Management Accounting Practices Defined

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1 Management Accounting Practices Defined Abstract There have been many studies in the past on management accounting. However, the number of management accounting practices being studied differ from one study to another. Another issue is that unofficially, academics have been referring to what is said to be traditional management accounting practices and contemporary management accounting practices. This paper attempted to define what actually is traditional management accounting practices, contemporary management accounting practices and hence, suggest a comprehensive list of management accounting practices to be taken into account for future research. Keywords: contemporary management accounting; definition; management accounting practices; traditional management accounting

2 The Development of Management Accounting Discipline International Federation of Accountants Committee (IFAC) has produced many publications including International Management Accounting Practice Statement No.1 (IMAPS 1). This IMAPS 1 is regarding Management Accounting Concepts. Basically, IMAPS 1 elaborate about the development in management accounting. Such development in management accounting may be divided into a few categories or stages. The categories or stages, in IMAPS 1 the specific terms used are evolutionary stages. Altogether, there are 4 evolutionary stages being categorised in IMAPS 1 which are Stage 1, Stage 2, Stage 3 and Stage 4. Each stage referred to a certain time period. The time period for Stage 1 are years before 1950, Stage 2 is referring to time period between 1950 until 1965, Stage 3 between 1965 till 1985 and Stage 4 between 1985 up to In summary, all the stages are as below: INSERT TABLE 1 ABOUT HERE IMAPS 1 also graphically did imply that each of the stages as related or in some way contributed towards the development in the management accounting world. For instance, Stage 1 is referring to the era where the focus of management accounting is more towards cost determination and financial control, Stage 2 is where the focus of management accounting shifted to provision of information for management planning and control. Stage 3 is where the focus shifted again towards reduction of waste in resources used in business processess and Stage 4 is where the shift is for the generation or creation of value through the effective use of resources. All of these are depicted through the diagram below:

3 INSERT DIAGRAM 1 ABOUT HERE According to IMAPS 1, Stage 1 the period before 1950, the focus of management accounting is more more towards cost determination and financial control. Therefore, main sources of data are from financial statements inclusive of Income Statement, Balance Sheet and Cash Flow Statement. During this period, methods such as Ratio Analisis, Financial Statement Analysis, Budgeting are very popular and being used widely in management accounting. Then, in Stage 2 between 1950 till 1965, the focus of management accounting shifted to provision of information for management planning and control. The objectives are to assist the management to make planning, control and hence, taking correct action in the decision making process. It is during this process that management accounting techniques that assisted in analysis for decision making and responsibility accounting being introduced. As a result, methods that are regarded now as being traditional like Standard Costing, Cost-Volume- Profit Analysis, Break-even Analysis and Performance Measurement were introduced and widely used. Next, in Stage 3, the period between 1965 to 1985, the focus of management accounting shifted again towards reduction of waste in resources used in business processess. At first this was done by eliminating non-value-added activities. However, later the uses of mathematical formulas were made popular by some researchers to achieve such goals. That is why during this period management accounting techniques such as Total Quality Management, Economic

4 Order Quantity Model and inventory evaluation models such as Last In First Out, First In First Out, and Multiple Regression were born. The last one, Stage 4 where the time period is between 1985 and 1995, the shift of management accounting focus is for the generation or creation of value through the effective use of resources. It is during this period where methods that are considered as modern were introduced such as Just-In-Time (JIT), Target Costing, Balanced Scorecard, Value Chain Analysis and Strategic Management Accounting. IMAPS 1 also forecasted that for post 1995 era, the focus of modern management accounting possibly are regarding Strategic Processess and inclusive of value at risk within such processes. Traditional vs. Modern Management Accounting Practices In conclusion, based on IMAPS 1 above, this paper in general is looking at IMAPS 1 as the source of reference in categorizing and drawing the line in order to define between traditional management accounting practices and modern management accounting practices. In summary, be referring to IMAPS 1, traditional management accounting practices may be categorized as management accounting practices in Stages 1, 2 and 3 ( years prior to 1950 up to 1985) and modern management accounting practices are tose practice in Stage 4 (beginning year 1985). Table below summarizing management accounting practices mentioned

