Art of Msnsgement Accounting

Topics: Management accounting, Finance, Management Pages: 10 (2987 words) Published: October 17, 2010
Pushing the art of management accounting

Despite the many strides the profession has made over the years, some still believe that management accounting practices haven’t taken as strong a hold in organizations as they should. FCMA Alexander Mersereau describes the challenges that are slowing the adoption of critical management accounting tools in broader business By Alexander Mersereau, CMA, FCMA


anagement accounting practice has developed substantially over the past century, but recent studies suggest that the practice is no longer making the strides that it once did. Unless management accountants take a hard look at the effectiveness of current practice, this situation isn’t likely to improve. In some companies, radical changes are needed to the structure of the finance function, the nature of the interactions management accountants have with other managers and the performance metrics used to guide the function itself. CMA M ANAGE MEN T

The good news
The early part of the 20th century was a period of rapid development for the field, when scientific management sought to identify what costs should be and economic organizations began to use budgets and relate returns to levels of investment. However little development occurred in the following years and, by the early 1980s, management accounting had reached a point of stagnation. H. Thomas Johnson and Robert S. Kaplan, writing in 1987, declared: 22

February 2006

Today’s management accounting information, driven by the procedures and the cycle of the organization’s financial reporting system, is too late, too aggregated and too distorted to be relevant for managers’ planning and control decisions.... Management accounting reports are of little help to operating managers as they attempt to reduce costs and improve productivity.1 This call for renewal was widely heeded. Their book Relevance Lost: The Rise and Fall of Management Accounting became a best seller for the editor of Harvard Business School Press and set off a wave of innovation and interest in the management accounting profession worldwide. Among the numerous technical innovations that came from this period were activity-based cost management, the Balanced Scorecard, benchmarking, life cycle costing, target costing, economic value added measures and strategic cost management. Management accounting was also able to build upon innovation in other fields such as Total Quality Management, Six Sigma, Kaizen and Business Process Reengineering. The development was rapid and interest spread well beyond the management accounting community. Peter Drucker, writing in the Harvard Business Review in 19902, declared that “the most exciting and innovative work in management today is found in accounting.” Fifteen years later, it’s a good idea to ask ourselves what has happened to this reform. On one hand, the new tools that came from that period are evidently in use. Advanced management accounting practices such as ABC and non-financial performance measures are included in all major management textbooks. Studies of activity-based cost management (ABC) have reported generally positive user perceptions of benefits. Most of the larger companies appear to have experimented with Balanced Scorecard (BSC) techniques and studies have linked elements of scorecard use to higher profitability. Economic value added (EVA) research has reported positive results. On the other hand, despite these positive results it would appear that the adoption of advanced management accounting practices once again has slowed.

should have existed” and research that would enable organizations to move beyond budgeting is underway. Therefore, it isn’t surprising that despite the wave of innovation in management accounting in the late 1980s and early 1990s, a recent study by IBM consulting reported that less than half of managers received role-specific information to support ad hoc decisions. Fewer still received frequent operational metrics...
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