by the level of different activities involved in running the factory; this is essential in ensuring the effectiveness, which on the other hand optimizes efficiency through machine breakdown minimisation and quality control failures. Role Involvement and Suitability of Innovations Traditionally, innovations have either been technical and/or administrative initiative; innovations with regard to management accounting are purely radical and administrative. It is important to note that a wide range of innovations entail new administrative and technical elements and the implementation of specific innovation demands for adoption of other administrative and technical innovations. In this essence, the evaluation of the impacts of implementation is viewed as being both technical and administrative innovations. Management accounting innovation implementation rarely results into direct and automatic benefits but instead indirectly with regard to the company’s behavioural change (Alcouffe, Berland & Levant, 2008). For example, the effects of improved management accounting information culminate into the long run particularly when it is put into use. It is said that innovation is a vital element of the company’s business strategy; successful company strategy with regard to innovation demands for extensive understanding of the innovation process. The success of the process of innovation is always determined by the willingness of the participants to work out the various results, tensions and concerns that related to each stage. As already noted, innovation is a vital component of business strategies; however, its implementation is difficult to many companies. Involving all members of the organisation in the innovation process would be difficult (Cadez & Guilding, 2008). Given this understanding, the success of the innovation process requires the management to adopt attractive strategies that motivates all members of the organisation to participate fully in the process. The use of incentives such as rewards, goal achievements and retaining courses would influence employees to participate. Cooperation between participants at different stages of the process is critical for the smooth running of the activity. The management accounting information available provides the basis for managers to conduct an overview of the whole internal structure, which on the other hand helps in the facilitation of the control function within the company (Mouritsen, Hansen & Hansen, 2009). As already established, management accounting is responsible for providing scorecards on which overall organisation’s performance is rated. Accordingly, managers use this information to prepare different financial reports (Naranjo-Gil & Hartmann, 2007). Similarly, other analytical reports are created to investigate existing or impending issues such as a decrease in the company’s profitability with regard to a given product line. Management accounting is a crucial element for any organisation’s management system and thus comprehensive understanding of the sale or failure will greatly affect the operations and efficiency within the company. Information with regard to management accounting is vital to any management system and thus if it is not handled and analysed it may result into poor decisions which may compromise the operations of the organisation (Alcouffe, Berland & Levant, 2008). For this reason, it is critical that before a company engages in any management accounting planning or control, the accountants must have knowledge that accounting information is largely influenced by current modern business conditions that are dynamic, complex, and turbulent hence accounting systems should be designed in a manner that will enable them endure such environmental situations. Management Accountants and Innovation Acceleration Management accountants play a vital role in measuring and reporting nonfinancial and financial information required by managers to make decisions; they are tasked with accelerating the process of innovation. Their effort must be related to the final activity aimed at the accomplishment of the organisation’s goals and objectives. The responsibilities with regard to their positions largely contribute to the apt achievement of organisation’s goals. Management accountants’ roles and actions are extremely sensitive in the current organisational settings because they have multiple relationships to the company. For example, they act as strategic partners and providers of decision based corporate and financial information. They are tasked with the responsibility of managing business teams regardless of reporting relationships and responsibilities to the company’s finance organisation. The main activities that management accountants are tasked with includes; variance analysis, forecasting and planning, and reviewing and monitoring costs inherent in the business (Alcouffe, Berland & Levant, 2008). In the same line of discussion, accountability is relevant to the management team and not the corporate finance department because it is tasked with the development of new product costing, development of sales management scorecards, operation research, and profitability analysis of the client. Financial accounting is a core element in management accounting given the fact that companies are adopting financial accounting systems that are designed to comply and embrace management accounting that is concerned with value creation and business success facilitation (Ferreira, Moulang & Hendro, 2010). In this regard, management accountant use the information available to make decisions that are essential in delivering positive business results in the company regardless of the set standards because the discipline’s application varies from one organisation to another. Conclusion The above discussion has extensively defined management accounting and presents management accounting innovation in modern organisations. Similarly, the paper has described the various practices of different participants in the company together with their contribution in the process of management accounting innovation. In essence, the discussion provides the roles of management accountants, the relevance of management accounting innovation and its appropriateness, the innovation acceptance, the role of incentives together with innovation acceleration by management accountants have also been analysed. This paper affirms that management accounting innovations have been essential and contribute largely to the success of modern business corporations. References Alcouffe, S., Berland, N., & Levant, Y. (2008). Actor-networks and the diffusion of management accounting innovations: A comparative study. Management Accounting Research, 19(1), 1-17. Cadez, S., & Guilding, C. (2008). An exploratory investigation of an integrated contingency model of strategic management accounting. Accounting, Organisations and Society, 33(7-8), 836-863. Ferreira, A., Moulang, C., & Hendro, B. (2010). Environmental management accounting and innovation: an exploratory analysis. Accounting, Auditing & Accountability Journal, 23(7), 920 – 948. Macintosh, N., & Quattrone, P. (2010). Management accounting and control systems: An organizational and sociological approach, 2nd Ed. New York: John Wiley & Sons. Mouritsen, J., Hansen, A., & Hansen, C. (2009). Short and long translations: Management accounting calculations and innovation management. Accounting, Organisations and Society, 34(6-7), 738-754. Naranjo-Gil, D., & Hartmann, F. (2007). Management accounting systems, top management team heterogeneity and strategic change. Accounting, Organisations and Society, 32(7-8), 735-756. Naranjo-Gil, D., Maas, V., & Hartmann, F. (2009). How CFOs determine management accounting innovation: An examination of direct and indirect effects. European Accounting Review, 18(4), 667-696. Rikhardsson, P. (2006). Implementing environmental management accounting: Status and challenges. California: Springer Publisher. Schaltegger, S. (2008). Environmental management accounting for cleaner production. New York: Springer Publishers. Smith, M., Abdullah, Z., and Razak, R. (2008). The diffusion of technological and management accounting innovation: Malaysian evidence. Asian Review of Accounting, 16(3), 197 – 218. Read More