Example Of Managerial Accounting Essay

Type of paper: Essay

Topic: Management, Accounting, Risk, Business, Organization, Tool, Company, World

Pages: 3

Words: 825

Published: 2020/12/24

Introduction

There is no doubt that technological developments have taken charge in every aspect of development, and they have come with both negative and positive effects (Tayles 22). In diverse ways, Information technology has transformed and shaped the business world as well as the society as a whole. As a matter of fact, besides the normal business operations, technology has taken charge in every aspect of life, starting with communication and other social interactions (Watts, Senarath and Steven 125). Such sectors include health, education, communication, entertainment, just to mention but a few. The implications are profound, and as the world develops, further advancements in IT will continue to affect businesses in both positive and negative dimensions (Tayles 22). Based on this fact, this paper evaluates and discusses the essentials of developing and implementing modern management accounting tools and technologies. Highlighted, as well, are the drawbacks of such technologies, especially in regards to the role of accountants in the process. It evaluates each modern system individually, with the central theme being carried on through all sections.

Discussion

Since the introduction of various technological applications in managerial accountings, there have been both positive and negative impacts, which have drawn differing opinions and suggestions from different scholars. As per various reports, businesses and organizations are highly appreciating the adoption of these new trends in managerial accounting as an effort of creating new and more competitive approaches. As a matter of fact, with the current level of globalization and modernization, competition in various business fields has become intense thus calling for the players to work extra harder in order to secure a place in the market through increased competitive advantage (Watts, Senarath and Steven 123). Based on this fact, there is an increased likelihood that many of these organizations and institutions will continue their quest to seek and implement the modern and emerging techniques and trends in managerial accounting as an effort of increasing their competitive advantage. So far, accounting contemporary management tools and technology, such as Activity Based Costing (ABC), Risk Heat Map tool, Total Quality Management (TQM), Chartered Global Management Accountant (CGMA), Value Chain Analysis (VCA), Enterprise Risk Management tool (ERM), and the balanced scored (BSC) are some of the major and common accounting practices, which have gained popularity over the recent years (Watts, Senarath and Steven 129). However, as the applications of these managerial accounting tools become more accessible around the world, scholars are getting more curious on determining their effectiveness and efficiency in ensuring sufficient accounting results. They have generated conflicting arguments stating their reasons why they thing such development might have positive or adverse effects in organizational management.
According to the Chartered Global Management Accountant (CGMA), the year 2004 saw the development of The CIMA Strategic Scorecard (Watts, Senarath and Steven 132). The tool was a result of research by CIMA prompted by major failures of accounting groups of the time such as Enron and WorldCom. Its development was to address company boards' failures in overseeing risk and strategy, actually, as global financial crisis of 2008-09 would indicate (Watts, Senarath and Steven 131). The scorecard thus plays a crucial role in helping firms to engage in an efficient manner in the accounting process. Such an innovation has, therefore, managed to meet its goals and objectives. However, as a matter of fact, trends in a business world are changing drastically and have changed from the time of its development thus making it more ineffective in meeting its goals and objectives. As a matter of fact, business challenges and risks are becoming more intense than how they used to be before (Watts, Senarath and Steven 128). This is due to diversification of the global market and the occurrence of new business trends, which pose new and tricky challenges within the enterprise. Therefore, the application of CGMA accounting tool is becoming less active with time thus calling more innovations in creating more advanced risk management tools and systems (Watts, Senarath and Steven 123). This is, however, the reason why most scholars are losing hope with these new managerial accounting tools and techniques despite been more productive in the past years.
Another innovation in the discipline of management accounting has been Enterprise Risk Management tool (ERM) (Watts, Senarath and Steven 125). ERM in a business includes various processes and methods applied to organizational management to identify and manage different risks and opportunities connected to objectives and goals of that particular organization. This tool provides a risk management framework, which helps the managers to realize and identify various characteristics and operations that are likely to be either threats or opportunities to the organization. It then ensures the assessment of the identified characteristics in relation to their magnitudes and likelihood of affecting the management efforts (Armstrong 105). Based on the results, the management is capable of determining the best strategic approaches they should employ to deal with the situation on the ground. Through the identification and the assessment of the risks and opportunities around the organization, businesses are able to create values for their stakeholders, which include employees, customers, shareholders and management teams. It also assists in protecting the company's market shares and competitive advantages. However, due to the fact that the business world is drastically changing, external business environments have also changed thus changing the nature of risks and opportunities most organization encounters. With its current features, ERM's capability to ensure execution of successful management efforts has also declined thus reducing its effectiveness in producing reliable results.
Related to ERM is a Risk Heat Map tool that presents the findings of a risk assessment process in a visual, meaningful, and concise way (Watts, Senarath and Steven 127). Heat Maps represent qualitative and quantitative analysis of risk occurrence probabilities and possible impacts in case of certain risks taking place. In essence, the tool helps businesses to prepare for all possible outcome scenarios of business decisions, (CGMA). Despite what proponents of development and implementation of these and other tools may say, CGMA makes a strong case for their adoption.
Whether carried out as a broad-based enterprise activity or a narrowly focused control of the internal process, risk assessment, and management is very crucial in business management. Unlike other tools, this ensures the evaluation of the individual risk associated with various enterprise operations. With their ability to represent qualitative and quantitative assessment of the probability or likelihood of the occurrence of different hazards, heat maps enable the management to evaluate the possible impacts of such risks to the entire organization (Tayles 22). Effective heat maps are believed to have several critical elements. First, they create a joint understanding of the company's risk appetite. This determines how each organization takes the issue of risk management in terms of seriousness and commitment. Secondly, they determine the level of impacts that would act as the materials for an organization in case of risks. Finally, they create a joint language for the evaluation and assignment of the potentiality and probability of the impacts.
Like any other tools and techniques used in managerial accounting, heat maps have several benefits as well as costs. In the case of advantages, the device is believed to have a big picture, visual and holistic view of sharing among various stakeholders while formulating the strategies. It also enables the organization improves its risk management process including all the governing processes involved in risk management and mitigation (Axelsson, Jens and Ulf 60). Additionally, risk heat maps are said to be more precision in ensuring assessment of risks, increasing risk appetite and tolerance within an organization. It also provides the identification of gaps in the risk control and management processes. Generally, risk heat maps enable the organizational managers to create an integration risks management processes across the enterprise as an effort of reducing the impacts.
The other, commonly, applied managerial accounting technique in most organizations is Activity-Based Costing (ABC) (Armstrong 102). ABC is a method used to identify the activities performed by various agencies, and based on the results, assigns the costs to products (Axelsson, Jens and Ulf 54). Based on this fact, an ABC system identifies and examines the relationship between activities, expenses, and products and through this evaluation assigns indirect products' costs more efficiently than the traditional accounting methods. However, besides being a modern accounting tool, ABC, sometimes, fails to assign various costs thus making it so hard for the management to be able to assign the right costs for the products (Armstrong 100). Due to this reason, the system has become less effective in most enterprising industries. It is now commonly applied in the manufacturing industries although with fewer positive results. In this case, like other modern accounting systems in use today, ABC is still becoming less efficient in the modern day application (Tayles 22). Such issues are the ones calling for the development of more efficient systems or techniques as an effort to balance the productive costs with the production.
Another managerial accounting system is Total Quality Management (TQM), which consists of management wide efforts to make permanent and install an environment in which a firm may continuously and gradually improve its production quality and customers' satisfaction thus assuring their competitive advantage (Granlund 1). Based on the fact that, there are no commonly formulated approaches, the efforts by TQM rely heavily on the traditionally expressed tools and techniques of quality control and management. In late 20st century, this system of accounting was much popular than any other accounting tool, but later on it was overshadowed by other more advanced techniques, which appeared to be more efficient (Granlund 1).
As per various reports, there is no broader agreement on what TQM is and what actions it can carry out in order to solve various organizational challenges. However, there are various features that may be used to define this accounting system (Baird & Harrison 392). Based on its requirements, quality is supposed to be determined by the requirements and expectations of the customers (Tayles 22). It also requires the top management to take direct responsibilities of improving the production quality and carry out various analyzes in order to increase the work processes.

