CHALLENGES FOR THE FUTURE

In this chapter we shall concentrate on

the emerging issues that are likely to
have an impact on management
accounting and consider some potential
future developments in management
.accounting
 Environment and sustainability issues

Increasing attention is now being given

to making companies accountable for
ethical, social and environmental
issues and the need for organizations
.to be managed in a sustainable way
 Environment and sustainability issues

Until recently more attention has been

given to social responsibility reporting
relating to ethical, social and
environmental issues within
,company’s annual external reports
Environment and sustainability issues
In article Porter and Kramer (2011)that They
say companies should follow the principle of
shared value, which they define as policies and
operating practices that enhance the
competitiveness of a company while
simultaneously advancing economic and social
conditions in the communities in which it
.operates
Environment and sustainability issues
Porter and Kramer provide the following
examples of how shared value thinking is
:transforming the value chain
 Environment and sustainability issues

Energy use and logistics:. Marks and Spencer

has overhauled its supply chain by stopping
the purchase of supplies from one hemisphere
and transporting to another. This is expected
to result in £175 million annual savings by
.2016 while hugely reducing carbon emissions
 Environment and sustainability issues

Resource usage: Advances in technology are ●

providing opportunities for companies to
develop new approaches for reducing the
.usage of water, raw materials and packaging
Coca-Cola reduced its worldwide consumption
of water by nearly 20 per cent between 2004
and 2012
 Environment and sustainability issues
Procurement: Nestlé required a reliable
supply of specialized coffees and
redesigned its procurement by working
,intensively with local growers
The company has succeeded over the
years in improving the standard of living of
local farmers while ensuring itself astable
supply of high quality commodities at a
.competitive cost
Environment and sustainability issues
Distribution: Re-examining distribution
practices provides opportunities for
creating shared value. Kindle, iTunes and
the publishing and newspaper industry
have established alternative electronic
distribution approaches that reduce
.paper and transportation usage
Environmental cost management
Environmental costs have emerged as a
major challenge for companies, and it is
one of the future growing challenges for
corporate accounting systems, including
management accounting
Environmental cost management
the tracking of environmental costs
provides feedback that focuses
organizational attention on the search for
innovative ways to reduce environmental
.costs and their impacts
Environmental cost management
and provides insights into possible cost
reductions through specific actions on
cost drivers, such as the reduction in the
material and energy intensity of goods or
services, the reduction in the dispersion
of toxic materials and improvement in
recyclability by product and process
.redesign
Environmental cost management
the tracking of environmental costs acts
as a catalyst for efficiency )i(
improvements within the same cost
structure; and
it acts as a catalyst for new initiatives )ii(
which help to create a different cost
.structure
Environmental cost management
the following four categories of environmental
:costs can be reported
Environmental prevention costs are the -1
costs of activities undertaken to prevent the
production of waste that could cause damage
to the environment. Examples, the design and
operation of processes to reduce
contaminants, training employees, recycling
products
Environmental cost management
Environmental detection costs -2
incurred to ensure that a firm’s activities,
products and processes conform to
regulatory laws and voluntary standards,
Examples include inspection of products
and processes and Pollution check to
.ensure regulatory compliance
Environmental cost management
Environmental internal failure costs -3
incurred from performing activities that
have produced contaminants and waste .
Such costs are incurred to eliminate or
reduce waste to levels that comply with
regulatory requirements. Examples
include the costs of disposing of toxic
.materials and recycling scrap
Environmental cost management
Environmental external failure costs -4
incurred on activities performed after
discharging waste into the environment.
Examples include the costs of cleaning up
contaminated soil, and cleaning up oil
spills and waste discharges. this category
has the greatest impact on a company in
.terms of adverse publicity
Environmental cost management
The environmental cost report
should be used as an attention directing
device to make top management aware
of how much is being spent on
environmental costs . The report also
draws management’s attention to those
areas that have the greatest potential for
.cost reduction
 iNFORMATiON TECHNOLOGY
cloud computing -1
The emergence of cloud computing enables
software to be located on servers outside the
company owned by an external IT provider.
The provider then makes the software
available over the internet to the companies.
With cloud computing, resources are provided
in return for monthly subscriptions or on a
pay-as-you
 iNFORMATiON TECHNOLOGY
this results in some IT costs becoming
variable instead of fixed and in the former
case capital expenditure relating to the
acquisition of the software is replaced with
monthly rental type payments. Therefore cost
considerations can significantly influence the
decision as to whether to adopt cloud
.computing
This is considered one of the future challenges
.of management accounting
 iNFORMATiON TECHNOLOGY
Big Data -2
Recently the term ‘Big Data’ has been
widely publicized. Big data is a term that
describes the large volume of raw data,
that inundates a business on a daily basis.
It includes information such as email
messages, social media postings, phone
. ,calls, purchase transactions
 iNFORMATiON TECHNOLOGY
The amount of data that is being created
is so voluminous they cannot be
reasonably analysed using database
management systems or traditional
.software programs (Warren et al., 2015)
 iNFORMATiON TECHNOLOGY
Management accountants are now
becoming more involved in interpreting
the information generated from the IT
systems and providing business support
for managers. In addition, management
accountants will also need to be aware of
the latest developments in IT in order to
assess what can be achieved from these
.developments
 GLOBALiZATiON AND MANAGEMENT
ACCOUNTiNG iNTERNATiONAL PRACTiCES
Globalization have had a significant
impact on management accounting, The
growth in multinational companies has
resulted in management accountants
being responsible for overseeing the
operation of management accounting
.systems in many different countries
 GLOBALiZATiON AND MANAGEMENT ACCOUNTiNG
iNTERNATiONAL PRACTiCES

