Factors that influenced the change in management accounting

Factors that influenced the trans put to work in instruction accountThis chapter volition review the pertinent literature and the understanding of the tralatitious region of the prudence restrainer. The chapter will begin with an understanding of the impression of focus accountancy. This provides a accent for discussion of the traditional region of guidance controller. Fin aloney, a review of whole the factors that may influence on the number and promoted the substitute of the fictional character argon explored.2.1 AccountingAccounting is a put to work of identifying, measuring and communicating frugal tuition to permit informed judgements and finiss by the users of the tuition(Wallace, 1997, p.220)The history of account statement has progressed in combination with civilisation and commerce. The literature provides evidence that Paciolo in 1494 founded the notion of invoice by publication of Summa de Arithmetica. He presented write up in methodical form that became a science later on.The definition suggests that explanation is virtually providing economic information to an another(prenominal)(prenominal)s and it relates to the financial or economic activities of the nerve. Accounting information is identified and measured by the way of a direct of accounts or double-entry bookkeeping.2.1.1 Management reportManagement accountancy is that part of write up which provides finish making information to managers for use in intend and controlling trading operations (Seal at all, 2006). The name of circumspection accounting is defined by add togethers racket of authors (Shank, 1989, Back-Hock, 1992, Nanni at all, 1992) in that charge accounting provides information to develop surgical execute measures and includes all planning and monitoring in an administration. Simon et al., (1954), cited by Jarvenpaa (2007) described the role as the traditional role of steering accounting. The role was an working(a) scorekeeping where accounting information was use to satisfy the organisations reporting obligation.2.1.2 The rise and assume of anxiety accountingThe arrival of Johnson and Kaplans publication Relevant Lost The rise and fall of perplexity accounting (1987) plays an main(prenominal) role in the direction that teaching and research may adopt in the near future. JK states that the decline of attention accounting began in the 1920s when most of the focus accounting techniques know today were practically developed. According to JK the fall of counsel accounting was generally due to the ever-increasing exist of implementing a detailed and efficient internal convergence live system.JK argued that management accounting techniques had not swap since 1920s. Up to eighties some countries enjoyed operating in protective environments. Oversees companies were limited to operating in the domestic market with barriers to communication, geographical distance and several(prenominal) clock prison term s protected markets (Drury, 2003). Since mid-eighties many organisations name shiftd and adapted red-hot techniques. Organisational change had an violation on management accounting change. Cost allocation has been the most debated topic in man acc. Up to the 1960s standard exist was promoted by pedantic and artal organisations and was viewed as the key management accounting tool in cost control (Bailey, 2006). According to Allott (2000) the post war bea was characterised by rational expectations active human behaviour and beliefs in linear progress, upward(a) mobility and equal opportunity. The 1970s brought new changes to management accounting and standard costing relevance that began to focus much on efficiency. In the large organisations the right of standard costing was questioned. Robert S. Kaplan in his Accounting Review argued that cost accounting was developed between 1850 and 1915. He argued that up to 50s big mints used cost oriented techniques (Knortz, 1990) scarcely then they started to focus much on consumers and their role in a rail line.Due to changes in manufacturing and concern environment, volume found costing is no longer appropriate because direct labour and signifi suffert expenses no longer dominate fruit costs. In response to this wall socket activity found costing system was institutionduced that brought huge success to Japanese management accounting (Ezzamel, 1994). Each organisation must overly attend the cultural and social mickleting before any alterations to the ABC ar prospering (Lowry, 1993, Ezzamel, 1994, Otley, 2008).In summary, the change of management accounting come onlined by Johnson and Kaplan (1987) seem to be across management accounting literature (Otley, 1985, Noreen, 1987, Drucker, 1990, Ezzamel, 1994, heat et al., 1998, Otley,2008). Jonson and Kaplan did raise important question about management accounting and helped organisations to re-evaluate the grandness of having an accurate manag ement accounting system.2.2 Traditional roleThe sentiment of comptroller was introduced in Italy around the eleventh century. At the same time the source society of accountants was establish here in Italy. In 1669 e real accountant must be a member of the college before being allowed to go for (Woolf, 1986, p.162).2.2.1 The typical stereo typecastThe