The current management accounting systems have been developed from the ancient managerial bookkeeping concepts. The handling of financial affairs in organizations has been experiencing various changes and issues in domains such as management and accounting. Financial management issues have been exhibited in areas such as the management sectors, leadership, and control concepts. Accounting is also influenced by the impacts caused by the globalization of commercial forces and the ever-changing notions on knowledge about effective management and ethics. Most importantly, the ever-advancing technology has significant effects on the evolution of the management accounting discipline. Various ways of integrating new financial systems into traditional bookkeeping practices are presented in the essay. A better understanding of accounting management is brought about by discussing the application of accounting principles and challenges met by contemporary organisations. This essay explores the evolution of the management accounting discipline with a view of providing insight into its relationship with other functions in organizations.
Overview of the Evolution of Accounting Disciplines
The management accounting disciplines have been evolving in a competitive world since the 1980s up-to-date. According to Kaplan (1992), most of its features such the handling of traditional accounting costs interrelates with disciplines in other management domains. Financial leaders in the current business environment have implemented management accounting in sectors that undertake decentralized operations, evaluation of performances, and formal budgeting among other plans that are beneficial to the organizations (Drury 2007). The current management accounting is based on the models of multi-person theories. These approaches are aimed at solving problems that initially emanated from various catastrophes in business management. The choice of proper accounting methods still challenges managers today (Kaplan 1992). Effective management of accounting affairs needs managers to address any unfolding financial challenges constantly. Examples of how such challenges are tackled are discussed below using the DuPont Corporation and General Motors, which reorganized in 1920 (Kaplan 1992; Drury 2007). The application of management accounting can be understood from a perspective where its challenges are addressed.
Challenges in enabling the Generally Accepted Accounting Principles (GAAP)
According to Elena et al. (2009), managers in various firms have applied numerous techniques that are not compliant with the GAAP. As a result, such companies have been experiencing major issues in activities based on cost due to the provision of inaccurate information that is important in decision-making processes (Elena et al. 2009). Firms that focuses their operations on the manufacturing industry should ensure that proper cost analysis is undertaken based on the GAAP policies. The firms should constantly use activity-based costing analysis that is compliant with the GAAP (Elena et al. 2009). A quick cost-benefit analysis must be conducted in time, especially in firms that have low or moderate financial power. This undertaking ensures that the use of the GAAP and its advantages outweigh the costs of its implementation (Elena et al. 2009).
Integrating Management Accounting Techniques into Business
The integration of modern accounting approaches to solving financial hitches is paramount to the success of contemporary organizations. However, business leaders who factor the use of improved management accounting techniques must ensure that they are compatible with the traditional financial systems (Lord 2007). Furthermore, such managers must have specific technical management accounting procedures that conform to the required standards of the GAAP techniques to handle them effectively in case of shortfalls (Lord 2007). Although various challenges can be exhibited in the process of implementation due to the flexibility of management accounting, such managers should be wary of the financial issues at hand (Lord 2007).
In cases where managers fail to embrace modern-day management accounting techniques, their financial records are characterized by increased inconsistencies (Elena et al. 2009). Without the GAAP techniques, they can only apply the procedures and guidelines to help them formulate the management accounting reports for the overall business activities (Elena et al. 2009). A firm can also have various departments using different management accounting procedures. In such cases, the handling of the contrasting financial techniques eventually becomes difficult (Elena et al. 2009). Organizations that have many departments have benchmarked their activities by ensuring that they implement proper management accounting techniques (Elena et al. 2009).
Reliability on the Management Accounting
Reliability on a given technique requires both a timeframe and timeline of information that is used in the decision-making processes. Management accounting techniques and processes use such methods in the formulation of decisions since a basis of trade-off with reliability are needed (Kloot & Martin 2000). For example, a manager who deals with a sales and marketing firm must ensure that the evaluation of the financial account is done at the time in the following financial year to provide accurate figures. If such information is required for decision-making immediately, the timeline factor is considered (Kloot & Martin 2000). The reliance on accurate information is further required when making decisions on the management process. Therefore, research on such information is needed to ensure accuracy (Kloot & Martin 2000).
