Advances in Management Accounting Research in the Last 30 Years - Literature review Example

Advances in management accounting research in the last 30 years Table of Contents Table of Contents 1.0 Executive summary 2 2.0 Introduction 3 3 Cost accounting 4 3.2 Accounting management information systems 5 3.3 Corporate governance 6 5.0 Recommendations 9 Appendices 13 1.0 Executive summary Research in management accounting has enabled the process of identifying, preparing, analyzing, and interpreting, as well as communicating financial information which will be used by managers to plan, evaluate and control the firm, in addition to ensuring that there is appropriate utilization and accountability of its resources. There have been increases in the number of papers that have been published in the first decade and the second decade. According to Lukka (2010), there is a clear indication of a huge difference in management accounting research in the first and second decade. However, the current performance measurement systems used by universities globally to evaluate research could impact on the research taken by individual researchers. One of the areas in accounting management that have undergone significant development is cost accounting. From the traditional costing, the other methods that have been developed include: variance analysis, which is a systematic approach for the comparison of the budgeted and actual costs of labor and raw materials utilized during a production period; activity-based costing; the resource consumption accounting (RCA) which provides the ability to derive costs directly from operational resource data. In accounting management corporate governance is a very crucial facet in every organization. So as to ensure better corporate governance, information on management accounting is a vital tool. Many firms have incorporated management information systems in order to assist their accounting managers make decisions. The decision systems present executives with accessibility to high quality information made relevant to the variables that affect the outcome of the decision. 2.0 Introduction The changes in the economic basis of business are the driving forces to changes in practice that are actually creating new opportunities for research. Research is very important in accounting management with regard to invention and innovation. There has been an increase in the number of papers published in the second decade compared to the second decade, 205 papers from 175 respectively (Malmi, 2010). In the first decade, most papers focused on studying management accounting systems and techniques that are used in practice. During the second decade, there was an upsurge in the amount of papers that were studying management accounting change and twice the number dealt with management accounting and organizational control. Furthermore, new topics have emerged in the second decade including inter-organisational management, aspects of governance, and risk management. Papers have also been published with regard to the current financial crisis (Modell, 2010). With regard to the research settings, the generic category, which consisted of papers that utilised a general or abstract setting, was one of the largest in the first decade. However, the papers in this category declined significantly in the second and third decade (Turban et al., 2013). The report is going to review and evaluate the research that has been undertaken in relation to management accounting, and the contributions made to modern industrial management or modern business, identifying examples of possible good practice. The research document is going to give more focus on cost accounting, accounting management information systems, and corporate governance. 3.0 Main findings Ferreira and Otley (2013) asseted that current research aims at providing accounting information which is model based with some level of abstraction to support decision making generically. The theories which were used in the first decade in management accounting research, their use have declined in the second and third decade. According to Merchant (2010), in the first decade institutional theory was widely used. 3.1 Cost accounting There are several tools, techniques, and methods that can be used to establish new ways of management accounting. There has been considerable diversity in the research methods that have been used in the papers published in management accounting research. However, in the second and third decade there were two core research methods; case studies and mathematical/ statistical methods. With regard to the mathematical methods, Traditional Costing (TSC) has been used in cost accounting for over some time (Burns et al., 2013). It is a core method of management accounting utilized for reporting of financial statements for the valuation of balance sheet items and income statement, for instance, inventory valuation and cost of goods sold. However, the Institute of Management Accounting (2012) argued that the traditional approaches limited themselves by defining cost behavior only in relation to sales volume and production. First, in the last three decades, researchers have come together in the field of management accounting and developed variance analysis. This is a systematic approach for the comparison of the budgeted and actual costs of labor and raw materials utilized during a production period. Although some form of variance is still being utilized by various manufacturing businesses, nowadays, it tends to be applied