traditional role of accountant is often called the loft counter stereotype. Holland (1973) develops a theory on this subject. He classifies people into sestet categories. The accountant relates to the conventional type giving an everywhereall good impression, decent, dealings with computations in the organisational and line of product line field. He linked the work that accountant does to the type of mortal the accountant is. The close link was found by Bougen (1994, p.321) victimisation various personal characteristics and different tasks. The stereotypical accountant was defined establish on the tasks carried out.2.2.2 Th e Bookkeeper/Traditional Management AccountantThe old inaccurate experience of stereotype was seen as quiet, boring and without original thoughts. The landing field on this prohibit image by Beardslee and ODowd (1962) was seen the accountant as a Victorian bookkeeper using up most of the time at the desk and on a ledger without mop up with the outside world.Simon (1954) in his studies classified the role as scorekeeping, problem understand role and vigilance directing. According to Friedman and Lyne (1997) the scorekeeping focuses on compliance reporting and attention directing focuses on control issues. The problems solving role associated with decision-making and providing managers with relevant information.Feeney and push up (2007) stated that their role did not relate to the business, had lack of creativity and precise limited level of decisions. Accountants were involved in working with budgeting, variance outline and traditional accounting. Over the past 30 years man agement accountant had a clear solely narrow view that management accounting information could help to improve lucrativeness. They believed that managers from other departments did not understand the brilliance of accounting information and all available date they held in the accounting systems. At that time, management accountants were proved of their role and be able to naturalise their non-financial managers about the benefits of using this management accountants were traditionally seen as an independent person who had narrow association how management accounting information could improve profitability and efficiency of the organisation.Nanni et al (1992) point out that traditional management accountants suffer tended to focus on a product-oriented rather than a process-oriented performances. There is n ahead of time evidence that accountants ingest had little interests in any organisational changes even they had skills to realize some(prenominal) changes. For example, it was accountants who insisted on the implementation an activity-based costing system (Foster and Gupta, 1989) or product life-cycle costing system.2.2.3 Accounting jugJohnson and Kaplan (1987) criticised management accountant for their inability to mental institutions and this was viewed as an accounting remit .Kaplan (1984) in his engage about accounting lag proposed that accountants should develop a research strategy to meet new demands for planning and control information. He suggested that thither was little innovation since 1920. Accounting lag need to be minimized to keep accounting information relevant to all changes occurring over time.2. 3 Pressures for channelizesThe literature identifies some relevant factors that impact on the role of management accountants including2.3.1 Advances in Manufacturing and GlobalisationCompanies declare invested hard in new manufacturing technology such as computer aid manufacturing (CAM), Computer Aided Design (CAD), and flexible m anufacturing systems (FMS) (Buggerman and Siagmulder) The new manufacturing technologies defecate impact on traditional managing accounting systems andConsequently it is argued that management accounting systems perplex to change when manufacturing systems changeWith respect to product costing and overhead costs, track thousands of individual products can be overwhelming. Traditionally, Labour hours were used as a basis for an overhead allocation. It is perhaps less suited as products make through and through automation would be charged an insufficient overhead rate.The private-enterprise(a) pressure level on firms and the shift in many industry sectors from cost led pricing to price-led costing (Nixon, 1998) and globalization are practiced some of the many factors that are influencing the escalating expenditure on RD and New Product cultivation that most companies must now incur.2.3.2CompetitionPre 1980s many countries enjoyed operating in protective environments. Oversees companies were limited to operating in the domestic market with barriers to communication, geographical distance and sometimes protected markets (Drury 2003)However manufacturing companies were open to sever pressure from competition from oversees competitors that offered proud bore products at low prices. To be made in competition against these companies they had to advance and adopt to change and find a combative weapon to compete against world class manufacturing companies.As a result of passing competitive market, consumers expectations, changes in tastes and attitudes, companies must now founder the flexibility to cope with consumer demands for greater variety and improvements, shorter life cycles etc.2.3.3 Advances