Factors Affecting the Low Level of Adoption of Management Accounting Practices by Sri Lankan Firms

Transcription

1 of Management Accounting Practices by Sri Lankan Firms Janaka Subasinghe Tilak Fonseka Abstract Management Accounting (MA) theory and practice has undergone increasing sophistication in recent years enabling top management to make more informed decisions. Preliminary inquiries, however, showed that the adoption of management accounting techniques by Sri Lankan firms was at a low level and the study was designed to explain this unsatisfactory phenomenon. Primary data were collected from 22 firms through questionnaires, depth interviews, and focus group discussions. The study indicated that the level of adoption of MA practices has i) a strong positive correlation with top management awareness of its relevance and usefulness, ii) a moderate negative correlation with subordination of the MA function to financial accounting, iii) a strong positive correlation with the mode of organizational planning and control, and iv) a moderate positive correlation with a supportive organizational culture. A fifth hypothesis to test the relationship between market volatility and low adoption of MA practices was not supported. It is important for top management to implement sophisticated MA practices for better decision making and give up its exclusive preoccupation with traditional financial accounting techniques. The study indicated that the level of adoption of MA practices can be improved by building the right awareness among top management and assigning the MA function its rightful place in organizations. Key Words : Management Accounting Practices, Traditional Mode of Planning, Top Management Awareness, Organizational Culture 1. Introduction As a body of knowledge, Management Accounting (MA) has witnessed increasing sophistication Janaka Subasinghe is Deputy Finance Manager, 3M Lanka (Pvt.) Ltd., Colombo, Sri Lanka. Prof. Tilak Fonseka is a senior faculty member at the Postgraduate Institute of Management (PIM), Colombo, Sri Lanka

2 Sri Lankan Journal of Management Volume 14, No. 4 & Volume 15, No. 1 during the past two decades. The development of new concepts and techniques has enabled top management to engage in proactive planning and make more informed decisions than what would have been possible using traditional cost-based measures. Management accounting helps companies in formulating business strategy, planning and control, decision making, efficient resource usage, performance improvement, and internal control. Despite these obvious advantages, it was observed that Sri Lanka s business sector shows a low level of adoption of MA techniques in managerial decision making. The primary purpose of this study is to assess the nature and extent of use of MA practices in Sri Lankan firms and offer an explanation for their low adoption. The article begins with a description of the research problem and a review of the literature relevant to the problem. This is followed by the conceptual framework and the study design. The data gathered during the field study is presented next followed by the study findings and a discussion of the findings. The final section contains the conclusions of the study. 2. Research Problem In the developed world, the role of the Management accountant in strategic direction setting, enterprise resource management, decision support and organizational control has been well recognized. The studies done in Australia (Barbara, 2004), France (Michel, 2004) and U.K. (Thomas, 2004), testify to this fact. It is also reported that 50% of the Fortune 1000 companies in North America and 40 % in Europe use the balanced scorecard as a performance management tool (Bain & Co.). The situation prevailing in Sri Lanka s business sector was in stark contrast to the above. A study conducted to explore the gap between Management Accounting theory and MA practices in 47 Sri Lankan quoted public companies revealed that the usage of MA practices was very low (Mangala Fonseka, Manawaduge, and Senaratne, 2005). They found that out of 36 Management accounting practices, the usage rate of 24 MA practices was below 30 per cent. The study also found that MA practices were used primarily for internal control rather than for strategic purposes. Karunaratne (2007) studied the relationship between six commonly used MA practices and the level of operating efficiency in small and medium enterprises (SMEs) in Sri Lanka. The six MA practices were i) product costing, ii) cash flow forecasting, iii) budgetary control, iv) ratio analysis, v) variance analysis, and vi) inventory control. It was found that the usage of the above MA practices in SMEs was very low and the level of operating efficiency too was low. Goonesekera (2004) evaluated the application of MA techniques for decision making in the Sri Lankan hotel sector. He observed that all hotels used the Uniform Accounting Practices for Hotels as a guide to determine the method of costing. This was based on direct material cost, and overhead expenses were not considered. Further, all hotels identified energy management as critical but did not consider it for costing purposes, and consequently in pricing decisions