5 in IMAPS 1 and being categorized as either traditional management accounting practices or modern management accounting practices. INSERT TABLE 2 ABOUT HERE Empirical Studies on Management Accounting Prior to 1985 This part is an attempt to make confirmation that prior to 1985 (the period defined by IMAPS 1 as Stages 1, 2 and 3), all studies were regarding traditional management accounting practices only and hence, may be concluded that modern management accounting practices came into picture after Therefore, the line between traditional management accounting practices and modern management accounting practices can be proved that it lies in the 1980 s. Prior to 1985, among the studies done in management accounting was by Khandwalla (1972) where the relationship between a few different competitions such as price and product quality and the adoption of a few sophisticated accounting control methods during the time were studied. The accounting control methods studies were standard costs, flexible budgeting and statistical quality control. The result is that there is positive relationship between the harsh competition and the level of uses of control methods by the management. Khandwalla (1972) concluded that harsh competition will result in managers to find the best solution to control costs and therefore, management accounting controls will be used for those purposes.

6 Next, Chiu (1973) studied on the relationship between personal characteristics of managers such as the education level, their discipline of study, and the usage on non-usage of nine management accounting concepts such as standard costing and capital budgeting. Also being studies was the reasons of non-usage of other management accounting concepts. He found that there is significant relationship statistically between level of education and level of usage of management accounting concepts; and also between the country of origin of firms and level of usage of management accounting concepts. Also did he found that there is no significant statistical relation between the length of holding a position or age of managers and level of usage of management accounting concepts. In general he concluded that bigger firms are more dependent on management accounting concepts as planning and control tools compared to small firms. Then, Lere (1976) was more focus towards difference between characteristics of firms that are using direct costing and firms that are using absorption costing. He found that the more important the following things to a firm will influence the usage of either direct costing or absorption costing: (1) short-run profit planning, (2) variability of production volume, (3) percent of overhead fixed in nature, (4) long-range profit planning, (5) reports to top management, (6) inventory turnover, (7) pricing guidelines, (8) variability of sales volume, (9) cost control, and (10) amount of annual sales.

7 The relevant of the study conducted by Lere (1976) to this paper is that, again, it proves that in that time period (1970s) direct costing and absorption costing are among traditional management accounting practices. After Lere (1976), another study conducted in the Stage 3 period was by Tang (1977). Tang (1977) studied tranfer pricing where he compared Japanese and United States manufacturing firms using questionnaires set in English. He classified transfer pricing methods into costoriented or non-cost oriented groups and found that choice made between the two groups by manufacturing firms are even (half choose cost-oriented and the other half prefer using noncost oriented). The most important factor that influence transfer pricing method is overall profitability to the company, and the least significant factor in influencing choice of transfer pricing method is anti-trust law of other countries. Here, it is evident that one of the management accounting practices, tranfer pricing can be included into traditional management accounting practices that had ever been studied in the Stage 3 of IMAPS 1. Next is a study done by Imhoff (1978) to determine the level of usage of management accounting concepts and factors related to its uses. He found that high degree of correspondence exist between concepts taught at accounting courses in universities and concepts being used practically.

8 Then, Yoshikawa (1979) was using a comprehensive questionnaires comprising 73 questions to explore multiple issues related to usage of management accounting concepts in Japan. After analyzing the data, he concluded that (1) there is an increase the usage of job order cost accounting systems and reduction in the usage of process costing over a period of time, (2) there is an increase in the computer usage to expedite data collection for periodic check, and (3) there is little difference among companies that are using direct costing. The result of Yoshikawa (1979) specifically proven that during the period there was a study done for the following management accounting practices: job order costing, process costing and direct costing where all are consistent with what has been reported in IMAPS 1 that is those are practices inclusive in the category of traditional management accounting practices. After that, McNally and Eng (1980) conducted a research to identify characteristics that discriminate between companies regarding management accounting concepts being used. There are two characteristics being studied which are industry classification and financial data. There were thirteen management accounting concepts including budget, standard costing and other concepts that are commonly used. They found that there was no significant relationship statistically between industry classification and usage or non-usage of management accounting concepts. However, they also found that there is a significant relationship between financial measures and usage or non-usage of management accounting concepts with size being the most significant. Financial measures used are: operating income, operating assets, net income, stockholders equity and total assets.

