Designing and Evaluating Management Control System for an Accounting Firm - Report Example

Name: Tutor: Title: Designing and Evaluating Management Control System for an Accounting firm Course: Date: Table of Contents Title: Designing and Evaluating Management Control System for an Accounting firm 1 1.0 Brief Summary 3 2.0 Key Action & Key Result 5 3. 0 General Features of the Proposed Advisory Management Control System (MCS) 6 3.1 Strategy Implementation through MCS 6 3.2 Control Problems 6 3.3 Management’s Degree of Knowledge of Processes and Outputs 7 4.0 Proposed Advisory Management Control System 7 4.1 Action Controls 7 4.2 Result Controls 8 4.3 Personnel and Cultural Controls 8 4.4 Costs of Controls and Degree of Tightness 9 5.0 Responsibility Centre 10 6.0 Performance Evaluation 10 6.1 Balanced Scorecard 10 6.2 Forecast and Budget Accuracy 10 6.3 Individual Evaluation 11 7. Rewards and Punishments 12 8. General Analysis of Proposed Advisory MCS 12 Conclusion 14 Bibliography 16 A proposed Advisory Services Management Control System for accounting firm-Bell Partners 1.0 Brief Summary The management of an organization plays the role of planning, organizing and integrating the activities of the organization to meet the intended objectives. In order to achieve such activities, the management control systems must be in place to facilitate business operations. Therefore, management control system is viewed as a process through which the senior managers ensure effective and efficient use of resources to achieve the objectives of the organization (Vancil, 2007). The report is about designing and evaluating Advisory services Management Control System for Bell Apartment. Bell Partners is an accounting firm is located in Australia and managed by professional accountants, advisors and auditors. The organization offers business and personal advisory services in business planning, particularly in the area of budgeting and cash flow forecasting. Bell Partners also provides advisory services in benchmarking and Key Performance Index (KPI) setting, business valuation as well as staff recruitment and performance management. Since great advice is perceived as the cornerstone of personal, business planning and growth, Bell Partners organization discovered the need to shift delivery of its services from concentrating more on the accounting principles to involve business practices. Thus, the need to develop Advisory services Management Control System to continuously keep a close watch on its costs, carefully manage its cash-flow, face the increasing complex as well as rapidly changing environment dominated with regulatory systems. The system will ensure that effective managerial accounting controls are implemented to provide impacts to the business decision-making of Bell Apartment organization. This will involve anticipating the impacts of the key business actions, decisions and results on Bell Partners management accounting and financial reporting. It is believed that the contemporary economic environment remains to be uncertain. Although organizations continue to establish new businesses in developed and rapidly growing markets, challenges still remain. 2.0 Key Action & Key Result Advisory services Management Control System will ensure that tight control measures are implemented by the management of Bell Partners. This will promote extensive involvement of the Bell Partners in its day-to-day operations of its business units. The key actions to be taken include, planning future man-power and budget course of actions, evaluating various information as well as deciding on the different activities, influencing people in the organization to work according to the stated goals through coordination and communication of various activities in different departments of Bell Partners organization. Specific and key actions will include, providing managerial and financial accounting advisory services that are stated in the Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standard (IFRS) Advisory principles. Remediation of the management control accounts, rationalizing of the statutory reporting processes, enterprise-wide management and account documentation of policy frameworks as well as streamlining of the managerial financial processes and controls will be considered. The key results expected include, making decisions that are more systematic and rhythmic, the proposed Advisory services systems will provide strategy implementation functions that will shift Bell organization towards achieving its strategic objectives. The system will ensure that behavioral considerations are observed to value people since they are important assets for the organization. Other related key results will include managerial and financial reports on issues such as, complex issues that could arise from proposed accounting guidance inclusive of the impacts on the existing management systems and processes (Teall, 2004). 3. 0 General Features of the Proposed Advisory Management Control System (MCS) 3.1 Strategy Implementation through MCS Advisory Management Control System will work to enable the Bell organization to move towards achieving its strategic objectives. It is expected that system would be viewed as an important vehicle for executing the organizational strategies. Effective execution of strategies will be achieved through the use of efficient organizational structure as well as human resource management and culture. Such measures will be influenced by the Advisory Management Control System, and thus it would be considered a fundamental tool of strategy implementation. 