The Future of Management Accounting - Coursework Example

 The Future of Management Accounting Abstract There are many different factors that classify strategic management accounting from the traditional role of management accounting. The level of involvement with externalities along with how the knowledge gained from accounting practices is applied to strategy development make sharp differences between the two functions in a business. Strategic management accounting involves more complex and abstract philosophy, using traditional cost and labour estimates, whilst management accounting is very tightly connected to production capabilities. This paper identifies the difference between the two roles in order to identify whether management accounting will evolve into a strategic function over time. Introduction No. The future of management accounting does not lie in the strategy angle of linking business goals with internal cost components. There are fundamental differences associated with management accounting practices and those calling for strategic management accounting. Germain Boer, professor from Vanderbilt University, offered his concerns about what is being taught in courses related to management accounting and that provided by actual profession (Cable, Healy & Mathew 2009). Textbook lessons regarding management accounting are missing, in this expert’s opinion, emphasis on cash flow analysis and decision-making (Cable et al). There are traditional accounting methods used in this role. Clinton& van der Merwe (2006) identify the roles of management accountants to include monetary reflection of operations and sustaining the processes of generic management planning and control with appropriate adaptive strategies and corrective actions. It is linked also to the performance measurement systems and distribution or consideration of rewards (Clinton et al). All of these systems are internalized and do not extend much beyond line management roles and identifying new methods to link systems knowledge to actual business operations. The actual role of a management accountant is defined by their relationship within the organisation and the level of knowledge they maintain regarding senior-level function and administration. Kittredge (2009) provides one functional management accounting role to include regulations and compliance with a focus on systems integrity. These are operational components that link the management accountant with a very visible member of the organisation in areas of production and similar line leadership. Concepts of MA and SA Bellis-Jones (1998) associates management accounting with a role that is rapidly providing quantified visibility of what is occurring in an organisation and works as a complementary agent for supporting change. The role is so closely connected to operational strategy that functions to a mid-level degree somewhere in a tier between human resources and proper line leadership. Common equations used in the role of management accountant include estimations of economic order quantity by performing a complicated series of cost per order versus carrying costs and costs per unit (ICWA 2009). This information is provided by the Institute of Cost and Works Accountants of India and was prepared as a study guide for Junior Accountants Officer Examination supported by the Controller General of Accounts. It is very in-line with production and the roles associated with line leadership in a way that creates functional inter-linkage between cost knowledge and line activities. Strategic management accounting consists of lean control systems, benchmarking, profitability analysis, cost allocation, governance and strategic audit (cmaindia.net 2009). These are actual curriculum plans from the Institute of Certified Management Accountants when the focus of the lesson is strategic cost management. Strategic management accounting is not so inter-dependent on production and operational elements since it extends beyond the internal and is related to the external competitive environment. Strategic management accounting is about providing shareholder value, whilst management accounting is about providing stakeholder value. Brewer (2008) supports this idea of stakeholder value creation. A relevant leader in financial management reflects on a previous opportunity to chair on several governing councils where experts assembled to discuss current issues related to management accounting. When referring to the events, discussion about complacency and internal governance, in comparison to a syllabus, were key thoughts about strategic management accounting (Joachim 2010). As though the master of a curriculum that is self-constructed to achieve a broader aim of motivating leadership in others, the strategic management accountant considers long-term approaches and the impact of future decision-making both cost-related and in a sense philosophical. How is this supported? Strategic audit was identified as a role involved in strategic management accounting as offered by the Institute of Certified Management. Auditing in this fashion requires intensive knowledge of systems and externalities, as well as the impact on the organisation. The customer is seen through a much different lens in the role of strategic management accounting than its counterpart, the management accountant. Management accountants consider product and profitability at its foundation, along with marketing strategies, total quality management, and technology (Fung 2006). The strong dedication to leadership in the role of strategic management accounting puts control over systems rather than individual processes needed to attain a goal at the operational level. Criticism/Limitations/Weaknesses Stakeholders from a practical view entail all of the different individuals that support the business function, from the internal employee to the community and buyer levels. Stakeholder value is closely associated with production and line leadership when internal changes to process are created so as to create a better service or product for the buyers. Management accountants, though in touch with cost, optimize stakeholder value by coordinating value resources with line elements and the functional divisions that drive operations. Strategic management accounting is about reviving systems that are challenged and considering broader market needs related to public image or other high profile business scenarios. One author even goes so far as to proclaim that such governance will be “challenging the big