9 McNally dan Eng (1980) only used 13 management accounting practices as variables in their study. Such number of management accounting practices are not very comprehensive but sufficient taken into account that objectives of the study were to find relationship between industry classification and usage or non-usage of management accounting concepts and not to study about management accounting practices exclusively. Nevertheles, the findings in McNally and Eng (1980) are related to this study because it gives indication that financial measures like operating income, operating assets, net income, stockholders equity and total assets, may affect choices or usage or non-usage of management accounting practices. A few conclusions can be made based on the literature review as above. First, based on the literature review on studies conducted before 1985, it is found that the followings are the management accounting practices that had been studied during the period: INSERT TABLE 3 ABOUT HERE If comparison is made between Table 2: Traditional and Modern Management Accounting Practices according to IMAPS 1, and Table 3: Management Accounting Practices Studied in Stage 3 of IMAPS (period between pre-1950s to 1985), it can be seen that those empirical researches on traditional management accounting practices before 1985 support what is being reported in IMAPS 1 regarding which management accounting paractices that can be

10 considered as traditional. Both table are consistent when referring to management accounting practices that can be categorized as traditional. Traditional Management Accounting Practices Defined Therefore, as such, a complete list can be constructed as below, to show a comprehensive set of traditional management accounting practices and this list will become a suggested definition for this paper when referring to traditional management accounting practices i.e. taking into account IMAPS 1 and emprical researches done prior to INSERT TABLE 4 ABOUT HERE One significant conclusion that can be made from discussion above is that the border line between traditional management accounting practices and modern management accounting practices is in the middle of 1980s (specifically year 1985 as per IMAPS 1). Another significant conclusion is that based on all studies mentioned above, in Stage 1 up to Stage 3 of IMAPS 1, there were no comprehensive study on all management accounting practices being done.

11 Multiple Lists of Management Accounting Practices To widen the scope of the listing of management accounting practices, current studies can be referred to. For example, Mahfar & Omar (2004) listed some 28 management accounting practices in their study (see Table 5 below). In addition, Nishimura (2002) reported 5 different sets of management accounting practices based on studied countries which are Japan, Taiwan, Korea, Singapore and China (see Table 6, Table 7, Table 8, Table 9 and Table 10 below). Then, Ernst & Young and IMA Survey (2003) reported another different set of management accounting practices (Table 11 below). In India, Joshi (2001) listed 35 management accounting practices in his study (Table 13), Phadoongsitthi (2003) listed 38 management accounting practices in her study about management accounting practices in Thailand (Table 12) and Chenhall & Langfield-Smith (1998a) listed some 33 management accounting practices for study on management accounting practices in Australia (Table 14). INSERT TABLE 5 ABOUT HERE INSERT TABLE 6 ABOUT HERE INSERT TABLE 7 ABOUT HERE INSERT TABLE 8 ABOUT HERE

12 INSERT TABLE 9 ABOUT HERE INSERT TABLE 10 ABOUT HERE INSERT TABLE 11 ABOUT HERE INSERT TABLE 12 ABOUT HERE INSERT TABLE 13 ABOUT HERE INSERT TABLE 14 ABOUT HERE Comprehensive List of Management Accounting Practices Due to the existence of many lists of management accounting practices that are so different from one to another, there is a need for an effort to re-define management accounting practices so that a comprehensive list of management accounting practices can be forwarded for future research. Therefore, based on previous studies as listed above, the following list (Table 15) is a combination of management accounting practices to be suggested as comprehensive list of management accounting practices for future research. INSERT TABLE 15 ABOUT HERE Overall, there are some 49 management accounting practices included in the list above. This list is derived after taken into account comparison of studies on management accounting

