Accounting and Finance Management - Literature review Example

Literature Review Management accounting practices are now expected to evolve and adapt with changing information requirements. On the other hand, the relevance of discourse has it has been argued in other studies has led to the increase in interest among researchers to explore management accounting with regard to sense making (Laux and Leuz, 2009; Alvesson and Willmott, 2012; Heidmann et al., 2008; Baxter and Chua, 2003). The theory that has often been relied upon in the assessment of the link between management accounting and sense making has been contingency theory especially when management accounting practices are brought in the picture. Relating contingency theory to aspect of sense making, the theory argues that companies or organisations can adopt structures that remain contingent on their particular operating environment (see Järvenpää, 2007). To this extent, management accounting has been considered as an effective instrument only when it it’s the strategy and environment (Ahrens, 2008; Järvenpää, 2007). The challenge with studies that have attempted to relate contingency theory, sense making and management accounting is that have not considered the possibility of negative outcomes that may be experienced as a consequence of, for instance, local optimization or situations when organisations lack strategic focus. A number of studies that have researched on management accounting and sense making on multinational organisations have found evidence to support this position (Lapsley, 2000; Merkl-Davies et al., 2011; Eshraghi and Taffler, 2015; Järvenpää, 2007). A case that presents such argument is a situation when organisations having lean production strategies tending to use stratified and simplified strategic reporting approaches, empower their workers, and in return reduce inventory tracking especially when the levels of their top management are supported highly. Sense Making and Responding Studies have currently focused on the approaches organisations use in responding to sense making. The first approach management accounting adopt in responding to sense making is agility. According to Järvenpää (2007), agility is the ability of organisations to rapidly adapt to changes in the environment. Relating this definition to sense making, studies have reached consensus that sense making in management accounting is where one has the intellectual ability in the identification of aspects or things that s/he can act upon (Lapsley, 2000) whereas responding is the ability of accounting managers to act. Consistent with the aspect of sense-making, studies have considered institutional as well as managerial pushers in the explanation of the decisions firms have to innovate through (Lapsley, 2000; Nielsen et al., 2015). The literatures reviewed thus far suggest that accounting management also need technology as enabling factor towards responding to sense making. As managers and accountants continue to grapple with rapidly changing industries and accounting practices, the ability to change remains key determinant in the success of management accounting. To that regard, Nielsen et al. (2015) noted that a given structure, strategy or process that was once considered to be essential in sense making can become obsolete or misfit in management accounting, and this can take place within the shortest time possible (Nielsen et al., 2015; Lapsley, 2000; Merkl-Davies et al., 2011; Eshraghi and Taffler, 2015; Järvenpää, 2007). Sense Making and Grounded Theory Sense making has been related to grounded theory as studies have affirmed that management accounting are able to relate different aspects of their practices based on the theory (Seal et al., 2016; Harris et al., 2016). On the other hand, studies have considered the adoption of the theory in analyzing the link between management accounting and sense making as the theory remains interpretive for a number of reasons. For instance, Harris et al. (2016) noted that that “instead of focusing largely on describing field members’ processes of sense making activities as well as interactions, the theory is aimed at integrating researchers’ interpretations and understandings, and thus attempts to develop theoretical explanations that represents processes and structured that can be observed” (p. 372). The challenge in the integration of this theory in the understanding of management accounting and sense making is that scholars supporting the theory have attempted to assume the responsibility of interpreting different data, rather than simply making a report on such data. Another point of concern about this theory is the argument from studies such as Livne and Yonay (2015) who have noted that ground theory is able to generate the theory and at the same time generate the theory. The best way to understand this position is to develop a framework that test whether the methodology is able to allow different actors’ meanings and perceptions to emerge. Practitioners of grounded theory have argued that studies which have begun their researches on pre-defined operational variables that have been developed from positivist point of view have excluded the possibility of identifying two aspects: a more sensible analysis of the link between patterns and variables and categories of data or variables (Livne and Yonay, 2015; Lapsley, 2000; Merkl-Davies et al., 2011; Eshraghi and Taffler, 2015; Järvenpää, 2007). These findings are considered in this study as essential in the process of considering when to conduct a research in the fields such as SMA that entail complicated human interactions in the setting of organisations that are not know to the researcher. Contemporary studies that have investigated management accounting and sense making in countries such as United Kingdom, Australia, Canada and United States of America have noted that this theory is able to capture different levels of social phenomena since the theory has been grounded to emphasis on the development of different concepts and their connectedness to management accounting (Modell, 2015). The view of linking the success of management accounting to sense