boys” (Tilley 2010, p.51). In the role of management accountant, the job requires knowledge of the foundational elements that drive productivity and linking it to human resources. In the role of that conducting strategic auditing systems coupled with dedication toward broader external market needs, the function of curriculum rather than simply management accounting role create the gap in role identity. Offers one expert offering knowledge designed to assist in strategic management accounting, “in fast-changing environments it may be unrealistic to effectively undertake the full strategic planning process. Instead it is more practical to develop a short-term strategy based on the consensus of opinion of major stakeholders” (Simpson 2007, p.4).One model proposed in relation to strategic management accounting is freewheeling opportunism, in which there is no formalized approach to strategy formation. Directors move business direction by taking opportunities as they arise, thus requiring a flexibility and adaptive behaviour to changing market conditions (Simpson). The high level of controls and equation modelling required by managers in management accounting are intensive and time-consuming, plus further being linked with operational processes. Strategic planning is unrealistic to take to its furthest ends because of the many demands placed on strategic management accountants, therefore a middle-layer engineer is required to handle management accounting with less focus on external consultation and adaptive behaviour modelling. Joachim (2010) again offers strategic management accounting practices as encouraging members of the next generation to engage in the business’ momentum. Strategic management accountants are in a mentor type of role in an effort to enthuse others to gain new perspectives, adapt to change, and take this leadership forward. This requires having a comprehensive understanding of foreign cultural values and ever-increasing globalization pressures. The process of handling performance measurement and reward systems is an in-depth consultation process in which employees must be handled according to their values and with certain operationally-driven expectations for interpersonal relationship development. With superior roles such as auditing, understanding external public and community opinion, and linking this to long-term capital investment projects, there must be a distinguished role identity for the strategic management accountant. A company in San Francisco, SuccessFactors, developed what is referred to as Employee Central. A new HRIS system to gather basic employee information and then store the knowledge to create new profiles and virtual social content for collaboration and communications (Frauenheim 2009). These are factors left to the management accounting role especially in tightly-controlled production environments where complicated equation modelling is necessary to understand both lead times and the ability to meet demand. The complicated steps associated with strategic management accounting require a more concentrated time investment than the traditional management accountant by representing functionality of the business as a whole. Corporate governance responsibilities include strategic planning, risk management system development and capital investment strategies (Epstein & Roy 2010). Annual budgets and new policy development are located at these layers of the business. In order to qualify as a strategic management accountant, one would have to understand the dynamics of the role, its identity within the culture, and maintain comprehensive knowledge of external demands. What was meant when Clinton suggested the role of management accountant included monetary reflection of operations? This was meant to inform the reader that cost analysis would be included in the job role with a fundamental understanding of what individual job roles require. The inter-linkages between support workers and production are noticeable in larger businesses and mixed within this is a complex pot of human behavioural needs that require long-term investment in coaching and mentoring. The management accountant’s primary goal of maximizing cost and productivity is hindered or expedited by employee behaviours and their psychological role within dynamic support systems. These are, in a practical sense, micro-managing situations that would forbid further ability to conduct strategic audits and consider the nature of long-term strategic intention related to external market characteristics or cultural preferences. Strategic contributions of SMA Just in time technologies are operational issues requiring a cyclical process of special project launch. However, the management accountant ensured that these systems were incorporated by understanding the relationship between productivity and cost. Marginal or exceptional cost savings in these divisions would be exceeding the expectations of a management accountant. Extension of a product within its intended life cycle for greater revenue production would be a by-product of management accounting expertise. There is a certain quantitative structure to the management accounting role that, by definition, holds restrictions about the flexibility that would be allowed in the role. They are bound by statistical analyses related to profit with secondary concerns regarding the role of human support workers in achieving the ultimate goal. Management accounting cannot evolve beyond its current title and visibility in most organisations simply due to time management issues and the importance of operational micro-management to their objectives. With such a high emphasis on shareholder value, rather than stakeholder value, the two roles become absolutely polarized. Management accountants work within a tighter budget since the majority of their responsibilities include lean production, cost management, process controls, and triple bottom line accounting (cmaindia.net). The variables that interconnect with cost recognition systems entail advanced knowledge of fundamental mathematics and how to interpret process control systems. The cyclical nature of business development related to operational performance models would characterize the management accountant role. It is simply unrealistic to believe that management accounting would necessarily lie in strategic management accounting. Governance implies a sense of strategy development that is dependent on expertise that can adapt in the face of uncertainty. The operational environment is