13 practices done in Japan, Taiwan, Korea, Singapore, China, Thailand, India, Australia and Malaysia as presented in tables above. Some of the practices that are not associated with management accounting field are being left out in the list. Conclusion In conclusion, this paper as discussed above, attempted to bring to attention of what constitute traditional management accounting practices and modern management accounting practices and then, tried to suggest a comprehensive list of management accounting practices to be given due consideration for future research. To end the paper, the illustration below is presented. Indeed, a picture worth a thousand words. INSERT ILLUSTRATION 1 ABOUT HERE References Ahn, T.S. and C.H. Lee Effects of Manufacturing Environment Changes on Cost Management Practices. Korean Accounting Journal in N.Baydoun, A.Nishimura, and R.Willet, Accounting in the Asia Pacific Region. John Wiley & Sons, 1997:228ff. Chenhall, Robert H. and Kim Langfield-Smith. 1998a. Adoption and benefits of management accounting practices: An Australian study. Management Accounting Research 9 (1): 1-19.

14 Chiu, James S., An Empirical Investigation of management Accounting Techniques in the Manufacturing Companies of Taiwan. Unpublished Phd Dissertation, University of Missouri, pp Ernst & Young and IMA Survey The State of Management Accounting. Imhoff, Jr., Eugena A Management Accounting Techniques: A Survey. Management Accounting. (November, 1978), pp International Federation of Accountants International Management Accounting Practice Statement (IMAP #1): Management Accounting Concepts, Financial and Management Accounting Committee, March 1998, pp.85, 91-92, 99. Isai, W An Investigative Study of Management Accounting Education and Practices in Taiwan. Wu, F.H., J.Jang, J., et al. (1997). Financial and Management Accounting Practices in Taiwan in N.Baydoun, A.Nishimura, and R.Willet, Accounting in the Asia Pacific Region., John Wiley & Sons, 1997: 253ff. Joshi, P.L The international diffusion of new management accounting practices: The case of India. Journal of International Accounting, Auditing and Taxation 1 0(1):

15 Khandwalla, P. N The effect of different types of competition on the use of management controls. Journal of Accounting Research, 20 (3), Lere, John Covey Firm Characteristics Associated with Use of Variable and Absorption Costing Costing in Periodic Reporting. Unpublished Phd Dissertation, University of Wisconsin-Madison. MacGregor, A.,M.Hossain, et al Accounting in Malaysia and Singapore in N.Baydoun, Accounting in the Asia Pacific Region. John Wiley & Sons, 1997: Mahfar, R. and Omar, N The Current State of Management Accounting Practice in Selected Malaysian Companies: An Empirical Evidence, a paper presented at the International Business Management Conference 2004, Universiti Tenaga Nasional. McNally, Graeme M. and Lee Hock Eng, Management Accounting Practices and Company Characteristics. Abacus. December 1980, pp Meng, F.L., and Wang, S.C Report on Accounting Role of and Effects on Decisionmaking and Management Control. Accounting Research (Chinese), 11 November:37.

16 Nishimura, A Asia Economic Growth and Management Accounting. Malaysian Accounting Review, Vol. 1, No.1, pp Nishimura, A Management Accounting Practices of Japanese Affiliates in Singapore, Thailand and Malaysia. A paper presented at the Asian Management Forum, in Fukuoka, Japan, November 1-4, Phadoongsitthi, Monvika The Role of Managerial Accounting in Emerging Economies: An Empirical Study of Thailand. Phd Thesis, University of Maryland. Tang, Roger Y.W An Empirical Investigation of the Transfer Pricing Practices of Large Industrial Corporations in the United States and Japan. Unpublished Phd Dissertation, University of Nebraska. Yoshikawa, T The Investigation of Cost Accounting Practice. Keieijitsumu (Japan in Japanese Language), May pp ~ Constructions of General Data base on Costing Practice, Research of Accounting, Faculty of Commercial Science at the Nippon University, Vol.8 No.9, Mac 1996.

