Social Implications of the Planning Function of Management Accounting - Literature review Example

A Critical evaluation of the social implications of the planning function of management accounting Student’s name: Instructor’s name: Course code: Date of submission: Word Count: 2593 Introduction Planning is a very aspect of management accounting. This is because it helps address the important activities of the organization against the prospected cash inflows that will help facilitate the different operations of an organization. It is believed that planning in management accounting is well achieved through budgeting and forecasting. When undertaking planning in management accounting, different factors are taken into account. This is to ensure that the interests of various stakeholders are met. One important aspect that is emerging as a necessity and an inevitable element in planning under management accounting is the social aspect. The social aspect of the business according to Scapens (2006), takes into account the fact that activities of the business affect the general society through the products and services they make available apart from impacting on the environment upon which the business operates. In this regard therefore, social implications are a must consider when undertaking planning in management account. In this analysis, the attention will be about the social implications and how they relate with the planning function of management accounting. The analysis will involve the use of examples from different companies and governments. The ultimate objective will be to try and demonstrate how social implications influence the planning function of management accounting. Social implications and how they impact the planning function of management accounting According to Hopper & Major (2006), responsible businesses always have the attributes that qualify them to be called responsible citizens. This is a behavior that can be noticed from the way an organization carries out its operations. In simple terms, an organization is considered a responsible citizen if it is able to be ethical in its operations by doing what is moral and that pays due regard to the social environment in which it operates. Many organizations in the modern society understand the need to build a prosperous approach that incorporates the society in its operations (Ansari & Jan 1991). This is particularly done by involving the members of the society by availing them with the opportunities will help prosper their future. This is of great value not only to the society by the organization itself as opposed to marginalizing and excluding them from its operations. For instance, large companies with great reputation such as Cadbury Schweppes and Nestle have managed to build strong social responsibility programmes that involve all their employees and the general community in different projects that are aimed at sponsoring different community activities. However, what remains a big challenge for many of the organizations is how to factor in for some of these activities in the planning process and more especially in the management accounting given the fact that they form a reasonable cost to the business. According to Wickramasinghe & Alawattage (2007), there are four major social implications of the planning function of management accounting and which include: the products and services that are made available to the customers and if they meet the customer requirements and the process that they are delivered; the employees of the organization who have the responsibility and opportunity to work with the organization in various projects that support its operations. These social implications have actually been demonstrated by different companies which include: Merck Renews, Union Bank, Kohl Cares, and Wyndham Worldwide among others. The objective of incorporating the social activities in the planning function of management accounting is to help identify what are the major sources of revenue that will help support the social programmes (Hopper et al 2007). This is particularly an issue with it comes to budgeting because of the scarce resources that are available. The products and services that an organization is a major social implication to the planning function of management accounting. This is because it is a core activity of any given organization and tends to affect the general community based on what they access and consume. It is hoped that with proper planning when undertaking management accounting, an organization stands a better chance of recognizing what the customer requirements and best way to meet them. This is particularly important to an organization especially when it comes to brand building (Parker 2012). It is believed that through planning in management accounting, an organization stands a better chance of identifying the various resources that can be made available to facilitate the production of goods and services that meet the customer requirements. However, the road does not end here. For the products and services of an organization to make the intended impact in the society, the means to deliver them to the market for access by the customers is of absolute importance (Bromwich 1990). This leads to a situation where the planning function in management accounting will have to identify the trade-offs between using different supply chain to reach the customers with its products and services. In this case the planning function is actually supposed to strike a balance between the benefits and costs of using different supply chains. The determining factor will be the ease of access products and services by the customers. This is actually an important aspect in planning function of management account since the accounting team has the responsibility of informing the management about the performance progress and the required budget to facilitate timely deliveries (Brignall & Modell 2000). This is a must do social activity for any given organization since it has a direct bearing on its performance which is a major concern for the investors as a very team of stakeholders. In its regard therefore, it is believed that the management accounting team will have played its rightful role when it comes to planning for social activities by trying to meet the expectations of the investors. According to Armstrong (1994), taking into account the kind of products and services that an organization serves the customers with is actually of more value to the investors more than it is to the customers. This is because it in the long run, the nature of products and services and the means they are delivered to the customers will affect sales and consequently the revenue that is generated. This is the case because the customers would like to deal with a supplier who is reliable and trustworthy. Another social implication in the planning function of management accounting is labor. In any organization, labor comprises the employees who have the responsibility and the opportunity to work for it. Like any other stakeholders, the employees also have their own interests which have to be met. In many occasions, most organizations especially those that are owned by individuals or family members, tend to ignore the role of the employees and the need to factor them and their needs in the planning process (Bessire & Baker 2005). This is the case because in many occasions, the level of profits made during a given trading period tops the priority list (Crawford & David 2011). This is despite the much awareness that the owners of the business will be having about the need to treat labor as a very important social aspect that needs to be factored in the management accounting. A good example to illustrate this kind of social implication is The Bangladesh Soap Factory. This is the factory that is largely specialized in manufacturing soap and cosmetic product. After its privatization by the Government of Bangladesh, it was owned by a few families. The major issue that was with the company was the changing of its accounting