The status of the role of management accountant in organisations has been paid enough attentions in these years. Not only academic and professional staff made a huge number of accounting literatures, but also many related people that are not in accounting subject provided increasingly number of research evidences of this area. They all finally came to a point that the changing business environment caused the change of the role of management accountant in organisations. So the first aspect to research the topic is to evaluate the changes of the business environment. Further more, the second aspect is to find the changes of the role of management accountant in organisations. At last, the conclusion of this essay is to build a bridge between the changing business environment and the changes of the role of management accountant in organisations.
The changing business environment
If people tend to make a clear view of the change, they should get a specific understand of the business and business environment. As a sequence, this survey initially concentrated on the changing business environment. According to the management accounting professionals declared, the principle issue that caused the change of the role of management accountant in corporation is the increasingly fierce competition (Hoque et al., 2001; Krishnan et al., 2002).The new business environment just reflected this kind of competition. In the new business environment, it gave the expression to escalating globalization, fresh regulations that focused on corporate governance, changeable markets, new organizational structures, mergers and acquisitions, new management practices, rapid reaction speed, increasingly intelligent information technology and a potential trend of a more elastic corporation structure because of the need to deal with market requisition and more (Askary et al ,2008). In some surveys, people see the changes of “information technology” and “organizational restructuring” as the most two important issues caused the change of the role of management accountants in organizations. And “new accounting software” and “new management style” are other two significant change drivers (Tsamenyi and Yazfifar, 2005).
For example, a significant change of the business environment is the change of management accounting practices. There are so many new management accounting techniques had been innovated and implied in business these years. Some experts claimed that the changes of management accounting practices are administrative innovations (Hart and Roslender, 2002). Whether these changes could be successful or not, they are depended on how well behavioral and organizational implications are dealt with. So the process of these changes meets a huge organizational stress, clash and revolt. And these negative issues may cause failure of the innovation (Hart and Roslender, 2002). In this area, the most important issue is the innovation of Strategic Management Accounting (SMA). SMA was considered as the common-sense approach to the matters emerged in a changing business environment (Hart and Roslender, 2002). Some experts claimed accountants did a large number of benefits by using SMA to strategy formulation and implementation. Some researchers suggested accountants to change their views from traditional accounting issues to concern more business factors. Some persons seen SMA was a tool to help accountants promote their status in organizations (Hart and Roslender, 2002). As a so hot topic, there is no a common conceptual framework about SMA. One definition (Hart and Roslender, 2002) accepted by some people is:
“The provision and analysis of management accounting data about a business and its competitors for use in developing and monitoring the business strategy, particularly relative levels and trends in real costs and prices, volume, market share, cash flow and the proportion demanded of a firm’s total resources.”
In 1981 that SMA was found, Simmonds set a view that the role of management accountants were changed from a pure financial worker to a more important position that need to gain a business opinion and hold the ability of the understand of business environment and represent changes in competitive position to senior management (Hart and Roslender, 2002).
To illustrate, intelligent information development is a more important reason that caused the change not only in the past, but also it is going to influence the role of management accountant in companies in the future even for ever (Management Accounting, 1998). Meanwhile, the development of intelligent information occurred in every industry, business aspect and country. It is an obvious trend that computers deal with more daily work (Management Accounting, 1998). People who can hold the ability to learn and master IT and apply advantages of IT to daily works fully, they will gain benefits of a broader and more flexible role, with bigger management responsibilities, and maybe more rewards, and more frequently join in business strategy (Management Accounting, 1998). The application of IT into business work impacted not only on the role of management accountant in organizations, but also on the relationship between management accounting and other function (Management Accounting, 1998).
There is another specific example that could be seen as the impact of the changing business environment caused on the role of management accountant. Enterprise Resource Planning (ERP) systems are the chief innovation in the business world as an information technology for companies to get information in 1990 (Kholeif and Jack, 2007). As a result, there are a good many of researches to investigate how the ERP systems to influence management accountant on work. One finding in researches of this topic is the role of management accountants in ERP environments seems to be subject to hybridisation, that means the role broadens to include other business and information movement or other people broaden their roles to take charges that accountant do (Kholeif and Jack, 2007). Consequently, the role of management accountants is changing from those traditional functions towards “business partner” and “strategic partner”. In spite of this, the use of ERP system yet may hurt the role of management accountant as information suppliers because the chief managers can gain information they need directly without through accountant report (Kholeif and Jack, 2007).
