Social Implications of the Controlling Function of Management Accounting - Essay Example

FACULTY OF BUSINESS, GOVERNMENT & LAW Assignment Coversheet Student ID number Student Name Unit name Unit number Name of lecturer/tutor Assignment topic Social Implications of the Controlling Function of Management Accounting Due date Word Count You must keep a photocopy or electronic copy of your assignment. Student Declaration I certify that the attached assignment is my own work. Material drawn from other sources has been appropriately and fully acknowledged as to author/creator, source and other bibliographic details. Such referencing may need to meet unit-specific requirements as to format and style. I give permission for my assignment to be copied, submitted and retained for the electronic checking of plagiarism. Signature of student: Date: (Students submitting work electronically can type their name in the space for signature above, but must produce a signed copy of this coversheet on request.) Date of submission Social Implications of the Controlling Function of Management Accounting Introduction Controlling elements of management accounting are important for several reasons such as encouragement of effective and efficient resource utilization for the optimization of company actions, protection of the inventory as well as the assets of the organization, and ensuring the laws and regulations in place are followed (Kaplan & Atkinson, 2013). It is for this reason that management comes up with systems that provide insurance of direction for the achievement of the set goals for the organization. To this end, control refers to periodic or permanent analysis of activities with the aim of providing measures for improvement. It entails an analysis dimension, verification dimension, corrective actions’ initiation, a reflection on the economic world evolution, and dominance of internal as well as external contexts of the organization. In conducting the controlling function, management should check whether the activities of the organization are conducted according to the adopted plans. Controlling elements of management accounting have several implications such as social, cultural, and political. This essay aims a critically evaluating the social implications of the controlling function of management accounting. Characteristics of Control Control is a representation of continuous incorporation and integration of operations. This consists of several action processes and the means that are continuously developed in a simultaneous manner. Its existence should be part of the system used in coordination and regulation management for development of initiating operations. The control is used by managers as support for leading the organization in completion of the planned objectives (Merchant & van der Stede, 2011). Adequate control aims at setting objectives and applying mechanisms as well as monitoring and evaluating management. Beside the financial and technical means, control is an important instrument to be used by management in fulfilling the organizational goals. In relation to the effort of the organization, actions of control need to be undertaken if benefits arising from these activities are more than the costs used in developing them. In most circumstances, management is never willing to introduce ideal systems with high costs that may lead to collateral losses. Control is made up of inherent restrictions. Internal control mechanisms may never be valued as the perfect means despite their application and design. For example, if the most appropriate system is conceived, efficiency will depend on the reliability and ability of the user. The control concept needs not be idealized or generalized. Managers need to develop systems of control that may put into consideration several risks exposed to the organization. Elements of Control The control system of an organization is made up of five elements that include the control medium, risk management, information and communication activities, supervision, and control as discussed below: The control medium is a pillar to internal systems with the task of protecting, constraining and determining other control components. The lack of adequate control medium may lead to a slight probability of control efficiency by other components despite their quality. Control includes procedures, policies and actions that reflect attitudes used by owners, members and management of the organization (Mumby, 2005). The control medium, as well as the system of control, is influenced by several factors such as the culture of the organization, the structure of the organization, the system of information, management of human resource, and the style of management. In risk management, all organizations face different risks that arise from external and internal sources that need to be managed. Management is required to respond to the challenges of creating mechanisms for identifying and administrating risks that are associated to the changes. Control aimed at particular circumstances will not be efficient if there is an evolution in the circumstances. Therefore, control needs to focus on important activities that externally and internally scan the organization’s medium. In information and communication activities, the flow of information is important for the system of control (Gossett, 2009). In the information system component, the subsystem of accounting information is the most important for controlling and planning the organization’s economic activity. This is because the information subsystem of the company is the most developed and of high accounting information volume. Therefore, the nature of most information that spreads in the organizational system is economic with an accounting nature. On the other hand, Communication in an organization is important for settlement of responsibilities, provision of optimum control and a precise limitation to tasks and authority. Excess information that results from the transparency illusion, mystification by attendants, and full intensity of information may lead to delayed and uncontrollable effects. Supervision of activities refers to periodic or permanent evaluation of the quality of control functioning that is performed by an organization’s management for determination of whether its mechanisms are applicable in accordance with the regulations that have been enforced and whether there are necessary modifications when circumstance changes are dealt with. The most crucial aspects of activity monitoring are decided by major supervision activities that are developed in a company, with an influence on mechanisms of control. In addition, an organization’s size determines the impact applicable and the specific mechanisms of control. Therefore, organizations that are both highly developed and developed depend on impersonal, highly formalized and feedback control mechanisms, while organizations with less development are empirically controlled and follow the laid down elements and principles. Control activities represent several procedures and policies while providing facts that the achievement of goals requires the adoption of necessary measures for dealing with potential risks (Mumby, 2005). To this end, there are five different types of control activities, adequate registration and elaboration of documents, and independent norm application verification and achievement of results. Of all these types of control activities, verification of independent norm application and achievement of results is of importance. It