17 Table 1: Stages and period according to IMAPS 1 Stage Period 1 Prior to

18 Diagram 1: Evolutionary stages of management accounting Source: International Management Accounting Practices No.1 (IMAPS 1)

19 Table 2: Traditional and Modern Management Accounting Practices according to IMAPS 1 Traditional Management Accounting Practices 1 Ratio Analisis Just-In-Time (JIT) 2 Financial Statement Analysis Target Costing 3 Budgeting Balanced Scorecard Modern 4 Standard Costing Value Chain Analysis 5 Cost-Volume-Profit Analysis Strategic Management Accounting 6 Break-even Analysis Strategic Processess 7 Transfer Pricing 8 Performance Measurement 9 Total Quality Management 10 Economic Order Quantity Model 11 Inventory evaluation models such as Last In First Out, First In First Out, Management Resource Planning 12 Multiple Regression

20 Table 3: Management Accounting Practices Studied in Stage 3 of IMAPS (period between pre- 1950s to 1985) No. Study by Management accounting practices studied 1 Khandwalla (1972) standard costs flexible budgeting statistical quality control 2 Chiu (1973) standard costing capital budgeting 3 Lere (1976) direct costing absorption costing) 4 Tang (1977) transfer pricing) 5 Yoshikawa (1979) job order costing process costing direct costing 6 McNally & Eng (1980) budget standard costing

21 Table 4 : Traditional Management Accounting Practices Traditional Management Accounting Practices 1. Ratio Analisis 2. Financial Statement Analysis 3. Budgeting, flexible budgeting 4. Standard Costing 5. Cost-Volume-Profit Analysis 6. Break-even Analysis 7. Transfer Pricing 8. Performance Measurement 9. Total Quality Management 10. Economic Order Quantity Model 11. Last In First Out, First In First Out, Management Resource Planning 12. Multiple Regression 13. Statistical quality control 14. Capital budgeting 15. Direct costing 16. Absorption costing 17. Job order costing 18. Process costing

22 Table 5: Management Accounting Practices Studied in Manufacturing Firms in Malaysia No Practices listed 1 Budgets 2 Income Statement Analysis 3 Cash Flow Analysis 4 Balance Sheet Analysis 5 Financial Ratio Analysis 6 Cost and Benefit Analysis 7 Product Costing 8 SWOT Analysis 9 Statement of Equity 10 Standard Costing 11 NPV Analysis 12 CVP Analysis 13 Absorption Costing 14 Benchmarking 15 Process Costing 16 Statistical Analysis 17 Total Quality Management 18 ERP 19 Balance-Score Card 20 Target Costing 21 ABC 22 Batch Costing 23 JIT 24 MRP 25 Zero-Based Budgeting 26 EOQ for Inventory 27 Multiple Regression 28 Kaizen Costing Source: Mahfar, R. and Omar, N The Current State of Management Accounting Practice in Selected Malaysian Companies: An Empirical Evidence, paper presented at International Business Management Conference 2004, Universiti Tenaga Nasional.

23 Table 6: Management Accounting Practices Studied in Manufacturing Firms in Japan No Practices listed 1 Standard costing 2 Direct costing 3 Appraisal method of economic calculation of equipment funds: (i) Accounting profit (ROL) (ii) Payback period (iii) Intra-company profit rate (iv) Present value method (v) Annual cost sum method 4 Responsibility center of division: (i) Cost center (ii) Profit center (iii) Investment center 5 Appraisal standard of division: (i) Sales (ii) Rate of sales growth (iii) Profit (iv) Return on capital (v) Return on sales 6 Kind of budget: (i) Budgeted profit and loss (ii) Sales budget (iii) Production budget (iv) Selling expenses budget (v) General administrative expenses budget (vi) R & D expenses budget (vii) Capital budget 7 Cost table 8 Variance analysis 9 Intra-company transfer price 10 Short-term profit goal: (i) Sales (ii) Rate of sales growth (iii) Profit (iv) Return on capital (v) Return on sales 11 Method of budget decision: (i) Top-down (ii) Bottom-up (iii) Combination 12 Method of budgeting:

24 (i) Simulation model (ii) Zero-based budget (iii) Direct costing (iv) Linear programming (v) Break-even point analysis 13 Adoption of cost design: (i) Systematic execution all over firm (ii) Execution in divisions (iii) Temporary execution/adoption of ABC 14 Usage of LP in decision-making Source: Constructions of General Database on Costing Practice, Research of Accounting, Faculty of Commercial Science at the Nippon University, Vol.8 No.9, Mac 1996.

25 Table 7: Management Accounting Practices Studied in Manufacturing Firms in Taiwan No Practices listed 1 Traditional costing: (i) Full costing (ii) Batched costing (iii) Direct (variable) costing (iv) Standard costing (v) Processing costing 2 Planning, control and decision making: (i) Operating budget (ii) Cost-effective analysis (iii) Capital budget (iv) Responsibility accounting (v) Incremental cost analysis (vi) Cost-Volume-Profit analysis (vii) Contribution margin analysis (viii) Cost behaviours analysis (ix) Transfer pricing 3 Quantitative methods: (i) Inventory control (ii) Decision tree analysis (iii) Network analysis (iv) Regression analysis (v) Learning curve (vi) Linear Programming 4 Techniques under current manufacturing environment: (i) Productivity measures (ii) Analysis of the cost of quality (iii) Target costing (iv) Activity costing (v) Product life-cycle costing Source: Isai, W.(1995) An Investigative Study of Management Accounting Education and Practices in Taiwan.Wu, F.H., J.Jang, J., et al. (1997). Financial and Management Accounting Practices in Taiwan in N.Baydoun, A.Nishimura, and R.Willet, Accounting in the Asia Pacific Region., John Wiley & Sons, 1997: 253ff.

26 Table 8: Management Accounting Practices Studied in Korea No Practices listed 1 Cost management technique: (i) Standard costing (ii) Target costing or Cost design (iii) Budget system 2 Overhead allocation basis: (i) Direct labor (ii) Machine hour (iii) Material (iv) Product unit (v) Combination (vi) Others 3 Basis for pricing: (i) Variable cost (ii) Absorption cost (iii) Others 4 Capital budgeting techniques: (i) Payback period (ii) Internal Rate of Return (iii) Net present value (iv) Accounting rate of return (v) Subjective judgement (vi) Others 5 Key division performance measure: (i) Return on investment (ii) Return on Sales (iii) Profit (iv) Budget vs. Actual (v) Value added (vi) Others Source: Ahn, T.S. and C.H. Lee (1994). Effects of Manufacturing Environment Changes on Cost Management Practices. Korean Accounting Journal in N.Baydoun, A.Nishimura, and R.Willet, Accounting in the Asia Pacific Region. John Wiley & Sons, 1997:228ff.

27 Table 9: Management Accounting Practices Studied in Singapore No Practices listed 1 Operating budget 2 Long term plan 3 Cash budget 4 Break even point analysis 5 Standard costing 6 Return on Capital 7 Capital budget 8 Payback period 9 Present value method Source: MacGregor, A.,M.Hossain, et al. (1997). Accounting in Malaysia and Singapore in N.Baydoun, Accounting in the Asia Pacific Region. John Wiley & Sons, 1997:

28 Table 10: Management Accounting Practices Studied in China No Practices listed 1 Sales revenue analysis 2 Administration expenses analysis 3 Accounts receiable-trade control sheet 4 Establishment of limited departmental expense 5 Individual management of groped expense 6 Break even point analysis 7 Cost prospect 8 Market prospect 9 Basis of Budget control (i) Target profit (ii) Sales (iii) Production 10 Cash flow table 11 Cost rejection method 12 Activity-Based Costing 13 Flexible budget 14 Zero-base budget 15 Rolling budget 16 Return on Investment 17 Residual profit 18 Economic leverage 19 Profit sensibility analysis 20 Linear programming 21 Network chart 22 Decision trees analysis Source: Meng, F.L., and Wang, S.C. (1997). Report on Accounting Role of and Effects on Decision-making and Management Control. Accounting Research (Chinese), 11 November:37.