in manufacturing technologyEvolution of management accounting information technologies and ERP systems in peculiar(prenominal) dramatic play over on been a fundamental catalyst in I.T. change and traditional management accounting techniques father had to keep in line and step with these rapid advancements.ERP can harbour solid implications for management accountants. As note by Granlund and Malmi (2003) the link to management accounting appears important since one set of benefits from integrated systems is assumed to flow from easy and fast access to operational info, management accounting being essential for conveying such data in a managerial relevant and usable form. Also when major scale changes regarding information systems occur, logic of accounting becomes exposed to evaluation and doable changes.As ERP is a totally integrated information system it merges together all data from manufacturing department to sales division and the integrated data flows immediately through the system(). As a consequence of this integration accountants have had to learn to work with this new system, and to go steady at the business as a process rather than in divisions which has led to more root work and greater cross functional commu nication and co-operation.On the other hand there is evidence suggesting the accounting professionals are developing a broader role for themselves. Accountants are becoming less in charge of data gathering and more data interpretation and consulting kind of work. ERP has eliminated several number c agitateching assignments as its already done by the system thus go away more time for accountants to expand their capabilities. Their role can be raise by becoming advisors and internal consultants to other managers.With the implementation and running of ERP systems accountants have gained a more active role in the maintenance and management of the IT area and eroding into activities and responsibilities typical of the I.T. area. Caglio (2003) states that As a consequence of the intro of ERP systems, accountants have experienced a phenomenon of Hybridization deriving from their set of practices and legitimized competencies2.3.4 Changes in organisation structureChanges in manufacturing t echnology, globalisation and fierce competition have lead to changes in the structure of the organisation. Companies have focus on downsizing, tally ring management activities and outsourcing support services. Technology advances in flexible manufacturing robotics alter production and computerised engineer and planning are affecting the markets raising the quality of products and services while lowering and eliminating stock levels (Baily 2006) destructionChapter 33.1 Change is a contextual processBurns and Vaivio (2001) described change as a complex and contextual process. They introduced three opinions on change. The first po setion explores the idea that what sometimes appears to be change, may not actually be the change (DCU thesis). Change could be an illusion or kind of organizational mirage and often can be seen as positive phenomenon. But sometimes management accounting change could lead to significant problems such as unforeseen conflict (Malmi, 1997 Kasurinen, 1999 Granlund, 2001). The second perspective provides a debate about the logic of change. Any changes including management accounting change is not planned, but is viewed as a part of reality and neutral activity. The final perspective point out that management accounting can be viewed as phenomenon. Therefore change may be presented as a centrally driven effort where the management plays an important role.For example in the gaffe of mergers and acquisitions occurring, new rules will be introduced and/or modified. This can happen designedly or unconsciously. Deliberate changes could occur due to resistance within the acquired organisation (Burns and Scapens 2000) Changes may be unconscious when rules are simply misunderstood or are inappropriate to the circumstances.3.2 Management accounting changeManagement accounting change has become an increasingly popular focus for research in management accounting in 1990s due to implementation of activity-based costing( Innes and Mitchell, 1990) , activity-based cost management ( Friedman and Lyne, 1995), life cycle costing (Shields and Young, 1991) and target costing (e.g. Dutton and Ferguson, 1996). new-made research has debated whether management accounting has changed, has not changed or should be changed. (Burns and Scapens 2000) Whether management accounting has changed or not, that the environment in which management accountants operate for sure has changed with advances in information technology, change in organisation structure and stiffer competitive markets.The understanding of management accounting change constitutes much more than the option of what may be comprehend as being optimal accounting systems and techniques, followed by a technological process of implementation. (Burns et al book) Selecting and using the dress management accounting techniques and the technical aspects of performance are important, but there are also behavioural and cultural issues to be understood in relation to change implementa tion and change management. The main focus on management accounting change is on understanding