Management Accounting is an important process of preparing the accurate and timely management reports, financial statements, and auditing reports based on the statistical figures, financial data, and accounting information. It is also defined as a process of identifying, preparing, measuring, analyzing, interpreting, and communicating information to assist the management in the accomplishment of the organizational goals and business objectives. The management accounting involves management decision-making, devising performance management planning, performance management system, feedback in the financial reporting, and control for the formulation and implementation of an effective strategy for determining the future growth of the firm(Sunarni, 2013).This report is prepared to identify and analyze the factors for contributing in the development of the management accounting system and practices. It will also emphasize the evolution of the management accounting practices resulting from the enforcement of the regulation compliance and internal control system in the organizations.
The Role of the Compliance, Control Mechanism, and Competitive Support in influencing the Management Accounting Practices
The compliance, control, and competitive support are such factors that are responsible for shaping the management accounting practices in the organizations. The regulatory compliance and control factors influence the management accounting practices, like the creation of the standardized financial statements, investigating the expense reports and inventory cost reports, and preparation of the financial budget and accounting policies. The compliance and control set the industry standards and statistical control measures,enforce laws and regulations derived from the industry standards, internal business processes or ethical guidelines, IT governance, and quality assurance. The compliance and control mechanism assist in examining whether the current organizational strategies and policies and the financial performance measures are compliance with the perspectives of the economic-financial, competencies and growth, and customer/markers perceived by the stakeholders.The regulation mechanisms, like tax regulations, effective compliance, and quality controls are required to add the strategic value for a firm by meeting the strategic goals and objectives. On the other side, the non-compliance or control failures cause for the significant loss of the business, producing the depressed stock market valuations, distracting the senior management from their tasks, and even substantial threatening cost (McKinsey& Company, 2015).
But, nowadays the modern businesses more focus on the competitive support than the compliance and control for achieving the business objectives and strategic goals. The effective control and compliance provide guidelines and regulations for performing the financial functions, management of accounting operations, and auditing standards. Todays’ auditors, accountants, and financial expertise place more emphasis on the competitive support for achieving the financial, strategic, operational, and management objectives. The competitive forces drive the firm for the changes in the accounting policies, auditing standards, financial measures and statistics through installation of new accounting software system, knowledge management practices, and information and communication technologies.
The modern business organizations look for the competitive support for creating the competitive advantage instead of avoiding the trap of compliance and control. The intensity of the market competition encourages the companies for using the standardized management accounting practices to compete with the competitors and make better decisions (Nair &Nian, 2017). The competitive support enforces the business firms to make changes in the internal operational processes, financial policies, and accounting system in adapting to the external environmental fluctuations/ uncertainties and industry dynamics.
Factors Contributing to the Development of Management Accounting Practices
Both external (market competition and environmental uncertainties) and internal factors (organizational structure, strategy, business size, the nature of a firm, and business line) contribute to the development of the management accounting practices. The MA practices are influenced by the factors, like the organizational size, corporate governance, stakeholders’ expectations, qualification level and experiences of the accounting staff, the intensity of the competitive factors, and advanced production technologies.The corporate governance affects the evolution of the MA practices because it sets structures, legal procedures, and policies for enforcing the laws and regulatory environment for following the effective management accounting practices through the internal control system, auditing standards, and accounting information system software (CIMA, 2017).
The accounting information system is a factor, responsible for the accountability of the decisions by increasing access to the information related to the financial, operational, customers, markets, growth, and competitors for developing the strategic planning accordingly.The factors, like the competitive support, stakeholders’ expectations and changing clients’ preferences and demand patterns also encourage the SMEs or large corporations to maximize the standards of the management accounting practices. In the sequence, these factors encourage the firms to consider or allow the knowledge management tools (decision-support system, groupware, OLAP, Data Analytics, IoT, Documented Management System, Information Management System, and simulation tools) and information and communication technologies (e-commerce, EDI, extranet, social media, intranet, and video communication applications) for increasing access to the financial and operational performance.
The customer-oriented activities, globalization factor, the intensity of the competition, corporate governance structure, accounting policies and techniques, quality-oriented initiatives, organizational restructuring, information technology, and core competitive aims drive for the changes in the management accounting practices. The skilled, knowledgeable, and qualified accounting staffs and expertise auditors assist the management for taking better decisions on fund management, budget, cash flow, and preparing of the financial statements(Leite, Fernandes, &Leite, 2015).
