Business Environment & Accounting Practices

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Business Environment & Management Accounting Practices

Business Environment & Management Accounting Practices


Over the last three decades a number of innovative management accounting (MA) techniques have been developed across a range of industries. Notable contributions include activity-based techniques, strategic MA and the balanced scorecard. Many scholars1 argue that the 'new' techniques have affected the whole process of MA (planning, controlling, decision-making, and communication) and have shifted its focus from a 'simple' or 'naive' role of cost determination and financial control (CDFC), to a 'sophisticated' role of creating value through improved deployment of resources. For example, Chenhall (1997) argue that “companies increasingly are integrating various [innovative] practices using a comprehensive 'value-based management' … framework” (p. 350). It has been argued that these 'new' accounting techniques have been designed to support modern technologies and new management processes, such as total quality management (TQM) and just-in-time (JIT) production systems, and the search for a competitive advantage to meet the challenge of global competition.


As firms adapt to these technological and management developments, they must design a management accounting system (MAS) congruent with the new requirements (Gerdin, 2005). However, Chapman, (1997) reports that many organisations have not adopted the 'advanced' techniques. She explains that “the appropriateness of using sophisticated techniques may depend on the circumstances in which these techniques are being used (and this) … gives rise to the need to adopt a contingency theory perspective” (p. 102).

The contingency theory literature indicates that factors such as technology and environment affect the design and functioning of organisations (Covaleski et al., 1996). Its central theme is that there is no unique best structure to all organisations under all circumstances; instead each organisational structure is a response to a set of contingencies. A company's accounting system is a significant element of its organisational structure and the particular features of an appropriate system will depend upon the circumstances that the company faces (Brown, 1990). The literature shows that important characteristics (contingencies) affecting organisational structure include size, environmental uncertainty, production technology, corporate strategy and market environment (Ashton et al., 1995).

IFAC (1998) provides a framework explaining the development of MA in terms of a four stage 'evolution'2 model. The primary focus of the first stage of evolution (associated with developments prior to 1950) was 'CDFC'. MA in this stage is seen to be concerned primarily with internal matters, especially production capacity. In the first half of the 20th century the use of budgeting and cost accounting practices was prevalent. However, the dissemination of cost information tended to be slight, and its use for management decision-making poorly exploited (Anderson and Lanen, 1999 ).

The focus of MA in its second stage of evolution, in the 1950s and 1960s, shifted to the provision of information for planning and control purposes. Accordingly, MA is described by IFAC as “a management activity, but in a staff role” (para 19). It involved staff support to line management through the use of technologies such as decision analysis and responsibility ...
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