3 of Management Accounting Practices A study conducted by Tilak Fonseka (1996) covering fifty Sri Lankan export firms showed that the firms were engaged in annual financial planning and budgetary exercises. Strategic planning in its strict sense was not practised at all. Against this backdrop, a preliminary study was conducted in December 2008 to establish the extent of usage of (15) MA practices in Sri Lankan companies. The 15 practices were: strategic management accounting, balanced scorecard, budgeting, ratio analysis, variance analysis, cash flow forecasting, product costing, business process re-engineering, just-in-time systems, total quality management, management audits, benchmarking, activity based management, value chain analysis, and internal audits. The sample covered seven companies -five local and two MNCs. The companies were drawn from manufacturing, trading, and services sectors and the results of the pilot study are indicated in Table 1. Table 1: Results of the Pilot Study Source: Survey data Nature of Business MA Practices MA as a Separate Function MA used Effectively For decisions Top Management Support ASTR Pharmaceutical NO NO NO Not Known MMSL Trading YES NO YES YES STGL Manufacturing YES YES Most of Average the time MMLP Manufacturing YES NO Most of Average the time MAHL Manufacturing YES YES YES YES ULCL Manufacturing YES YES YES YES SDLL Logistics NO NO NO NO The above study indicated that the adoption of MA practices varied across different sectors. Two companies did not implement MA practices while in another two the level of adoption of MA practices was low. Management Accounting as a separate function was recognized in only three companies while in the other companies it was a sub-function of Financial Accounting. Companies did not use Management Accounting proactively. The MNCs, on the other hand, used most of the MA techniques and treated the role of the Management Accountant in an organization as very important. The low adoption of MA practices can give rise to adverse consequences for businesses. Ambalawarner (2004) highlighted the importance of activity- based costing in Sri Lanka s knitted textile industry. He noted that rising costs and falling selling prices computed on aggregate information are only effects of wrong decisions. The root cause is the current cost and performance measurement system that guides decisions based on average costs and selling prices. Therefore, the underlying issue is the absence of a strong cost and performance measurement system that guides effective decisions

4 Sri Lankan Journal of Management Volume 14, No. 4 & Volume 15, No. 1 Gunaratne (2008) observed that treasury and working capital management was not carried out efficiently in a leading group of Sri Lankan companies. Treasury management is a key function in Management Accounting and its improper management gives rise to several drawbacks, viz. i) subsidiaries are compelled to borrow at high rates due to their poor credit rating, ii) loss of opportunity to make extra profits due to unutilized surplus cash, and iii) exposure to financial risk. Hilton (2005) identified five ways by which MA practices could add value to organizations. They are i) providing information for decision making and planning, and proactively participating as part of the management team in the decision-making and planning process, ii) assisting managers in directing and controlling operational activities, iii) motivating managers and other employees toward the organization s goals, iv) measuring the performance of activities, subunits, managers, and other employees within the organization, and v) assessing the organization s competitive position, and working with other managers to ensure the organization s long-run competitiveness in its industry. In sum, it could be said that the low adoption of MA techniques places Sri Lankan firms at a serious disadvantage in today s competitive market. It leads to poor management decisions, low level of operating efficiency, poor cash flow and resource management, inaccurate performance management, poor internal controls, and low organizational effectiveness. Given this unsatisfactory situation, the logical questions that arise are: i) What are the causes underlying the low adoption of Management Accounting practices by Sri Lankan firms? and ii) Is top management s ignorance of their usefulness the only factor that prevents their adoption? 3. Objectives of the study The objectives of the study are: A. To establish the extent of usage of MA practices in Sri Lankan firms; B. To identify the causes underlying the low adoption of MA practices by firms; C. To suggest ways of improving the adoption of MA practices by building awareness of their relevance and usefulness among the relevant stakeholders of Management Accounting. 4. Significance of the study In the Sri Lankan context, no attempts have been made to examine the reasons for the low adoption of MA practices. Studies done to date as well as the pilot study conducted by the researcher clearly showed the wide gap that existed between MA theory and actual practices implemented by Sri Lankan firms. The present research study intends to fill this knowledge gap

