Concurrence with Collisons Sentiments - Coursework Example

Management Accounting Name: Institution: Concurrence with Collison’s Sentiments In Brush’s writing, (Brush, 1992: pp. 157-171), profit maximization is one, amongst others, of the most important aspects that has to be given consideration in running a business. Many a time, in the current business set up, a business is established with a mind of making profits and as such gives more attention to the interest of a shareholder than other parties taking part in the business... In basic management training, accounts on profits and losses are made a mandatory audit requirement. This alone substantiates the fact that, out of all the variable ways in which the progress of a company can be monitored, a profit and loss record comes in handy. With this kind of notion in mind, it becomes very difficult to convince an accounting and finance apprentice that there are other ways through which a company can be managed apart from just monitoring its profits and losses. Eventually such practises make the aforementioned students train and focus their mind, efforts ,time and other resources on profit maximization which is just but a mere interest of the shareholders. Under such project plans and management goals, other factors of measuring business prowess are given minimal attention if not any. Therefore, it’s in order to agree with Collison’s sentiments that most accounting and finance students are trained to give profit maximisation a priority, because that in real sense is the ultimate goal of any business. Thus Collison (1998:7) says that , ‘... it may be very difficult for accounting and finance students to even imagine of another way in which affairs could be run/managed in a company....’ For instance, co-operative accounting (which is much more similar to financial accounting is the application of accounting principles to co-operative organisations in order to ascertain their financial positions and ensure viable operation), KIE (1966:174) gives more emphasis on certain systems like the use of loose-leaf ledger systems whose components include records on Receipts, Payment vouchers, Invoices, Produce statements, Cash journals/petty cash journals and many more. If the above sentiments are anything to go by, then it would be right to support Collison’s claims because much of the variables used to evaluate a company’s viability as stated above would be cash inflows and outflows which still bring us to the concept of profit and loss accounts. Anything that adds up to profits and losses simply increases the shareholders capital share and as such is centred towards achieving the goal of a single stake holder. The End Effect of Profit Maximisation In an article by Brownell (Brownel, 1982: pp.766-777) management of modern companies, a much more brilliant management system is used. Other stakeholders such us employees, customers, the society at large are given a consideration. A company that operates under Collison’s sentiments would, with time, change their stance from giving more emphasis to profit maximization to embracing other alternative measures of performance. An employee under the earlier mentioned system, with time, would become demoralised. Each human being has an unending quest for self actualisation and if a company is only geared towards obtaining the interest of the shareholder, then demoralisation is likely to set in thus affecting the production of a company. If an employee is forced to focus on profit maximization, then imposed values are likely to be adopted. Companies with a tendency of imposing a type of value to be exhibited by staff members whenever they are dealing with customers or other stakeholders are likely to suffer an adverse effect of demoralisation. This is because such imposed values can never be reflected in the employees’ actual behaviours, as they are not naturally developed within them (Simons, 2004: np) Alternative Measures of Performance In an article in Wikipedia, financial accountancy refers to the preparation of financial statements to decision makers in a company such as, stakeholders, banks, suppliers, employees, government agencies, owners and stockholders. In financial capital maintenance, apart from stake holders, the above mentioned other parties have interests that need to be taken care of in managing a company. Management accountancy’s main purpose is to reduce principal-agent problem by measuring and monitoring agents’ performance and reporting the results to interested users. This helps provide information to those not involved in the day to day running of the company. Thus to a large extent, almost all companies (with time) would move from the earlier stance of profit maximisation to relative consideration of the interest of all agents involved in business transactions of the company because in one way or the other the company’s decisions would affect their daily operation. In this same article, management accounting is said to provide accounting information to help managers make decisions to manage the business. As such it is important that business managers take into account the interest of all parties involved in the business to enable good public relations. Profits alone cannot ensure a smooth running of the company (IMA, 2012:128). In his article, (Reh, 2012:1), defines performance indicators as quantifiable measurements, agreed to beforehand, that reflect the critical success factors of an organisation. These factors differ with the organisation in question. They help an organisation define and measure its progress towards its goals. An organisation has to analyse its mission, identify all its stakeholders, define its goals, and then finally settle on a performance measurement protocol. This brings about the difference in the performance measurement protocols that a business embraces. Therefore, apart from profit