In recent years, there is another vitally important development concept in management accounting called “Balanced Scorecard”. It contains two aspects of changes compared with old accounting system. At one hand, it introduced an incorporation of non-financial measures. At the other hand, it joined these measures with organisational strategy (Choi and Latshaw, 2002). This means the top management of corporations could use “Balanced Scorecard” to strengthen strategies, introduce these strategies to all of the company, and assess the organisation’s process that pursues the goals of the strategies. At the same time, management accountants also adopt this concept in their works. This helps them enhance their status in companies as important management team partners.
The changes of the role of management accountant in organizations
It is a well known statement that management accounting practices that mainly include management accounting techniques, information and/or systems have nearly kept been stable in the greater part of a century (Johansson, 1990; Kaplan, 1986b). As a result, it can be concluded that traditional management accounting practices lost the ability of gaining useful information and giving full play in management decision-making in the changing business environment. With the changing business environment, the role of management accountants in organizations also changed obviously.
One obvious example of the changes of t management accountants caused by the innovation of “Balanced Scorecard” could be found in the article “Counting More, Counting Less: Transformations in the Management Accounting Profession.”(Choi and Latshaw, 2002) In the essay, the authors compared differences of management accounting professions between 1995 and 1999 about accountants in IMA (Institute of Management Accountants). They found some aspects of the changes. First, there are more people considered management accountants gain more benefits for corporations in 1999 than the number in 1995 (Choi and Latshaw, 2002). Second, more workers were aware that management accountants were not only worked for accounting department, they also worked in operating sections as part of business team (Choi and Latshaw, 2002). Third, professors searched that management accountants used more time in internal consulting and the most important action for them is the strategic planning (Choi and Latshaw, 2002). At last, people claimed that management accountants in companies took charges of both “business partner” and “strategic partner”. The vital reason of these changes is that management accountants in organisations take use of “Balance Scorecard” as a powerful tool to show their abilities to senior managers and strengthen their role as strategic partners (Choi and Latshaw, 2002).
With the emergence of a specific accounting practice called Strategic Management Accounting (SMA), the role of management accountants also greeted clear changes. From the research of Bhimani and Bromwich, there two major ways of strategic management accounting: “One tends to cost the product attributes provided by a company’s products; the other is to cost the functions in the value chain which provide value to the consumer” (Bromwich
How Management Accounting Is Affected By Changes In The Economy And Business Environment Accounting Essay
This assignment shall show how management accounting is affected by changes in the economy and business environment. The advances in information and communication technology upon management accounting will be commented on, described and discussed in detail. Management accounting is important nowadays due to the technology and customers are now seeking high quality products at low prices due to the globalization factor. The main reason recently is due to reduction or free trade, so companies from abroad can challenge the local firms.
Management accounting is the budgetary information, used by managers and employees within an organization. It provides them with useful accounting information that is forward-looking instead of looking at past trends. Gowthorpe (2008) stated that management accounting information in turn gives better business decision making allowing consistency in management and control functions within an organization, ensuring managers plan, organise and control the business.
“Management accounting systems provide information, both financial and nonfinancial, to managers and employees inside an organisation. Management accounting information is tailored to the specific needs of each decision maker and is rarely distributed outside the organisation.” [Atkinson et al (2001)]
In this past decade management accounting has seen changes which have been affected by changes in political leadership, the globalizing forces, technological advances, including the advances of broadband, governance and ethics have all affected management accounting. In this assignment, technological advances and globalization have been chosen as the most important factors in affecting management accounting.
One of the most significant influences on management accounting has been the technology resulting in a change for the betterment, as can be seen in the instance of broadband internet technology. The business communication technologies such as e-commerce being business conducted using the internet, have supported business activities making great impact on the business world today by developing a way to ensure considerable cost savings.
The on-line sales facilities indicate an ever growing market for the use of ecommerce. Showing a new way on how sales and profits can be achieved by such a streamlined business process and the system must be used proficiently than rivals providing potential for firms to ensure a competitive advantage. The use of internet continues to unsettle and alter other markets.
There is also one further advanced IT application being used called enterprise resource planning systems (ERPS). The ERPS includes a bundle of integrated software application that controls the relevant figures within a business, including bookkeeping, budgeting and product profitability analysis for accounting purposes. The modules are there as a complete set of relevant information is in this database and so users can use it directly from a PC according to Drury (2004).
