MANAGEMENT ACCOUNTING SYSTEM – BENEFITS OF

ORGANISATIONS

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Abstract

With the rapid advancements in technology, meeting the ever-increasing demands of

the customers and clients can be tremendously hard for the management team to
handle. This necessitates the need for a system that can provide them with a major part
of the information that they need to ensure enhanced customer satisfaction. The
present paper, though a self-explanatory one has delved into and investigated the
significance of managerial accounting and MAS in today’s competitive environment.
Two scholarly articles have been used to demonstrate the importance of not only
management accounting and MAS, but also the various modern techniques or methods
of managerial accounting that can help the management teams to run the business
operations more smoothly and conveniently. The influence of MAS has been further
demonstrated by an example of a case company. To what extent has MAS and its
techniques been useful and accepted by the business industry has also been
discussed. The basic design of the paper involves a brief background of the case
company, the various techniques of MAS that has been used in the case study, its
relevance in the context of the case company along with comparing the two articles
dealing with MAS, the significance of MAS in the modern competitive world, and the
various outcomes from both the articles’ research findings. The interlinkages between
MAS, ERM and the performance of companies have also been discussed and analysed.
The paper has concluded with an allusion to the importance of management accounting
and MAS, irrespective of whether they have been adopted everywhere or not.

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 Table of Contents

Abstract ........................................................................................................................... 1
Introduction and company background ........................................................................... 4
MAS Techniques ............................................................................................................. 4
Just In Time ................................................................................................................. 5
Total Quality Management ........................................................................................... 5
Benchmarking .............................................................................................................. 5
The relevance of MAS concerning Company-A .............................................................. 6
Comparing and contrasting the article outcomes ............................................................ 7
The relevance of MAS in business .................................................................................. 8
Pricing .......................................................................................................................... 9
Budgeting ..................................................................................................................... 9
Unrestricted reporting ................................................................................................ 10
Lessons learned ............................................................................................................ 10
Conclusion .................................................................................................................... 12
Reference...................................................................................................................... 13

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Introduction and company background

Management accounting refers to the preparation of management accounts and reports

that furnish timely and precise statistical as well as financial data to the managers to
help them make key long-term and short-term decisions. It measures, identifies,
interprets, analyses and communicates sufficient information to assist a company to
achieve its objectives. However, management accounting differs from financial
accounting in several ways. Financial accounting involves furnishing information to not
only people within the company but also above all, to people outside the company. On
the contrary, management accounting is primarily intended to help managers working
inside the company to make key decisions. Along with helping in the process of
decision-making, managerial accounting is also beneficial in predicting future
development in business and cash flows. Also, it makes use of various analytical
methods to aid managers in building on positive differences and handle the negative
ones (Nytimes.com, 2019).

The case company, Company-A has been chosen as an example to show the uses of
MAS in business organisations. The company in question has been named Company-A
to conceal the identity of the organisation and its components. Company-A is a
production company which has its offices in 27 nations with sales to over 100 nations.
Its headquarters are situated in the United States, but its local and provincial offices are
based in Melbourne, Australia. This particular company was selected for its presence in
multiple countries, its large size, and lastly because of the easy access to high-ranking
officers. The information available on the public domain points that Company-A
occupies the 10th rank in market valuation and gross revenue.

MAS Methods

The various methods of managerial accounting such as JIT, TQM, benchmarking, etc
have received wide acclaim by academia but their intended usefulness to business has
not necessarily been viewed as such by the business industry (Watts, Yapa, and

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Dellaportas, 2014). However, some organisations still use to run their business
operations smoothly and efficiently:

Just In Time

The JIT refers to a strategy of management that queues orders for raw materials from
distributors directly with production programs. Organisations use this method of
management accounting to increase the effectiveness and minimize waste by acquiring
products only as per their requirement for the process of production, which minimizes
costs involved in inventory. This method needs manufacturers to predict the demand
without error. In the case of Company-A, certain components of this method have been
changed and incorporated to suit the requirements of the company (Ft.com, 2019).