The organization size and nature of the business industry is also an important factor for influencing the accountancy management practices. The firm size, like SMEs, large-scale business enterprises or MNCs require for the development of the accounting management practices based on the business requirements and size of the businesses as well as nature of the businesses (service industries, manufacturing, telecommunication, tourism, hospitality, foods service or business firms).
Evaluation of the Usefulness of Balance Scorecard Method in the Management Accounting Practices
The balance scorecard method is a performance measurement tool based on the performance indicators and critical success factors that plays an important role for ensuring the effectiveness of the management accounting practices. The BSC measures the financial performance of a firm by combining the financial control measures with the non-financial control measures. This is significant in both short-term and long-term financial goals and objectives by linking the internal processes and business strategy of the firm with the mission, goals, and objectives. The Balance scorecard methodology is aimed at effective monitoring and control of the organizational business operations. The BSC assists to provide the financial and operational performance and relates the strategy to the planning in base with the CSFs and PI. It provides a platform for the integration of both non-financial and financial measures, communicating the feedback of the strategy, bond with the strategic planning and financial budgets, and increased focus on aligning the business processes within the organization(Sadi, Vitor, &Antonio, 2010).
The BSC analyzes the firm’s financial performance from four perspectivesincluding the financial, customers, learning and growth, and internal processes. The financial perspective is related to maximizing the financial performance of the organization by increasing the revenues, profits margins, smooth cash flow,and maximum stakeholders’ returns for the firm (CIMA, 2017). The learning and growth perspective is related to ensuring the long-term survival and growth of the firm through the organizational learning culture and training and development programs for enhancing the workforce competencies in order to attain the desired outcomes within the organization.
Figure: Balance Scorecard Method
(Source: CIMA, 2017)
The customer perspective is related to enhancing the customer satisfaction by satisfying their needs, wants, and expectations through the effective customer service delivery. The internal business process perspective is related to enhancing the effectiveness and efficiency of the internal business processes and operations for improving the organizational production outcomes and performance measures by reducing the operating costs, delays, defects, and manpower efforts. The BSC could be useful in the SMEs or MNCs for clearly defining strategy, communicating the strategy with the team members, aligning the organizational goals and objectives with the strategy, linking the strategic components with the annual budgets and long-term targets, aligning the strategic initiatives and conducting the periodic performance reviews for bring improvement in the management accounting practices (Cooper, 2017).
The BSC could be useful in identifying the critical success factors (CSFs), key performance indicators for the efficient production outcomes, creating an effective informational system, data capture, and measurement system, and developing effective mechanisms to report to the managers and staffs. It is useful to improve the performance of the internal outcomes and resulting external outcomes and making better decisions based on the collected data and useful information. The BSC could be useful for the firms in mapping strategy accordingly for adding value to the firm and its stakeholders.
Management Accounting Practices in Qantas Airlines
The management accounting process uses the financial data and accounting information for preparing the financial statements and management accounting records on the regular basis and accordingly providing appropriate feedback on the accounting system efficiency and financial performance of the company. The management accounting practices have evolved and developed significantly to the great extent as a result of increasing influence of the compliance, regulatory controls, and competitive factors. There are several external and internal organizational factors that support the mechanism and processes for the development of the management accounting practices in the service industries or business enterprises. Additionally, the balance scorecard method justified its usefulness for supporting the management accounting practices because it provides the performance indicators for improving the financial performance, operational efficiency through the improvement in the internal processes, customer service operations, and measures to the organizational growth.
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Leite, A.A., Fernandes, P.O., &Leite, J.M. (2015). ‘Contingent factors that influence the use of management accounting practices in the Portuguese textile and clothing sector’, The International Journal of ManagementScience and Information Technology, pp. 59-77
McKinsey& Company (2015).Compliance and Control 2.0. Retrieved From:https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/Risk/Working%20papers/33_Compliance_and_Control.a.
Nair S. &Nian, S.Y. (2017).Factors affecting the Management Accounting Practices in Malaysia.Retrieved From:https://www.researchgate.net/publication/319874494_Factors_Affecting_Management_Accounting_Practices_in_Malaysia.
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Sunarni, C. W. (2013). ‘Management Accounting Practices and the Role of Management Accountant: Evidence from Manufacturing Companies throughout Yogyakarta, Indonesia’, Review Journal of Management, Vol. 18(2), pp.233- 248.