3.2 Control Problems Since people are considered important assets for organizations, it means that without the cooperation from employees managers would consider it a hard task to implement strategies. In order to ensure effective management of people, the management of Bell organization, through successful implementation of the proposed Advisory Management Control System would be well-positioned to identify and control problems such as, lack of direction, personal limitations as well as motivational-related problems. It is quite clear that poor performance within the organization is attributed to the lack of direction among the employees. Therefore, providing employees with the needed support and direction that could help them to accomplish the organizational goals is considered a significant function of the Advisory Management Control System. 3.3 Management’s Degree of Knowledge of Processes and Outputs The Advisory Management Control System is expected to be viewed by the Bell management as a process involved in three major interrelated activities, evaluation, communication and motivation. It is assumed that the system would provide communication link between the superior and subordinates, and thus enabling them to understand better the goals of the organization. However, for the subordinates to work best to achieve the goals of Bell organization, they would need to be motivated. The superior will be responsible for motivating the subordinates. The system would ensure that effective performance is achieved in Bell organization. This is simply because the superiors are required to evaluate the work of individual subordinates as well as provide them with feedback periodically. It is important to note that superior will be required to evaluate the performance of their subordinates without biases. 4.0 Proposed Advisory Management Control System Action controls, cultural controls and result controls will be used at the entire levels of Bell organization. The proposed Advisory Management Control System will work to ensure that necessary steps are taken to encourage employees work best for Bell organization. 4.1 Action Controls Action controls will ensure that the employees of Bell organization perform actions that are beneficial or avoid performing certain actions that are considered harmful to the organization. Therefore, action controls will be focused on preventing undesirable behaviors such as unauthorized access into the accounting systems. However, the effectiveness of action controls will be considered effective only if the managers at Bell organization appropriately identify actions that are desirable as well as ensure that desirable action take place. Some of the behavioral constraints will include physical constraints such as locks, limited access and use of passwords. Administrative constraints will be basically applied to detect each control problem as well as eliminate motivational related problems. Careful scrutiny of the action plans and budgets will potentially work to address the three main control problems by alleviating the lack of direction, mitigating the personal limitations and providing motivation. 4.2 Result Controls Results controls will ensure that the expected results are produced. Tight result control will be used to set the benchmark for the high-rise   related Bell budgets as well as a strict prize and punishment system will be created so as to evaluate the results 4.3 Personnel and Cultural Controls The personnel controls will be developed based on the ability of employees’ natural tendencies to effectively control themselves. The Advisory services management control system takes into account that majority of the people posses a conscience directs them to involve in right actions. People also find self-satisfaction particularly when they accomplish a good job and ensure that their organization succeeds. Some of the key labels or indicators that will be used to evaluate personnel controls in Bell organization will include self-control, trust and atmosphere, ethics and morality, loyalty and intrinsic motivation. Generally, implementation of the personnel control will involve finding the right people, providing them with a good work environment as well as the necessary resources. Through selection and placement, the advisory management control system will enhance finding the right people to take on specific jobs. Similarly, clear job design coupled with the necessary resources will ensure that motivated and highly-skilled employees show a growing probability of success. On the other hand, cultural controls will enhance the mutual monitoring to control social pressure, group norms and the associated values. The cultural controls of this advisory management control system will ensure that members of Bell organization have shared emotional ties through traditions, attitudes, behavioral ways, ideologies, norms and beliefs. Therefore, the culture of Bell organization will be shaped through adhering to codes of conduct and providing group-based rewards. 