the usefulness of management accounting information in the modern business environment

7/30/2019 The Usefulness of Management Accounting Information in the Modern Business Environment

1/6

The usefulness of management

AcF213: Management Accounting for Business Decisions

Ana Seco

Library card no.: 32754051


2/6

22 AcF213 Management Accounting for Business decisions- Ana Seco2

IntroductionBusinesses operate in an increasingly uncertain and competitive environment

influenced by huge technological and social changes, globalization and environmental

issues. A useful management accounting system has to bear this in mind in order to

provide relevant information to increase business value.

The emphasis of this essay will be on the changing roles of management accountants

and how these changes, if successfully implemented, can enhance the usefulness of

the information provided in the context of modern business environment. The first

source consists of a historical background of management accounting and its

critiques, and the following sources address the changes and developments of

management accountancy that have occurred in recent years. The sources include two

books, an academic journal, a newspaper article and a webpage. I decided to present

them in chronological order, to illustrate the evolution of management accounting

issues throughout the years.

Relevance Lost: The Rise and Fall of Management Accounting (Johnson &

Kapland, 1987)

This book explores the evolution of management accounting in American businesses,

and makes a critique of the old-fashioned system used by organizations. Johnson and

Kaplan (1987) show the importance for businesses to adapt to a rapidly changing

business environment. Although accounting reports were already used thousands of

years ago, it was at the beginning of the 19 th century when the demand for

management accounting services started to become popular, due to the emergence of

new organizations influenced by the Industrial Revolution. First, the services were

very simple but advances in transport and communication by the middle of the 19th

century called for more developed accounting systems to coordinate increasingly

varied activities. Technological advances, in the last two decades of the 19 th century,

also improved efficiency of the systems. The latest innovation was however carried

forward in the early 20th century, when accounting tools such as return on investment

(ROI) were created. By 1925 all the management accounting practices used in 1987

had already been developed.

The lack of innovation and low relevance in management accounting since 1925, wasextremely criticized, as the diversity of products in organizations and the complexity

of manufacturing processes had increased considerably at the end of the century.

Changes in modern organizations were demanded in order to adapt to the

technological and competitive environment, for example in the way they manage

costs.

This source provides a useful background on management accountancy and

introduces the challenges for the modern businesses, that must develop new

accounting practices in addition to the traditional ones for maintaining a competitive

advantage.


3/6


4/6


The idea presented in this paper is similar to the one Atrill and McLaney defended, as

they both agree on the necessity of a management accountant with more varied skills

and who actively supports the management of a company. Jrvenp argues that

management accounting is also useful due to the existence of the new techniques and

information systems.

Working in management accountancy: Finance skills still trump MBA

(Financial Times, 2009)

This article revolves again around the roles of management accountants, emphasizing

the positive effect of new technologies on them and the relevance of the financial

function within a business environment. A decade ago it was broadly believed that the

management accounting activities would change completely, decentralize or

eventually even disappear. According to the article, technology made it possible for

these activities to evolve, transforming the role of management accountants, which isnow more flexible and useful.

The increasing importance of the involvement of accountants in the general strategy

of the company and decision-making is also an important point in the article.

Management accountants are more influential, with roles that include advising and

support, management of risk, cost reduction, creation of value, long-term planning

and else, environmental and governance issues. This is very different from the

traditional view of cost and work accountants, as new skills are required, principally

business skills. Yet again, a combination of technical and business skills (traditional

and modern) is a requirement for a successful business strategy. According to Charles

Tilley, CEO of the Chartered Institute of Management Accountancy, management

accounting is nowadays a very useful field within the industry as it is related with

virtually everything that occurs in a business.

The relevance of this article in my opinion consists of the importance the author gives

to technology, as the tool that preserved management accountancy from disappearing

or losing its importance. Furthermore, it agrees with previous viewpoints of the

increased involvement of accountants in decision-making.

How does your business earn money? (Tilley, 2011)

Business leaders today need to achieve success in the face of fierce global

competitive pressure and uncertainty (Tilley, 2011: 1). This required change in

leadership and the concern of sustainability are the main concepts discussed in this

article.

Therefore, the main interest of management accountants is long-term sustainable

success, which can be reached with a well-planned strategy and business model.

Social and technological development, globalization and environmental issues are the

biggest challenges faced in the last decade; the activities of accountants should adaptto them. Sustainability is viewed as a straightforward way of improving business


5/6

5 The usefulness of management

performance, which increases the competitive advantage of a company. Management

accountants are in charge of measuring sustainability, in order to demonstrate how it

consistently drives business value, helping senior managers to commit to it in a

permanent way. To do this they must make use of their communication skills and

experience backed up with financial information.

This article introduces and highlights the concept of the natural environment and its

relationship with the change in management accounting systems. The sustainability is

one of the most recent problems that our economy faces, so it makes sense that we

refer to it by giving it the same relevance as other traditional accounting issues.

Conclusion

This report starts with an overview of the history of management accountancy and its

critique, which serves as an introduction to the challenges faced in the modernbusiness environment. In the following sources we can see that the way to overcome

these challenges is mainly by introducing changes in the management accounting

systems. Traditionally, the roles of management accountants consisted essentially on

the provision of technical information to managers, focusing on the business in

question alone. New roles have widened, becoming more creative, as management

accountants are increasingly involved in the process of decision-making. This

adaptation assures the usefulness of management accounting information.

Furthermore, management accounting information is still useful thanks to the

technological developments, new techniques and information systems that have been

developed in the last decades.

In conclusion of my findings, management accounting will continue to be useful as

long as companies keep adapting to the ever-changing business environment and

training its employees in a way that they are ready to overcome the challenges that

they will inevitably face.


6/6


REFERENCES

Atrill, P. & McLaney, E. (1999)Management Accounting for Non-specialists, 2nd

Edition, UK: Prentice-Hall.

Drury, C. (1998) Costing: An Introduction, 4th

Edition, London, UK: Chapman &Hall.

The Financial Times Limited (2009) Working in management accountancy:

Finance skills still trump MBA, Financial Times, 24/09/2009.

Jrvenp, M. (2001) Connecting the management accountants changing roles,

competencies and personalities into the wider managerial discussiona

longitudinal case evidence from modernbusiness environmentThe Finnish

Journal of Business Economics, 4/2001, 431-458.

Johnson, Thomas H. & Kaplan, Robert S. (1987)Relevance Lost: The Rise and Fallof Management Accounting, Boston, Massachusetts: Harvard Business

School Press.

Mintzberg, H. (1994) Rounding out the Managers JobSloan Management

Review, 36(1), 11-26

Philanto, P. (1995) Vlinejohtaja ja osallistuva johtaja: erilaiset informaation

kytn profiilit,Publications of the Turku School of Economics and

Business Administration, Series A9:1995.

Tilley, C. (2011) How does your business earn money? CIMA,

http://www.moneycontrol.com/news/business/how-does-your-business-earn-

money_621091.html[Accessed 27/11/2011].
http://www.moneycontrol.com/news/business/how-does-your-business-earn-money_621091.htmlhttp://www.moneycontrol.com/news/business/how-does-your-business-earn-money_621091.htmlhttp://www.moneycontrol.com/news/business/how-does-your-business-earn-money_621091.htmlhttp://www.moneycontrol.com/news/business/how-does-your-business-earn-money_621091.htmlhttp://www.moneycontrol.com/news/business/how-does-your-business-earn-money_621091.html

the usefulness of management accounting information in the modern business environment

Documents