5 of Management Accounting Practices The study also has practical implications because it explores ways of improving the adoption of MA practices by buildingawareness of their relevance and usefulness among the relevant stakeholders. 5. Literature Review Kaplan (1994) observed: The past 10 years have seen a revolution in Management Accounting theory and practice. The seeds of the revolution can be seen in publications in the early to mid 1980s that identified the failings and obsolescence of existing cost and performance measurement systems. Since that time we have seen remarkable innovations in Management Accounting; even more remarkable has been the speed with which the new concepts have become widely known, accepted and implemented in practice (Drury, 2004:21). In the developed world, the role of the Management Accountant in strategic direction setting, resource management, and organizational control has been well recognized. However, the situation in Sri Lanka s business sector is different. Goonesekera (2004) observed that the lack of knowledge on the part of senior management of Management Accounting tools and the contribution they could make in evaluating decision options inhibits its use at tactical and operational levels of the organization. Thus, even if lower level staff is aware of the tools, they are unable to use them as they are not appreciated. Kulendran s study (2008) also confirmed that business leaders awareness of MA practices was low and needs to be enhanced. Extensive studies done by the Postgraduate Institute of Management in 2000, covering 108 firms in different industry sectors, showed that none of the companies were implementing the Balanced Score Card (BSC). As a strategic Management Accounting tool, the BSC can be used to measure organizational effectiveness and it was noted earlier that many companies in North America and Europe were implementing the BSC. Furthermore, techniques such as competitor analysis, benchmarking and value chain analysis are seldom implemented. In contrast, most of the firms in the West evaluate their internal and external position continuously. Overall, top management s awareness of the relevance and usefulness of Management Accounting is at a low level in Sri Lanka. Another noteworthy fact that emerged from the literature review was that companies have failed to accord Management Accounting its rightful place in the company. The study done by Forde, Burnett and Devonish (2007) to assess the level of MA practices in Barbados showed that there was no clearly defined job function called Management Accounting. A more fundamental reason debated for over two decades in management accounting literature, is that there is a financial accounting mentality that may be responsible for the fact that very few companies have a clearly defined management accounting function (Johnson & Kaplan, 1987). The results of the above study appear to be consistent with findings from the pilot study done for Sri Lanka where ManagementAaccounting is subordinate to Financial Accounting. The MA function has not developed sufficiently and remains an arm of the finance function. In contrast,

6 Sri Lankan Journal of Management Volume 14, No. 4 & Volume 15, No. 1 MNCs have a dedicated function for Management Accounting and they designate it as business /financial counseling or business partnering. A third noteworthy factor that emerged from the literature survey was the inherent bias towards traditional modes of planning and control in Sri Lankan firms. Studies done by Tilak Fonseka (1996, 2000 & 2001) showed that export firms operating in the competitive global market lacked an information-seeking culture and relied almost entirely on market information provided by overseas buyers. The entire planning exercise was based on orders received from foreign intermediaries and producing goods to specifications provided by them. Product promotion and distribution were left in the hands of foreign intermediaries. Strategy, in short, was not company-driven but driven by intermediaries. A fourth factor that is evident is that Sri Lankan business organizations do not recognize the value of a supportive organizational culture to sustain high performance. Sri Lankan companies lack an environment that promotes innovation, learning, and sharing of knowledge and skills. In contrast, MNCs pay a great deal of attention to these aspects. Finally, volatile market conditions and high environmental uncertainty have a bearing on the quality of planning that takes place in enterprises. Strategic management literature emphasizes the fact that greater environmental uncertainty calls for a greater need for strategic planning. Planning literature also indicates that uncertainty encourages firms to engage in short-term rather than long-term planning. The CIMA technical briefing paper (2002) suggests that the following emerging techniques could be used to advantage in corporate performance measurement and are well suited for volatile market conditions. These include value based management (VBM), activity based management (ABM), the Balanced Scorecard (BSC), benchmarking, strategic enterprise management (SEM), and Six Sigma. The foregoing literature review provides the necessary backdrop to the conceptualization that follows. 6. Conceptual Framework The literature review highlighted five independent variables which contribute to the low level of adoption of Management Accounting (MA) practices by Sri Lankan firms. These are illustrated in the conceptual framework below (Figure 1)