making in organistions have been researched by scholars such as Carlsson-Wall (2015) who have noted that there are different scenarios to which the theory have been suited. In particular, the theory becomes essential in areas where there has been comparatively paucity of information regarding a reality or phenomenon or cases where the reality known about management accounting remain multifaceted. A clear case of such situation is what Carlsson-Wall (2015) researched when he argued that the area of accounting management had not established a theory that could help in explaining the accounting scenario. The challenge with these scholars is that they have not provided premise to which grounded theory can be used especially where there are management accounting scenarios where existing theories have not been able to provide explanation for a given set of situations or circumstances. What remains significant among these studies is that grounded theory remains essential as far as management accounting and sense making is concerned because the theory ensures that the theoretical constructs that can arise out of the research theory can be based on the understanding as well as values that the economic players attach to important themes and concepts that explain economic, accounting and financial theory. Other studies such as Collier (2015) has exhorted the importance of accounting theories and in particular, grounded theory especially in assessing grounded theories of budgeting aimed at examining changes in the control of organisations as well as the cultural contexts in which firms have existed (Collier, 2015; Carlsson-Wall et al., 2015; Modell, 2015). Carlsson-Wall et al., (2015) adopted this theory in the process of change as far as Crown Financial Statements that was related to public accounting in New Zealand was concerned. The weakness of incorporating public accounting in the investigation of the theory is that such studies have failed to capture aspects such as negotiated order perspectives concerning public sector accounting as well as financial control. It is perhaps for this reason that studies such as took the initiative of investigating accounting practices among religious organizations taking case studies of countries such as Malaysia. Furthermore, a study on accounting management that assesses sense making needs to incorporate budgetary practices. While there seems to be reports in this area (budgetary practices) Modell (2015) raised this issue by evaluating the connectedness between grounded theory, budgetary practices, financial controls and accounting habitus in different organisations found in United Kingdom, Malaysia and United States of America. Researches that have investigated the theory in relation to accounting and strategy remain multifaceted. In recent studies, Collier (2015) noted that the use of management control systems in attainment of alignment would only be possible is grounded theory is applied in the understanding of accounting management and sense making. In addition to Collier (2015) work there have been several studies that have suggested grounded theory, premising on field studies in different research sites, that the theory remains essential in understanding of management practices accountants are supposed to adopt in finding clear policy in sense making (Busco and Quattrone, 2015; Hopper and Bui, 2016). In as much as these studies are essential in providing an understanding to the research question and hypothesis, there seems to be lack of data regarding ways in which grounded theory can help studies focus on SMA in firms. As a result, this research addresses this lacuna and as outlined, grounded theory will primarily be used in the development of a theory from data that will be collected from Germany based multinationals instead of developing what can be seen as a priori theory. Consequently, the theory forms the baseline for investigating the link between management accounting and sense making as it is capable of explaining complex social issues, since it stresses the need for accountants to develop different concepts as well as the linkages related to such concepts. Sense Making as Core Phenomenon The core issue or phenomenon that studies have recognized to be underlying management accounting processes has been sense making (Butler and Ghosh, 2015; Collier, 2015; Carlsson-Wall et al., 2015; Modell, 2015; Kenworthy and Verbeke, 2015). In as much as previous section have discussed the underpinnings of sense making in different accounting contexts, in management accounting sense making is placed as mental activities management accountants resolve to with regard to strategic contexts when they are making attempts to conceptualise the situation they are faced with as individuals or companies (Collier, 2015; Carlsson-Wall et al., 2015; Modell, 2015; Kenworthy and Verbeke, 2015). However, there is general consensus among studies that as far as core phenomenon as concerned, the scope of sense making within accounting management remains complex. It therefore means that data analysis will have to focus the aspect of sense making as a process where accountants increase their conceptualization of strategic situation thus enhancing organizational transparency. As a matter of fact, previous studies agree that accountants’ search for understanding and transparency was due to the inherent complexities found internally and externally within the contexts of strategic situations and in the execution of management accounting (Livne and Yonay, 2015). It therefore remains that these studies see management accounting as the avenue for organizational function in the process of creating understanding of strategic situations and creation of transparency as far as accountants are concerned. For years now, management accountants have been in search of the processes of mapping complex cause-effects that provides solutions to organizational actions. For instance, Cooper and Kaplan (1988) noted that accountants were in need of understanding the impact of organizational behaviours and actions when it comes to performance as well as profitability if management accounting practices