Challenges for Management Accountants in the New Economy

1
Challenges for Management Accountants in the New
Economy

• ACT 4193Current Issues in Accounting Auditing

2
Challenges for Management Accountants in the New
Economy

• Management accounting evolve with changes in the
  business environment. The traditional management
  accounting practices are increasingly becoming
  less relevant for the new economy enterprises.
  What and how are the changes in the new era that
  have affected the usefulness of certain
  traditional accounting practices?
• What are the challenges for management
  accountants in the new era?
• Discuss the management accounting change
  initiatives to enhance the effectiveness of the
  management accounting function.

3
Evolution of Management Accounting Practices

• Objective of the management accounting function
  is to provide accounting-related information to
  support managerial decision-making.
• The scientific management era (1900-1940s)
• Industrial revolution emergence of
  engineering-determined standards for product mass
  production(standardization)
• Standard costing practices for cost efficiency
• Allocation of overhead costs based on normal
  capacity (expected units produced)

4
Evolution of Management Accounting
Practices..contd.

• !950-1980s Refinements of MA techniques for
  planning, control performance evaluation to
  support business operations
• Budgetary planning control
• C-V-P analysis
• Responsibility accounting
• Decentralization ROI for evaluation

5
Evolution of Management Accounting Practices..
Contd.

• !990 2000s
• rapid significant changes in the business
  environment with advancements in ICT (esp.
  telecommunication technology Internet) and
  trends towards globalization of marketplace
• market competition intensified Increasing
  adoption of advanced manufacturing technology
  extensive adoption of new management techniques
  (TQM, Zero defects, JIT, BPR, VCA, ABM, network
  structure etc.) introduced to counter competition
• Traditional management techniques are either
  irrelevant or unable to cope with new
  requirements
• Demands for innovative management accounting
  practices/techniques

6
Changes in New ear Relevance of Traditional MA
Practices

• Most traditional management techniques
  practices (standard costing, responsibility
  accounting, budgetary control system,
  volume-based cost absorption, etc.) had been
  developed before 1950s and many, though less
  relevant or even obsolete, are still being
  described/included in MA textbooks.

7
Changes in New ear Relevance of Traditional MA
Practices..contd.

• Changes in the environment
• Advancements in ICT
• Globalization of the marketplace (WTO GATTS)
• Increasing emphasis on non-price competition
  (customization rather than standardized mass
  production)
• Efficiency-related (incremental) changes or/and
  capability-related (radical) changes within
  organization
• Adoption of technology (operational strategic
  enablers) on has amplified the errors of
  volume-based cost allocation approach.

8
Changes in New ear Relevance of Traditional MA
Practices..contd.

• Globalization of the marketplace has intensified
  competition and led to changes in competitive
  strategy.
• The need for alignment of the management
  accounting and control/evaluation system (MACS)
  with corporate strategy implies appropriate
  changes in the MACS.
• Traditional budgeting system may not be effective
  in an uncertain/unstable environment.
• Inventory costing responsibility accounting may
  be irrelevant in modern organizations
• Volume-based allocation of overhead costs
  magnified errors in product costing

9
Challenges for Management Accountants

• Accountants need to focus on a broader
  perspective and support organization
  transformation and change.
• Increasing involvement in strategic management
  through adaption or development of new MACS to
  meet new strategic information needs of managers.
• Modern organizations survive based on multiple
  strengths and the multidimensionality must be
  incorporated in the MACS and unitary biases in
  planning, control, evaluation ( rewards) systems
  must be rectified.
• Coordination of tasks become increasingly more
  problematic due to greater unit interdependencies
  , especially when operations involve external
  entities, e.g., outsourcing.
• Need to change from internal/past focused to
  external/future focused.
• Need to change from focusing on short-term and
  tangible benefits to valuing long-term and
  increasing more intangible benefits.

10
Management Accounting Change Initiatives

• Management innovations include TQM, JIT, SCM,
  VCM, BPR, ABM, CRM, flexible/agile manufacturing,
  benchmarking, flat/network structure,
  empowerment, teamwork, strategic alliances,
  E-Commerce, etc.
• Accounting innovative/new techniques to support
  organizational change initiatives and to
  sustain/enhance effectiveness of MA function
  include ABC, target costing, life-cycle costing,
  kaizen costing, BSC (non-financial measures),
  EVA, TOC, SMA (value chain analysis, competitor
  analysis, product-attribute analysis) and
  informal systems based on trust mutual respect
  are becoming important.
• Beware of barriers/inhibitors to the change
  initiatives and challenges to overcome resistance
  to change.