The evolving role of Management

Accounting as a social science

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 Session objectives

1.Understand a non-changing nature of

management accounting in a changing
environment

2. Study world views on management accounting

3. Understand management accounting change

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 Activity

• How do you understand MA?

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 What is MA?
• Definitions of professional bodies
• Common view is;
– MA is a unitary and universal practice,
independent of the time and space in which it
operates.
But
We must study the subject broadly

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 Approaches to Understanding MA
(World views on management accounting)

• Technical – managerial view

• Pragmatic – interpretive view
• Critical – socio-economic view

(Wickramasinghe and Alawattage,

2007)
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 Technical-managerial view
 According to the technical-managerial
view, management accounting is a set
of calculative practices and a
managerial function or a sub-system of
the overall organizational information
system.

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 In support of decision-making & control,
Mgt.Accountants use various techniques, such
as product costing, budgeting, variance
analysis, CVP analysis, investment appraisal
etc.

 All these calculative practices are collectively

known as Management Accounting.

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 In an organization, there are certain
managerial functions, such as production,
marketing, HRM, R&D, etc. M/A comes under
Finance.

 The role of that MA function is to support

D/M & control by providing financial &non-
financial information.

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 The technical-managerial view represents the
conventional wisdom of MA, with some
modifications and changes offered by
textbooks, universities, professionals and
consultants.
 This has now become a powerful organizational
practice promoted by professional associations.

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 Technical / Managerial Approach
According to this approach;

• MA is a set of calculative practices and a managerial

function

• When MA techniques are used, the same outcomes are

expected

• Therefore, the Technical / Managerial approach

considers no distinction between MA theory and practice

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 MA Theory and Practice

Theory Practice

The techniques explained in What is actually happening in

MA text books business organizations

This is the conventional

wisdom
• Interpretative approach
•Technical approach • Critical approach

However there exists a gap between Theory

and Practice 11
 MA Theory and Practice

Robert Scapens (1990s) pointed out a gap

between ‘theory’ and ‘practice’. He states that
‘practice’ must be studied and interpreted
rather than being much concerned about the
gap

Eg: Institutional Theory => MA is a set of ‘rules’ that could be

‘routinized’ and ‘institutionalized’ as accepted practice.

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 MA Practice
Interpretative Approach
• Understanding the MA practice carried out within
business organizations through shared meanings

Critical Approach
• Interplay between MA practice in the business
organizations and the wider socio-historical context
in which the business organization operates

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 Pragmatic-interpretive view
 The pragmatic-interpretive view is
concerned with management accounting
practice.
 By ‘practice’, we mean the ways in which it
is applied and the organizational
consequences of such applications.
 These concerns are usually raised by
researchers rather than practitioners.

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• It is difficult to combine these concerns into a
single phrase.

• Therefore, we try to categorize it in following

way.

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1. Some researchers provide descriptive
accounts of practices, identify prevailing
problems and formulate solutions.
Eg: According to Johnson & Kaplan,
MA is a corporate information system that is subservient
to external financial reporting.

2. Another group study the practice more

closely and explain it theoretically.
Eg: According to Robert Scapans,
There is a gap between MA ‘theory’ and ‘practices’.

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3. A third group study practices, identify changing
features and define the subject in more
pragmatic terms.

Eg: According to Birkett and Poullaos (2001),

MA is an outcome of historical evolution from the
1950s.**
1950s - conventional management accounting*
from the mid 1960s - support or staff role
from the mid 1980 -‘resource management’
from the 1990s - risk management and value creation

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IFAC model (1998)

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 Critical-socio-economic view
 This is about a critical evaluation of
management accounting practices in
relation to the interplay between
organizations and their wider socio-
economic contexts such as sociology,
history, political science, anthropology, etc.

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 Thus, critical views cannot contain a set of widely
accepted definitions. They are debatable,
arguable and divergent.
 These views are derived from certain social
theories.
 Critical researchers are skeptical about the
technical-managerial views
 They look to social theories, believing that the
practices are theoretical as long as they can be
explained in a social theory
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 Activity
• Contrast between three world views of
Management Accounting

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Understand management
accounting change

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 Change
• ‘Change’ guides us to understand how
environmental factors shape internal
processes within organizations
• Change occurs as a result of interaction
between the environmental factors and
internal processes.

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 Changes

deliberately or accidentally

Have links to Time (history) and the

Space (geography)

realistic knowledge of MA
Must link changes with history & geography

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• Linking technical changes with history &
geography, the tech-managerial view of MA
has little to offer.
• But, combination of all 3 views give a
complete pedagogical approach to
understanding MACh.

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What has changed in Management Accounting?
 the most dominant environmental forces affecting business
today are;
 Technological innovations

 globalization effects

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 What has changed in Management
Accounting?-cont.

 Firms must satisfy New Customer needs

 Firms must beat New forms of Competition
(global competitive advantage)
 Mass production & Mass marketing are no
longer valid business strategies.

S-T-P marketing

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 Organizations have greater flexibility and
adoptability
Eg; learning organizations (Toyota)

 Visionary leadership, organizational culture,

team work and networking became the
structural tools of the expected organizational
forms.

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 Continuous improvement, TQM, BPR, lean
production became the buzz-words in various
mgt. discourses.

 Further ‘change management’ evolved into a

popular course in business schools and
training programmes.

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 The concern for ‘change’ in other disciplines of
management had certain knock-on effects on
management accounting.
 Management accountants had to face the challenge
of changing their techniques and procedures to meet
this overall agenda of change.
 Traditional a/c techniques were no longer sufficient
to meet the demands of emerging strategic
dimensions of organizations.

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 MA was faced with the problem of moving
beyond the traditional administrative mode of
control (responsible accounting) to integrate
itself with the emerging strategic and marketing
aspects of business.
 It can be argued that BSC and ABM were
reactions to this problem.

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 Activity

• Identify the different characteristics of the

two production processes shown in the videos

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MA Change as a movement from one
approach to another
Mechanistic approaches Post-mechanistic approaches
•Mechanization in technology Digitalization in technology
Customer-orientation in
•Production-orientation in Management
management ‘New’ MA
•Conventional wisdom in MA
Management Accounting Change

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 Mechanistic approach is a broad term we use
to define the conventional wisdom of MA
which persisted until the 1980s. The defining
principles are: mechanization in production-
technology and production-orientation in
management.

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 By ‘mechanization’, we mean the technology
used for mass production, one dedicated to
produce similar products in large scale.

 The engineering character of this technology

is semi-automatic and inflexible.

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 Orientation is essentially centered on
production rather than customer needs.

 Production conception leads to economies of

scale.

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 • Post-mechanistic approach
 From the late 1980s the mechanistic approach
to MA moved to a post-mechanistic form.
 Production systems are now governed by
digital technologies with a manufacturing
flexibility
 Satisfy the divergent needs of customers

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 Shift from production orientation of mgt to a
customer-orientation.

 Competitive advantage is achieved by

exploring economies of scope, as opposed to
economies of scale.

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