7 of Management Accounting Practices Figure 1: The Conceptual Framework Top management awareness of the relevance and usefulness of MA practices Subordination of MA function to financial accounting Traditional modes of planning and control Low level of adoption of MA practices Supportive organizational culture Market volatility Source: Researchers Conceptualization 7. Hypotheses The following hypotheses are formulated based on the above conceptual model. H 1 : H 2 : H 3 : H 4 : H 5 : Low awareness of the relevance and usefulness of Management Accounting on the part of top management leads to a low level of adoption of Management Accounting practices. The subordination of Management Accounting to Financial Accounting leads to a low level of adoption of Management Accounting practices. Traditional modes of planning and control lead to a low level of adoption of Management Accounting practices. Lack of a supportive organizational culture leads to a low level of adoption of Management Accounting practices. Market volatility leads to a low level of adoption of Management Accounting practices. 8. Study Design The concepts contained in the hypotheses were reduced to operational terms, i.e., to their variables, indicators, and measures. Table 2 shows the process of conceptual reduction

8 Sri Lankan Journal of Management Volume 14, No. 4 & Volume 15, No. 1 Table 2: Process of Conceptual Reduction Concept Variable Indicator / Measure Questionnaire Number of questions Top management awareness MA practices Level of Understanding 1 4 Practice MA practices Usage 2 1 Top management awareness MA practices Usage 2 3 Subordination MA practices Usage 2 3 Planning Planning focus Forecast-based planning Strategic planning Benchmarking Mission & objectives Measurable goals SWOT analysis Competitor analysis 2 11 Supportive Culture Value different needs Change Decision making Communication Cross dept: relationships New ideas Cross dept: participation Cross dept: communication 2 6 Market Volatility Forecasting Budgeting Standards Costing Different techniques Variance Revisions Prices 2 10 Source: Developed by the Researchers Nineteen (19) MA practices cited in reputed management accounting texts were isolated to represent all the functional areas of Management Accounting, viz. Formulating business strategy: Strategic Management Accounting, Balanced Scorecard Analysis. Planning and control activities: Variance analysis, Target Costing, Budgetary Control, Ratio Analysis, Cash flow Forecasting

