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Management Accounting Issues - Essay Example

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The essay "Management Accounting Issues" focuses on the critical, and thorough analysis of the major issues on management accounting. Chandler suggested that Management Information System is one of the results of the scope and scale that business is conducted…
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Management Accounting Issues
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?Management Accounting MANAGEMENT ACCOUNTING Administrative Coordination – Chandler Chandler (1977) suggested that Management Information System is one of the results of the scope and scale that business is conducted. Specifically, the multi-divisional forms of business, which are the results of the emergence of large-scale business, led to a need for developing new forms of accounting. Furthermore, the strategic developments that were taking place occasioned new managerial structures, which in turn brought about the need to redesign the accounting system – these changes led to differentiation of management accounting on one hand and financial accounting on the other hand. Methods such as standard costing and budgetary control are associated with developments in management accounting - this is thought to have been as a result of the traditional rise of large and multi-divisional business activities. This observation is in line with what Chandler (1977) set out, when he maintained that modern management originated from the economic history. The economic history took the position that was previously taken by market mechanisms by introducing an institution with new features, a modern business enterprise or the managed creature. Essentially, by planning and coordinating of the activities in an organization across space and time, as well as internally capturing efficiency benefits and cost, the managed entity displaced, forestalled, and essentially redesigned market relationships (Coase, 1937). Consequently, management brought about oligopoly since it was possible to create large-scale entities whereby managers manage other managers through the process of administrative coordination. The organizations that followed these structures were capable of running economically to the extent of redesigning and dominating their sectors, as well as their staff. In essence, the administrative coordination brought about a new source of power, which has eventually redesigned the limits of the organizational and economic scenes. In view of this, it is evident that Chandler contributed towards an explanation of the origin of the modern management by shedding light on how different forms of administrative coordination were, at the outset, developed (Hoskin and Macve, 1990). Chandler specified the Springfield Armory as the origin of the development of single-unit management, which was allegedly done in the perspective of introducing an interchangeable part manufacturer. In essence, this location could have been an unacceptable source of the management; however, the administrative coordination could not have originated from the reaction from technical inventions, but it must have originated from a distinct and disciplinary intervention. Ideally, in this case, the administrative coordination was put into practice through coordination, problem planning as well as control of staff and plant throughout the extended moment and space. In addition, another important contributor of the modern management, just as Chandler maintained, is George Whistler who was associated with the Western Railroad. Chandler (1977, p. 97-98) ascertained that Whistler was the first to embrace cautiously defined, modern, and an internal organizational structure, in 1841. This development was the first American business enterprise to function under a formally designed administrative structure, overseen by full-time and paid staff. After Whistler, the Pennsylvania (PRR) was the subsequent key railroad where severance of operating and financial functions was a remarkable development that led to the establishment of a form of organization described by Chandler (1977) as “decentralized line-and-staff division.” (p. 105). In addition, the unrelenting examination and production of comprehensive flows of information in both human and physical assets reduced operating cost and enhanced efficiency. According to Chandler (1977) the most momentous contributions to accounting was made by Pennsylvania Railroad, which is really true because decentralization and staff divisions have remained very prominent structures even up to date. In actual fact, the account of both disciplinary and economic rationalist accounting frameworks give emphasis to the significance of new accounting lines of duties, which have occasioned the surfacing of new managerial entities – these are the qualities that have been pioneered by the work of Chandler. In these developments, managers control each other. Ideally, in those entities that operate at very large scales, the topmost managers are not controlled by the owners of those entities or any other individual, but by the resultant managerial rankings of competitors, financial institutions, auditors, suppliers and regulators. The increased need for the Public and internal accountability is responsible for all these improvements. The decisions and actions that are made in firms that are run through these structures and processes are subjected to scrutiny in respect to disinterested objectivity and financial efficiency. These pressures occasions unending economic, social and political demands, to pay attention to procedural openness whereby decisions are undertaken and actions evaluated. Emphasis is put on supportable performance or output pointers instead of the fundamental significance of the results of decisions and actions (Brunsson, 1989). The unappeasable and progressive need for an objective verification have been accommodated by the practice of reporting through quantifiable output and accounting system metrics (Porter, 1995; Power, 1997). Management Innovation (TQM) In the past, the role of management accountants was to assist the corporate managers with important information, which is essential for planning purposes. Historically, this information has been largely financial. However, with the innovation of Total Quality Management (TQM) within the structures of management accounting, the management accountants have been