INTRODUCTION not meant to imply that implementation (or

 

 

INTRODUCTION

Management
Accounting uses provisions of accounting information in order to better inform
themselves before they decide matters within the organizations, which would
help the management and performance of control function.1
Here we will compare about the various management accounting techniques which
were used 20 years ago and presently by various manufacturing firms. The
traditional management accounting practices (MAP) such as budgeting, costing
and profitability analysis mostly focus on internal organizational issues and
are financially oriented. Additionally, recently developed MAP methods form
financial and non-financial information focusing in a more strategic
orientation. Several studies have analysed the adoption and benefits of traditional
and recently developed MAP all over the world (Bhimani, 1996; Brown, Booth, & Giacobbe, 2001;
Chenhall & Langfield-Smith, 1998; Haldma & Laats, 2002; Hyvonen, 2005;
Lin & Yu, 2002; Malmi, 2001; O’Connor, Chow, & Wu, 2004; Shields, 1998;
Sulaiman, Ahmad, & Alwi, 2004; Szychta, 2002).2

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Chenhall and
Langfield-Smith (1998), surveying the Australian manufacturing sector, found
that traditional management accounting techniques were found to be more widely
adopted than recently developed techniques. There will be  greater attention paid to newer techniques in
the future, like benchmarking and activity-based techniques. Their study suggest
that future research should be directed at gaining a better understanding of
the factors that influence differences in the levels of adoption of recently developed
management accounting techniques between countries.3

 

STUDY ON MANAGEMENT
ACCOUNTING TECHNIQUES

Greece and Finland Survey(Based on
study of 2010th year)

The study s
undertaken from the article ” Adoption and benefits of management accounting practices:
Evidence from Greece and Finland”.

A survey was
undertaken to gather all the appropriate data by use of a structured
questionnaire. The design of the survey follows those of Chenhall and
Langfield-Smith (1998) and Hyvonen (2005). In order to achieve sufficient
sample size and gereralizing  of the
results, the sample frame for this study consisted of all 157 large-size Greek
manufacturing companies that employed at least 250 people. The respondents were
Financial managers(75%), Financial controller(14%), Senior management
accountant(7%), Senior accountant(2% ) and Accountant(1%).4

The result
shows that the implementation of management accounting practices in Greece and
Finland. It is separated in three equal parts (high–moderate–low) in order to
lead the analysis and is not meant to imply that implementation (or benefits)
is either high or low in any absolute sense. Each part contains fifteen items.
MAP are divided into five categories: budgeting systems (B), decision support
systems (DS), long term planning (LTP), product costing (PC), and performance
evaluation (PE). Also all these categories are included in two broader
categories: traditional techniques (such as budgeting systems, performance
evaluation such as ROI and divisional profit, among other things) and recently
or currently developed techniques (such as benchmarking, activity based
techniques, balanced performance measures, team based measures, employee based
measures and strategic planning), (Chenhall & Langfield-Smith, 1998;
Hyvonen, 2005).5
The high implementation rate was for Product profitability analysis(100%) which
ranked 1. Budgeting for controlling cost ranked 2nd(98%), Formal strategic
planning ranked 3rd(96%) and so on. In moderate implementation rate, Capital
budgeted measures like IRR, NPV ranked 8(87%), performance evaluation ranked
9(85%), Capital budgeting measure like ROI, payback ranked10(83%) and so on.
The low implementation rate was for Strategic plans developed separately from
budgets which ranked 17(70%), Budget for planning day to day ranked 18(68%),
Activity based management ranked 19(66%) and so on.

Ranking of Various Management
Techniques based on the above research:

Budgeting for controlling costs is implemented
by almost all Greek firms (Rate 98%) in the sample. Budget for planning
financial position, budgeting for coordinating activities across the business
units, budgeting for planning cash flows, budgeting for evaluating managers’
performance all ranked in the high implementation rates. Budget linking
financial position, resources and activities is ranked moderate but still has
an implementation rate of 74%. Budget for planning day-to-day operations and
budgeting for compensating managers ranked low also they have implementation
rates of 68% and 64% respectively. (sciencedirect.com)

Product profitability analysis is implemented by every firm in the
sample and it is ranked the highest (ranked 1) of all practices and among the
decision support practices as well.(sciencedirect.com)

Absorption costing has a relatively high implementation
rate (ranked 6), the main reason is due that this method is mainly mandated by
the Hellenic General Accounting Plan which follows the rules of EU financial
record keeping (Ballas & Venieris, 1996). Activity-based costing (ranked 21) and variable costing (ranked 23) have received a low implementation
rank.