29 Table 11: Management Accounting Practices Studied by oleh Ernst & Young (E&Y) and Institute of Management Accountants (IMA) in 2003 No Practices listed 1 Planning & Budgeting Tools: (i) Operational Budgeting (ii) ABM/Std Budgeting (iii) Capital Budgeting 2 Decision Support Tools (i) Quantitative Techniques (ii) Breakeven Analysis (iii) Internal Transfer Pricing 3 Product Costing Analysis Tools (i) Traditional Costing (ii) Overhead Allocations 4 Performance Evaluation Tools (i) Benchmarking Source: Ernst & Young and IMA Survey The State of Management Accounting.

30 Table 12: Management Accounting Practices Studied in Thailand No Practices listed 1 Absorption costing 2 Budgeting for planning and control of operations 3 Budgeting for planning cash flows 4 Budgeting to coordinate activities across business units 5 Budgeting for compensating managers 6 Benchmarking of operational processes 7 Benchmarking of strategic priorities 8 Benchmarking of management processes 9 Benchmarking of product characteristics 10 Benchmarking within the wider organization 11 Capital budgeting* 12 Formal strategic planning 13 Long range forecasting 14 Product profitability analysis 15 Activity-based costing (ABC)* 16 Customer satisfaction evaluation 17 Employee attitudes evaluation 18 Team performance evaluation 19 Ongoing supplier evaluation 20 Firm-level performance evaluation: Balanced scorecard* 21 Firm-level performance evaluation: Budget variance analysis 22 Firm-level performance evaluation: Cash flow return on investment (CFROI)* 23 Firm-level performance evaluation: Residual income* 24 Firm-level performance evaluation: Return on investment (ROI)* 25 Performance evaluation: Divisional profit 26 Performance evaluation: Controllable profit 27 Cost-volume- profit analysis* 28 Zero base budgeting* 29 Variable costing 30 Product life cycle analysis 31 Standard costing

31 32 Shareholder value analysis 33 Operations research techniques* 34 Value chain analysis* 35 Target costing* 36 Just-in-time systems (JIT)* 37 Total quality management (TQM)* 38 Kaizen costing* Source: Phadoongsitthi, Monvika The Role of Managerial Accounting in Emerging Economies: An Empirical Study of Thailand. Unpublished report, University of Maryland.

32 Table 13: Management Accounting Practices Studied in India No Practices studied 1 Absorption costing 2 Budgeting for planning and control of operations 3 Budgeting for planning cash flows 4 Budgeting to coordinate activities across business units 5 Budgeting for compensating managers 6 Benchmarking of operational processes 7 Benchmarking of strategic priorities 8 Benchmarking of management processes 9 Benchmarking of product characteristics 10 Benchmarking within the wider organization 11 Capital budgeting* 12 Formal strategic planning 13 Long range forecasting 14 Product profitability analysis 15 Activity-based costing (ABC)* 16 Customer satisfaction evaluation 17 Employee attitudes evaluation 18 Team performance evaluation 19 Ongoing supplier evaluation 20 Firm-level performance evaluation: Balanced scorecard* 21 Firm-level performance evaluation: Budget variance analysis Firm-level performance evaluation: Cash flow return on investment 22 (CFROI)* 23 Firm-level performance evaluation: Residual income* 24 Firm-level performance evaluation: Return on investment (ROI)* 25 Performance evaluation: Divisional profit 26 Performance evaluation: Controllable profit 27 Cost-volume- profit analysis* 28 Zero base budgeting* 29 Variable costing 30 Product life cycle analysis

