Accounting Management in Hotels - Essay Example

Index 1.Literature Review 2 1.1.Growth in the GCC and UAE Hospitality Industry 2 1.2.Accounting and Financial Management Systems in the Industry 2 1.3.Relationship between Organization Size and Accounting Practices 3 1.4.Scope and Scale of Operations and Accounting Practices 5 1.5.Major Accounting Practices in UAE 6 1.6.Greek and UK Based Research on Accounting Practices in Hotel Industry 7 1.7.Limitations in Literature and Scope of Study 8 2.References 9 1. Literature Review 1.1. Growth in the GCC and UAE Hospitality Industry In the recent years the hospitality industry in the GCC and UAE region has depicted significant growth. Despite the negative influence on the world economy pertaining to the crashing of the financial and securities market, the hospitality industry specifically in the UAE and FCC has reported increased growth and incremental revenues. The region has seen significant investment by local enterprises, as well as international hotel chains that have helped attract increasing number of tourists into the region. The hospitality industry is largely dependent on the marketing of the region as a tourism destination, as well as the openness of the culture in terms of hospitality. The creation of free zone in Dubai has helped the UAE based tourism and hospitality industry to thrive providing increasing business opportunities in the hotel industry. The specific managerial support and accounting practices reflect the growth in the industry. 1.2. Accounting and Financial Management Systems in the Industry The types of accounting practices adopted and the financial management systems employed in any industry are largely dependent on the industry itself, as well as on the rules and regulations of the country (Chand, 2005). The regulatory board in the country or region provides an outline of what practices specific to the management of accounts and reporting of these accounts is to be employed under set criteria. As organization behavior theories have set forward, organizational culture is largely dependent on the external culture of the country in which the business operates. External influences from the cultural environment as a result have a significant effect on the business practices of ventures and firms in an industry. However while the relationship between the country culture and the business practices respective to the region and industry is indirectly related the accounting practices and the relationship to the culture of the region in almost directly related as depicted by HassabElnaby and Mosebach (2005) and in research. Other factors that influence the accounting practices and adoption of financial management policies in an industry specifically also depend on the economic conditions and characteristics of the country. In regions where the economy is complex and highly developed, based on complex products and services, the ensuing accounting practices that are employed are also complex and highly strategic (Choi and Mueller, 1984). In those countries however where the economy is relatively basic and simple, or in a slow growth phases the accounting practices that are employed and allowed for are simple ones. However it is possible for the accounting systems employed in countries with simple economies to evolve and develop over time, as the changes in the economy reflect changes in the respective industries. Aside from these factors, it is significant to note as well that adoption of accounting practices can also be dependent on business specific attributes. These pertain to the size of the business and its operations, the scope of the operations and the level of internationalization involved. 1.3. Relationship between Organization Size and Accounting Practices It is highly possible for different sized firms in the same region and industry to adopt differing accounting practices. This is because the selection of the accounting practices reflects the values and business practices of the organization. Similarly they are also employed to support the business operations. Through their work Abeysekera and Guthrie (2003) have provided reasons for this, and they explain that when it comes to using methods of accounting in an organization, the management selects the option which is most suitable as per their business operations. It is further provided that businesses that operate on a large platform and serve a significantly large market tend to adopt more formal and complex accounting practices as opposed to SMEs and small firms (Abeysekera and Guthrie, 2003). This stand particularly true for such businesses regarding financial reporting to stakeholders and disclosure of business accounts to external parties, with smaller firms employing simpler practices of accounting and disclosure and larger more comprehensive businesses employing more evolved practices (Andrew et. al., 1989) as they have more resources to employ such practices and develop them further for efficient and more practical reporting. This concept is further explained by Zarzeski (1996) who depicts that the larger the firm or business is, the more stakeholders it has and therefore more demand in the public for its disclosure. As a result larger firms tend to adopt more complex accounting practices which are supported by related disclosure policies. In order to practically provide evidence for this concept Street and Gray (2002) conducted a research to determine how the size of the business impacts the compliance of the organization with formal accounting regulations and legislature, and the findings provided that larger firms in an industry tend to have a more positive relationship with compliance with regulations and standards like IFRS and GAAP. 1.4. Scope and Scale of Operations and Accounting Practices The scope of the operations for the business, and the scale of the operations in terms of the level of internationalization involved also significantly