in combination with innovative techniques like activity based costing and life cycle cost analysis, which has been designed with particular aspects of the modern business environment. Secondly, activity-based costing recognizes that many manufacturing costs are established by the amount of activities and that the only effective cost control is through efficiency of these activities (Clinton and Van der Merwe, 2006). In today’s factories, both lifecycle costing and activity-based costing emphasize that the avoidance of disruptive events is more vital than reducing the cost of raw materials. Activity-based costing deemphasizes direct labor as a cost driver. Instead, it concentrates on activities that drive costs. Next, another innovative approach is the Grenzplankostenrechnung (GPK). It has often been practiced in Europe and has been further developed and it is being used in other regions such as America with regard to the concept of unused capacity. GPK currently offers accurate and consistent application in the manner in which managerial costs are calculated and assigned to a service or product (Friedl, et al., 2005, p.57-58). Lastly, currently one of the most innovative practices of accounting is resource consumption accounting (RCA). RCA is regarded as a detailed approach at the upper level levels of the continuum costing techniques. This is because it presents the ability to derive costs directly from operational resource data or to separate and measure the capacity costs that have not been used. Researchers came up with RCA by taking the best costing traits of the GPK and combining the use of activity-based drivers when desired (Clinton, Matuszewski and Tidrick, 2011). 3.2 Accounting management information systems According to Lee (2013), another area that has been developed by research is the accounting management information systems. This helps the accounting managers in making decisions, since tangible decision making is very paramount in any organizational set up. As an accounting manager, a comprehensive personal decision making framework will aide in making ethical decisions based on the analysis of the pros and cons of the decisions you make. Moreover, this will provide guidance for making efficient and effective decisions by utilizing a well-structured and well-focused process (Guy, 2009). According to IMA (2012), the accounting management decision making systems consist of the following: executive information system, decision support system, management reporting systems, and office information systems. For instance, the executive information system (EIS) is a decision support system operated by senior executives in the process of making decisions. It does so by providing easy access to crucial information and data required to attain strategic goals in an organization. The majority of the EIS have graphical displays an easy-to-use. EIS provides fast and easy information access from various sources (Saaty and Vargas, p.112-114). Accounting managers can use EIS in the organization to monitor the performance of the firm and to determine the problems and opportunities (Haag, et al. 2006). On the other hand, the decision Support Systems (DSS) are usually interactive information systems that help the decision maker in approaching ill-structured problems by provision of analytical models and access to databases. DSS were characteristically designed to support the decision-making process, rather than to offer a decision. The core advantage of these systems is flexibility (Turban et al., 2013, p.90). 3.3 Corporate governance Accounting is a very crucial tool in corporate governance. Burns and Scapens (2009) assert that research on management needs to be based on the understanding and conceptualization of management accounting change through better utilization of research information on corporate governance. The recent advances in management accounting have made it possible for the growth and development of corporate governance. Without management accounting information firms find it hard to create sustainable corporate governance (Khan and Jain, 2009). Seal (2012) added that techniques drawn from strategic management accounting can be used for better corporate governance practices. Without the absolving regulators and auditors whose responsibility is being an external auditor, good corporate governance needs that suitable internal reporting and monitoring practices that are actually embedded in firms. More laborious regulation of financial reporting has resulted to an alteration of emphasis in practices of organizational accounting with renewed focus in relation to financial and non-financial information (Bhimani, 2009). Management accounting has been able to offer key information for the non-executive directors in relation to issues, such as the strategic direction of the firm. Information on management accounting is very crucial as a tool for corporate governance. Through honest, accurate and detailed accounting, firms can actually make beneficial decisions in relation to growth, investment, and operations. Epstein and Lee (2013) established that good governance and effective intervention by the non-executive directors needs extra information in addition to requiring that the watchdogs are suitably motivated to search for and utilize the proposed information. 