the processes involved in the implementation of management accounting change and the complexities of, and difficulties involved in, changing management accounting systems, techniques and roles.Burns (1999) suggest that many organisations have routines in invest and new changes introduced will lead to the change of the nature of the organisation. In the early 1980s a protrusion, called the Production Cost Control Project was set up to improve the flow of acc info in Omega Plc. The project had failed because the operating managers saw the business in terms of producing-based meanings and routines. The divisional accountants viewed the business as financial term and regarded PCCP as a means of introducing accounting-based routines.Sulaiman and Mitchell (2005) carried out study on management accounting change in Malayan manufacturing companies. After gathering all information a four types o f change had occurred. The devil types occurred due to new technique introduction and two concern existing management accounting modification. The research found that management accountant classified the level of management accounting change into five verbalize components.3.3 Institutional theory3.3.1 InstitutionInstitutional theory is a supposititious example that became more relevant in research of management accounting change. In accepting this theory there is no universally concur definition of an institution. Scott (1995) describes instutions are social structures that have attained a high degree of resilience Burns and Scapens (19990 defined institution as a way of motion of commonness which is surrounded in the habits of a group of people.3.3.2 Institutional framework as a rules and routines conceptDevelopment of the framework began by looking at the way in which outrank is achieved through rules and routines. The framework perceive management accounting to be a rules and routines naturalized by established habits. (Kim Soin, 2002). Hodgson (1993) defined habits as self-actualizing dispositions or tendencies to engage in previously adopted form of action. Habit is a personal action where routines involve group of people as components of institution. Routines play an important role in an organisation in which management accounting was viewed as a rule concept where management accountant performed routine tasks. Rules may be became implemented through the establishment of routines and vice versa. Therefore the reproduction of roles and routine will persist over time and the routines of management accountants may be changed. The process of change may develop new routines which over time could be institutionalised.In the organisation routines can be adapted very quickly over the time. Human behaviour in the organisation is based on repeating actions to comply with rules and routines as they provide an organisational memory and diddle the basis for the development of the behaviour (Kim Soin, 2002). Guerreiro, R at al (2006) used habit, routines and institutions to illustrate how accounting practices can turn from habit to institutions through routines. They conclude that all institutions are structured on the basis of take-for-granted habits and routines, succeed during a certain period and are realised in a form of normative rules.3.3.3 Taken for grantedAccording to Scapens (2006) organisations react more tardily to changes than individuals as they removed form every day activities in some way. He observed that over time, management accounting can enclose a structure that shows the way organisations sentiment and acting which is widely taken for granted. Management accountants were viewed as routine features in the organisation and they simply taken for granted as the way things are. slightly researches of institutionalism criticised the framework as it overplays its idiom on constancy at the expense of focusing on i nstitutional change. Quattrone and Hopper (2001) explained how management accounting can be influenced by an organisation or by individuals. Individualism argues that an organisation changes when individual actions modify the organisation. They introduced the concept of drift for constructions of accounting change. The authors re dedicated the word change with world drift. Quattrone and Hopper (2001) lead drift as to represent accounting change as uncomplete attempts at organising and emphasise that human elements that situate accounting change is not a harbour to the change. They argued that accounting change was also promoted by technical and inscribed elements.In a recent study of change in management accounting Busco at all (2007) organised the notion of change within key dimensions. The key dimensions were evaluated in terms of the ratio and forms of change as well as evaluation over office and time of change. They carried out a case study to investigate those key dimensions in the Middle-East Gas and Oil Company (MEGOC) as a large corporation operating in the oil and gas industry. They found that change can only happen due to incompleteness that exists within an organisation. Busco at all (2007) reason out that management accounting change is a theoretical space which, possibly more than many others in management and organizational studies, intersects and interacts with the broader knowledge area of