Management Control and Accountability from Theoretical Perspectives - Coursework Example

Running Head: Essay, Finance and Accounting Case Study This case study tries to explain the impact of information systems on management accounting. It is the responsibility of management to meet the needs of both the internal and external stakeholders in a firm more effectively and efficiently. It is this mandate by management which is best improved with the introduction of the technological aspects in management. From the case study it is apparent that conveyance of information relevant stakeholders will best be achieved if important steps which ease the process are adopted. With the adoption of the ERP model better results are achieved. Management Control and ERP A control system in management is responsible for the provision of information which is very important and useful to managers and other stakeholders in the company. It is thus very important for every manager to take a keen interests in the manner in which this information is disseminated. “Ivy” University, tried to incorporate technology in their system to facilitate communication process in the organization. Basically management control is involved with; planning, setting objectives, monitoring of the company, assessment of the feedback and ensuring a corrective action on matters which have gone off target. Management control is closely associated with its counterpart strategic control which also involves thee assessment of the organization strategy and its goals (Anthony & Govindarajan 2011). This case study depicts that management control systems are equally important in both strategy implementation and formation. Hence management control systems can be defined as formalized and well organized procedures that make use of information to alter organizational pattern of activities. Some of the activities of the organization which are maintained or altered include; planning, budget allocation, environmental concerns, competition, reports on performance, evaluation of company activities, allocating of resources and mechanisms of employee rewarding. These systems are used to continuously inform management on the current affairs in the market or its environment (Musaji 2002). Management control is like an engine in a company, it has to be spearheaded by top management without which the system will suffer failures. One of the most powerful tool in management has been the ERP systems which have to a large extend inculcated the essence of quality control management. Some of the key issues in quality management include; customer approach, top management commitments, up to date improvement in the system, quick responses, employee and management participation culture (Sinha 2008). Among the major objectives of quality control module is the construction and improvements of the filling of management control. It is also the best approach to maintain internal audit of the financial reports in the company. However, to ensure the success of the system it requires commitment across the company. An ERP system formulates guidance and encourages employee participation in the work environment; this comes hand in hand with the use of performance indicators which is directly or indirectly connected with customer satisfaction, management and employee morale. It is basically an aspect which revolves around management accounting; planning, performance, control and decision making (Dar 2000). Research has depicted the varying benefits and disadvantages accruing from ERP, this method if well applied could lead to numerous breakthroughs in the market. On the other hand the procedure could be detrimental if not well understood by management. Budgeting Budgeting is one area of management accounting which has over time has been a key aspect in the organization. It is essentially one single area which has remained capable of bringing together the whole organization’s units into a single operative entity. In a profit point of view profitability is encompassed to the performance of an organization. As also depicted in the case study; performance is measured by getting the difference between the revenue and the total costs incurred by an organization. Keeping in check the revenues and their associated costs is the responsibility of the budget; the budget entirely tries to regulate the monetary aspects in an organization (Quattrone & Macintosh 2009). Coming up with a proper and effective budget requires a lot of analysis and priority allocation. Target setting is one of those critical and important concerns which are depicted in budget allocation. A target is normally established to ensure what ought to get what and at what magnitude. Although mangers may compile facts to suit their desires or please their supervisors or major stakeholders in the firm the fact remains that an authenticated target should be established. Collaboration with the most recent information systems structures the budgeting process is likely to be easier than there before; management will only be required to make judgment on what to select (Merchant & Van Der Stede 2012). Budget control process provides a framework which encompasses all aspects of an organization into a single unit. It tries to encapsulate the entire activities of each unit in the organization in such a way that the financial implications can be easily monitored throughout the process. However, budget control process has been criticized over time for its blind spots. Numerous complaints have been filed concerning the whole process which ideally depicts an imperfect reflection. It can also be time consuming coming up with frequent budget revisions. Budgeting process instead of being a statistical approach for the whole year, with SAP modules it will be a flexible and dynamic undertaking. It will definitely be a proper channel of making predictions and allow comparisons of an organization’s achievements and failures. It will also offer a framework on which management and the accounting departments will be able to make adequate predictions and not essentially relying on the budget alone (Ghosh 2005). The graph above depicts the implication of technology on management accounting There is a partial reduction in the accountability and responsibility of management under the impact of the ERP; however the financial impact is significantly high. Computer technology has successfully integrated management systems with operational control. Management is capable to come to terms with all the operations of the company. It is also possible that management accountants will obviously loss their simple skills and knowledge since it will be highly dedicated to this model. The only option which remains to this part is the analysis and interpretation of the system (Pamungkas 2009). With ERP a large portion of accounting is undertaken centrally and completely automated. On the other hand the coordination and preparation of the reports is entrusted to the ERP. Taking advanced technology in the field numerous apparatus which measure excellence mushroom and open up gates for specialists to perform the duties which will be bestowed upon them. Thus, ERP has a profound impact on management control (Drury 2007). Contingency theory According to this theory, best practices are best influenced by the situation. This theory tries to relate management variables with the research at hand. For example it may try to depict management on professionalism, decision making and task complexity approaches. It allows for an analysis of a situation and the determination of the variables which may influence the decisions which may be made by management or an individual (Bacher 2007). The diagram below demonstrates a contingency model Comparison and contrast This theory is not in line with the case study because the main idea of this theory is that leadership performance depends on two main factors; leaders’ tasks and motivations and situational factors. Leader’s task is measured on