9 of Management Accounting Practices Decision making: Product Costing Systems. Efficient resource usage: Business Process Re-engineering, Just-In- Time systems, Total Quality Management, Management Audits, Life Cycle Costing. Performance improvement and Value enhancement: Benchmarking, Activity Based Management, Value Chain Analysis, Kaizen Costing, Performance Evaluation. Internal Controls: Internal Audits. Two separate questionnaires were used for data collection Questionnaire 1 Questionnaire II was meant for the CEO or the senior- most officer dealing with management information for decision making. This was to understand his awareness of the relevance and usefulness of Management Accounting. was meant for the Chief Financial Officer, Management Accountant or Accountant. This questionnaire was designed to collect information on the MA practices currently practised and to establish the factors affecting their low adoption by firms. A few Likert scale statements were included in the questionnaires.the two questionnaires were weighted to transform the qualitative analysis to a quantitative analysis. The sample consisted of 22 limited liability companies registered under the Sri Lanka Companies Act of They were selected on the basis of convenience. Ten were drawn from the manufacturing sector, five from trading and seven from the services sector. The 22 companies responded fully by completing both questionnaires. For purposes of gathering qualitative information, the questionnaire-based survey was supplemented by twelve depth interviews with the selected sample and two focus group interviews. Triangulation was achieved by this means. In order to ensure the validity and reliability of data, the relevant categories of officers in companies were contacted. Through depth interviews and focus group discussions with selected respondents the reliability of the data collected through the questionnaires was ensured. The reliability of the data was tested through Cronbach s Alpha measure. The test was performed for all five independent variables and the dependent variable. The test result was 0.76 which reflects 76% reliability of the data captured through the questionnaires. 9. Data Presentation and Analysis The study set out to test five hypotheses. Table 3 summarizes the results of the tests

10 Sri Lankan Journal of Management Volume 14, No. 4 & Volume 15, No. 1 Table 3: Correlation Analysis Independent Variable Dependent Variable Correlation (r) Coefficient of determination (r2) Top Management Adoption of MA Awareness Practices Subordination to Adoption of MA Financial Accounting Practices Mode of Planning Adoption of MA and Control Practices Supportive Adoption of MA Organizational Culture Practices Market Volatility Adoption of MA Practices Source: Survey Data The results of the hypotheses tests, done at a significance level of 0.01, are set out below. H1 : Low awareness of the relevance and usefulness of Management Accounting on the part of top management leads to a low level of adoption of Management Accounting practices. The correlation analysis performed with respect to H 1 yielded a value of It is evident that there is a strong positive correlation between the two variables. The coefficient of determination r 2 which is 0.54 suggests that 54% of the variation in adoption of MA practices can be explained by top management awareness of the relevance and usefulness of such practices. The balance 46% is determined by factors other than top management awareness. Hence, H 1 is accepted. H2: The subordination of Management Accounting to Financial Accounting leads to a low level of adoption of Management Accounting practices. The r value was -0.58, which is a negative relationship at moderate level. The coefficient of determination r2 is This indicates that 34% of the variation in adoption of MA practices can be explained by the subordination of MA to financial accounting. H 2 is accepted. H3: Traditional modes of planning and control lead to a low level of adoption of Management Accounting practices. The r value was It is evident that there is a strong positive correlation between these two variables. Coefficient of determination r 2 which is 0.53 indicates that 53% of the variation in adoption of MA practices can be explained by the level of planning and control. Hence, H 3 is accepted

11 of Management Accounting Practices H4: Lack of a supportive organizational culture leads to a low level of adoption of Management Accounting practices. The r value was It is evident that there is a moderate positive correlation between these two variables. Hence, H 4 is accepted. H5: Market volatility leads to a low level of adoption of Management Accounting practices. The r value was a positive value of What was expected was a negative relationship. The coefficient of determination r 2, which is 0.06 indicates, that 6% of the variation in adoption of MA practices can be explained by market volatility. Hence, H 5 is not accepted. 10. Findings According to the quantitative analysis, the first four hypotheses were supported while H 5 was not. In addition to the quantitative analysis, qualitative information was gathered through the conduct of 12 depth interviews and two focus group interviews. Depth interviews were held with relevant officers like CEOs, CFOs, Management Accountants, Accountants, and Financial Analysts. Two focus group discussions were also conducted. One group consisted of sales and marketing personnel who rely a lot on management information. The other group comprised persons with a finance background. The findings from the depth interviews and focus group discussions are summarized in Table 4. Table 4: Findings from Depth Interviews and Focus Group Discussions Hypotheses tested (Quantitative Analysis) Confirmation from Qualitative findings H1. Top management awareness of the relevance and usefulness of Medium MA practices (Accepted) H2. Subordination to financial accounting (Accepted) High H3. Traditional mode of planning and control (Accepted) Low H4. Supportive organizational culture (Accepted) Medium H5. Market volatility ( Not Accepted) No Source: Survey data The findings from the depth interviews are summarized below. i) It is very important to have Management Accounting as a separate function if the company wants to use management accounting information for more effective decision making. Adequate resources must also be allocated to derive the full benefits from the MA function

