Management Accounting in Gulf Cooperation Council Countries - Annotated Bibliography Example

Critical analysis Name: Class: Unit: Introduction Accounting Based Management and Costing (ABM/C) have been gaining a lot of prominence from both the practitioners and researchers. ABC was developed to address the flaws that are associated with the traditional cost accounting systems (Horngren, 1995). ABM is based on the ABC systems and enables the organisation to accomplish its missions with low use of organisation resources. It improves the value received by customers and the profit (Armstrong, 2002). This paper is based on critical analysis of three articles based on ABC and ABM. The first article is based on ABC in the healthcare industry, the second article is based on measuring & managing patient profitability and the last on the management accounting in Gulf Cooperation Council Countries. In conclusion, the relationship between the three articles is discussed. Article 1 Lawson, R. A. (2005). The use of activity based costing in the healthcare industry: 1994 vs. 2004. Research in healthcare financial management, 10(1), 77. According to Lawson (2005), ABC has been developed with an aim of reducing the weakness associated with the traditional absorption costing. The method as evidenced in the article has the ability to assign costs to products and services according to what they consume. The paper makes a comparison between results of a survey on activity based costing with the results of a similar survey which was carried out ten years ago. From the paper, it is clear that use of ABC/M has been on decline on the healthcare organization with the healthcare sector remaining on average unsatisfied with the techniques. According to Armstrong (2002), ABC/M is seen as difficult and has high costs. Moreover, it appears that the healthcare organisations have not succeeded in transiting from the ABC to ABM which had reduced the benefits to be attained. As asserted by the author, application of the ABC is not an easy task. First, all activities are expected to be broken into discrete components. Moreover, the information required by the ABC may not be readily available and hence may have to be calculated for this purpose. As the author explains, the rise in costs of providing healthcare in United States calls for identification of the causes of increase and ways to effectively utilize the healthcare resources available. ABC is one of the tools which were examined for this purpose (Lawson, 2005). It is clear that with the familiarity of ABC/M on increase, there have been a decline in its use over the same period which is contrary to expectations. The low usage is despite the fact that ABC has a high value in comparison with other performance management methods. This is supported by Armstrong (2002), who asserts that the method has the ability to lead to a better understanding of the organization operations, and gives vital costs information compared to the conventional tools. Despite this, ABC/M faces main challenges in its implementation which includes costing, data processing concerns and absence of management commitment. In agreement with author conclusion, there is need for organisations to focus on both costs and management. This can help organisations to attain substantial performance improvement. When an organisation focuses primarily on the costs, they fail to gain the full potential of activity based management. According to Lawson (2005) implementation of ABC/M has a lot of potential benefits provided an organization is ready to make changes necessary to achieve them. It is possible for the healthcare system to save costs and enhance customer satisfaction is ABC/M is implemented using the right methods. Article 2 HFMA. (2017). Measuring and Managing Patient Profitability. Hfma.org. Retrieved 4 June 2017, from https://www.hfma.org/Content.aspx?id=53297 Through use of value focused healthcare, it is possible to enhance the profitability of the enterprise. The healthcare sector is under pressure to deliver value as emphasized on this article. This is what calls for creative and intelligence management of expenses, time and resources. Low costs, high quality services are required which is a critical aim for the transformation in line with the article argument. It is true that healthcare providers are expected to know their patients in the same way as commercial firms know their customers (HFMA, 2017). This is where management accounting practices comes in. it involves the ability to transform the healthcare costs structures (Armstrong, 2002). This is where the financial managers have to look at the costs rather than just the revenues. HFMA (2017) asserts that ABC has the ability to enhance healthcare growth as the focus shifts to the value-based care. ABC has the ability to enhance value from the patient and provider perspective. It involves shunning accounting practices which have no ability to report services, treatments, steps and profitability of the patient. Through use of ABC/M it is possible to come up with the right mix of patients and service volumes that will lead to maximum profits and growth (HFMA, 2017). ABC makes it possible to economically and accurately trace the consumption of resources and expenses in the healthcare. ABC is required to ensure that there is efficiency and value in the health care system. Despite the excuses for not adopting ABC, the analysis of this article shows that it is vital for healthcare providers. This is especially in comparison to the benefits associated with ABC. This is supported by Armstrong (2002) who claims that using the traditional costing violates causality principle. There is need for having a good ABC system with appropriate design and architecture