maximisation, (keeping records on profit and losses) a company would consider other factors such as; The percentage of its income that comes from return customers. The faster the percentage adopts an upward trend, the faster the business is moving towards its goals. This shows that the income is higher day by day. If it’s a service delivery company, for instance a school, then the rate of turnover/number of graduating students would indicate good service delivery. The more the graduates, the better the services delivered in the school because more students assessed are qualifying for higher levels of study. The higher the number of graduates and the faster they get employed the better. Thus number of graduates and their rate of employment are important to measuring the performance of the school. A customer service/ care department, for instance, may have the number or percentage number of customers calling the department in line with the company’s overall goals as a key performance indicator. The more they are/ the higher the percentage the better. This indicates that the company is striving to meet the demands of its customers. In a social service organisation, a high number of customers/people assisted in the company can reflect good performance on the side of the company because their main goal is to attend to the society at large. In an article, (Ball and Foster, 1982:. 161-234) an organisation that has a goal of being the most profitable company in an industry could use ‘shareholder equity’ and ‘pre-tax profit’ as measurements of its performance. In this given course then the interest of the community in which they operate in is not anywhere close to what they consider as a measurement to performance. Thus performance indicators would vary depending on the goals of the organisation in question. Whatever the performance measurement a company takes will majorly depend on its employees, stock holders, stake holders, customers, suppliers and the expectation of the society under which the company operates. It’s meant to encourage healthy relationships with each and every individual affected by its activities. Justifications of Collison’s Sentiments Collison’s comments are indeed justifications as to why businesses are changing from the old and typical methodology of gauging their performances using profits and losses only and embracing more generalised ways of rating their performance. Barth and Beaver state that, (Barth and Beaver, 2001: 1-3) with improved management systems a blend of peripheral and interior scenarios are used to create tactical foresights of officialdom. The dissimilar scenarios displayed by the agents are used to illustrate possible substitute prospect developments in the exterior milieu, which then enlighten the in progress strategy appraisal and future scheme development. However, with a change in focus away from the market-based hypothesis and towards a supply –based vision of strategy, scenarios can too be used to depict unconventional internal progress paths for a business. These dual scenarios can then be methodically developed and pooled to form noteworthy element of a policy early caveat system (the future score card). This gives prominence on how the external factors of an organisation have influenced its decision making thus changing the management strategy. Examples of Companies That Agree With the Aforementioned Views There are two principles (Davila and Foster 2004:1) of management accountancy that have been widely adopted by companies. They include; The Principal of Causality states that there is need for a cause and effect insights. The Principal of Analogy states that there is need to apply the causal insights by managers in their activities. The two principles serve satisfactorily the managers and customers of the business. Examples of current companies that have adopted these principles include The Institute of Certified Management Accountants in Australia, Chartered Institute of Management Accountants, the International Federation of Accountants and many more. Summary In summary, in his article (Baiman, 1982: 154-213) if any of the sentiments above mentioned are anything to go by then it would be in order to support Collison in his findings. Many companies, due to changing market trends, have adopted the use of the aforementioned agents apart from profit maximization to run the day to day activities if a business. In order to keep healthy relations with businesses, it is wise to take into consideration the interest of all the agents that the day to day activities of the business affect. REFERENCES “Accounting Students Book 4” Kenya Institute of Education, October, 1996 pp.174 John Reh, F. 2012. About.Com “Newyork Times Company, p. 1 Benard M. 2012. “What is a key Performance Indicator”, p. 1 Clinton, B.D (January 2007) “Crisis” ‘Strategic Finance’, pp. 24-30 Collison, D., 1998, Propaganda, Accounting and Finance: An Exploration, Dundee Discussion Papers, Department of Accountancy and Business Finance, University of Dundee. Baiman S. 1982. Agency research in management accounting: a survey. Journal of Accounting Literature (spring): 154-213 Ball, R. and G. Foster 1982. Corporate financial reporting: A methodological review of empirical research. Journal of Accounting Research, supplement 20: 161-234. Barth ME, Beaver WH, Landsman WR. 2001. The relevance of the value relevance literature for financial Accounting standard setting: Another view. Journal of Accounting and Economics 31(1-3) Brownell, P. 1982. A field study examination of budgetary participation and locus of control. The Accounting Review 57 (4):766-777. Brush C. 1992. A comparison of methods and sources for obtaining estimates of new venture performance. Journal of Business Venturing 7: 157-171 "Managerial Costing Conceptual Framework (MCCF)". Institute of Management Accountants. July 2012. p.128. Read More