Performance evaluation practices include both traditional and
recently developed ones, some of the techniques are financial and some
non-financial. The highest ranking performance evaluation in Greek firms is
production processes (ranked 4), and the second highest is qualitative measures
(ranked 5). The other performance evaluation practices with high implementation
rates are: employee attitudes (ranked 7), return on investment (ROI) (ranked 7)
Hyvonen (2005).

These
findings are in accordance of various researchers who have presented evidence
that financial measures of performance are very important in many countries
(Ballas & Venieris, 1996; Bhimani, 1996; Chenhall & Langfield-Smith,
1998; Israelsen, Anderson, Rohde, &Sorensen, 1996).

 

AUSTRALIAN STUDY (YEAR 1998)

This study
was undertaken by Chenhall Langfield-Smith in the Year 1998 in there
article,” Adoption and
benefits of management accounting practices: an Australian study”. The
article is about the extent up to which Australian Manufacturing firms has
adopted for traditional and recently developed management accounting
techniques.

In the era of
Globalization, there is need to adept and maintain the management accounting as
per the changing needs of the managers. Earlier, there was more focus on
financial analyses, however, future is more concerned on both financial as well
as non financial analysis. Traditional practices, such as cost variance
analysis and profit-based performance measures, focus on the concerns internal
to the organization and are financially-oriented. In contrast, more
contemporary management accounting techniques combine both financial and
non-financial information and take an explicit strategic focus. This can be
seen, for example, in the design of activity-based costing, contemporary
performance measurement systems and benchmarking techniques.6

In this survey, 140
manufacturing firms were selected from the Business Review Weekly list of
Australia’s largest companies. These firms were either ‘strategic business
units’ (divisions of larger corporations) or companies in their own right. The survey’s
design was developed by De Meyer et al. (1989) and Miller et al. (1992). The
sector to which these industries belongs to Food and beverages Wood and paper
products, Chemical products, Metal industry, Machinery and equipment, Textiles,
printing, Non-metallic, minerals, General construction, Other manufacturing. The
adoption of the various practices by various firms followed by there rank  are as follows:

HIGH ADOPTION

·        
Budgeting
for planning financial position (1st Rank)

·        
Capital
budgeting tools (2nd Rank)

·        
Day-to-day
operations (2nd Rank)

·        
Budgeting
for planning cash flows (2nd Rank)

·        
Budgeting
to plan Budgeting for controlling costs (2nd Rank)

·        
Performance
evaluation: return on investment (3rd Rank)

MODERATE ADOPTION

·        
Performance
evaluation: controllable profit (10th Rank)

·        
Product
profitability analysis (10th Rank)

·        
Performance
evaluation: balanced scorecard (11th Rank)

·        
Performance
evaluation: customer satisfaction (11th Rank)

LOW ADOPTION

·        
Absorption
costing (16th Rank)

·        
Activity-based
budgeting (17th Rank)

·        
Benchmarking
with outside organization (18th Rank)

·        
Activity
based costing (24th Rank)

7

The study shows the
impact of use of financial measures by the firms. The findings suggest that financial performance
measures continue to be an important aspect of management accounting, however, the
growing importance of non financial measures is noted in many surveys. In the
U.K., Bhimani (1994) reported that executives were receptive to the use of
non-financial indicators. In Dugdale’s (1994) survey, non-financial measures
ranked fourth out of 30 in importance, which suggests that these measures were
not seen as inconsistent with the high rankings given to budgetary measures.
Banerjee and Kane (1996) found that 85% of surveyed CIMA members believed that
accountants need to integrate non-financial and financial information in their
reporting. The adoption of both formal strategic planning and traditional
budgetary planning practices were providing high benefits.8

There were evidence which
shows  higher rates of adoption of
activity-based costing. In the U.K., Innes and Mitchell (1995) found that 20%
of firms had adopted activity-based costing and, interestingly, 33% of larger
firms in the sample had adopted activity-based costing. Banerjee and Kane
(1996) reported that 22% of a sample of CIMA members used activity-based
costing, 31% believed it to be a prerequisite for operating in current business
environments and 25% who had not implemented activity-based costing intended to
do so in the next 6-24 months. Similarly, a survey by Evans and Ashworth (1996)
found that 21% of U.K. firms had implemented activity-based costing and 4 1 %
were considering implementation. In the U.S., Hrisak (1996) found that 53% of
survey respondents were using activity based costing.9

Overall, it indicates
that the rates of adoption of traditional management accounting practices were
higher than recently developed techniques. However, newer techniques, such as activity-based
costing, were more widely adopted than found in prior surveys. Furthermore, the
benefits obtained from traditional management accounting techniques were higher
than those of newer techniques. The evidence also suggested that the majority
of large Australian firms have adopted a range of management accounting
techniques that emphasize non-financial information, and take a more strategic
focus.10

 

A SOUTH
AUSTRALIAN PERSPECTIVE

This study
was conducted by David Forsaith, Carol Tilt, Maria Xydias-Lobo in there article
named ” THE FUTURE
OF MANAGEMENT ACCOUNTING: A SOUTH AUSTRALIAN PERSPECTIVE”.