model is more of Western System. The implication of this model is that the management accounting reports are either ignored or adopted sparingly depending on the interests of the owner. The increased pressure in Bangladesh to privatize most of the state-owned companies came from the World Bank. The motive by the World Bank to pressure the government of Bangladesh is be in line with the recommendation of the liberalization of the world economy for open competitions and foreign capital flow. The argument that was given to support this move is due the fact that there was an outcry that in the public sector accountability lacked and there was limited transparency because there were no strong accounting controls. This is a notion that has been supported by Shahzad &Trevor (2001), who argues that for any economy to be able develop, the markets must exercise high level discipline that is regulated and supported clear changes in the property rights which are all important enhancing productivity and profitability as well as efficiency. According to my understanding this is a very strong argument that must be understood and adopted in all the organizations that have been privatized. This is the case because transparency and accountability will be enhanced with well developed and controlled accounting systems. In the case of The Bangladesh Soap Factory for instance, the planning function of management accounting has the responsibility of highlighting to the management of the company on the importance of adopting the management accounting reports without selecting the specifics parts of the management accounting reports that should be adopted (Sujoko & Trevor 2007). This is especially important because there is an enhanced trend in the Western System where the success of the business is looked at in terms of the productivity and profits without paying due to other factors such as labor which in many occasions is not quantified. By adopting the laid control systems, I do believe that various organizations will come to appreciate labor as one of the most important social aspects whose needs must be met if at all an organization wants to sustain a high level of productivity and profitability. In addition to this, the planning function of management accounting is also responsible for addressing the aspect of management control and culture as well as ethnicity in an organization. These three are among the leading social aspects that are important in management accounting through the planning function. Management control in an organization according to Baxter & Chua (2003) is responsible in determining how the different actions by the individuals and groups are constrained from performing certain actions. It is all about who exercise authority in an organization. Management controls stem from two main sources namely: the regulative source and the normative source. To start with, with the case of regulative management control source, the power to exercise control over the individuals and group of employees emanates from the available policies and standards of the operating procedures. On the other hand, the normative type of control emanates from the agreed pattern of action that is used to govern the employee and the managerial behavior (Chenhall 2003). In the accounting field, management control is related to an individual who has the authority to authorize different transactions. In the planning function, the management accounting team has the obligation of identifying who among the different managers in an organization has the obligation to authorize different actions by individuals and groups. However, this is only possible if the management accounting team has in place a suitable accounting system. In this case therefore, identification of the formal procedures that should be followed when processing orders, production, billing, cash receipts and payrolls are particularly important in ensuring that any form of frauds are prevented. This is because only specific individuals will have the powers to authorize specific transactions. (Arnold 1998), observed that “the employees cannot just be relied upon if the management does not believe in them and delegate authority unto them, they cannot be able to work either. This kind of situation creates the need to have in place a system that can help secure the management and the organization as a whole.” The system may comprise the standardized procedures and documentary flow through different transaction cycles such as selling, purchasing and cash receipts as well as cash disbursement (Dillard et al, 2004). This kind of system according to my opinion is particularly important in ensuring that no single individual has the authority to complete an accounting transaction by himself. What this kind of practice implies is that the management accounting planning team is under every obligation to design a working accounting system that has good checks and balances in places to ensure that there is a standard financial system in place. However, while doing that, there must some precautions need to be taken into account to avoid any unnecessary bureaucracies that slow down the operational processes in an organization. In addition to this, (Luft and Shields 2003), identified culture and ethnicity as some of the social features of the modern organization. Most organizations do have very diverse workforce something that that has come into being as a result of the globalization and liberalization of the world trade under the courtesy of advancement communication and transport technology. Employee diversity according to Quattrone & Hopper (2005), poses a challenge when it comes to performance. This is because of the diverse skills and experiences as well interests. This kind of situation if not handled professionally and with a lot of care, can easily lead to a highly disintegrated workforce as a result of discrimination. One good example to illustrate this social aspect of accounting is the East Java which is a business that is owned by Chinese Indonesian. For instance, the accounting system that is used in the business all forecasting, planning and budgeting relies entirely on the interests of the owner and not the required accounting systems and procedures. This is actually the case because it is consistent with the owners’ values of Confucian. Sujoko & Trevor (2007) argues that this kind of practice is against the spirit of accountability and transparency and therefore, may not account the actions of the managers towards the employees from different cultural backgrounds. This could be well explained in the case of the Sri Lankan Telecommunications where after its privatization and purchase by the Japanese Telecommunications, the new owners demanded that a Japanese Manager be in charge. Even though the Japanese accounting system was used and the company was very successful, not all employees were happy and more especially the old ones. The end result of this unease was the push to have the CEO leave the company for a Sri Lankan one. Finally, Parliament intervened and the Japanese CEO was finally replaced by the Sri Lankan one. This case is a demonstration of culture and ethnicity plays in an organization. This case clearly demonstrates how management accounting is subject to social pressure and more especially from the political class. In the planning function of management accounting, this social pressure from the political class could be addressed by taking into account the available policies and procedures that guide on the process of recruiting and the accountability measures that should be put in place (Wickramasinghe & Hopper 2005. This will help ensure no single individual is discriminated on grounds of culture or ethnicity. Conclusion This analysis was aimed at exploring on the social implications of the planning function of management accounting. From the discussion, it has been established that management accounting is a very important process in any given organization. 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