is made up of rigorous, comparative and anonymous examination of other categories. Also, there is a need of independent verification because control is gotten used to with time where there is no periodic verification mechanism. The verification’s category includes control of preventive financial, review of accounting and financial verification as well as control of administration, and control of quality among others. There is a norm of employees forgetting to apply the norm or a deliberate refusal of applying the procedure or becoming careless when they are not verified. Social Implications of Control No matter the competitiveness of control mechanism, there might be the existence of planned or accidental errors (Gossett, 2009). The investments of stakeholders are protected and their value conferred through the hiring of expert managers. However, Indices of performance fulfill the functions of indicating whether there is short term control of the company and whether there is a generation of long term value. Generating values do not encourage activity, restrain and cost diminution for growth and investment detriment, but financial control enforcement does. In addition, excessive control destroys the value for clients and stakeholders, leading to an eventual loss of competitiveness for employees. The analysis and design of the performance index system for the achievement of a balance between the assumption of operational risk and managerial control may be fundamental but a fragile success condition. In the control process of an organization, there is existence of competing interests between workers and managers. Managers aim at maximizing on the productivity of subordinate employees in return for a low cost of the organization. On the other hand, workers aim at finding ways of maximizing how they are compensated while putting in less effort. While subordinate and superior employees come to an agreement regarding certain interests, they reproduce, transform and create the organizational context for interaction. In technical control strategy of an organization, machines are used in directing the production pace rather than employees being told how to work. Technological devices are also used in evaluating the extent of deviation from the tasks assigned or policies of the organization are violated (Gossett, 2006). In this case, workers are likely to receive information regarding discipline from inanimate devices rather than from supervisors. Technical control ensures messages on management are mediated using external devices and this is a limitation to the worker’s ability of resisting or questioning directives. Bureaucratic strategies of control rely on system rules in influencing the behavior of members while facilitating collective action. Technological control has the capability of working well in the regulation of behavior, but this may not be the most effective strategy to be used in influencing behavior, most particularly, in managerial staff and knowledge workers. On the contrary, organizational leaders try to direct these worker’s behaviors through creating systems of rule define how specific tasks are performed and how decisions are made. Bureaucratic strategies of control may be used in evaluating the compliance of members with the directives of the organization. Finally, policies of an organization may discipline the behavior of members. Despite the physical presence of supervisors in the environment of work, strategies of bureaucratic control, reduce the effort and time needed for management of subordinates. In the absence of supervisors, the impersonal force of a well designed system of rule extends to all the organization corners in the provision of a rational and consistent managerial control basis. In the strategies of cultural control, the behavior of members is influenced through the social and communal organizational life aspects. A disadvantage of the bureaucratic control is the inability of having rules in every situation. Strategies of cultural management address this challenge of control through the persuasion of workers to make decisions that are organizationally appropriate despite the lack of a rule system for guidance. Employees are encouraged by organizational leaders to embrace values of an organization and utilize the same as a guide to individual behavior in the environment of work. Subordinates are encouraged by cultural control to create personal connections with their colleagues and create loyalty, for the benefit of the organization. This is a strong technique of management but requires members to have a regular interaction opportunity with one another for maintenance of a cohesive community sense and the environment of work. Concertive organizational control is reliant on participatory techniques of the organization such as team work management, empowerment in the workers and the promotion of strong ownership feeling (Gossett, 2006). In this system, employees work together for the achievement of organizational goals. Members are encouraged to control their behavior as well as take responsibility regarding the action of others in the organization to benefit. Since members are encouraged to create their regulations and rules, they have an idea of the areas of weakness. As a result, there is cooperation in the closure of gaps and reduction of resistance. Conclusion Control in management accounting has several benefits such as encouragement of effective and efficient resource utilization for the optimization of company actions, protection of the inventory as well as the assets of the organization, and ensuring the laws and regulations in place are followed. Adequate control aims at setting objectives and applying mechanisms as well as monitoring and evaluating management. Besides the financial and technical means, control is an important instrument to be used by management in fulfilling the organizational goals. All organizations face different risks that arise from external and internal sources that need to be managed. Putting into consideration that circumstances such as industry, operations, judicial, and economic evolve, management is required to respond to the challenges by creating mechanisms for identifying and administrating risks that are associated to the changes. Understanding the weaknesses and strengths of various strategies of organizational control requires the establishment of a framework for the examination of control from the perspective of communication. Also, different approaches for studying organizational control need to be examined in illustrating the approach of different individuals regarding the process. In addition, different strategies of management should be compared in illustrating evolving practices of organizational control. References Gossett, L. M. (2006) Falling Between the Cracks: Control Challenges of a Contingent Workforce. Management Communication Quarterly, vol. 19, pp. 376–415. Gossett, L. M. (2009) Organizational Control Theory. Encyclopedia of Communication Theory. Thousand Oaks, CA: SAGE, 706-10. Kaplan, R. & Atkinson, A. (2013) Advanced Management Accounting: Pearson New International Edition (3rd Ed), Harlow, UK: Pearson Education Limited. Merchant, K. A. & van der Stede, W. A. (2011) Management Control Systems: Performance Measurement, Evaluation and Incentives (3rd Ed.), Upper Saddle River, New Jersey: Pearson-Prentice Hall. Mumby, D. K. (2005) Theorizing Resistance in Organization Studies: A Dialectical Approach. Management Communication Quarterly, vol. 19, pp. 19–44. Read More