Implementation of Costs
According to Kloot and Martin (2000), the evolution and implementation of financial management are explained using both economic and non-economic approaches. Good financial directors always take into account the costs that can be incurred during the implementation of management accounting. Such techniques require good monetarist power and time to design, implement, monitor, and evaluation of the involved processes (Kloot & Martin 2000). However, many managers have gone the extra mile to either employ more personnel or hire consultants with such technical skills. Training of the existing employees with a view of instilling new knowledge about financial management in them has also been noted in some organizations. For this reason, the costs must be considered from the initial design to the retirement stages of the proposed system to promote effectiveness (Kloot & Martin 2000).
An aspect of evaluating the implemented management accounting techniques must be dealt with thoroughly. Such activities seem challenging to the managers; hence, they often opt to follow the traditional accounting techniques. For example, managers who prefer implementing the operations-based costing system must ensure that they accounts for the extra costs incurred. This practice is crucial in situations where unexpected expenses are realised because they can bring about negative impacts on the benefits of the management accounting technique used (Kloot & Martin 2000).
Time Frame Factor in Business
Financial information requires set accounting periods. However, when the management accounting is brought on board, a continuous process in bookkeeping is required (Zimmerman & Yahya-Zadeh 2011). In organizations where the implementation of management accounting is accomplished in a timely manner, separate financial information is provided to promote its relevance (Zimmerman & Yahya-Zadeh 2011). Since the management accounting techniques have been developing over the years, organizations should be guided to choose the most current financial handling systems that are more efficient and reliable. This undertaking significantly improves the timeframe for the analysis of financial records (Zimmerman & Yahya-Zadeh 2011). Policies and procedures are always followed at the reporting stage; hence, timely provision of financial information is crucial. This responsibility sometimes poses a challenge to managers who are fond of using the traditional techniques. As a result, they fail to realise the benefits of the timeframe for information (Zimmerman & Yahya-Zadeh 2011).
The implementation of up-to-date management accounting goes together with the technological advancement in an enterprise. Most businesses are currently implementing technological software systems in the management of financial records (Lennox, Francis, & Wang 2011). The usage of software in manipulating electronic financial transactions is on the rise. Such kind of technology can send information to managers who are responsible for interpreting it for use (Strumickas & Valanciene 2015). The creation of financial and/or transactional reports using software is becoming easier each day; hence, the time duration taken to produce monetary reports is significantly minimised. Nonetheless, thorough supervision to monitor such activities is required to ensure relevance and accuracy (Strumickas & Valanciene 2015).
A challenge in technology is seen whereby most managers are reluctant to align their operations with the ever-changing technology in their premises. Instead, they are fond of performing the traditional techniques of accounting. As a result, they find it difficult to embrace new techniques (Strumickas & Valanciene 2015). Another major problem of management accounting is the improper accumulation of information on revenues and expenses. This situation leads to the formulation of inopportune decisions. Managers always need correct information at the required time. The use of computerized systems is currently on the rise in management accountancy; hence, modern organizations should look forward to implementing the developed financial techniques with a view of improving both accuracy and timeliness (Strumickas & Valanciene 2015). Tricky issues concerning accounts payables, receivables, and cash inventories are currently solved through the computerised systems. Strumickas and Valanciene (2015) reveal that some firms have installed industrial-specific programs for accounting to aid in solving problems in management accounting. Other add-on software is also included in the already existing ones to ensure the expansion of its capabilities to solve such challenges (Strumickas & Valanciene 2015).
