Question

Compliance, control and competitive support are important factors that have shaped management accounting practice. However, modern business now places much greater emphasis on competitive support to achieve strategic objectives and less emphasis on compliance and control.
Based on the above statements, discuss factors that have contributed to the development of Management Accounting Practice and evaluate the usefulness of Balanced Scorecard. (1000 words)

Answer 1

If the discipline of Management Accounting (MA) is to be explained and understood then study focusing on its change will play an important role. It is in the study of the dynamics of the discipline that the forces and influences underlying its development will be most visible. Their identification can illuminate our comprehension of how MA has attained its existing forms. Without such knowledge those involved in the design of MA systems, those involved in the management of the profession and those involved in the education of new generations of management accountants will operate with an inadequate comprehension of the focus of their activities. MA system designers need to be sensitive to the factors which merit change if they are to maintain an important organizational role by supplying relevant information to management and operating in a role appropriate to contemporary circumstances.

Factors that have contributed to the development of MA Practice is

• The influence of market competition has long been recognised as an important influence on internal information systems. In terms of MA this influence has been manifest in customer behaviour as varying customer tastes and actions underpin market dynamism. Indeed it has been found that the introduction of new non-financial performance measures were linked to attempts to minimise customer dissatisfaction while internal accounting provided a mechanic for transforming the customer into quantified knowledge i.e. the ‘quantified’ customer.

• MA is designed to fit with its immediate operational surroundings and consequently a range of factors relating to internal operations can be implicated in the initiation of MA change. These include

1. The core competencies or work characteristics of the organisation.

2. The introduction of modern production technologies has also led to changes in product costing practice.

3. Information technology is a further potential influence on aspects of MA practice in the area of capital budgeting. A specific example of this is the new software facilities which lead to the adoption of ‘packaged’ MA routines.

4. E-commerce can create new ways of operating for which conventional MA may require modification.

The Balanced Scorecard (BSC) is a framework to implement and manage strategy. It links a vision to strategic objectives, measures, targets, and initiatives. It balances financial measures with performance measures and objectives related to all other parts of the organisation. It is a business performance management tool. The usefulness of Balanced Scorecard are:

• The Balanced Scorecard provides a powerful framework for building and communicating strategy. The business model is visualised in a Strategy Map which helps managers to think about cause-and-effect relationships between the different strategic objectives. The process of creating a Strategy Map ensures that consensus is reached over a set of interrelated strategic objectives. It means that performance outcomes as well as key enablers or drivers of future performance are identified to create a complete picture of the strategy.
• Having a one-page picture of the strategy allows companies to easily communicate strategy internally and externally. We have known for a long time that a picture is worth a thousand words. The thing to remember is that it is difficult for people to help execute a strategy which they don’t fully understand.
• The Balanced Scorecard help organisations map their projects and initiatives to the different strategic objectives, which in turn ensures that the projects and initiatives are tightly focused on delivering the most strategic objectives.
• The Balanced Scorecard approach helps organisations design key performance indicators for their various strategic objectives. This ensures that companies are measuring what actually matters. Research shows that companies with a BSC approach tend to report higher quality management information and better decision-making.