Management accounting provides information internally to help managers make better decisions and improve efficiency. It focuses on control through rational decision making processes like setting strategies, budgets, and evaluating performance. However, behavioral research shows accounting must consider human and organizational factors. Contingency theory states the best accounting system depends on situational factors like a firm's environment, strategy, and technology. While contingency theory aims to make accounting more contextual, it has limitations like oversimplifying relationships and failing to consider all relevant contingencies.
2. DEFINITION
Management Accounting is concerned
with the provision of information to
people within the organization to help
them make better decisions and control
in order to improve the efficiency and
effectiveness of the business affairs.
3. MAIN PURPOSES OF
MANAGEMENT
ACCOUNTING
Provide Information to
Business
Help make better decisions
Improve efficiency
Help control business activities
The main focus -understand the various
approaches to “control”
7. RATIONAL CONTROL
MODEL
Management Control Process
is one of the three areas of
organisational controls.
Those are:
1. Strategy Formulation
2. Management Control Process
3. Task Control
10. RATIONAL DECISION MAKING
PROCESS
1. Identify the objectives of the
organisation
2. Identify potential strategies
3. Evaluate alternative strategic
options
4. Select course of action
5. Implement the long-term plan
6. Monitor actual results
7. Respond to divergencies from plan
1- 5 can be identified as long term decisions
6- 7 involve short term decisions
11. THE ROLE OF ACCOUNTING
INFORMATION IN CONTROLS AND
DECISION MAKING?
Accounting provides quantitative
integrated mechanisms that are
available
Provides aggregated measures of
performance
Combine and communicate
organisational activities
Provides a financial control system
along with other organisational
controls
16. BEHAVIOURAL RESEARCH IN
ACCOUNTING
Accounting researchers called
for research to study human’s
behaviour in an organisational
settings in order to achieve
better performance
Psychology becomes the main
reserve of these studies
Theories of motivation have been
repeatedly used by the
accounting researchers
21. EQUITY THEORIES
Job satisfaction is an important
aspects of motivation
Job dissatisfaction arises when
one individual feels his/her
position is unfair by comparing
like with like
The perceived inequalities lead
to motivational effects
24. MOTIVATION THEORIES –
TARGET SETTING
Motivation theories are
operationalised in Target Setting i.e.
Budgeting. Several findings re:
Target Setting and Motivation are as
follows:
1. Specific hard goals produce a higher
performance
2. Hard goals produce less overall task-
liking than easy goals
3. Specific hard goals produce more
interest in the task
27. MANAGEMENT ACCOUNTINGMANAGEMENT ACCOUNTING
The managers who were evaluated
under the BC and BP styles reported
a range of dysfunctional feelings and
behaviour, including:
higher levels of job-related tension;
deteriorating relations with
superiors;
less favourable relations with peers
etc
34. MANAGEMENT ACCOUNTINGMANAGEMENT ACCOUNTING
How about environment? What
about the interactions of changing
environment and organization?
Behavioural theorists fails to
incorporate the wider context of the
organisation, social conflicts, politics,
organisational conflicts and
managerial choices in setting modes
of control.
These criticisms have led accounting
researchers to pursue alternative
theories
35. BEHAVIOURAL
UNDERSTANDING OF
ACCOUNTING
How about managers and employee’s
understanding of budgets
Different people can view budget
differently - depending on their
practical situations
Meaning of budget could be diverse
within organisations (Read Ashton
et. al., p. 285)
39. • Advocates that there is no one best
design of a management accounting
control system (MACS) and that it all
depends on the situational (contingent)
factors
•Various contingent factors warrant
different type of control systems in
different situation
CONTINGENCY THEORY
APPROACH
40. 1. The external environment
• Evidence to suggest that business units that
face higher environmental uncertainty use a
more subjective performance appraisal
approach.
• The greater the perceived environmental
uncertainty the greater the need for more
sophisticated accounting information that has a
broad scope.
41. 2. Competitive strategy and
strategic mission
• Business units pursuing a low cost strategy should adopt
results measures that emphasize cost reductions and
Budget
achievement.
• Business units competing on the basis of differentiation
or those prospecting new markets should:
1. Have a more participative decision-making environment
2. Emphasize rewards based on non-financial factors (e.g. product
innovation, market development) besides secondary financial
measures.
42. 3. Firm technology and
interdependence
• The nature of the production process determines the type
of costing system (Job or process costing).
• Pooled, sequential and reciprocal interdependencies create
the need for recharging costs to user centres.
43. 4. FIRM SIZE, DIVERSIFICATION,
STRUCTURE AND
INDUSTRY TYPE
• Positive relationship between firm size and the
sophistication of the management accounting
system.
• Related diversification:
1. Elaborate planning and budgeting systems to
coordinate activities.
2. Rewards based on group performance
44. UNRELATED DIVERSIFICATION
1. Decentralization and the creation of profit and
investment centres.
2. Greater reliance on financial results controls.
Structure — Interdependence that exists between
responsibility centres determines style of budget
evaluation.
Industry type influences type of control system
employed.
45. 5. Knowledge and observability factors
Three areas examined:
1.A. Knowledge of the transformation process
and the ability to measure output.
2.B. Appropriate type of performance
assessment in relation to cause-and-effect
relationships.
3.C. Influence of programmability of decisions on
the type of controls that should be used
46. A. Knowledge of the transformation process and the ability
tomeasure output (Source: Ouchi, 1979)
47. B. Appropriate type of performance assessment in
relation to cause-and-effect relationships (Macintosh,
1985)
48. C.Influence of programmability of decisions on the type
of controls that should be used (Emmanuel Et al. (1990)
• A programmed decision is one where the decision is
sufficiently well understood for a reliable prediction of the
decision outcome to be made:
1. Equivalent to cell 1 in the two previous diagrams
2. Behavioural and output controls are appropriate
• A non-programmed decision is where one has to rely on
the judgement of managers because there is no formal
mechanism for predicting likely outcomes:
1.Equivalent to cells 2 and 4 in the two previous
diagrams.