1)Introduction
For a clear and wide picture for this assignment topic, the background of management accounting is to be concerned. Management accounting is using relevant resources to aid manager decision making for the sake of shareholder value and customer value (Landfield, Thorne and Hilton, 2009). Management accounting needs to provide the relevant information to aid manager decision making. However, our world and society change rapidly from time to time. As the decade goes on, the way of organizational behavior, information needed for manager decision making, and information focused on, vary in a different way. For examples, decentralized home-based manufacturing began to be replaced by centralized factory-based manufacturing in the early part of nineteenth centuries(John & Kaplan, 1987), and the focus of management accounting moved to waste reduction from the mid-1980s (Landfield et al., 2009). These indicate the pressures for change in management accounting as the old methods and information focused are no longer can be used anymore.
2)Pressures for Changes and Relevance Lost Concerns
But, this phenomena lead to relevance lost that needed to be concern seriously. Accountants began to allocate original costs between costs between cost of sales and inventory instead of estimating accurate product costs with the technology available at the time. This is due to the demand by external reporting burgeoned (Johnson &Kaplan, 1987). By the 1960s and 1970s, this serious deterioration in management skills had made managers commonly relied on the financial numbers alone. It is no doubt that, such relatively quick and dirty allocation methods became the 'visible hand' for this relevance lost in management accounting (Johnson & Kaplan, 1987). Hence, this need to be solved and the development of management accounting since 1950s will be hereby provided and discussed throughout this assignment. At the end of the assignment, future research directions in management accounting will also be pointed out and suggested.
3)Management Accounting Techniques
Before 1950s, management was concerned primarily with internal matters, especially production capacity. The use of budgeting and cost accounting techniques was prevalent in this period. Cost accounting, rather than management accounting, was the name given to this area of accounting (Landfield et al., 2009).
In the 1950s and 1960s the focus of management accounting changed to the provison of information for planning and control purposes to aid decison making (R.Luther, 2006). Management controls were leaning toward maufacturing and internal adminstration rather than strategic and environmental considerations. Management accounting, as part of a management control system, tended to be reactive, identifying problems and actions only when deviations from the business plan took place. The organizations in this relatively time, were more concern about profitability (Landfield et al., 2009). Hence, decision analysis and responsibility accounting techniques became popular and use widely by management accountant to provide relevant information which enhanced profitability. In the decision analysis, organization will identify the objectives that will guide the business, then search for a range of possible action to achieve the objectives (Morse, 2009). Organization will compare actual and planned outcomes and hence take corrective action to make the organization better.
The world recession in the 1970s, following the oil price shock and the increased global competition in the early 1980s, threatened the Western established markets and led to a declined in their protected markets. The increased competition was accompanied and underpinned by a rapid technological development that affected many aspects of the industrial sector. Therefore, the design, maintenance and interpretation of information systems became of considerable importance in effective management. Accounting researchers and practitioners recognized that the management accounting curriculum was no longer appropriate to the problems facing by manager (Atkinson et al., 1985). They argued that the existence management failed to address the production function had undergone drastic changes. Both of the reasons were often accompanied by a focus on waste reduction and employee empowerment (R.Luther, 2006). In this environment there is a need for management information, and decision making, to be diffused throughout the organization, in order to support employees at all levels. Due to this situation, new techniques involving process analysis and cost management were added to the existing range of management accounting techniques (Landfield et al.,2009).
In the 1990s, advances such as the internet and globalization continued to exert considerable uncertainty on businesses. The focus of management accountants shifted to the generation or creation of value through the effective use of resources, through the use of technologies that examine the drivers of customer value, shareholder value, and organizational innovation (R.Luther, 2006). The focus of management accounting started to shift towards the broader techniques of resource management, and focused on the creation of customer value, and shareholder value through the effective use of resources (Landfield et al., 2009). Apart from that, innovative accounting tends to be illustrated du to the pressure of changes in the organizational world. For example, life cycle cost analysis and activity- based costing are designed with specific aspects of the modern business environment. Life-cycle costing recognizes that managers' ability to influence the cost of manufacturing a product is at its greatest when the product is still at the design stage of its product life-cycle, since small changes to the product design may lead to significant savings in the cost of manufacturing the products. Activity-based costing recognizes that, in modern factories, most manufacturing costs are determined by the amount of non-volume based activities and that the key to effective cost control is therefore optimizing the efficiency of these activities resources (Landfield et al., 2009).
As a result, it can be conclude that the development in management accounting technique depends on the organizational change. Techniques used to gain relevant information are different as different information needed to be collected, integrated and submitted needs different techniques in order to maximize the efficiency and effectiveness of the information to aid decision making.
