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«Paul M. Collier Aston Business School, Aston University Accounting for Managers Accounting for Managers: Interpreting accounting information for ...»

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becoming aware of the need to study accounting change from the perspective of global competition... there is a need to re-incorporate economics into social theory, and case study based research. (p. 284) This book has attempted to integrate both views, i.e. to understand the tools and techniques of accounting as though they were rational, while also introducing alternative ways of seeing accounting. It is hoped that it may also encourage readers to undertake research into accounting, either in an academic environment or in their own business organizations, in order to challenge conventional wisdom and better understand the context in which accounting is practised and the consequences of the use of accounting information for decision-making.

In their introduction to a special issue of Management Accounting Research devoted to management accounting change, Burns and Vaivio (2001) noted that many firms have experienced significant change in their organizational design (structures and processes), competitive environment and information technologies. There is a need for management accounting change, despite the relatively recent (in the last 20 years) introduction of activity-based costing and the Balanced Scorecard. Information technology in particular is driving the routine financial accounting functions into centralized head offices or is being outsourced. However, management accounting is increasingly decentralized to business units, where it becomes the responsibility of functional and business unit managers. These operating managers are more and more responsible for setting and achieving budget targets. As the role of non-accounting managers is being extended to encompass (management) accounting functions, the role of the professional accountant is also changing to a business consultant, advisory or change management role, often with responsibilities outside the traditional accounting one.

One of the reasons for this changed role for accountants is that they do understand the numbers, both financial and non-financial. The challenge for nonaccounting managers is to understand the numbers sufficiently well to be able to contribute to the formulation and implementation of business strategy. Those who do not understand, or who do not want to understand, the numbers are likely to be increasingly marginalized in their organizations.

Conclusion: revisiting the rationale In the preface to this book, its rationale was described as being practitioner centric rather than accounting centric. In this, the subtitle of the book – Interpreting accounting information for decision-making – identifies its aim as not only to describe the tools and techniques used by accountants, but to help managers understand that these tools and techniques exist, to know when to apply them and to appreciate their underlying assumptions and limitations. It is more important for the non-accounting manager to be able to use accounting than to be able to do


accounting. Hence, in the Appendices to this book a number of questions and case studies are provided to assist readers in testing themselves as to whether or not they understand the concepts and can draw the appropriate interpretations and critique. The concepts are also illustrated by four key readings from the accounting literature in the next chapter.

The aim of the book has been to present both the tools and techniques and the interpretive and critical perspective in an accessible language to the nonaccountant. Every effort has been made to define terms clearly when they are first used and to cross-reference topics to the main chapters in which they are covered. A glossary in this part describes all the terms used in one place, while the comprehensive index should make it easy for readers to find the information they need.

References Burns, J. and Vaivio, J. (2001). Management accounting change. Management Accounting Research, 12, 389–402.

Hopper, T., Otley, D. and Scapens, B. (2001). British management accounting research:

Whence and whither: Opinions and recollections. British Accounting Review, 33, 263–91.

Humphrey, C. and Scapens, R. W. (1996). Theories and case studies of organizational and accounting practices: Limitation or liberation? Accounting, Auditing and Accountability Journal, 9(4), 86–106.

Kaplan, R. S. (1986). The role for empirical research in management accounting. Accounting, Organizations and Society, 11(4/5), 429–52.

Otley, D. (2001). Extending the boundaries of management accounting research: Developing systems for performance management. British Accounting Review, 33, 243–61.

Power, M. K. (1991). Educating accountants: Towards a critical ethnography. Accounting, Organizations and Society, 16(4), 333–53.

Spicer, B. H. (1992). The resurgence of cost and management accounting: A review of some recent developments in practice, theories and case research methods. Management Accounting Research, 3, 1–37.

Further reading One of the aims of this book has been to encourage readers to access the researchbased academic literature of accounting, in particular in relation to the broader social, historical and contextual influences on accounting; the organizational and behavioural consequences of accounting information; and the assumptions and limitations underlying the tools and techniques used by accountants.

For those who wish to read further, whether as part of their preparation for academic research at postgraduate level or as part of their personal pursuit of greater knowledge, we identify some recommended additional reading.

Books Alvesson, M. and Willmott, H. (eds) (1992). Critical Management Studies. London: Sage Publications.


Ashton, D., Hopper, T. and Scapens, R. W. (eds) (1995). Issues in Management Accounting.

(2nd edn). London: Prentice Hall.

Berry, A. J., Broadbent, J. and Otley, D. (eds) (1995). Management Control: Theories, Issues and Practices. London: Macmillan.

Emmanuel, C., Otley, D. and Merchant, K. (eds) (1992). Readings in Accounting for Management Control. London: Chapman & Hall.

Emmanuel, C., Otley, D. and Merchant, K. (1990). Accounting for Management Control. (2nd edn). London: Chapman & Hall.

Gowthorpe, C. and Blake, J. (eds) (1998). Ethical Issues in Accounting. London: Routledge.

Hopwood, A. G. and Miller, P. (1994). Accounting as Social and Institutional Practice. Cambridge: Cambridge University Press.

Johnson, H. T. and Kaplan, R. S. (1987). Relevance Lost: The Rise and Fall of Management Accounting. Boston, MA: Harvard Business School Press.

Jones, T. C. (1995). Accounting and the Enterprise: A Social Analysis. London: Routledge.

Kaplan, R. S. and Cooper, R. (1998). Cost and Effect: Using Integrated Cost Systems to Drive Profitability and Performance. Boston, MA: Harvard Business School Press.