presented with an opportunity to take part in the continuous quality improvement (Model, 2009; Shea and Kleinsorge, 1997). Due to these innovations, management accountants are gradually becoming key players in quality management decisions that comprise of appraising non-financial features of the entities, including client fulfillment (Stanleigh, 1993). Also, management accountants are required to broaden their communication, analytical, information management and planning skills so they can take part in the wider information categories that encompass the TQM values. This means that management accountants have contributed towards a broader constituency of the interested parties, hence sustaining the needs of shareholders as well as the customers (Grant, 1995). Total quality management (TQM) has become an all-encompassing attention to those companies that want to meet their customers’ unquenched demand for high quality products and services. This means that the quality of the final products is a competitive tool, which has made many companies to recognize the significance of improving the quality of their production processes because it is the means through which high quality products can be produced. In addition to improving their processes, companies must also pay attention to the reduction of costs because it is an important variable in customer satisfaction (Chenhall, 1997). TQM, therefore, has been developed because of the increased need for products and services of high quality. This goal can only be achieved through efficiency improvement, for example, through reduction of lead times, reducing costs, and reducing waste throughout the production process. In return, the organizational performance is improved immensely. An empirical test carried out by Lee and Chan (2003) aimed at establishing the relationship between TQM and the owners’ viewpoint on the importance of such an innovation in their organization. The results of this study revealed that the embracing of innovations in management accounting enhanced shareholders returns after the innovations have been adopted. In addition, the results shown that the embracing of innovations was motivated by the desire to benefit from the innovations rather than the fear of being left behind. Therefore, integration of TQM to management accounting is of paramount importance to all the stakeholders of a company. The management accounting innovation in regards to TQM will bring about new performance measurements, quite different from those used in the traditional organizations. In addition to the measurement of profit and return on investment, the actual measure of quality has become important too, and hence it must be measured and reported by management accountants. Nowadays, many organizations require these measurements to not only be taken by marketing or production, but also the management accountants, who are charged with the responsibility of consolidating the relevant information into management reports. The essence of management reports is to enhance comparison of different measures and taking of appropriate action (Shea and Kleinsorge, 1997). Examples of such measures, which are related to issues of customer satisfaction, include customer surveys or time taken to address grievances. The management accountants are charged with quantification of measures of quality in order to make the results more comprehensible and less biased. Another implication of this is a correction of discrepancies before a problem affects on the profits of an organization. For examples, in case of low customer satisfaction ratings or slow delivery, the profit impact is discovered instantly and changes made (Shea and Kleinsorge, 1997). Although TQM is an imperative in any production organization, its implementation requires massive capital investment and training, which is a big obstacle to many entities. Furthermore, resistance is a common scenario whenever such a system is implemented in an organization, but the management accountants should be able to prove that its implementation is worth its cost (Shea and Kleinsorge, 1997). This has also presented management accountants with the risk of failing to fulfill the new information requirements, which can have dire consequences to the management accountants themselves as well as the organization at large. A case in point is where a management accountant fails to use information effectively, thereby obstructing the bottom-line results of the entity. This could result to the marginalization of the management accountants in their own organization. Particularly, the weights of their new roles call for the management accountants to become proactive rather than reactive in their actions (Shea, 1994). References Hoskin, K.W. and Macve, R.H., 1990. Understanding Modern Management. University of Wales Business and Economics Review, No. 5, pp. 17-22. Coase, R.H., 1937. The Nature of the Firm. Economical, 4(4), pp. 331-351. Chandler, A.D., 1977. The Visible Hand. Cambridge, MA: Harvard University Press. Brunsson, N., 1989. The Organization of Hypocrisy: Talk, Decisions and Actions in Organizations. Chichester: John Wiley. Chenhall, R. H., 1997. Reliance on Manufacturing Performance Measures, Total Quality Management and Organizational Performance. Management Accounting Research, 8, pp.187-206. Lee, J. Y. and Chan, K. C. , 2003. Assessing the Operations Innovations Bandwagon Effect: A Market Perspective on the Returns. Journal of Managerial Issues, 15(1), pp.97-105. Porter, T.M., 1995. Trust in Numbers: The Pursuit of Objectivity in Science and Public Life. Princeton, NJ: Princeton University Press. Power, M.K., 1997. The Audit Society: Rituals of Verification. Oxford: Oxford University Press. Model, S., 2009. Bundling management control innovations: A field study of organizational experimenting with total quality management and the balanced scorecard. Accounting, Auditing & Accountability Journal. 22(1), pp. 59-81. Shea, J.E. & Kleinsorge, I.K., 1997. TQM: are cost accountants meeting the challenge? Management Accounting. 75 (10), pp. 65-67. Stanleigh, M. (1993). Accounting for quality. Australian Accountant. 63 (9), 27-29. Grant, V. (1995). Total quality challenges the management accountant. Management Accounting: Magazine for Chartered Management Accountants. 73 (6), 40-41. Shea, J.E. & Kleinsorge, I.K. (1994). TQM: are cost accountants meeting the challenge? Management Accounting. 75 (10), 65-67. Read More
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