Issues in Management Accounting - Assignment Example

Title University Course Code and Name Lecturer Date Issues in Management Accounting Question 1 He starts by reviewing issues on strategic management accounting and how dynamic the approach to SMA has changed over time. Tillman notes that in the past, scholars researched on strategic management accounting from a normative perspective but they have since adopted an empirical research perspective while studying the subject. He notes that they key contribution that normative research brought to management accounting was introduction of practices for instance; competitive position monitoring; competitor accounting; strategic investment appraisal and strategic cost management. Cooper and Kaplan (1988 and 1991) introduced the activity based costing model while the balanced score card was suggested for application in practice by Kaplan and Norton (1992). The author criticizes the normative research on the basis that it is often detached from the strategic management accounting practices actually applied in day to day operations within organizations. Researches to support this claim were conducted and established that competitor accounting and strategic pricing are the most widely applied developments of the normative research although most managers and organizations do not use the term strategic management accounting often because it is vague. The contingency theory approach is another research methodology that has been applied in studying strategic management accounting. However, the author criticizes it on account of bias in sample selection and thus producing results that cannot generally represent strategic management accounting as is practiced in majority of organizations. The author reviews literature on insights of management accounting. Firstly, he reviews Rickwood et al.(1990 ) who concludes that “the accounting function gathers, both routinely and specifically, data concerning the external environment of the company’s operations, including information on competitor strategies”. The author also reviews the case study by Lord(1996). Lord, in his case study in New Zealand draws conclusions that although strategic management accounting practices may be applied in many organizations, information may not be quantified in accounting figures and may not be collected and used by management accountants. The author criticizes these case studies on the basis that they are largely descriptive and provide very little theoretical insights. The author also reviews Jarvenpaa (1998) work on strategic management accounting in strategy formulation. The literature examines how the Finnish high-tech firm used strategic management accounting and concluded that if issues were more strategic, the less they involved the management accounting function. Thus, concluding that strategic management accounting tools suggested in the normative literature were hardly ever used. The author however recognizes the role normative research has played to develop strategic management accounting techniques despite the fact that it is detached from reality. Empirical research, on the other hand, according to the author has investigated whether and how the techniques have been applied in different organizations. The second aspect the author focuses on in his literature review is organizational sense-making skills. On this, the question that the author is building up on is how strategic management accounting is used in companies to facilitate strategic decision making and how the function is used to make sense of strategic decisions. The author in the second part conducts a literature review in order to shed more light empirical data relating to the question stated. The author notes that sense making has been extensively focused on in other areas in management, for instance, strategic management although very little of it is discussed with respect to accounting. The author analyses several definitions of sense making as outlined by prior authors. According to Gephart, “sense making is the discursive process of constructing and interpreting the social world.” Hassan and Gould defined it as being informed or understanding a situation. Daft and Weick stress on the importance of stress making by stating that it may be one of the most important functions that any organization performs and thus is a central organizational activity. Hassan and Gould support this perspective by affirming that managerial sense making activities have a pivotal role in linking the process of knowledge management and strategic decision making in their case study. The author notes that there is very little literature that focuses on sense making from a perspective of accounting. He reviews Bolands experimental study of managers role in sense making of accounting data and concluded that accounting and data derived thereof plays a critical role in organizational sense making and further acknowledges that accounting is a critical in assisting organizations not only to interpret their experience but also for purposes of organizational ordering and further for purposes of making frames for making sense of organizational plans and activities. Boland extensive research and literature on organizational sense making notes those accountants should make interpretations of organizational situations based on accounting data and in turn come up with reports and proposal to present to their management for purposes of making sense of an organization. Boland came up with the Giddens’ structuration theory, which places emphasis on an individual’s role in continuous sense making especially at the initiation of a social structure. Tillmann notes that although there has been extensive research on how accounting and accounting data plays a role in organizational sense making there is very little empirical work on the topic. This therefore, presents a gap for Tillmann and his associates to build on the topic. Their research focuses on providing empirical research in the field of sense making with respect to strategic management accounting. The research will also aim at establishing approaches available to accountants to make use of sense making and the context in which it will be applicable. Question 2 Data validity refers to the logical soundness and correctness of data that is used for purposes of a research. This may be interpreted with respect to the error rate obtained while collecting and analyzing the research data. There are two types of data validity, i.e. internal and