4.4 Costs of Controls and Degree of Tightness The Advisory Management Control System will ensure that a tight control by management is implemented. This is expected to create extensive involvement of the in everyday operations of Bell organization’s business unit. It is expected that a budget will act as a binding constraint where strong emphasis will be geared towards achieving the budgeted targets. Generally, the system will ensure that deviations from a budget are not considered acceptable. The management of Bell organization needs to consider loose control as limited involvement by management in the day-to-day operations. Therefore, under the loose control, a budget would be regarded as a tool for both planning and communication more than as a binding commitment. 5.0 Responsibility Centre It is assumed that the proposed Advisory Management Control System at Bell Partners Accountants & Business Advisors will ensure that the organization is viewed as a responsibility centre. This is because the system will involve various activities in the organization which will include, providing information to plan for the future line of action since the information would be evaluated prior to deciding on the various activities. The Advisory Management Control System will promote a smooth coordination and communication of the various activities of Bell organization to different departments, particularly the accounting section. Equally important, the system will influence individual people in the organization to execute their roles and duties in accordance with the main goals of Bell organization. 6.0 Performance Evaluation 6.1 Balanced Scorecard Successful implementation of Advisory Management System will be achieved when Key Performance Indicators (KPI) will be monitored and distributed in form of dashboards, scorecards as well as other forms of performance reports (Malina & Selto, 2001). The financial reports obtained from the Advisory Management Control System will be useful for the management of Bell organization to make viable decisions based on its overall objectives. 6.2 Forecast and Budget Accuracy The budget will be considered the motivating factor for employees to out-perform their goals integrated with the organizational goals. It will be an important accounting tool to control the measure as well as improve performance of businesses in Bell Partners organization. The Advisory Management Control System will work through a regularly shared budget known as operating budget. This will regularly act as a plan for the organization’s future performance, and thus it will provide updated information throughout the years concerning the progress to the achievement of goals. The accuracy of capital budget and cash flow budgets will be highly observed under the proposed Advisory Management Control System. 6.3 Individual Evaluation Generally, self-assessment of the performance results is perceived to be a difficult task. However, through the implementation of the Advisory Management Control System, Bell Partners Accountants & Business Advisors will be in a position to inculcate a culture of self-assessment of the performance results among its employees. This will be achieved through placing emphasis on development of this capacity in individual employee. The organization will benefit more if it creates a rewarding environment perceived by its employees as conducive to happiness (Merchant & van der Stede, 2007). Furthermore, in such environment the managers can be advised to focus on comprehending as well as improving the working of Advisory Management Control System, while employees focus on achievement of the self-assessment results as well as learning and communication in the organization. It can be argued that purposeful achievement of results through this well-structured Advisory Management Control System would create a performing environment for individuals and Bell organization, and thus bringing them closer to happiness. 7. Rewards and Punishments The ability to rely on the KPIs for rewards and punishment will be limited and driven by the self-assessment. Since purposeful orient behavior is considered a characteristic of all living organisms, such behavior is amplified through rewards and punishment. Therefore, Advisory Management Control System will be useful tool to control the amplification of risks associated with purposeful orient behavior. The risks to be controlled include gaming of results, decreased morale, lack of cooperation, work accidents and inaccurate handling of accounting data. Successful implementation of the controls, therefore, will ensure that the use of Accounting Systems KPI and Control KPI for rewards and punishment are considered the exception to the rule in place of the norm. 8. General Analysis of Proposed Advisory MCS Use of management control systems is highly considered an ideal approach to reduction of costs, securing the environment as well as creating competitive edge within the business world (Massie, 2008). Although the task of minimizing costs and enhancing efficient may be considered to be of high priority for most companies, implementing management control systems cal as well prove to be problematic to the company. However, more advantages are associated with the application of management controls. For example, information sharing has been considered the main reason as to why management control systems are increasingly becoming significant to the management accounting. This suggests the relevance of developing Advisory services Management Control System to monitor the shared information needed in Bell Partners organization. According to Kloot (1997), the interchange