The technological advancement has affected use of accounting information and production. As explained above accountants now write-up, store, manage and address the data in computers that are then easily accessible directly by managers. The managers go on to make better decisions so they generate reports and analyse in further detail by using the spreadsheet software on the computers.
Just-in-time (JIT) theory ensures there is minimum waste in producing the product and prevents activities that waste cost and do not add value to the product. The time for the product or good to be made can be decreased by restructuring and making the production process simpler. Garrison et al (2003) stated some benefits in using a JIT system that include funds that were tied up can be used elsewhere; time is reduced, leading to even more potential output and quicker response to customers. JIT also ensures reduction in defect rates resulting in customers being further satisfied and so there will be less wastage in producing replacements in the long term.
Horngren et al (2002) stated there are many graphics packages that include CAD and CAM that aid this production process. CAD is used to design products that can be manufactured efficiently. Companies also use CAM (computer-aided-manufacturing), where the computer gives instruction and controls the production equipment. Leading to fewer delays with more efficient flow of production, costs are saved due to not requiring the need for hiring a workforce to do this. Using the computer-controlled machines is called computer integrated manufacturing systems (CIM).
The two factors globalization and ICT have a connection as can be seen with internet, provides firms with access to a widespread market, geographically scattered customers, and suppliers. So with internet the whole world can be accessed easily by the business.
Globalization is a process of interaction among companies and potential buyers maybe in different countries driven by international trade, investment and is supported through a medium by IT. This process affects management accounting and the countries get affected in various forms. The globalization factor has been happening rapidly in recent times due to changes in habits of buyers, sellers and advances in technology to open up even more markets. (http://www.globalization101.org/What_is_Globalization.html)
Looking at the manufacturing industry, in the 70’s there was rapid incoming competition from overseas firms, offering high quality products at much lower prices. This was because they could reduce their costs, so the firms here could only survive had they cut their costs; improve quality and products compared to the elite companies worldwide.
The future though is looking bright for manufacturing companies as they are using technology well. Robots and computer-controlled equipment have replaced human labour. In direct production activities, human labour was identified as the highest cost in management accounting systems.
In the last 20 years or so there have been a reduction in tariffs, quotas and other barriers in free trade. There have been greater sales from internet usage and improvements of global transport systems have ensured further globalization. Nowadays international competition is threatening local companies that are profitable in local markets. Though globalisation is greatly responsible for greater competition, it does give more access to new markets, customers and workers. Garrison et al (2007).
There has been a change in company’s strategies due to pressed foreign competition and growing multiplication of businesses. The changes have resulted in more accurate and high standards in management accounting such as JIT.
Nowadays companies are adjusting their accounting systems for better decision making so they seek accurate and timely information about costs that include products, services and activities within the business. To remain competitive, managers need to understand the costs and implications of their decision making with help of management accountants on use of decision trees to help decision making.
Reduction in trade barriers results in globalization at a high level affecting companies in the home market from strong and aggressive companies from overseas. There is a need to cut costs and ensure the quality of products is as good as or better than its overseas competitors. Companies need to ensure the management accounting is there to use and is up there with the highest of standards. If it is not up to scratch then even the best effort and hard work of employees within the organization won’t make the firm competitive enough to win the fight against overseas rivals.
The globalization in the economy has resulted in greater competition due to lesser selling prices as companies can afford to keep cheaper prices so there needs to be a well management in managing costs and the pricing of goods. The global economy has been ever changing in recent times and now with instant communications and competition, companies are required to continuously improve performance every year in management accounting in terms of cost, quality and service. Morse et al (2002).
Nowadays the use of a well structured and thought out management accounting system that enhances the businesses performance to ensure they can keep up to date with the current changing trend of the economy. This is a change from when there was no need to keep costs down and out-of date management accounts, which is no longer possible as for a top firm that is successful needs an up to date management accounting is required.
To conclude one can say globalization and IT have played an important role in affecting management accounting practice. Globalization has forced firms to be more efficient or competitive therefore it has directly affected management accounting because firms have to improve their standards. An improvement in IT has changed the way management accounting is done. Management accountants have started implementing various programmes such as JIT to improve standards and remain competitive. Therefore it can be said that these two factors have been significant in changing the role of management accounting.