Conclusion

The contemporary management accounting techniques evaluated in this paper are well determined by the academic and appear to be much applicable in various stages of organizational management. It has been clearly indicated that all these accounting tools and systems are much suitable at different levels of corporate management. For instance, they typically, play a vital role in ensuring the determination and analysis of various risks and opportunities and then enable the formulation of the best strategic approaches that are capable of overcoming such challenges. However, various researchers have indicated that due to the drastic transformation of business environments following modernization and globalization, some of these tools are becoming more ineffective. Based on this reason, modern management accounting tools and technology have both active and adverse effects on organization risk and opportunities management.

References

Armstrong, P. ‘’The costs of activity-based management.’’ Accounting, Organisations and
Society 27.1-29(2002): 99-120.
Axelsson, Björn, Jens Laage-Hellman, and Ulf Nilsson. "Modern management accounting for
modern purchasing." European Journal of Purchasing & Supply Management 8.1 (2002): 53-62.
Baird, K. M, and Harrison, G. ‘’Adoption of activity management practices: a note on the extent
of adoption and the influence of organisational and cultural factors.’’ Management Accounting Research, 15.4(2004): 383-399.
Granlund, Markus. "On the Interface between Management Accounting and Modern Information
Technology-A literature review and some empirical evidence." Available at SSRN 985074 (2007).
Tayles, Mike. "Strategic management accounting." Review of Management Accounting Research
(2011): 22.
Watts, Daniel, Senarath Yapa, and Steven Dellaportas. ‘’The Case of a Newly Implemented
Modern Management Accounting System in a Multinational Manufacturing Company.’’ Australasian Accounting, Business and Finance Journal 8.2(2014): 122-133.

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