external validity. Internal data validity arises as a result of issues that are in control of the researcher for instance design problems or inappropriate data collection techniques. On the other hand, external data validity refers the appropriateness or truthfulness in generalization of data obtained from a sample to an entire population. Data validity therefore refers to the accuracy of the data used for purposes of hypothesis testing. In this case, the data used by the authors will be reliable if the authors took considerable measures to ensure accuracy and that their hypothesis and conclusions are backed by error free empirical data. Data reliability refers to how appropriate the measures used for testing data in a research achieve their intended purpose. It is important to note the relationship that subsists between validity and reliability; in order for any particular to be valid, it needs to be reliable. There are several types of data validity, for instance, face validity, construct validity, criterion-related, formative and sampling validity. The authors’ empirical research was aimed at establishing a relationship between sense making and strategic management accounting. The authors will aim to establish how strategic management accounting is used to contribute to organization strategic sense making and ultimately organizational decision making. The authors adopted a grounded theory methodology for purposes of their research. This is because the theory requires a researcher to interpret data as opposed to just reporting the data and findings thereof. The theory also advocates for coming up with a theory and subsequently grounding the theory formulated on the data collected while at the same time providing an opportunity for the authors’ meanings and perceptions to manifest. In order for appropriate conclusions to be drawn using the grounded theory, the data used therein needs to be valid and reliable to avoid any fallacial or misleading conclusions. The authors adopted a case study approach in which they decided to focus on a multinational corporation based in Germany. The authors were granted access to the finance controlling, research technology as well as research departments of the organizations. They employed different data collection techniques including interviews, observation as well as review of company doccuements to facilitate in corroboration of the data collected by an alternative method. The use of different data collection techniques is core to facilitating accuracy of data and thus is one of the key techniques that the authors employed to ensure data validity. They also recorded all the interviews they conducted on tape for reference purposes. This enables the researchers to make reference to the data at later dates and ensure all the data they have used to draw inferences is as accurate and consistent as possible thus enforcing the validity of the data even further. The authors further collected and analyzed data collected concurrently to enforce the validity and reliability of their data. According to Glaser and Strauss, quoted in the journal article, grounded theory demands concurrent data collection, coding as well analysis throughout the conduct of the research. This technique allowed for verification of emergent categories and theories in subsequent interviews which further strengthened the data validity and consistency. Another strategy employed by the authors in emphasizing on the validity and reliability of data employed by the authors is employing multiple views about phenomena and data obtained such phenomena. The authors treated all data obtained as provisional until such a point when they obtained more data that corroborates the initial data obtained about the phenomena of interest. Potential subjectivity and bias in the research was significantly reduced by examining fractured data which would later be re-assembled. Strauss and Corbin are further of the view that comparison of raw data and narrating emergent theories to respondents also played a key role in data validity and reliability while employing the grounded theory. Question 3 The first set of conditions is the causal conditions both the external and internal context. Causal conditions refers to contextual elements that in one way or another leads to the occurrence of the core category. External context is characterized by the external environment which often involves customer, stakeholder and competitive pressures. The causal conditions especially the external context had a significant impact on the study as they formed a series of external environment that was subject to analysis in the study. The external environment involves opportunities, threats or uncertainties that the German company is exposed to. The external environment is a key determinant in organizational decision making which often involves sense making of data that is subject of the study. The internal causal context determines organization structures and policies. Such structures are a key component to be considered when making decisions. The internal causal context also involves he resources available for the company’s operations and thus is very pivotal in determining the decisions made by the organizations management. Intervening conditions are defined in the article as the contextual elements that either constrain or inhibit strategies and organizational interactional approaches. The authors identified three types of intervening conditions that are critical in sense making activities i.e. sets of information, professional know-how and a feel for the game. The conditions are important for use by management accountants in making decisions that are based on making sense of strategic management accounting. A set of information refers to the information that a decision maker relied on in making sense of an underlying scenario. The information is an important facet of the decision making process as the divisional manager of the firm who agreed that indeed information is key. This influenced the study by providing an area for the researcher to probe and form a theory around the research topic. Professional know how refers to the technical know-how of the management accountants relating to accounting techniques and rules needed for harmonizing and contextualization of overall strategies applied in the accounting practice. The basic knowledge of practice is critical for management accountants to deduce situations and make sense of scenarios based on accounting data. Bibliography Read More