were to be maximized. The urgency to understand sense making as core phenomenon was exhibited during the project that was conducted by the corporate controlling unit with the aim of the project being to make an assessment on whether a firm-wide standardized management performance indicator system was able to be set up so as to provide the needed information on essential issues and their connections to each other. In a given strategic management accounting situation, the process of sense making as core phenomenon was underscored by purposeful actions that were resorted to by management accountants so as to conceptualise what was going on in their organisations (Eisenhardt, 1989b; Cooper and Kaplan, 1991; Cravens and Guilding, 2001; Cutcliffe, 2000; Daft, R.L. and Weick, 1984). This processes introduced yet another dimension of sense making studies called ‘constant sense making’ (Cravens and Guilding, 2001, p. 73). According to the study, constant sense making insinuates identified management accounting routines and practices such as analysis and reporting of different costs. With regard to the ad hoc situations management accountants are often asked to make sense of a given situation. Giving example, Cravens and Guilding (2001) argues that in case the meaning of the potential acquisition of a competitor firm was evaluated, then management accountants will have the responsibility of making sense of the meaning of such steps to the general operations of the acquiring company, thus being able to draw both external and internal information (such as reporting and cost information) that help in decision making or sense making. In a different study, Dent (1990) has argued that most ad hoc sense making processes have been triggered by someone enquiring the management accountant to make an evaluation of a given activity. Within this context, it has been found possible that management accountant can distinguish the link between two categories of sense making (Dent, 1990; Cooper and Kaplan, 1991; Cravens and Guilding, 2001; Cutcliffe, 2000). The first aspect is the conceptualization of what the given situation means to the individual facing the situation. Such case entails the assessment of repercussions or consequences of the task to the person or individual, as much as getting an understanding of the task one was trying to attain. The second level or aspect of sense making has been found to be focusing on the situation the organization as a whole or some parts of the organization is facing (Dent, 1996; Dermer, 1990). According to Dent (1996), this aspect was not straightforward idea, noting that sense making could be new completely and there may be no guidelines available regarding how to undertake the process of sense making. Strategies for Interactional Sense Making Organisations or companies that have been focused on management accounting and sense making for multinationals companies have embraced the need to understand approaches that are essential in understanding interactional strategies for sense making. Eisenhardt (1989a) begin this argument by admitting that interactional strategies contribute actively in the process of sense making processes. Differently, Hopper and Bui (2016) discovered concepts such as ‘bridging and contextualizing, structuring and harmonizing’ to explain the connection between management accounting and sense making within the context of multinational organisations. Studies that have focused on structuring and harmonizing agree that the concept indirectly and directly contribute towards sense making processes by permitting information to become more understandable and coherent to management accountant (Butler and Ghosh, 2015; Collier, 2015; Carlsson-Wall et al., 2015; Modell, 2015; Kenworthy and Verbeke, 2015). This understanding has become basically essential in the strategic and management context especially in the reduction of the inherent complexities accountants have been grappling with in sense making of multinational organisations. On the other hand, studies have found that management accountants have been constantly been using structuring and harmonizing approaches when they are faced with information that has not been comparable and as a result, could not be analysed (Butler and Ghosh, 2015; Kenworthy and Verbeke, 2015). Practical case of this situation is when information came from sources that remain external to the firm or in cases when information were not compiled in the same way the rules of accounting would demand or prescribe. From the one hand, these studies recognize that for the information to be comparable there was need to organize then information in the same systematic approach. On the other hand, the internal context remains to be the most essential approach of triggering structural and information activities. In summary, these studies have succeeded in showing that management accounting benefited from structuring and harmonizing activities since accounting could be able to provide succinct structure to firms’ organizational life by putting activities in a given plan relatively clear in terms of cost centers and accounting statements among other aspects. Bridging and contextualising entailed bridging of accounting information across time as well as contextualization of information across space. Modell (2015) argues that bridging and contextualizing remains the most representative concept of sense making in management accounting. In particular, the aspect of sense making is often made by giving comparison to some similar phenomena. For instance, there can be comparisons between one company and a competitor and across time with regard to the past and future (Livne and Yonay, 2015). On the other hand, bridging has been conducted in the process of relating actual information to present, future or past information, like management reporting sheets that can fit more than one organization. References Ahrens, T. (2008). Overcoming the subjective–objective divide in interpretive management accounting research. Accounting, Organizations and Society, 33(2), 292-297. Alvesson, M., & Willmott, H. (2012). 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