4.0 Conclusion According to IMA (2012), research has enabled the process of identification, preparation, analyzing, interpretation, and communication of financial information which will be used by managers to plan, evaluate, and control the firm, as well as assuring suitable utilization and accountability of its resources. Furthermore, it has also facilitated the preparation of financial reports for the non-management groups. Management accounting research continues to encourage papers which utilize a broad variety of research methods, as well as different theories to carry out the study various management accounting topics in diverse research settings. This is because use of other research methods is greatly encouraged, whether qualitative or quantitative; although their use must satisfy reviewers who are experts in those research methods. There has been diversity of the research published in Management Accounting Research and the wide array of settings, topics, theories and research methods in the papers published over the past three decades. Therefore, innovative research in the last three decades has made management accountant to be a strategic partner in the firm through better decision making. Furthermore, development of better business decision making practice as led to better management of the organisation’s performance. This is particularly vital for research in management accounting, particularly at the present time when it appears that there is a tendency towards homogenisation in accounting research, that is greatly inclined towards financial accounting and capital market related topics. In relation to cost accounting, there has been the emergence of variance analysis which is a systematic approach for the comparison of the budgeted and actual costs of labor and raw materials utilized during a production period. Secondly, the advancement of activity-based costing recognized that many manufacturing costs are determined by the amount of activities. Thirdly, GPK is now being used globally. Lastly, the development of RCA has made it possible to derive costs directly from operational resource data or to separate and measure the capacity costs that have not been used. Developments of proper accounting management practices have reduced incidences of accounting fraud in businesses. This is because corporate scandals usually have maintained political and public interest in the regulation of corporate governance. In summary, the recent advances in accounting management has enabled the management accountants to apply their professional knowledge and skills to prepare and present financial and other decision oriented information in a manner would help the assist management to formulate policies and plan and control of the operation being undertaken. 5.0 Recommendations The developments in current research, both in the mainstream and non-mainstream paradigms, need to be creative and innovative; possibly in directions that we cannot anticipate at the present time. It is through this that we will be able to steer clear of the homogenisation and narrowness which is claimed to be an increasing feature of mainstream accounting research. Since the increasing use of research assessments and journal rankings could lead to the general tendency for accounting departments to follow the mainstream, and consequently for them to tend towards the norm and to discourage research, it needs to be discouraged. Thirdly, management accounting needs to be given adequate emphasis, at the board level, since they are the providers of timely and relevant information which would assist the execution of good corporate governance. Next, to effectively perform their tasks, directors should call for more reports on management accounting from the senior management up to the board level and often utilize them to facilitate their decision making. Fifth, a manager should use decision support system when facing an unstructured problem, most of the time injecting the required necessary factual grounding via access to data. Next, since researchers need to be innovative and creative, the invention of management decision systems have significantly improved management’s decision making choices. Guy (2009) argued that accounting management information systems should provide information that is required to be easily accessed and presented a way that it is easily comprehended. Lastly, it is also recommended that integrity needs to be a fundamental requirement for the accounting managers. Firms need to formulate a code of conduct for executives which will promote ethical and responsible decision making. References Bhimani, Alnoor (2009) Risk management, corporate governance and management accounting: emerging interdependencies. Management accounting research, 20 (1). pp. 2-5. Burns, J. and Scapens, R.W., 2009. Conceptualizing management accounting change: an institutional framework. Management Accounting Research, 11, 3-25. Burns, Quinn, Warren and Oliveira. 2013. Management Accounting, McGraw-Hill, London, 2013). Clinton, B.D., Matuszewski, L. and Tidrick, D. (2011). "Escaping Professional Dominance?". Cost Management, (New York: Thomas Reuters RIA Group. Clinton, B.D and Van der Merwe, Anton (2006). "Management Accounting - Approaches, Techniques, and Management Processess". Cost Management, New York: Thomas Reuters RIA Group. Epstein, M., and Lee, J. Y. 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Retrieved January 20, from Management Information Systems (MIS): http://www.uotechnology.edu.iq/dep-cs/mypdf/subjects/4is/4mis.pdf. 2007. Appendices Decision making process Managerial costing time line (Clinton and Van der Merwe, 2006) Types of business systems ((University of Technology, 2007) Read More