4)Development in Theories
The concept of organization serves as a key factor in determining if an organization or company reaches its goals and objective while exemplifying their mission. Nonetheless, there are various theories of organization that can be utilized such as the contingency theory. Contingency theory assumes that the design of an organization's management accounting system may be influenced by a range of factors including the external environment, technology, organizational structure, organization size, strategy, and organizational and national culture (Landfield et al.,2009). This means that in designing the system, the management accountant will need to take account of how large and complex the organization is, what sort of market the organization operates in and so on (Landfield et al., 2009). Contingency theory focuses on the cause of differences in management accounting system designs.
Furthermore, the location of information in relation to technology and environment has an important influence on organization structure. Information is frequently internal in uncertain environments with non-routine technology whereas environments are certain, or where technology is routine, information is external. In the contingency theory model, decentralized authority is more appropriate for uncertain environments and centralized authority is more appropriate when environments are certain (Tiessen, P. and J.H.Waterhouse, 1983).
Besides that, agency theory had also been developed in management accounting. Agency theory is developed around the concept of contractual relationships between two groups with conflicting objectives. The objective in agency theory is to structure the contractual relationship between these groups so that agents take cations to maximize the welfare of principlas (Tiessen,P. and J.H. Waterhouse, 1983).
Apart from that, institutional theory is also one of the important theories in management accounting. Institutional theory state that the design of an organization's management accounting system may be influenced by the need for legitimacy and the tendency for firms to imitate the 'good practice' from other organizations (Landfield et al., 2009).
The most basic principle and distinct characteristic to the institutional theory is conformity. Conformity is used to determine the legitimacy of an organization. The concept of conformity establishes 'rational myths' in which it is just 'rational' that an organization would incorporate certain social norms, rules, and requirements into it mission and goals. In order for an organization to be endorsed as a valid one, it must conform to the 'rational myths' (M.Jones, 1999). As a result of conformity, many organizations began to resemble one another because they are facing the same social pressures.
The institutional theory can be rewarding concept to an organization because its stakeholder, as a whole (society), plays a vital role in determining the legitimacy of an organization, directly, and have much more power in the operations of an organization. Many other theories of organization do not extend the same level of power to its stakeholders in which the stakeholders set the standards. It is for this reason that the institutional theory is a promising theory (Reinaldo et al., 2006)
However, there is no theory for every organization to be determined as 'best fit approach'. This approach examine the capability of an organization mission, goal, vision, and strategic plans to the basic principles of a theory in an effort to determine which theory fits best with that particular organization. Three of these theories have their own advantages which suits the organization with different style of how their managers managed in the organizational roles.
5)Development in Research Strategies/Methods
There are several research strategies or methods to approach the solution for management accounting relevant lost and improve management accounting. One of them is by using the survey method. This is a method of collection of quantitative data. Survey normally collect data from organization's manager, accountants, and directors even stakeholders. The different views from organizations may provide relevant data to aid management accounting research to be improved in the future.
With the data collected, the researcher may now using mathematical and statistical methods to make improvement of management accounting techniques. It seems like the development in such area has increases rapidly as the research shows that there is an increase of 17% from 1990s till 2000s at this particular area (Scapens & Bromwich, 2010).
Furthermore, case studies have also increased by 16% in 2000s (Scapens & Bromwich, 2010). Researchers seem started to concern about the case studies happened and figure out how to solve the relevant lost of management accounting. Case studies are the evidence of scandals and show the weakness of management accounting.
These are the management accounting research strategies or methods that focused by the researchers nowadays. Researchers have a clear and wide mission to improve management accounting. Of course, there are some other strategies or methods for research management accounting. For example, financial statement analysis, historical analysis and literature review. However, as decade goes on, these methods are not so important to solve the current situations of management accounting system because the world had change and it will goes on (Hopwood, 2008).
6)Discussion and Conclusion
The development of these specific areas had been discussed throughout the assignment. From the development of management accounting, the researchers had put in great effort to keep improving management accounting and aid manager decision making from time to time. The development of techniques is really amazing as these techniques tend to merge into the world of organization role at each particular decade. Managers do truly need management accountant with such wonderful skills and techniques to aid their decision making in order to grow the companies and organizations. The development of theories is also a very important part. Based on the theories, management researchers have a wide direction to figure out which research method and strategy to be used to improve current and future management accounting world. Although there are a few mistakes and relevant lost since 1980s, they are still trying to solve this problem.
As a conclusion, management accounting does play an important role in the organizational world. As the research continue to goes on, I believe that the management accounting will grow stronger and stronger, not even merge with the organizational world, but also become a part that cannot be forget or abandon by the organizations.
7)Future Research Direction in Management Accounting
In my opinion, there is unnecessary to narrow down the research gateway as there might be something missing or lost of important information. This will be concerned as the decade goes on and there will be another relevant lost exactly same like the case happened in 1980s. Management accounting researchers are encouraged to be creative and to produce innovative papers. In the future, 'we' would like to see such diverse research continuing to be published in management accounting research (Scapens &Bromwich, 2010). Therefore, management accounting researchers should do the research that they think may improve management accounting in the future as every researcher might have different way of thinking and opinion about the current phenomena and solution for changing organization world throughout the era.
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