Total Quality Management

TQM, which was created by a management consultant William Deming, whose work
has impacted the Japanese production industry, denotes the continuous process of
identifying and minimizing or eliminating fallacies in manufacturing, rationalizing SCM,
enhancing the satisfaction of customers, and making sure that employees have the
necessary speed for training. The chief purpose of TQM is to hold everyone who is
involved in the process of manufacturing responsible for the quality of the finished good
or service. Like JIT, Company-A had to modify and integrate TQM to fit their needs
(Johnson, 2019).

Benchmarking

Benchmarking is a tool of a management strategy that is utilized for the comparison of

the execution of the processes of business and goods with the best execution of other
organisations within and outside the industry. In simple terms, managers use
benchmarking to recognize the most ideal practices in rival companies and use those
practices themselves for the improvement of the company’s performance. Company-A
has done internal benchmarking with other local as well as global companies
concerning the particular product being produced.

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The relevance of MAS concerning Company-A

Managers are highly dependent on the information provided by MAS for making
strategic and operational decisions at almost level. However, MAS in today’s
competitive industry must be modified and from the traditional design to suit the needs
of the companies. The varying use of MAS is extremely relevant to the decision-making
processes. Operational managers do not have much control over some variations since
they have no right over the purchases of the supply chain (Chenhall and Moers, 2015).
This lightens the load on operational managers concerning some variations. As the
decisions made at this point are based on the information taken from the MAS, its
importance is regarded as absolute (Lavia López and Hiebl, 2014). The MAS is
considered as a crucial constituent of the tactical process of making key decisions,
albeit some external influences are not to be dismissed. While the importance of MAS is
evident, at this particular point in the decision-making process, managers start to focus
more on outside information along with the information provided by the MAS (Arun,
2019). Managing the issues of the chain of customers and supply chain, this class of
managers have almost no choice other than to rely on outside information to drive the
decision-making process. Like operational managers, the tactical management team
also heavily relies on the MAI. Therefore, MAS is relevant to Company-A.

It has also been observed that the MAI at Company-A is critical for junior managers and
its relevance begins declining as one travels up the career ladder. At the level of
decisions made on the basis of business operations, the information acquired from the
MAS constitutes the major part of the data from which managers taking operational
decisions will take their decisions. The relevance of the recently-executed MAS declines
in proportion with seniority in the corporate hierarchy and it is only the tactical as well as
operational decisions that seem to rely on information coming from the MAS. In the
current scenario of Company-A, there is no doubt that the MAS and its methods are
important, but not so important for those managers who make strategic decisions. They
are mostly reliant on outside factors such as micro and macroeconomic pointers, market
indices and trends in technology (Forbes.com, 2019). Company-A adopted the MAS
along with some contemporary techniques of management accounting that covers most

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of the business functions which initially may be thought to be beneficial, but might not
provide the users with the information they need. Taking advantage of SAP R/3 to
acquire a keystone for most business functions and streamlining the different systems
seemed to have been the chief catalyst. Moreover, the creation of a system with parts of
several modern MAS seems to be a major hindrance for Company-A. But what is
significant to note in this article is that Company-A intends to remove SAP R/3 and go
back to their original MAS. The idea that the complicated features of the recently
initiated MAS was too great for managers to handle, which led to a determination to
streamline the system. On the contrary, the lack of interest and satisfaction of the users
proved to be a major obstacle in the effective execution of SAP ⅔.

Comparing and contrasting the article outcomes

The case study has been carried out by interviewing several key stakeholders who have
provided insight to recognize and clarify important issues. The management accounting
system that Company-A has adopted has disclosed some problematic outcomes.
Significant to note is the acquirement of a wide array of modern methods of managerial
accounting. This facilitated the users to make use of any method of management
accounting that they believe would serve their purpose. However, the expectation that
managers at every level would use the data provided by the MAS to aid the decision-
making process was not popular. Regarding decision-making, not every managerial
level depends on the information coming from MAS. For instance, managers at the
operational and tactical levels rely heavily on the MAS information, whereas the
strategic management team does not at all depend on the information provided by the
MAS. However, the techniques of managerial accounting seem to be accepted, albeit
with some hesitance, by the industry.ABC was rejected by the company as it was too
cumbersome to suit the company’s requirements even though academia hailed it to be
suitable for production companies, BSC was used prudently for the same reason,
though the BSC model was perceived to be impractical. The time and costs involved in
the inclusion of such processes were seen as unwarrantable by the interviewees. Also,
the research indicates that the newly launched MAS has not been effectively used by

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Company-A. The system appeared to be compiling information and generating reports
of little value to the users (Asgharizade et al., 2015).