Implementing Activity Based Costing (ABC)
The activity-based costing is a model that provides clarity on accounting activities. It assigns various costs of such activities to the resources, products, and services with respect to consumption patterns. It assigns the indirect costs to the direct ones; hence, it ensures the elimination of the non-profitable items. The ABC is always essential in ensuring proper support to the strategic decisions on aspects such as pricing, outsourcing, and identification of the measurements of various processes (Cagwin & Bouwman 2002). When the ABC is implemented successfully, it provides information on costing that can be used in decision-making. For instance, most strategic decisions that have direct impacts on the capacities and fixed costs are formulated using such information. It is also useful in the determination of the costs of products in the management reports. Therefore, the ABC is necessary as a supplement in the costing systems (Cagwin & Bouwman 2002).
The frontline managers apply the activity-based costing in decision-making since they handle the operations of the enterprise. This technique is important in cases where the allocations for the overall and non-general estimate linearity costs are required (Cagwin & Bouwman 2002). Managers who normally implement the ABC deliver accurate costing of products and services to the distributors and consumers among others. Furthermore, they have a clear understanding of matters concerning the overhead costs due to its essence in the utilisation of unit instead of total costs (Balakrishnan, Labro, & Soderstrom 2014). Various challenges that the managers exhibit during the implementation of the activity-based costing system include the restricted timeframe to improve the consumption of time. Furthermore, there are higher costs incurred during the implementation processes, maintenance, and evaluation. As a result, most managers have continued to prefer the use of the traditional methods and techniques, as they perceive them as convenient in the performance evaluations (Balakrishnan, Labro, & Soderstrom 2014). This method ensures that the financial executives are aware of the management of time. Managers who do not perform well are exposed to the executives or their superiors thereby ignoring its implementation (Balakrishnan, Labro, & Soderstrom 2014). The ABC practice is mostly evident in various manufacturing plants where frequent costing of activities is done to allocate indirect costs. This state of events is essential because of the provision of accurate information required in strategic management and decision-making. Cagwin and Bouwman (2002) reveal that rogue decisions can lead to variable expenses. Various challenges that are exhibited in such premises include the lack of support in the management to support the use of the ABC, inadequate skilled personnel, and higher costs for the overall implementation (Cagwin & Bouwman 2002).
Required Personnel Training and Confidence
Some enterprises that have problems in the implementation of the management accounting techniques develop further issues in personnel recruitment and hiring. These employees either lack or are unfamiliar with the required needed techniques (Rezaee, Smith, & Szendi 2010). Most managers experience hiring challenges especially when dealing with people who are not experts in accounting. Such employees must be trained in the procedures for handling the modern accounting systems (Rezaee, Smith, & Szendi 2010).
Managers and trainers who possess leadership roles in the implementation of the management accounting sometimes lack confidence. According to Rezaee, Smith, and Szendi (2010), an ever-growing lack of ambition is seen among such managers as they only lay emphasis on the traditional accounting standards that are based on processes and short-term analysis. The old techniques hinder the management accountants from handling the required information and figures that are needed for both strategic and tactical organization (Rezaee, Smith, & Szendi 2010). As a result, the confidence of such managers should be boosted through training and exposure to business forums and entrepreneurial adventures among others. The adoption of rogue procedures is also observed among many accountants due to their incompetency (Badertscher 2011). These people must be trained thoroughly in financial techniques and managerial skills. Besides, they should be educated on soft skills with a view of improving their communication abilities support should be encouraged to boost their confidence and knowledge on management accounting (Badertscher 2011).
Resistance by Managers to implement Management Accounting
Most managers perceive that personnel who are trained in management accounting have inadequate skills to perform business operations effectively (Rezaee, Smith, & Szendi 2010). However, various surveys have revealed that accountants who are conversant with management accounting lack adequate knowledge and experience in business transactions. This situation results in the poor management of finance in organizations (Rezaee, Smith, & Szendi 2010). The initiation of block operations on costing rationales is essential to such employees although they face non-financial decisions, especially when they ignore figures when elaborating their monetary reports (Rezaee, Smith, & Szendi 2010).