Kaplan, R. S. and Norton, D. P. (2001). The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Boston, MA: Harvard Business School Press.

Macintosh, N. B. (1994). Management Accounting and Control Systems: An Organizational and Behavioral Approach. Chichester: John Wiley & Sons.

Munro, R. and Mouritsen, J. (eds) (1996). Accountability: Power, Ethos and the Technologies of Managing. London: Internation Thomson Business Press.

Puxty, A. G. (1993). The Social and Organizational Context of Management Accounting. London:

Academic Press.

Ryan, B., Scapens, R. W. and Theobald, M. (1992). Research Method and Methodology in Finance and Accounting. London: Academic Press.

Scapens, R. W. (1991). Management Accounting: A Review of Recent Developments. (2nd edn).

London: Macmillan.

Scott, W. R. (1998). Organizations: Rational, Natural, and Open Systems. (4th edn). Prentice Hall International, Inc.

Articles published in the following journals ž Accounting, Auditing and Accountability Journal ž Accounting, Organizations and Society ž British Accounting Review ž Critical Perspectives in Accounting ž Financial Accountability and Management (public sector) ž Journal of Management Accounting Research (US) ž Management Accounting Research (UK) These articles are generally available on-line for students through university libraries.

Introduction to the Readings A rationale for this book was to provide a theoretical underpinning to accounting, drawn from accounting research, to assist in interpretation and critical questioning.

This underpinning provides a critical perspective on the most common accounting techniques and describes the social and organizational context in which accounting exists. This context influences accounting but is also influenced by accounting, as the way we see the world – even if only our small organizational part of the world – is significantly influenced by the ways in which accounting portrays and represents that world.

In this part of the book, we reproduce four readings from the academic literature to present four different yet complementary perspectives on accounting in organizations. Each reading has several questions that the reader should think about and try to answer in order to help understand the concepts.

The article by Cooper and Kaplan is a classic, explaining clearly how traditional management accounting techniques have distorted management information and the decisions made by managers. The authors criticize the distinction between variable and fixed costs, the limitations of marginal costing and the arbitrary methods by which overhead costs are allocated to products. The activity-based approach recommended by Cooper and Kaplan treats all costs as variable, although only some vary with volume.

Covaleski, Dirsmith and Samuel’s paper describes the contribution of contingency theory, and interpretive perspectives using organizational and sociological theories (including institutional theory) and critical perspectives. The authors call for ‘paradigmatic pluralism’, not as competing perspectives but as ‘alternative ways of understanding the multiple roles played by management accounting in organizations and society’ (p. 24).

Otley, Berry and Broadbent’s paper reviews the development of the management control literature in the context of organization theories and argues for the expansion of management control beyond accounting. The authors use a framework of open/closed systems and rational/natural systems to contrast each of these four perspectives and give examples of research in each. They conclude that management control research needs to recognize the environment in which organizations exist. While the definition of management control is ‘managerialist in focus... this should not preclude a critical stance and thus a broader choice of theoretical approaches’ (p. S42).


Dent’s case study of EuroRail is a highly regarded field study of accounting change in which organizations are portrayed as cultures, i.e. systems of knowledge, belief and values. Prior to the study, the dominant culture in EuroRail was engineering and production, but this culture was displaced by economic and accounting concerns that constructed the railway as a profit-seeking enterprise.

Dent traced the introduction of a revised corporate planning system, the amendment of capital expenditure approval procedures and the revision of budgeting systems, each of which gave power to business managers. Dent describes how accounting played a role ‘in constructing specific knowledges’ (p. 727).

Taken together, these readings provide a practical critique of traditional costing methods, several theoretical perspectives from which accounting can be viewed and a field study of how accounting changed the reality in one organization.

Reading A Cooper, R. and Kaplan, R. S. (1988). How cost accounting distorts product costs. Management Accounting (April), 20–27. Reproduced by permission of Copyright Clearance Center, Inc.

Questions 1 What are the criticisms that Cooper and Kaplan make about variable costs and why do they claim that marginal costing has failed?

2 Cooper and Kaplan argue that fixed cost allocations are faulty and that the ‘cost of complexity’ requires a more comprehensive breakdown of costs. How do they propose that such a breakdown takes place?

3 How can the product cost system proposed by Cooper and Kaplan be strategically valuable to an organization that adopts it?

Further reading Brignall, S. (1997). A contingent rationale for cost system design in services. Management Accounting Research, 8, 325–46.

Kaplan, R. S. (1994). Management accounting (1984–1994): Development of new practice and theory. Management Accounting Research, 5, 247–60.

Kaplan, R. S. and Cooper, R. (1998). Cost and Effect: Using Integrated Cost Systems to Drive Profitability and Performance. Boston, MA: Harvard Business School Press.

Mitchell, F. (1994). A commentary on the applications of activity-based costing. Management Accounting Research, 5, 261–77.

Turney, P. B. B. and Anderson, B. (1989). Accounting for continuous improvement. Sloan Management Review, Winter, 37–47.

How Cost Accounting Distorts Product Costs The traditional cost system that defines variable costs as varying in the short-term with production will misclassify these costs as fixed.

by Robin Cooper and Robert S. Kaplan∗ In order to make sensible decisions concerning the products they market, managers need to know what their products cost. Product design, new product introduction decisions, and the amount of effort expended on trying to market a given product or product line will be influenced by the anticipated cost and profitability of the product. Conversely, if product profitability appears to drop, the question of discontinuance will be raised. Product costs also can play an important role in setting prices, particularly for customized products with low sales volumes and without readily available market prices.

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