effect the employment of accounting practices in the business. The reason for this is depicted by Choi et al, (2002) who stated that businesses that operate on an international scale need to have their business understood by a more varied audience. As a result such businesses seek to standardize their accounting practices and business operation in order to make them more transparent and comprehendible for a wider audience. Aside from this, businesses often seek investment from external parties like shareholders and creditors across national boundaries where they have operations spanning multiple geographic regions. Specific to this in order to comply with the demands of the stakeholders, businesses seek to harmonize and standardize their accounting practices as per internationally recognized and set standards like GAAP, IAS and IFRS (Street and Gray, 2002). Therefore globalization and internationalization plays an important role in the accounting practices of an organization especially when it comes to accounting for transfer pricing, and dealing with tax legislation in different areas of operation (Cook, 1992). This depicts that hotels that are subsidiaries of other main chains of international hotels, or those that have expanded from GCC and UAE into international markets make use of accounting policies that are readily accepted by the local as well as the international regulatory bodies. The degree of compliance by such hotels in terms of disclosure of accounts and accounting practices to regulatory stated accounting standards is stronger for hotels that have a high level of internationalization incorporated in their operations. Zarzeski (1996) argues that countries with open cultures have more open business practices and accounting practices, and this can be applied to hotels and GCC and UAE as well where the culture in context is more secretive and closed. However as the nature of the Hotel industry is dealing with international associates, the accounting practices employed in this industry are more compliant with international standards. However again, the application of accounting standards can differ from industry to industry (Godfery and Yee, 1996) which is depicted by the fact that UAE generally requires the banking industry to adhere to the rules and regulations set by IFRS, while other industries are not specified in this country regulation. 1.5. Major Accounting Practices in UAE Choi et.al., (2002) provide a comprehensive list of factors that come together to develop an accounting policy and practice for any region. These factors include those related to economic development, the education in the regional, the culture inherent to the country and area of operations, the political situation in the country and the source of investment in the region. Aside from these other economic metrics like tax rates and inflation can also effect the development of the accounting system particular to a region. These factors can be taken into account when investigating the accounting practices in the Hotel and Hospitality industry in GCC and UAE region. However specific to UAE, studies undertaken by Hussain et.al., (2002) and Musa (2005) specific to the local accounting policies in the GCC and UAE region provide that it is generally applied that IFRS regulation is to be followed in accounting practices, but this regulation is not mandatory except for the banking industry. Similarly the data on the extent to which this regulation can be employed in the accounting practices of businesses in the region is not available as well. 1.6. Greek and UK Based Research on Accounting Practices in Hotel Industry Some similar studies that have been conducted on accounting practices specific to hotel industries in the UK and Greece are available. The research conducted by Pavlatos and Paggios (2007) highlighted that in Greece pertaining to the hotel industry, accounting practices that are employed are rather traditional in nature with activity based costing approach employed for managerial accounting. Further research by Pavlatos and Paggios (2009), depicted that managerial accounting and practices for budgeting and performance management and non fiscal measures of performance were conducted through traditional techniques only innovations in accounting practices still in the early stage of acceptance in the industry. The exploratory study conducted by Collier and Gregory (1995) pertaining to six major hotels in the United Kingdom provided tat as the hotel industry is large in scale as well as homogenous as a result the managerial accounting practices employed in this industry are strategic in nature to provide for competitiveness, reflecting high level of innovations. When it comes to luxury hotels, and managerial practices for accounting and financial reporting, the research conducted by Mia and Patiar (2001) depicted that specific to this type of hotel industry management is more focused on measure performance with financial and non financial metrics to evaluate performance. Additionally they provided that the managerial accounting system in such hotels is extensively used for strategic management. However as the study was conducted on a small sample from Australia, making more in-depth outcome based generalizations from these findings can be diverging, 1.7. Limitations in Literature and Scope of Study Through the literature review, it has been observed that there is limited amount of research and material available on accounting and related regulatory practices in the GCC and UAE region. Only a handful of researches have been employed in this regard, and most of these deals with the comparison of cross cultural practices. More specifically data on the Hotel and Hospitality industry specific to GCC and UAE in terms of their accounting practices is in limited availability. This provides ground for the scope of an exploratory study in this regard. 2. 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