Limited Image to the Management Accountants as Being Leaders
Most managers see experts in management accounting as less knowledgeable especially in the events of financial crisis and problems. These people are perceived to lack then recognition of other staff as leaders rather than just mere accountants. Further, they are accused of being unaccountable and inaccurate when performing their tasks (Rezaee, Smith, & Szendi 2010). Furthermore, management accountants face a challenge in value creation. This situation has been observed during change processes that involve shifting from the normal traditional to current management accounting techniques (Rezaee, Smith, & Szendi 2010). A long process of transformation that needs changes in all aspects of management accounting activities is always required. The change processes also need the transformation of roles in the management of finance in the organization (Rezaee, Smith, & Szendi 2010).
Changing from the regular methods of accounting is often a challenge to most managers since they require the elimination of transactions and replacement traditional methods of financial control. They also have to ensure that the current accountants take more proactive roles (Rezaee, Smith, & Szendi 2010). Managers who are not well experienced find it challenging to shift from the traditional accounting techniques such as budgeting, performance measurements, financial planning, and analysis of financial variances (Rezaee, Smith, & Szendi 2010). In some cases, it is hard for them to integrate financial and operational planning into the control activities in the organization. Such activities require methods such as sales and operational planning and direct costing to eliminate the unnecessary allocations and balance performance measurements (Rezaee, Smith, & Szendi 2010).
Challenges of Facts and Figures
In most cases, managers are faced with challenges of facts that revolve around data collection, recording, and reporting of financial information from various departments (Badertscher 2011). Methods that involve cost allocations need direct materials, manufacturing labor data, and overhead costs. As a result, accountants are required to remain responsible with a view of providing clear analysis and review of financial information. This situation ensures that the costs of production are allocated to products and services appropriately (Badertscher 2011). Other challenges emanate from the budgeting processes. Budgeting is a crucial tool that provides information on planning expenditures for the future activities of the organisation. The budgets are constantly conducted on an annual basis (Badertscher 2011).
Management accountants experience challenges since they review past information on financial records to maintain accuracy in budgeting in the following years. The managers must be responsible to ensure the improvement of their operations (Badertscher 2011). Challenges of inaccuracy and inconsistencies are also exhibited during cost allocation. This situation can result in over-costing on the desired products and services due to the absence of a business management utopia in accounting. In situations where there are high costs of production, increased expenditure is noted on the expected average prices. This trend has negative effects on sales (Badertscher 2011). Management accounting leads to the creation of sale forecasts and production models that do not account for current and future situations of the economy. The managers can arrive at wrong decisions when forecasting, a situation that can lead to negative impacts on the performance of the business due the generation of low profits (Badertscher 2011).
Increased Restrictions and Constraints
Enterprises that use management accounting operate under restricted situations. These restrictions are policies that govern the financial expenditures of the entity (Baber, Kang, & Li 2011). Issues concerning budgets, petty cash accounts, and purchase orders among others are significantly influenced by the constraints. Managers who are not fond of such constraints face challenges in the implementation of management accounting. Various restrictions result in reduced business operations and profits in the end as compared to situations where such restrictions are omitted (Baber, Kang, & Li, 2011).
Revelation of Wastages
Managers who use the traditional management accounting techniques are fond of activities that deliberately hide the wastages, especially through the standard costs and budgets. The introduction of management accounting in the current business environment has ensured the revelation of such wastages and their rout causes (Iyoha & Oyerinde 2010). Wastes are noted in terms of poor time management in both lead and cycle time and quality delivery (Iyoha & Oyerinde 2010). Most manufacturing companies focus on high financial values. As a result, they frequently do away with inventories. This situation leads to faster improvement in the processes of production and distribution (Iyoha & Oyerinde 2010). The withholding of the inventories is noted as wastage; hence, it should be eliminated.
Management accounting as indicated in the essay has been experiencing numerous challenges in its evolving times. The two corporations have provided how managers who are fond of using traditional techniques in accounting systems can tackle such challenges. Financial directors should focus on the modern rather than that the traditional forms of management accounting with a view of improving the overall budgetary status of their organisations.
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