relatively static, meaning that most elements are predictable unless special projects are introduced into the environment. The majority of the work associated with management accountants is equation-dependent with a practical understanding of how to link internalized business with measurable outcomes. The role of strategic management accountant however cannot afford to be static and must move according to their assessment planning tools and benchmarking score cards to stay in-line with market movers and shakers. Planning and control is much more suited, and by design, for the management accountant role. It is a limited role in terms of broader decision-making, therefore one is not dependent on the other to function successfully. Both roles have an emphasis on cost, however strategic management accounting considers budget from a different perspective than the other role. The aim for the management accountant is to oversee the enterprise from an improvement and optimization lens (Clinton & van der Merwe). Though there are some adaptable elements to the management accounting role, the need to be tightly coordinated with internal politics and production structure are inseparable. Cost measurement is usually at a different level for the strategic management accountant, with the management accountant focusing primarily on internalized cost data. This role must grasp the concepts of knowledge management and human resources proficiency in order to secure motivation to meet standards outlined through management accountant analysis. This leaves no time to challenge the big boys or consider needs of broader shareholder needs. This is the difference between both roles and it further supports why strategic management accounting does not hold the future of the more operational role. Management accountants must remain visible throughout the organisation since their strategies rely on cooperative and collaborative environments to achieve their goals. It is founded on relationship-building as a central theme since this will impact their ability to motivate performance. The strategic management accountant would be over-whelmed with these responsibilities and would likely not achieve senior-level strategy development by having their responsibilities restricted to employee belongingness programmes. This may sound a bit ludicrous, however strategic management accounting simply cannot forbid being in touch with external needs in far greater proportion than internal operations. To say that the future of management accounting lies in strategic management accounting would be misunderstanding their design concepts and role expectations. Management accountants use quantitative modelling as their preferred research and measurement tool, taking directives from top management regarding what direction the company wants to go. Management accountants gather and assess all available charts and knowledge literature to formulate a comprehensive plan to assist leaders and managers within the organization to meet the goals. Strategy occurs at the top of the business and by design it is left there. Strategic management accounting assesses the role of externalities in driving forward growth, either using opportunistic models or through adaptive planning strategies with a long-term focus. There is an awareness of monetary importance throughout the organisation and must therefore be ever-aware of the need for control systems and corrective actions in order to ensure total profit or process performance. The consensus of major stakeholders would only come into play for the management accountant if their project were directly interactive with a large client account. The goal is not to overwhelm either role by creating a sort of cross-functionality that would make them co-dependent internal relationships. The strategist would be burdened by the additional HR competencies required that could cost the business considerable funds in a difficult economic environment. Blending role strategies and incorporating HR into external analysis is unpractical and not achievable through known models and conventions. Conclusion Strategic management accounting does not rely on management accounting to ensure its success. This is crucial knowledge for management accountants to understand who are looking to expand beyond their current role. Challenging the big boys, as described by Tilley (2010), requires knowledge that simply cannot be developed in the internal layers of the organisation. Strategy implies having leadership skills for a broader generation and having insight into making this a reality, thus not at all dependent on management accounting today or into tomorrow. References Bellis-Jones, R. (1998). Handbook of Cost Management, Management Accounting. 76, 10, p.68. Brewer, P.C. (2008). [internet] Redefining management accounting [accessed 18.11.2010] [available at http://web.ifac.org/media/publications/2/articles-of- merit-2008-competition/redefining-management-accounting.pdf] Cable, R., Healy, P. & Mathew, E. (2009). Teaching future management accountants, Management Accounting Quarterly. 10,4, pp.44-51. Clinton, B. & van der Merwe, A. (2006). Management accounting – approaches, techniques and management processes, Cost Management. 20, 3, pp.14-23. Cmaindia.net. (2009). [internet] Strategic Cost Management, Institute of Certified Management Accountants [accessed 18.11.2010] [available aqt http://www.cmaindia.net/images/CMA_brochure.pdf] Epstein, M. & Roy, M. (2010). Corporate governance is changing: are you a leader or a laggard?, Strategic Finance. 92, 4, pp.31-38. Frauenheim, E. (2009). SuccessFactors gets social with HRIS offering, Workforce Management. 88,7, pp.11-13. Fung, T. (2006). [internet] Different aspects of system design. Strategic choice. System evaluation. The Hong Kong Polytechnic University [accessed 18.11.2010] [available at http://www.af.polyu.edu.hk/download/new_ug/AF4103.pdf] ICWA. (2009). Management accounting. Institute of Cost and Works Accountants of India for Junior Accounts Officer (Civil) Examination, Controller General of Accounts, p.42. Joachim, A. (2010). Voice of your profession, Financial Management. London March, p.1. Kittredge, J. (2009). A performance framework for management accounting, Cost Management. 23, 2, pp.20-29. Simpson, A. (2007). [internet] Strategic Management [accessed 18.11.2010] [ available at http://v5.books.elsevier.com/bookscat/samples/9780750686785/9780750686785.pdf] Tilley, C. (2010). Junior kick-start, Financial Management. Jan/Feb, p.51. Read More