Overview of the Contingency Theory of Management Accounting

1. Management Accounting

In the 1970s, management accounting became an important tool for decision-making

and control in many organizations, with budgetary control being the predominant
method. The development of management accounting began with the introduction of
the Activity-Based Costing in the early 1980s, and the Balanced Score Card in the
early 1990s integrated financial and non-financial performance into an integrated
framework that combined strategy and operations and became the most widely used
management control system in modern organizations.

The nature of the management accounting discipline has special characteristics.

Management accounting is inextricably linked with management, sociology,
psychology, economics, and other disciplines, and is a comprehensive
interdisciplinary discipline gradually developed by the intersection and penetration of
multiple disciplines. It develops with the development of other disciplines and is
dynamic in nature. In the past three decades, the theories used in management
accounting research mainly include contingency theory, social critical theory,
psychological theory, management control system theory, etc. Fisher (1995), Cadez
and Guilding (2008) believe that contingency theory is the main paradigm of
management accounting research.

2. Contingency Theory

Contingency Theory is a management theory developed in the 1970s based on

empiricism. The theory was developed with the obvious brand of the times, when the
American people were marching for more civil rights, and the whole society was
undergoing violent shocks, while the oil crisis broke out in the same period, which
had a huge impact on many countries in Europe and America. Against the backdrop of
social unrest and economic depression, Western governments and enterprises were
faced with an uncertain external environment. At this time, the scientific management
theories and behavioral science theories that dominated the Western management
community were mainly devoted to the pursuit of "universal" and "universal"
management methods and tools, focusing their research on the internal management
of organizations, ignoring the impact of rapid changes in the external environment on
organizational development. The impact of rapid changes in the external environment
on organizational development has been ignored. As a result, these existing
management theories were unable to solve the social realities that existed at that time.
Based on this situation, it was no longer believed that management practice would be
the best way to act, but rather that measures had to be taken in response to changes in
the context, resulting in a theory of management that responds to the conditions of the
environment in which it is located, namely, the contingency theory. The core essence
of the theory is to respond to the situation and to adapt to it. The birth of the
contingency theory marked a step toward pragmatism in management theory, which
holds that there are differences in the internal factors and external conditions of each
organization, so there are no principles and methods that are applicable to any
situation in management practice. In an uncertain situation, a variational management
strategy is considered to be effective, depending on the changing relationship between
the environmental elements, the technical elements of management, and the
management ideology. There is no "one-size-fits-all" best management model for
organizational practice. Rather, in management activities, organizations should adopt
a management style that is compatible with the development of the internal and
external environment, because the key to successful change management is to fully
understand the changes in the internal and external conditions of the organization, and
to adopt flexible and effective response strategies.
From the above, it is clear that the contingency theory is introduced into management
accounting on the premise that there is no universally applicable management
accounting system that is applicable to any organization in any context. Instead,
organizations need to explore and build accounting systems that match their contexts.
Their management accounting systems must adapt to their environments and choose
management accounting tools and methods according to the environment they are in.
Based on contingency theory, this paper explains management accounting practices in
terms of external and internal factors, respectively, and investigates the adaptability of
specific management accounting methods to organization-related contextual variables.