Another article that has studied the interlinkages between MAS, ERM and the
performance of organizations has been to compare and contrast the findings of the case
study. This study has been conducted through a survey where questionnaires were sent
to the respondents from 106 FIs (financial institutions) in Malaysia by post. The findings
of this research show that for implementing ERM, MAS is needed that has a wide
scope, prompt particularly in the event of a crisis, incorporated, and agglomerated. The
significant and positive relationship between RMA and PRISK and every aspect of MAS
is suggestive of the fact that a growing level of ERM execution is directly connected with
the growing level of MAS usage that is extraneous, future-oriented and non-economical,
prompt, and has the ability to provide connections and is summed up by intervals of
time. The research findings further suggest that only RMA has a positive correlation with
both economic as well as non-economical performances of the organisation. The major
interaction between the wider scope of RMA and MAS indicates that the more is the
RMA, the more robust is the correlation between the use of the wider scope of MAS and
the non-economic performances of organisations. This study has also offered proof that
the cumulative impact of both ERM and MAS further improves non-economical
performance specifically. The results also corroborate the significance of ERM in
improving the non-economical performance of organisations. The outcomes of this
research also offer beneficial guidelines for other developing sectors such as healthcare
and manufacturing in Malaysia (Khairuzzaman Wan Ismail et al., 2014).

The relevance of MAS in business

Managerial accounting is essential in today’s competitive business environment

because it serves as a link between the economic functions and other operations of the
business. MAS refers to the information systems that are used to furnish information to
company managers for making vital decisions that will result in the efficient performance
of the organisation. MAS help the company management to control and govern the
organisation. The major tasks of MAS for ensuring sustained business success include

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budgeting, pricing, and unrestricted reporting. Financers and entrepreneurs adopt
various MAS techniques simply because they focus more on not only future
achievements of company objectives but also challenges that the company might face
in the future (Kaplan and Atkinson, 2015). Past studies have paid considerable attention
to the relationship between innovation and management control. However, there are
some researchers who have argued against the benefits of MAS and have related the
poor execution of manufacturing schemes to the conventional design of MAS. They
have also opined that MAS is irrelevant in the present competitive business
environment. But accounting researchers have used the theory of contingency to look
into the impacts of MAS in business success (Collis and Hussey, 2017). They have
defended MAS stating that since management accounting systems are one of the most
crucial information processing apparatuses in companies, they form a major feature of
organisational design. Therefore, factors dependent on context, which have a
systematic influence on the structure of the organisation and management systems,
must also influence MAS (Salterio, 2015). Moreover, long-term marketing strategies are
essential for profitable business operations and MAS provide the necessary data to help
the companies to cope with the demands of the consumers and at the same time,
compete in both the national and international market. The principle reasons why MAS
is so relevant in today’s business environment are elucidated as follows:

Pricing

MAS provide marketing managers and production managers with internal reports that
aid them in their decision-making. These reports are tailored to reflect time internals
beyond the requirements of the standard financial statement and the economic outturn
account. MAS’ reports are also valuable for decision-makers because they provide in-
depth information about the potential demands and expected costs of materials
(Yigitbasioglu, 2016).

Budgeting

Regardless of the directives for formulating the budget, MAS can take charge of coming
up with a budget that is both realistic and fair. The production of a budget by MAS

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functions as a background document to make sure that there is an interaction between
managers and heads of the departments. Also, internal reports that are produced by
MAS are without regulations and restrictions (Kamala, 2015).

Unrestricted reporting

Information that comes from MAS is confidential and utilized internally for running
business operations. Even the conditions of the FASB are also not included in the costs
and revenue exhibited in the internal documents. Without any rules and regulations,
managers can concentrate on the data that will furnish them with comprehensive
information that has a broader range than the sections that are already described on
income statements and balance sheets (Galliers and Leidner, 2014).