the social sciences, sociology and philosophy of knowledge and science and technology studiesConclusionChapter 44.1 Management accountant as loanblend accountantThe term crown of thorns accountant emerged in the literature from around 1995 as its role was focused on product stream. Burns and Baldvinsdottir (2005) studied a concept of new role of management accountant as crossing accountant by examining a multinational pharmaceutical company in the manufacturing division. Their study found that the number of hybrid accountants increase with development of team kindred building while routine accounting role disappearing. Two types of hybrid accountant were found from their study finance manager and finance psychoanalyst were the finance manager was involved in strategic issues and the finance analyst was involved with day to day activities. According to Miller et al (2007) hybrid is defined as new phenomena produced out of two or more elements normally found separately. The discussion in the literature around hybrid accountant has developed in business quisling direction.4.2 Business partner roleIt has been noted in the literature that management accountant have become more and more involved in business processes (Sathe, 1982, Keating and Joblonsky) and have demonstrated a strong business understanding (Feeney, 2007, Burns at all, 1999). Hopper (1980) found that principal task of accountants was to act in a service role rather than a bookkeeper. He found that volume described their lore as the service role and only fewer call ed themselves as the bookkeeper and preferred the management accounting tasks to be centralised. Grnalund and Lukka(1998) presented the transformation from covered stadium counter to business-orientated management accountant position. The transformation occurred with the increasing decentralization of the management accounting function. They concluded that those two roles are very different and a person can not act in both roles. Some evidence emerging in the literature that transformation of management accountants to business partner started at the top by the business and profit affection managers became more depended on accountants. Managers used their help as the guidance to run their business (Siegel, 2003) and they expect from accountants a better business understanding and more flexibility (Pierce and ODea, 2003).Burns and Baldvinsdottir (2005) concluded that it is prerequisite for management accountants to have a broad range of business skills with their basic technical sk ills.4.3 Professional skills of management accountant ( subheading needed)As processes have changed and accounting has adapted over time to meet the needs of ever changing business, management accountants have been take to change their skills. (Fleming 1999) They are projected to be forward cogitateing business forecaster s who add value to the entity and not just highlighting whether the targets have been met (Burns and Yazdifar) Traditionally management accountants spent time on preparing standardized reports. Today the shift has moved towards analyzing, interpreting and providing information for decision making purposes. (Roberta et al 2009) These skills include traditional as well as soft skills that these management accountants posses in order to contribute positively to the tasks that are acquired to perform as part of their role (Jones and Abraham 2007) A recent study by Freeny and Pierce 2007 looked at management accountant skills and asked both managers and management acc ountants to rank skills in order of sensed importance.Ethics and honesty were rated highly by both parties. Managers value the unbiased and objective perspective offered by management accountants- the financial numbers cannot afford to be skewed in favor of a certain standpoint Accuracy is also crucial. A simple error in calculation could amount to millions of Euros, which could lead to a wrong decision (Siegal 2000 )As part of Management accountants role converging towards hybrid accountants as business partners, honesty is good but they have to take into account a bit of cop on (Freeny and Pierce 2007) and process the commercial knowledge required on their behalf to get the job done.For many businesses, critical thinking, problem solving and analytical skills are essential tools. It is an important skill of management accountants to think critically and to be good at problem solving. They need to be able to step back and look at something outside of the box (Siegal 2000)people ca n be a wizard at spreadsheets, can manipulate data effectively but can they figure out whether the information in front of them is evenhandedly or realistic (Freeny and Pierce 2007)Accounts have to be able to think logically in a business setting. They cant just learn off and memorize what to do in different situations. Creativity is also important, to be able to step aside and show some innovation and ideas to problems.In the study by Freeny and Pierce management accountants actual ratings in relation to social/ leadership and communication skill set trim back below managers expectations. These are classed as fundamental skills and a necessary to have the ability to take on a complex subject and turn it into easily understandable language and be able to explain