In the words of Ward, (2012) management accounting is the process of making reports and accounts of the company on time and with proper financial and statistical information. The information that is generated by this process is of high importance as it allows managers to make day to day and short-term decisions in an effective manner.
The present report is focused on understanding the evaluation of management accounting since 1980 and the ways in which it became a significant part of the business entities in Australia. It will also discuss the modern accounting practices used by companies these days in order to increase their performance. For this aspect, case examples of Apple and Woolsworth are also provided with some articles in order to analyze the ways in which modern accounting is helping the companies.
The study of management accounting has been developed by considering its roles and trend as these skills will be upcoming as a high demanding tool (Ditillo, 2012). The major reason behind this is that there is an immense increase in demand for experts who have highly professional skills and abilities to cope up with the dramatical change in the global economy. It is not the very first time management accounting has changed its operation to experience and fulfil the demands of the freshly restructured economy. In fact, as long as the industrial revolution has been evolved management accounting has responded over the transforming manner of the global economy, as it reshaped itself many more times (Emmanuel, 2013). The emergence has been noticed by the 21 century when the information and consequent economy has to drive the knowledge as a means of competitive edge. The key driver of this significant change in the activities of the economy is taking a new way of innovation and creativity in the management accounting and has taken it to the next level of demand for abilities and skills in today’s world of professional accounting (Soin and Collier, 2013).
From the industrial revolution and quick improvement in the new manufacturing of 19 century, management accounting emerged (Burns, 2012). In this period, home office separation from the facilities of production and the multiple mixing procedures altogether on an incorporated factory carried out the system development, which was designed to estimate the internal system efficiency (Quinn, 2014). This approach became more complex as manufacturing took place in a broad range of ultimate products, where each product used various resources at various rates; further, a new model was required.
This was considered as invalid it was filled and submitted by scientific management movement (Seal, 2012). The movement aimed at improving comprehensive standards for the procedure, time, efforts and materials were used. This will no doubt result in the development of costing and allocating products in terms of labour used. Once again, management accounting implemented to alter situations.
The 21st century, a 1st decade has been classified by industrial age and information age emergence. The key drivers of this transformation were inclusive of various factors that have appeared in the last 20 years (Hiebl, 2014). The factors were; the union of transportation, trade and communication, due to the change in environmental concerns and precedence, falling significance of nation-state, high demand on energy, material and food along with an increasing population. Other factors were expanding the significance of woman as a consumer or in politics or business, and the ever-present nature of technologies of communication (Castells, 2014).
The consequential economy of 21st Century is manipulated with services against manufacturing. In fact, manufacturing is actually more service driven it aims on changes, customer satisfaction and support marketing, example, Apple (Dumitru and Matei, 2014). The modern technology or quick speed of changes is the vital roof for the modern economy. The global reach of the internet and its worldwide use is generating a totally new business and changing several conventional sectors for example communication, retail and media (Smith, 2013).
Management accounting is in its stage of immaturity. In the past, it played a minor role in financial accounting in many of the companies, although even now it is more than a consequence of the process of financial reporting (Bromwich and Bhimani 2005). Conversely, last two decade events have urged the improvement in the managerial accounting process; now it is coming to a broadly known expertise field that divides from financial accounting (Burns and Needles, 2014). Several innovations of cost and accounting, since the last two decades, are higher compared to the prior decades (the 1960s and 1970s). This states that the insufficient accounting innovations of cost and accounting in the last two decades doesn’t emerge to be an issue. In support of this view, it highlights that the 1980s and 1990s noticed the transformation regarding the management accounting innovation and processes (DRURY, 2013). It has come back with this examination by recommending on the last two decades years; there is a quality supply of innovation in management accounting over the literature. In the last 50 years, there is an observation of no new concept in the management accounting. By taking a look at the changes of the last 50 years, certain functions even unchanged, however now they are alleged and been moved to the room of professionalism. The revolution is totally based on the professed management accounting process and function (Jaques, 2017).
In the ending stage of the 20th century, there was considerable change in management styles. The things that have changed and transformed were the issues, like technological speed or environment (Müller, 2014). The ability to make better decisions and being an efficient partner has also changed this dramatically.
According to Parker, (2012) with the changing business practices and intensifying global competition, management theories proposed in the past are on the verge of becoming irrelevant for contemporary business scenarios. Management accounting is the function that gathers and provides integral accounting and statistical data to make decisions of manager easy. Renz, (2016) stated that change in the management accounting has completely transformed the role of management accountants. Traditionally, accountants were employed to handle scorekeeping, playing a role of attention director and solving all the problems related to accounts. However, with the change in working of the companies, the role of the accountant has completely transformed to meet all the information requirements of the uncertain business environment. Management accountants in modern companies are playing the role of business partners as well as information analyst that has allowed them to enable an upgrade from a centralized accounting function to become partners of managers in business firms.