33 31 Standard costing 32 Shareholder value analysis 33 Operations research techniques* 34 Value chain analysis* 35 Target costing* Source: Joshi, P.L The international diffusion of new management accounting practices: The case of India. Journal of International Accounting, Auditing and Taxation 1 0(1):

34 Table 14: Management Accounting Practices Studied in Australia No Practices studied 1 Absorption costing 2 Budgeting for planning and control of operations 3 Budgeting for planning cash flows 4 Budgeting to coordinate activities across business units 5 Budgeting for compensating managers 6 Benchmarking of operational processes 7 Benchmarking of strategic priorities 8 Benchmarking of management processes 9 Benchmarking of product characteristics 10 Benchmarking within the wider organization 11 Capital budgeting* 12 Formal strategic planning 13 Long range forecasting 14 Product profitability analysis 15 Activity-based costing (ABC)* 16 Customer satisfaction evaluation 17 Employee attitudes evaluation 18 Team performance evaluation 19 Ongoing supplier evaluation 20 Firm-level performance evaluation: Balanced scorecard* 21 Firm-level performance evaluation: Budget variance analysis Firm-level performance evaluation: Cash flow return on investment 22 (CFROI)* 23 Firm-level performance evaluation: Residual income* 24 Firm-level performance evaluation: Return on investment (ROI)* 25 Performance evaluation: Divisional profit 26 Performance evaluation: Controllable profit 27 Cost-volume- profit analysis* 28 Variable costing 29 Product life cycle analysis 30 Shareholder value analysis

35 31 Operations research techniques* 32 Value chain analysis* 33 Target costing* Source: Chenhall, Robert H. and Kim Langfield-Smith. 1998a. Adoption and benefits of management accounting practices: An Australian study. Management Accounting Research 9 (1): 1-19.

36 Table 15: Management Accounting Practices to be studied No Management Accounting Practices studied 1 Activity-based budgeting 2 Activity-based costing (ABC)* 3 Activity-based management 4 Back flush costing 5 Benchmarking of management processes 6 Benchmarking of operational processes 7 Benchmarking of product characteristics 8 Benchmarking of strategic priorities 9 Benchmarking with outside organizations 10 Benchmarking within the wider organization 11 Budgeting for compensating managers 12 Budgeting for controlling costs 13 Budgeting for planning and control of operations (day-to-day) 14 Budgeting for planning cash flows 15 Budgeting for planning financial positions 16 Budgeting to coordinate activities across business units 17 Capital budgeting* 18 Cost-volume- profit analysis* 19 Firm-level performance evaluation: Balanced scorecard* 20 Firm-level performance evaluation: Budget variance analysis Firm-level performance evaluation: Cash flow return on investment 21 (CFROI)* 22 Firm-level performance evaluation: Residual income* 23 Firm-level performance evaluation: Return on investment (ROI)* 24 Formal strategic planning 25 Just-in-time systems (JIT)* 26 Kaizen costing* 27 Long range forecasting 28 Operations research techniques* 29 Performance evaluation: Controllable profit 30 Performance evaluation: Customer satisfaction evaluation

37 31 Performance evaluation: Divisional profit 32 Performance evaluation: Employees attitudes 33 Performance evaluation: non-financial measures 34 Performance evaluation: Ongoing supplier evaluations 35 Performance evaluation: qualitative measures 36 Performance evaluation: Team performance 37 Product costing: Absorption costing 38 Product costing: Variable costing 39 Product life cycle analysis 40 Product profitability analysis 41 Shareholder value analysis 42 Standard costing 43 Strategic plans developed separate from budgets 44 Strategic plans developed with budgets 45 Target costing* 46 Total quality management (TQM)* 47 Value chain analysis* 48 Zero base budgeting*

38 Illustration 1: The Management Accounting Practices Puzzle Source:

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