In the
article, the authors has shown the Australian study by Birkett (1989) found that the purpose of
management accounting was to “provide management with the necessary key
information as quickly and accurately as possible, to enable appropriate action
to be taken” (p 16). The 1994 ASCPA study concluded that “the management
accounting function was…value-adding participation in organisational
processes of strategy formulation, control, and change” (Barbera, 1996a, p 53).
Significantly, the terms ‘value-adding’, ‘organisational processes’,
‘strategy’, and ‘change’ had found their way into this definition, reflecting
the changes in the business environment and management philosophies, as well as
changes in the management accountant’s role.11

In this article, the authors gave the referece
of Sharma’s study in the year 1998. He reports on research conducted by
Chenhall and Langfield-Smith which involve a survey of 140 manufacturing firms
in Australia. He states the current and future trends of various practices
which is as follows:

Current and Future Trends in Management
Accounting

Source:
Adapted from Sharma,1998, p-24, Current
and Future Trends in Management Accounting  table. (n.d.). Retrieved from
http://www.flinders.edu.au/sabs/business/research/papers/03-2.pdf

Sharma
(1998) claims that in the future, management accounting will develop in areas
involving “a broad spectrum of cross-functional disciplines” (p 24), such as:


Performance Management (eg developing key financial and non-financial
indicators)

• Asset
Management (eg. managing a product through its life cycle)

• Business
Control Management (eg corporate governance and internal control frameworks)


Environmental Management (eg accounting for the environment)

• Financial
Management (eg activity based management)


Intellectual Capital Management (eg measuring and managing employee
satisfaction)


Information Management (eg implementing and generating value from e-commerce
and EDI)

• Quality
Management (eg implementing TQM within an organization and managing quality
improvements), and

• Strategic
Management (eg value chain analysis for assessing competitive advantage).

There was
survey taken by the authors and a questioner was prepared and sent to various
industries with the letter from CPA to increase the volume of reply by the
respondent. However, the result was quiet low with only 161 individuals responding.
The industries includes in the survey were Manufacturing group, Public service,
Financial services, Education and  Community services. The results were as follows
which states the percentile of techniques used by the firms:

Techniques and Performance Measures
Used

Source: Techniques and
Performance Measures Used table.
(n.d.). Retrieved from
http://www.flinders.edu.au/sabs/business/research/papers/03-2.pdf

The
techniques which were most commonly used by accountants(Management Accountants)
were those not traditionally related to costing as can be seen in the table
above. Financial tools such as CVP, residual income and variable costing were
used by less than one third of the respondents. Moreover, life cycle costing
and target costing had not been adopted by many organizations. The major
emphasis was laid on is on budgeting and strategy.12

CONCLUSION

 

Above, we
have researched about the management accounting practices used in Australia and
Greece. One thing which was common in both the countries was the use of
Management Accounting Techniques over the period of time. In initial stages,
i.e., in 1980′, 1990’s and 2000’s, there was use of traditional management
accounting practices. At that time, there was more focus on financial measures.
The techniques like capital budgeting, variance analysis, return on investment
and so on plays a vital role in the firms. However, with the change of time,
Accountants focuses on non financial practices too. Therefore, the impact of
new techniques rises. The use of practices like activity based costing,
benchmarking, etc has risen. In a nutshell, in a current era, it can be said
that the manufacturing firm uses traditional techniques to evaluate the
performance of the firm, however, new management accounting techniques use is
growing at great pace in an Australian society.         