In multinational companies, Globalization

has resulted in the standardization of the
global flow of information, but it has also
limited the ability to generate locally
.relevant information
 GLOBALiZATiON AND MANAGEMENT ACCOUNTiNG
iNTERNATiONAL PRACTiCES

Although there is there is evidence to

suggest that accounting information is
used in a more rigorous manner to
evaluate managerial performance in
cultures exhibiting certain national traits,
and in a more flexible way in cultures
exhibiting different national traits
iNTELLECTUAL CAPiTAL AND THE KNOWLEDGE
BASE ECONOMY
In the new knowledge economy, wealth
is created by developing and managing
knowledge (Ricceri and Guthrie, 2009).
These value creating knowledge resources
are commonly referred to as intellectual
capital
 iNTELLECTUAL CAPiTAL AND THE
KNOWLEDGE BASE ECONOMY
include resources such as the organization’s
reputation, the morale of its staff, customer
satisfaction, knowledge and skills of
employees, established relationships with And
.suppliers etc
and here arose the problem of valuing
intellectual capital
 iNTELLECTUAL CAPiTAL AND THE
KNOWLEDGE BASE ECONOMY
One approach that has been suggested to
calculate the value of an organization’s
intellectual capital is to take the
difference between its market value and
the net book value of its assets. that are
not reflected in its financial statements
iNTELLECTUAL CAPiTAL AND THE KNOWLEDGE BASE
ECONOMY

Another approach is to disclose

information relating to intellectual
capital, without attempting to assign any
.monetary value to it
iNTELLECTUAL CAPiTAL AND THE KNOWLEDGE
BASE ECONOMY
At present there is no consensus as to what
represents a recommended approach to
managing and reporting intellectual capital.
Management accountants should be at the
.,forefront of this process
It may take some time to reach agreement on
what constitutes the best approach
 iNTEGRATED REPORTiNG
Current corporate reports tend to focus
on detailed historical financial
information and critics have argued that
there is a need for a report that provides
a bigger picture of a company’s short and
. long-term
performance Recently, a new type of
external corporate reporting called
. integrated reporting
 iNTEGRATED REPORTiNG
The Integrated Reporting Committee (IRC)
of South Africa (2011) defined integrated
reporting as the bringing together of
material information about an
organization’s strategy, governance,
performance and prospects in a way that
reflects the commercial, social and
environmental context within which it
.operates
 iNTEGRATED REPORTiNG
Integrated reporting aims to provide
information on financial and non-financial
performance in a single document,
showing the relationship between
.financial and non-financial performance
The IRC discussion paper suggested that
the following key elements should be
:included in an integrated report
 iNTEGRATED REPORTiNG
a concise overview of the organization’s ●
structure, including governance and its main
.activities
a description of material risks and ●
opportunities, based on a review of financial,
social, environmental, economic, and
.governance issues
.
 iNTEGRATED REPORTiNG
a description of the strategic objectives of ●
the business as influenced by an assessment
of the external environment and internal
.resource constraints
an account of the organization’s ●
performance based on its strategic objectives
in terms of key performance and risk indices
 iNTEGRATED REPORTiNG
Integrated reporting aims to provide an
overview of an organization’s activities and
performance in this broader context by
communicating the mission and strategy of the
organization and linking performance
measurement to strategy. It is therefore likely
that management accounting will have a
greater input into external corporate reporting
in those companies that adopt integrated
.reporting