Lessons learned

Researchers opine that how a company responds to a crisis is an important factor for
introducing contemporary MAS. But Company-A did not face any such crisis. Instead of
a crisis, it faced a string of divergent reporting of finance and MAS due to a tactical path
of procurement and disinvestment (Ahmad, 2017). The aspiration of providing a
platform for the incorporation of all divisions of business into one instance system was
regarded to be of supreme importance. Financial reporting that was specific to site or
location and management accounting information that was accessible internationally
were considered to be essential advantages. As a result, they became a powerful
motivational factor to bring in a wave of change. In keeping with the consistency of the
research questions that have been put forward in this case study, the scope of the
significance of these recently initiated MAS is analysed in two distinct parts. The first
part involves researching the utility of the information that MAS provides to company
managers in making key decisions at every level. Secondly, the degree to which the
functional capability of the system needed acclimatisation to serve the needs of chief
users (Wnuk-Pel, 2016).

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While elaborating on the uses of the information supplied by the managerial accounting,
it was found that every managerial level makes use of the MAS in diverse ways and to
varying degrees to carry out their activities related to management. The junior
managers are deeply involved with MIS, making use of most of their functional
capabilities to make vital decisions related to the business operations of the company
(Thomas, 2016). On the other hand, the managers at the middle level have been found
to use the system in an alternative way by depending on the information furnished by
MAS in varying forms and a certain amount of information from outside to make
strategic decisions. And finally, the senior managers employ the management
accounting systems moderately and depend on a significant volume of external
information to make tactical decisions (Sousa et al., 2017).

Concerning the relevance of MIS’ usefulness, the findings suggest that the various
methods or techniques of management accounting that are accessible to Company-A
from the original format of SAP R/3 is not essentially appropriate to the needs of the
company. This is further reinforced by the actuality that Company-A has leveraged the
aspects of several techniques of managerial accounting and constructed those into one
system that refers to their worry concerning the appropriateness of only one method.
However, the findings of this study have indicated that the current models of managerial
accounting are not suitable for this company’s business format. Developing a system
with elements of many contemporary MAS seems to be a challenge for Company-A.

However, another article related to the investigation of the relationship between MAS,
ERM and the performance of financial institutions shows that to implement ERM, MAS
is a mandatory requirement. The suitable fit between MAS and ERM has been
demonstrated by the relationship between them. An increase in the standard of usage
of the MAS that focusses on the future, timely, non-economical and external directly
influences the ERM implementation levels. Besides the information that has a wider
range of scope, the information that is supplied by MAS and is prompt, aggregated and
integrated is crucial for managing risks. ERM has been observed to expand the focal
point of management of risks and increases the capacity of the higher administrative to
monitor the case of the potential risks that an organisation might face. Thus, RMA

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seems to enhance an organisation’s ability to handle information, thereby enhancing the
performance of the organisation. If a standard set of tactical priorities and a developed
structure of organization are provided, the use of MAS with effective procedures and
tools can face the challenges of a new thriving business (Wang and Huynh, 2014). The
outcome of the article also suggests that the non-economical execution is a key pointer
that will consequently be transformed into economic execution. Moreover, the
information related to finance has been supplied by the MAS, like gross revenue by
company branch or even by products and services or a complete failure for the duration
has presented the general condition of the FIs. It has also been revealed in the study
that the combination of ERM and MAS contributes to the further enhancement of non-
economical performance. The overall findings of this study are extremely useful in
providing valuable guidance for other developing industries in Malaysia, be it healthcare
or manufacturing, as the utility of the MAS and the endorsement of ERM is not only
restricted to FIs. Besides, further research can look into the connection between a more
extensive MAS and ERM. This would aid business organizations to adopt MAS more
conveniently (Asgharizade et al., 2016).

Conclusion

With the evolution of technology in the business industry, organisations constantly face
harsh complications that the managers cannot acquire adequate acknowledgment of
the environment within the company on their own. Hence, this necessitates the
development of MAS that can assist managers to identify the problem, possible
resolutions, goals, execution, monitoring, and analysis of the processes. So, MAS
provides a major portion of the information that is required by the company's
management. The unique thing about management accounting and MAS is that it
delves into the various business departments ranging from finance and marketing to
human resources and operations. Thus, one can say that a management accounting
department in an enterprise is optional, but the significance of MAS must never be
overlooked if a company intends to remain competitive and make the most of both long-
term as well as short-term income.

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