of its cost assignment network. Healthcare systems must go beyond using the ABC for calculating the patient profitability to using it for better decisions and resource allocation which can improve profitability. According to HFMA (2017), there is a need to use the ABC profit and loss statements to examine individuals’ services and materials purchased in more details. It is clear from the article that use of ABC can lead to superior profitability analysis. The system enhances their awareness on their processed costs, outputs and associated expenses. This is a great way to enhance efficiency in health care, lead to better management and uphold sustainability. Article 3 Joshi, P. L., Bremser, W. G., Deshmukh, A., & Kumar, R. (2011). Diffusion of management accounting practices in gulf cooperation council countries. Accounting Perspectives, 10(1), 23-53. From the article, modern accounting practices have already replaced the traditional methods. Despite this, there is still low adoption of management accounting practices in costs management and strategy as evidenced in the publicly listed firms in the Gulf Cooperation Council countries. Joshi, Bremser, Deshmukh & Kumar (2011) asserts that organisations which have already adopted MAPs have been able to attain success. Moreover, there is global convergence of management accounting tools and ideas. This is at a time when cultural differences are diminishing. The adoption of MAPs helps in eliminating the flaws in traditional accounting techniques. The limitations of traditional management accounting can be easily addressed using the modern methods. This has been proved by various studies. From the article, it is clear that the firm size is a vital indicator for the adoption of MAPs. For the firms which have already adopted MAPs, they have been able to gain a lot of benefits. From the research, it is clear that the adoption of MAPs in GCC is still low on management and strategic valuation. The highest adoption rates are in the cost management in Total Quality Management, ABC and ABM. Moreover, there is moderate adoption of all types of MAPs in performance management sector. This can be associated with the fact that corporate sector firms are slow adopters (Joshi, Bremser, Deshmukh & Kumar, 2011). Power and politics plays a vital role in the management accounting change as seen in the case of GCC countries. They are the main cause for lack of adoption in comparison to the economic motivators. According to Horngren (1995) there exists a global tendency to converge in management accounting systems. This is irrespective of the culture as see in the case of GCC countries which are in different cultures compared to the West. The authors prove that management accounting models have the capability to be used in any cultural context with the role of culture diminishing (Joshi, Bremser, Deshmukh & Kumar, 2011). Despite not being conclusive, there is evidence of global convergence of management accounting ideas and tools. This is a clear indication that the role of cultural differences will continue losing relevance with time. Relation between the articles and Conclusion To sum up, the three articles focus on management accounting shows the need for adoption of modern practices despite the existing challenges. This is based on the cost benefit analysis and the need to maintain value, reduce costs and enhance profitability. The three articles shows that ABC as an alternative to traditional accounting has faced low adoption despite the associated benefits. From the healthcare perspective, there is need to focus on both refined costs estimates and activity based management to attain the full potential of ABC. The healthcare system should adopt ABC to ensure that they manage the patients at care while at the same time controlling costs to ensure sustainability. Adoption of ABC can help a lot in reduction of costs, efficiency and enhancing customer satisfaction. As portrayed in all the three articles, the adoption of ABC has been on rise over the last decades despite the slow adoption. The decline in the use of ABC is globally in scope and not only in the healthcare industry as shown in the first and third article. The articles show that it is possible to gain relatively high value in comparison to other accounting techniques. Management accounting using tools such as ABC ensures that there is profitability. A proper utilization of profitability analysis helps a lot in decision making especially in the healthcare organisations. From the three articles, it is clear that an organisation can identify the efficiencies and maximise costs. Despite the challenges in uptake, it is clear that ABC/M is a vital tool on public organisations management. It is possible to come up with a clear picture of the current status of business and how this can be translated to costs and performance. The articles show that it is possible for the organisation to enhance their strategic decision making, operational decision making and planning and budgeting. References Armstrong, P. (2002). The costs of activity-based management. Accounting, Organizations and Society, 27(1), 99-120. HFMA. (2017). Measuring and Managing Patient Profitability. Hfma.org. Retrieved 4 June 2017, from https://www.hfma.org/Content.aspx?id=53297 Horngren, C. T. (1995). Management accounting: this century and beyond. Management Accounting Research, 6(3), 281-286. Joshi, P. L., Bremser, W. G., Deshmukh, A., & Kumar, R. (2011). Diffusion of management accounting practices in gulf cooperation council countries. Accounting Perspectives, 10(1), 23-53. Lawson, R. A. (2005). The use of activity based costing in the healthcare industry: 1994 vs. 2004. Research in healthcare financial management, 10(1), 77-94. Read More