Widener, (2013) added that during the early 19th century most of the companies were controlled by few managers as elaborated financial reports were not demanded. Then came the 20th century which saw lots of changes in the economy and it became necessary for companies to submit detailed financial reports to satisfy the capital markets, creditors, and tax authorities. In today’s century, managers are under lots of pressure to not only make decisions but also to develop plans that can allow the company to strive and sustain in this competitive market. Burritt, (2013) said that the role of modern management accounting is to provide different levels of management in companies with information that can allow them to make sound decisions in order to add value to the company. It is different from traditional accounting as previously, managers were provided with essential information in time so that targets can be set, the cost can be minimized, standards can be developed, performance can be monitored, etc.
Williams, (2014) studied that the advancement of information technology has enhanced the management accounting to a very higher level. It now allows the managers to have the availability of all kind of real-time data related to finance without waiting for an accountant to sort it out. The new management accounting system allows the managers to conduct different types of the accounting tasks by themselves with the help of different accounting management software. Preparations of budgets, analysis and calculation, have become easy with all the automated formulas and ratios.
This evolution has also brought great significant effect on the forecasting rather than budgeting as analyzed by Burns, (2013). Management accounting considers all the business factors nowadays and provides the analysis in such manner that managers are able to compare them with other companies easily on every financial aspect. It has made the decision-making faster and due to that businesses are able to grab the market opportunity in the early stage to get a competitive advantage. With the time, many new techniques of management accounting have also been developed like balance scorecard, Just in Time which helps the managers in their respective field as added by Williams, (2014). These new techniques have done business to grow in this competitive environment and have also helped them to increase their revenues by making operations more efficient.
Management accounting is used by many companies in order to help them to analyze the market situations better. Two of the most popular companies that use the management accounting are Woolsworth and Australia. Both the companies have gained lots of advantages through modern practices of accounting.
Woolsworth is one of the best retailers in Australia, and it is using modern accounting practices in order to manage its operations from the very long time (Burns, 2013). The company uses the management accounting techniques called as Strategic Triangulation of management accounting. The primary strategic elements of Woolsworth are directly based on quality, cost and time. It is in the retail business, so it becomes important for the company to maintain the quality of its products and procure all the material at the minimum cost. It is also important for them to have all the resources on time (Tayles, 2016). The company values the relative importance of all three factors that are predicted on its customer base along with preference of demand in the market. In some cases, Woolsworth demands products subject to different primary issues of time and cost, on the other hand, there are customers that demand quality and are different to cost factor.
Management accounting principles are also used in Apple INC which is the world’s largest technology company. As compared to other technology leading companies, Apple from the very beginning is known for its efficient cost management. Apple follows three principles of management accounting that are cost management, transfer pricing and responsibility management (Ikäheimo, 2013). Company analyze the suppliers market with balance scorecard of accounting management and then procure the materials at low prices. It also uses the transfer pricing as tax shields which has allowed them to retain most of its profit and all is possible because of market analysis was done by management accounting (Hald, 2016). The third is responsibility accounting which is company’s DNA as all the principles of accounting are strictly enforced which have made the decisions swift and communication clear between the top and bottom levels of employees.
References
Hald, K., 2016. Management Accounting and Supply Chain Strategy. [Pdf]. Available Through: <https://openarchive.cbs.dk/bitstream/handle/10398/9373/Hald_Thrane.pdf?sequence=1>. [Accessed on 11 September 2017].
Tayles, M., 2016. Strategic Management Accounting. [Pdf]. Available Through: <https://link.springer.com/chapter/10.1057/9780230353275_2>. [Accessed on 11 September 2017].
Bromwich, M. and Bhimani, A., 2005. Management accounting: Pathways to progress. Cima publishing.
Burns, J., 2012. The paradox of strategic management accounting. Management Accounting Research. 23(4). pp.229-244.
Burns, J., 2013. Social and environmental accounting, organisational change and management accounting: A processual view. Management Accounting Research. 24(4). pp.349-365.
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DRURY, C.M., 2013. Management and cost accounting. Springer.
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Parker, L.D., 2012. Qualitative management accounting research: Assessing deliverables and relevance. Critical perspectives on accounting. 23(1). pp.54-70.
Quinn, M., 2014. Stability and change in management accounting over time—A century or so of evidence from Guinness. Management Accounting Research, 25(1), pp.76-92.
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