Question

"Managerial accounting is part of a dynamic business world. A company’s business strategy will change over time, often due to external factors such as technology changes, market competition, and government regulation. The company’s organizational structure (the 3-legged stool) will change with a change in business strategy. Likewise, the internal accounting system will change with a change in organizational structure. Before implementing an accounting system or other organizational change, it is important to understand what is driving the change. Changes in the accounting system rarely occur in a vacuum. Accounting system changes generally occur at the same time as changes in the firm's business strategy and other organizational changes, particularly with regard to the partitioning of decision rights and the performance evaluation and reward systems. An accounting system should not be changed without concurrent, consistent changes in the way decision rights are partitioned as well as in the performance reward systems. All three parts of the organization's structure must be internally consistent and coordinated. An accounting system should NOT be adopted merely because other firms are doing so; they may have different external factors driving their changes. An accounting system should not be changed without solid ethical and professional reasoning behind the changes. Many decisions are made based on the reliability and relevance of internal accounting information – changes to an accounting system should improve the usefulness of that information, otherwise, “if it ain’t broke, don’t fix it.”" I only need a response to this

Answer 1

There are many instances of organizations rushing to implement a new accounting system, however, the benefits and efficiencies expected do not crystallize. Soon, implementation schedules are missed and costs skyrocket, leaving one pondering if the original system indeed needed to be changed. Hence, before arriving at the very expensive conclusion of changing accounting systems, it is essential to take a step back, perform a structured analysis and honestly evaluate the organization’s needs, which should include an evaluation of the end-to-end business system requirements. So before jumping onto the change bandwagon, one must evaluate

• what triggered the need for a change
• what are the expectations from the accounting system
• what are the shortfalls in the current accounting system vis-a-vis the expectations
• what could address these concerns
• whether a change is really needed
• what is the manner and extent of change really required
• a cost-benefit analysis of the change envisaged, considering not only current needs, but prospectively and strategically for future benefit and growth as well

The internal accounting system is a part of the organizational architecture, which in turn depends on the management’s business strategy. Business strategy depends on the dynamic external environment, e.g., technological advancements and obsolescence, market competition, regulatory requirements etc.

A new regulatory pronouncement may require an organization to provide additional financial information which cannot be made available with the current accounting system; accordingly the system should be enhanced so as to adequately address this gap and comply with the regulatory requirement. On the other hand, technological advancements such as robotics, big data, artificial intelligence etc. May be tempting to implement, however the areas which would actually benefit from such a change should be identified, which would result in long term benefits to the organization, considering the costs of implementing such a change.

Decisions such as separating the accounting and disclosure functions within the ambit of financial reporting, would need to be synchronized with changes in the line and function reporting of employees and their performance evaluations and rewards may need to be linked to inputs from both, line and function managers, so as to ensure that the accounting and disclosure functions do not function in silos, which would go on to ensure accurate financial reporting at the level of the organization.

Change, however, requires tremendous investment in not just financial terms, but also of time, efforts and is never painless. Hence every change management programme should be well planned at the outset and carefully monitored. Alternatives to a totally new system should be explored, existing processes should be mapped out and process simplification should be considered, customer requirements should be kept in mind and industry best practices should also be examined, while keeping in mind that the organization may have some business processes unique to its situation, which may require unique solutions. A one-size-fits-all solution may turn out to be a bad decision in the long run, as what works for other organizations may not necessarily work for your organization.