of the information regardless of whether subtle or concrete, creates the basis for entire organization activities. It is important to note that management control systems are designed to ensure that those organizations that use them easily adapt to the changes within their environments. On the other hand, Ferrante (2006) argued that a large amount of the accounting information is continually shared within firms, for instance, the information on budgets, income statements and balance sheets, expense reports as well as statements of cash flows. Walker (2004) defined accounting as a professional service activity that involves the provision and analysis of information for a variety of managerial and regulatory, resource allocation as well as decision making purposes. Management of relations through a balanced application of the management control system, indicates that contemporary studies on management accounting documents the important role played by the management control systems within the firm’s innovation and performance (Chenhall, 2003). Findings from the contemporary empirical studies (Henry 2006) reveal that managers employ management control in their diagnostic and interactive managerial styles. As a result, a state of dynamic tension highly required is created to enhance the organizational capabilities for positive performance. Based on the above review on the importance of management control systems, it can be argued that the proposed Advisory Management Control System will ensure that updated information these business processes is shared across the Bell Partner organization. However, the management of Bell Partner will be required to ensure that Advisory Management Control System remains effective by creating clear lines or links of communication between the accounting and management as well as to the entire organization. It can be argued that electronic information sharing would relevant for Bell Partners organization. This will enhance the sharing of information across the multiple levels of the organization. For example, the information on budget which plays a great role in communicating the goals the organization and measuring the capability in attaining them will be considered. The management of Bell Partners will be required to consider factors such as the employee’s resistance change and costs when implementing the Advisory Management Control System. Other important management control systems that Bell would be required to consider implementing include, off the shelf-accounting software, ERP, SAP and EDI (Spathis & Constantinides, 2003). Conclusion Based on the above discussion, it can be concluded that the design and evaluation of Advisory services Management Control System is an ideal approach to continuously keep a close watch on Bell Partners’ costs, carefully manage their cash-flow, face the increasing complex and rapidly changing environment dominated with regulatory systems. A large amount of the accounting information, for instance, the information on budgets, income statements and balance sheets, expense reports as well as statements of cash flows is continually shared within firms. The proposed system will be a useful tool to control the amplification of risks associated with purposeful orient behavior. Risks such as gaming of results, decreased morale, and lack of cooperation, work accidents and inaccurate handling of accounting data will be controlled. Providing employees with the needed support and direction to assist them accomplish the goals of Bell Partners organization is a significant function of the Advisory Management Control System. Establishing of clear lines of communication between the accounting and management as well as to the entire organization will enable the management of Bell Partner to implement the Advisory Management Control System in a more effective manner. Bibliography Chenhall, R. H. 2003, “Management control systems design within its organizational context: Findings from contingency-based research and directions for the future,” Accounting, Organizations and Society, 28(3), 127–168. Ferrante, C. J. 2006, “Innovative sharing: Shared accounting information as a facilitator of trust and performance, Journal of Engineering & Technology Management,” 23(2), 54-63. Henri, J. F. 2006, “Management control systems and strategy: A resource-based perspective,” Accounting, Organizations and Society, 31(6), 529–558. Kloot, L. 1997, Organizational learning and management control systems: responding to environmental change, Management Accounting Research. Malina, M.A & Selto, F.H. 2001, “Communicating and Controlling Strategy: An Empirical Study of the Effectiveness of the Balanced Scorecard,” Journal of Management Accounting Research. Massie, R. 2008, “Beyond document management” Accounting Today, 22, SR-19. Merchant, K & van der Stede, W. 2007, Management Control Systems: Performance Measurement, Evaluation & Incentives, Prentice Hall, Harlow. Spathis, C & Constantinides, S. 2003, “The usefulness of ERP systems for effective management,” Industrial Management & Data Systems, 103(9), 677. Teall, H.D. 2004, “Winning with Strategic Management Control Systems,” CMA Magazine, Vol. 66 Issue 2. Vancil, R.F. 2007, “What Kind of Management Control Do You Need?” Harvard Business Review; Mar/Apr 73, Vol. 51. Walker, M. 2004, “Recovering accounting: an economic perspective,” Critical Perspectives on Accounting, 15, pp. 519-527. Read More