a scale which is the least preferred coworker (LPC) scale. Leaders are asked to list characteristics of workers they rarely relate with and gauge them on a series of 8points. Low scores means that there is a negative perception among the two parties while a positive relationship is depicted by a higher LPC (Miner 2001). Looking back at the case study it is paramount that the theory goes contrary to what is depicted. For example according to Ivy University management was reluctant to adopt the ERP system which they claimed was going to hamper their job. But on a clear analysis you will find that technology is a very important situational factor in the present world. Failure to move in line with those factors will mean that the contingency theory of management is not being followed at all. Management is all about ensuring flexibility of the company to encompass the daily changes. Also from the diagram above it can be seen that contingency theory revolves around the major objectives of a company. An organization will definitely go for those approaches which it is capable to blend into. Ivy University is not such institution; it lags behind with the old system using other methodologies to achieve its objective. However, some researchers have argued that the ERP system has been coupled up with a lot of failures which have rendered many companies incapacitated. For Ivy therefore to prefer to adopt a different approach rather than the ERP then is justifiable as not all organizations are able to easily melt this process into their systems. Every organization encounters a changing environment; all products also go through a repeated life cycle, from one stage to the next. As illustrated by Hayes and Wheelwright a production process moves from a uniqueness and free availability to high quality and lower cost margins, hence the companies at this stage have alternative production processes on which to rely. Taking the case study of Ivy University it is evident that such a university is engulfed by numerous courses to sustain its growth over time. Manufacturing flexibility is addressed negatively in the case study (Lunenburg & Ornstein 2012). Institutional theory This theory asserts that an institutional environment can strongly influence the rise of formal entities in an organization which is apparently stronger than market pressures. Innovations which enact improvements on technical subjects in the firm are legitimized and accepted in the environment. The innovations trend until a level is reached where failure of adopting them is felt as irrational. At this instance the structures will embrace the form even if it does not improve efficiency or productivity (Seleshi 2004). According to Meyers and Rowan these organizational myths are just accepted in order for the organization maintain or achieve legitimacy in the environment it is operating on. Legitimacy in the organizational field will help ensure and spur the growth of the organization. The formal structures which enrol from this theory may hinder the performance or efficiency of the firm which is keenly considerate on the aspects. To counter this, organizations will often endeavour to decouple their core technical actions from these legitimizations. Such organizations will therefore minimize or neglect such program implementations just to maintain and hold up their confidence on their formal structures (Tihanyi, Devinney & Pedersen 2012). According to DiMaggio and Powell the effect institutional pressure is to increase the number of same structures in an environment. Often time’s firms will try to adopt a number of similar structures due to three types of pressures; coercive pressure which comes from the legal issues or pressure which to a great extent is the influential organization being depended on. Mimetic pressure; which is basically coping successful institutions during times of high uncertainty, number three is the normative pressure which emanates from similar attitudes and professional group approaches on matters (Stahl & Björkman 2006). Comparison and contrast Ivy University is one kind of institution which is adversely explained by this theory. Having taken advantage of its huge success in the market it takes a step by step approach to try to analyze the immerging trends before submerging into them. For example, the university endeavors to weigh the benefits which it can obtain from the ERP model before accepting the offer of the service. Although amid a group of other institutions which have clearly invested in advanced technology for their operations, Ivy drags behind to re-collect (Deegan 2009). On the other hand the university ought to borrow the concept on a competition framework but it fails to do so. Other institutions offering the same services as it does have collectively introduced the ERP systems and other technological aspects into their curriculum. This makes Ivy disobey this theory which accepts that on a competitive scale pressure builds up and an institution is compelled to adopt any new tools in the market (Burton 2008). Positive accounting Theory (PAT) The positive accounting theory is used to explain and predict a particular aspect in financial markets. PAT has facilitated the understanding of numerous accounting problems. It has tried to link various aspects of accounting which include; accounting numbers and stock, management financial reporting aspects among other factors. However, its role in accounting has been minimal and not impact depicting (Nelson & Quick 2012). PAT has managed to help shape a fair value debate which majorly centered on whether fair value should be accepted as a measuring aspect in financial statements. If the market upon which an organization was operating was perfect and complete then financial disclosures would not have any role to play. But the fact is that the real market or environment is characterized by a number of uncertainties which influence the market, hence, the relevance of financial disclosures to organizations (Watts & Zimmerman 2004). Comparison and contrast This theory is basically the core and underlying function according to the case study. Ivy University at some point in time is dealing with management accounting and another time with financial accounting. It is all about the financial generation strategies which facilitate the growth of an organization. Thus, with the uncertainty in the market Ivy applies the theory of positive accounting which stipulates that financial disclosures are very important to an institution. Conclusion As evident from the discussions above, management control is underlined by a number of aspects which spearhead the functionality of an organization. An organization will never achieve its goals if management does not lead from the top. In addition the staff needs some guidance and demonstrations on what they are supposed to do. Technology is one big giant in the world which can either improve the performance of a company or hamper its functionality. The role of technology is not disputable, it has brought in a lot of good than bad in the market and each organization is rushing in to ensure that it gets the latest version. However management should be very careful on the huge costs it is ready to pay on such services. This is because sometimes huge fees are incurred only to find that the desired goal is never achieved. Finally, organizations always depict management theories and contingency theories in their operations. It is on the part of management to take adequate steps to ensure that best practices are followed (Jiambalvo 2009). References Anthony, R. N., & Govindarajan, V. 2011. Management control systems. New Delhi, Tata McGraw-Hill. Bacher, C. 2007. Contingency theory what are the strengths and weaknesses of the systems approach as used by contingency writers in analysing organizations? München, GRIN Verlag GmbH. http://nbn-resolving.de/urn:nbn:de:101:1-2010081519089. Burton, R. M. 2008. 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