12 Sri Lankan Journal of Management Volume 14, No. 4 & Volume 15, No. 1 ii) The use of MA practices will enable the firm to assess its competitive position in the market. This would help to enhance its market competitiveness. iii) Collaboration with finance staff is very important for business decisions. iv) There is a misconception among service sector personnel that their operations are not that critical compared to manufacturing and trading divisions. The adoption of MA practices is not regarded as very important. v) MNCs appreciate the usefulness of MA practices and there is close collaboration between departments. They have introduced concepts such as business partnering and financial counsel and there is a ready adoption of MA practices. The findings from the focus group discussions are summarized below. i) Understanding the role of the Management Accountant vis-à-vis the financial accountant is of prime importance and it is necessary to have Management Accounting as a separate function in companies. ii) Necessary awareness of the relevance and usefulness of MA practices must be built among all relevant stakeholders such as the top executives, sales and marketing staff. iii) Having a strategic direction with proper planning in companies will place the Management Accountant in a higher position as a facilitator of business decisions. iv) Building close working relationships with other departments will help to give better insights into strategic and operational decisions. v) A Management Accountant should have the necessary skills to counsel business and marketing people in generating useful ideas for the betterment of the company. Figure 2 below presents an overall view of the adoption of MA practices by the 22 firms in the sample

13 of Management Accounting Practices The overall analysis shows that the sample firms have given greater emphasis to traditional practices such as budgeting, cash flow forecasting, performance evaluation, ratio analysis, variance analysis, product costing, and internal audits. Some of the more recent MA practices such as the balanced scorecard, strategic management accounting, value chain analysis, justin-time systems, and activity based management techniques are not implemented. Figures 3, 4 and 5 illustrate the level of adoption of MA practices in the three sectors studied, viz. manufacturing, trading, and services. The manufacturing sector appears to be more progressive than the other two sectors. The services sector has made the least progress with the adoption of MA practices

14 Sri Lankan Journal of Management Volume 14, No. 4 & Volume 15, No. 1 Figure 6 below brings out the comparative position between MNCs and local companies with respect to the adoption of MA practices. In MNCs which have local operations in Sri Lanka, the level of adoption of MA practices can be considered as very high. They use MA practices for nearly all the functions of Management Accounting that were highlighted in this study. Two MNCs in the study sample implemented almost all the 19 MA practices. 11. Discussion of Findings The clear pattern that emerged from this study of 22 firms was that Sri Lankan firms were still committed to traditional accounting practices such as budgeting, cash flow forecasting,