it to managers and other non accountants. you guys can be geniuses with your spreadsheets but there isnt that many of you that can sit down at the meeting and share information. A key certificate of indebtedness in compi ling reports for use is that the input is based from other power throughout the organization. Good personnel skills are needed to approach these managers and predication information. Problems could arise where managers believe management accountants can adjust their targets and cause problems. This requires substantial interpersonal skills to close the communication gap.It is evident that management accountants must bring up and equip themselves for their new role in line with changing business demands. Professional accounting bodies must update and rawize their training and procreation curriculum to guarantee that todays management accountants can cope with new information technology systems, strategy and business partner role. (Burns and Yazdifar)As many of the new accounting roles do not necessarily need a management accountant there is a threat posed to the profession. For example if an engineering firm is seeking for a new business manager they powerfulness seek engineers who encompass business knowledge with an accountant qualification rather than a fully qualified management accountant. To combat this threat accounting educators should develop curriculums that are less dominated by traditional management practices and focus on management accounting in a modern light and equip students with the skills necessary and useful to provide a value-added service.Carcello et al (1991) conducted a vignette of comparing student expectations to that of accounting professionals anticipations. Students included in the sample were within six months of graduating and professional accountants were in the work place for 1.5 years to 3.5 years. Four questions of the survey pacifically related to skills essential as a practicing accountant. (A) Technical Knowledge, (B) C computer Skills, (C) Verbal and Written conversation skills, (D) social skills.Respondents had to rank the skills on a five point scale. The results of the survey showed that professionals and stud ents had similar views as to the importance of technical knowledge and computer skills. Students perceived communication skills and interpersonal skills as more important than professionals. Carcello et al (1991) concluded that this is a positive result as both communication and interpersonal skills are essential attributes of the accounting profession.Oswick et al (1994) conducted a survey on the perception of public accounting skills held by uk students with accounting and non accounting vocation aspirations. The perception of a traditional accountant being dull and absentminded in social skills is detained with non accountant students. In Oswicks study these non accounting students perceived empathy and social styles as less important skills necessary than accounting students. Interpersonal skills were also rated lowly as perceived important by students not interested in accountancy. Students interested in accountancy did place a higher weighting on interpersonal skills and vie w the accountancy profession as a more interactive and social profession.From the surveys conducted on skills required by accountants it is evident that there has been as increased weighting on the soft skills acquired by management accountant. Such evidence had had implications for accounting educators.It is necessary to enable students and for faculty to remain abreast of the changes taking place in the profession and to identify key Accounting Skills needed for success. (Russell et al 1999)Chapter 5 Methodology5.1 IntroductionThe purpose of this chapter is to elaborate on the research methodology that was used in this dissertation. The beginning of this chapter refers to the objective of the research and is followed by the process of selecting the research method. This chapter also considers the limitations of the chosen research method.5.2 ObjectiveAs draw in the introduction chapter the main purpose of this dissertation is to investigate the change of management accountants o ver time. The researcher wishes to identify the traditional role of management accountants and compare to the modern role of management accountant. The authors also seek to explore the factors that promoted the change.A number of researches have already been carried out on business partner or hybrid accountant role and this has resulted a significant availability of information regarding this area. However, there is a lack of examination in some areas that the research will explore.5.3 Chosen methodologyIn order to achieve the research objectives it is necessary to choose an appropriate research approach. Tsetsekos (1993) outline that the research methodology is very important as it specifies the information requirements for the successful completion of a research project. This dissertation is based on a secondary research that includes a critical review of prior literature. lowly data consists of both quantitative and qualitative data.5.3.1 Secondary Data literature reviewA com prehensive review of the literature was conducted in chapter one, two and three. Literature review helps the reade