REFERENCES

·        
Adapted from Sharma,1998, p-24, Current and Future
Trends in Management Accounting  table. (n.d.). Retrieved
from http://www.flinders.edu.au/sabs/business/research/papers/03-2.pdf

·        
Adoption and benefits of management accounting practices:
Evidence from Greece and Finland – ScienceDirect. (n.d.). Retrieved from
https://www.sciencedirect.com/science/article/pii/S0882611010000064

·        
Chenhall Langfield-Smith. (1998). Adoption and
benefits of management accounting practices: an Australian study. Retrieved
from https://ac.els-cdn.com/S1044500597900603/1-s2.0-S1044500597900603 main.pdf?_tid=aa4e2fbc-f537-11e7-83eb-00000aab0f6c&acdnat=1515500699_147f61787722ee6f1550f2b20836b80e

·        
Chenhall, R. H., & Langfield-Smith, K.
(1998). Adoption and benefits of management accounting practices: an Australian
study. Management Accounting Research, 9(1), 1-19.
doi:10.1006/mare.1997.0060

·        
David Forsaith, Carol Tilt, & Maria Xydias-Lobo. (n.d.).
THE FUTURE OF MANAGEMENT ACCOUNTING: A SOUTH AUSTRALIAN PERSPECTIVE. Retrieved
from http://www.flinders.edu.au/sabs/business/research/papers/03-2.pdf

·        
David Forsaith, Carol Tilt, & Maria Xydias-Lobo. (n.d.).
THE FUTURE OF MANAGEMENT ACCOUNTING: A SOUTH AUSTRALIAN PERSPECTIVE. Retrieved
from http://www.flinders.edu.au/sabs/business/research/papers/03-2.pdf

·        
Management accounting. (2017, December 28). Retrieved from
https://en.wikipedia.org/wiki/Management_accounting

·        
Sharma, 1998, p-24, a broad spectrum of cross-functional
disciplines. (n.d.).

·        
Techniques and
Performance Measures Used table. (n.d.). Retrieved from
http://www.flinders.edu.au/sabs/business/research/papers/03-2.pdf

 

 

 

 

 

 

1 Management accounting. (2017, December
28). Retrieved from https://en.wikipedia.org/wiki/Management_accounting

2 Adoption and benefits of management
accounting practices: Evidence from Greece and Finland – ScienceDirect. (n.d.).
Retrieved from
https://www.sciencedirect.com/science/article/pii/S0882611010000064

3 Adoption and benefits of management
accounting practices: Evidence from Greece and Finland – ScienceDirect. (n.d.).
Retrieved from
https://www.sciencedirect.com/science/article/pii/S0882611010000064

4 Adoption and benefits of management
accounting practices: Evidence from Greece and Finland – ScienceDirect. (n.d.).
Retrieved from
https://www.sciencedirect.com/science/article/pii/S0882611010000064

5 Adoption and benefits of management
accounting practices: Evidence from Greece and Finland – ScienceDirect. (n.d.).
Retrieved from https://www.sciencedirect.com/science/article/pii/S0882611010000064

6 Chenhall Langfield-Smith. (1998). Adoption
and benefits of management accounting practices: an Australian study. Retrieved
from https://ac.els-cdn.com/S1044500597900603/1-s2.0-S1044500597900603 main.pdf?_tid=aa4e2fbc-f537-11e7-83eb-00000aab0f6c&acdnat=1515500699_147f61787722ee6f1550f2b20836b80e

7 Chenhall, R. H., &
Langfield-Smith, K. (1998). Adoption and benefits of management accounting
practices: an Australian study. Management Accounting
Research, 9(1), 1-19.
doi:10.1006/mare.1997.0060

8 Chenhall, R. H., &
Langfield-Smith, K. (1998). Adoption and benefits of management accounting
practices: an Australian study. Management Accounting
Research, 9(1), 1-19.
doi:10.1006/mare.1997.0060

9 Chenhall, R. H., &
Langfield-Smith, K. (1998). Adoption and benefits of management accounting
practices: an Australian study. Management Accounting
Research, 9(1), 1-19.
doi:10.1006/mare.1997.0060

10 Chenhall, R. H., &
Langfield-Smith, K. (1998). Adoption and benefits of management accounting
practices: an Australian study. Management Accounting
Research, 9(1), 1-19.
doi:10.1006/mare.1997.0060

11 David Forsaith, Carol Tilt, & Maria
Xydias-Lobo. (n.d.). THE FUTURE OF MANAGEMENT ACCOUNTING: A SOUTH AUSTRALIAN
PERSPECTIVE. Retrieved from
http://www.flinders.edu.au/sabs/business/research/papers/03-2.pdf

12 David Forsaith, Carol Tilt, & Maria
Xydias-Lobo. (n.d.). THE FUTURE OF MANAGEMENT ACCOUNTING: A SOUTH AUSTRALIAN
PERSPECTIVE. Retrieved from
http://www.flinders.edu.au/sabs/business/research/papers/03-2.pdf