15 of Management Accounting Practices performance evaluation, ratio analysis, variance analysis, product costing, and internal audits. This was despite the admission made by top managers regarding their awareness of the more recent MA practices and their acknowledgement of the usefulness of such practices. More sophisticated techniques such as the balanced scorecard (BSC), strategic management accounting, value chain analysis, just-in-time systems, target costing, and activity based management were not being implemented. These MA techniques are not new and have been continuously refined since the 1990s. This shows that local companies are still committed to implementing pre-1990 accounting practices. In the light of the above circumstances, it is not surprising that the importance of Management Accounting has not been adequately recognized in local companies nor is the Management Accountant assigned his rightful place in the organization. Thirteen (13) out of 22 companies surveyed did not have a separate function designated as Management Accounting and the function had been subordinated to Financial Accounting. This shortcoming was particularly evident in the trading and services sectors. The survey data showed that 30% of manufacturing, 80% of trading, and 70% of service companies did not have a separate function called Management Accounting. These companies relied on the Financial Accountant to do Management Accounting reporting as well. The obvious outcome is the low priority for MA practices due to the preoccupation with Financial Accounting and compliance with mandatory statutory requirements. Hence, one could agree with Johnson & Kaplan s observation that a financial accounting mentality may be responsible for the finding that very few companies have a clearly defined management accounting function (Johnson & Kaplan, 1987). It is to be noted that the 22 companies selected for study were all limited liability companies registered under the Sri Lanka Companies Act of They are all reputed and well- established companies. The non-adoption of advanced MA practices places companies at an obvious disadvantage in today s dynamic and intensely competitive market arena. There is a need for firms to be market-oriented, with simultaneous focus on changing consumer preferences and changing competition. Organizations need to be strategy focused, proactive and innovative. Companies with traditional modes of planning and control do not generate information for effective business decisions. Their orientation is inward and the focus is on internal controls. They are preoccupied with day-to-day operations and little proactive analysis is undertaken with regard to customers, markets, competition, and resource usage. Manufacturing companies fared a little better in this regard than the trading and service companies in the sample because they have several critical operations and processes and they need to plan for every single activity. The manufacturing companies included a few garment factories for which real- time market information and quick response have become critical success criteria in the quota-free era that dawned after 1 st January Companies that were scoring high on market volatility have adopted most of the MA practices. Finally, a supportive organizational culture would help to build close relationships within an organization. Openness, transparency, and respect for others are hallmarks of a supportive organizational culture. In such an environment, employees would feel more comfortable to discuss business matters and share their knowledge. MNCs maintain a friendly working atmosphere and close relationships among departments. They do not call the function

16 Sri Lankan Journal of Management Volume 14, No. 4 & Volume 15, No. 1 management accounting but introduce it as finance counsel or financial analysis and planning. The aim is to bring about closer relationships with other departments, especially sales and marketing and counsel them on various business issues. MA practices can be implemented proactively when the organizational culture supports good working relationships within the entity. 12. Conclusions and Recommendations As a body of knowledge, Management Accounting (MA) has witnessed increasing sophistication in recent years. This has enabled top management to engage in proactive planning and in making more informed decisions. Right information at the right time is critical for effective management decisions. This study, however, showed that the Sri Lankan firms in the sample were still wedded to traditional financial accounting techniques and were not profiting from sophisticated MA practices developed during the past two decades. This shortcoming is bound to place firms, particularly those operating in the competitive global market, at a serious disadvantage. It is imperative for top management to recognize the gravity of the situation and make determined efforts to move away from the traditional financial accounting mind set. The MNCs operating in Sri Lanka have set an example in this regard, which the local firms would do well to emulate. With respect to MA techniques, there is an urgent need to impart greater knowledge of these techniques to all stakeholders who are relying on management information in their work. Top management too needs to be educated on some of the technicalities of MA despite their claims that they have an adequate understanding of MA practices. This is an important responsibility devolving on the management accountant and he should take the initiative in this regard. A management accountant should acquire the necessary skills to cope with the changing nature of business needs. Having multi skills is very important for a Management Accountant. These can be identified as understanding the business, building skills in financial counselling, analytical skills, negotiation skills, and finally understanding the voice of the customer. The role of the Management Accountant should be clearly defined and dedicated positions must be created in organizations when the business needs are growing. The role of the Management Accountant should be clearly differentiated from that of the Financial Accountant. Some companies have mixed these two roles and ultimately the level of adoption of MA practices is low due to Management Accounting being made subordinate to Financial Accounting. Having identified the relevant factors for the low level of adoption of MA techniques, firms must take necessary steps to improve their use for business decisions. MA practices should be extensively used in formulating business strategy, planning and control activities, decision making, efficient resource usage, performance improvement and value enhancement and internal controls. Local professional accounting institutions should play an important role in promoting the Management Accounting discipline and should work jointly with local companies to promote this function

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