Role of management accounting and its evolution

By on April 8, 2014

With the changing business paradigms and intensifying global competition, the management theories propounded in the past, face a threat of becoming irrelevant for the contemporary business scenario as the models and approaches imparted to scholars at business schools and practical applicability does not represent a concrete and explicit connection. The term “Relevance Lost” was first coined by Johnson and Kaplan in 1987 in their book “Relevance Lost-The Rise and Fall of Management Accounting” highlighting the non-practiced theories of Management Accounting.

Management accounting is the function involving gathering and disseminating of integral accounting and statistical data to decision makers. Management accountants facilitate the management with relevant information for making suitable policies, planning and control operations (Horngren, Bhimani, Datar and Foster, 2005). Johnson and Kaplan (1987) argued that the conservative theories of management accounting has become obsolete and have paved way for activity-based costing, economic value adding, balanced scorecard, beyond budgeting, throughput costing, target costing, and Kaizen costing etc. These findings are based on their study on the American business in context of the evolution of management accounting right from the primitive textile mills to the present-day computer-automated manufacturers. Johnson and Kaplan (1987) are of the view that it is imperative for the contemporary organizations to incorporate radical alterations in the means and ways of assessment and management of costs. With escalating technological advancement, dynamic international and national competition, colossal information-processing capacities, it is crucial that managers access the relevant and accurate information as and when required.

Yazdifar and Tsamenyi (2005) highlight the primary factors responsible for bringing the change in management accounting practices as information and technology and organizational restructuring.

Evolution of management accounting

The change in management accounting has radically transformed the role of management accountants. Conventionally, management accountants were playing the roles of score keeping, attention directing and problem solving. However, with time, the role of management accountant has transformed to meet the information requirements of the uncertain business environment. Management accountant have now adorned the role of business partners and information analysts enabling them to upgrade from centralized accounting function to partnering with managers in business units (Sulaiman, Ramli and Mitchell, 2008). Cooper and Dart (2009) have advocated a comprehensive role of management accountants which is contemporary and business-eccentric in nature like being an internal business consultant, strategic management consultant or a hybrid accountant. It is rather replaced with a newer function of strategic business advisers which is highly complex and layered profile. However, gradually this function shall also be replaced with more advanced function. Like every aspect of business, management accounting has also undergone the chronological progression which is inevitable. Management accounting too was an advancement of cost accounting and the conventional book keeping practices and enabled better decision making practices. However, it was unable to adopt strategic thinking and other essential qualitative facets of management. Today’s intensifying global competition has compelled the evolution of an accounting system which takes into consideration the strategic aspect of decision making.

Role of management accounting

Hoskin, Macve and Stone (2007) has also promoted strategic management accountants and emphasized that it is the need of the modern evolving culture ousting the conventional functionality and also the requisite of strategy implementation which is now regarded as a team effort. This calls for a well –defined strategy which is communication clearly across the organizational verticals and conjoining it to the drivers of change. Also, fostering a performance centric culture enables integration of all departments towards effectual strategy execution. This has impacted the set of management accounting approaches which are contemporarily focused on desegregating the comprehensions from management accounting and marketing management in the purview of strategic management. The conventional role of management accountants has lost its relevance and has now been re-conceptualized with strategic dimensions. Ax and Bjornenak (2007) argued that the role of management accountants was bound to be modified and upgraded as the information facilitated by the traditional management accounting tools was usually late and that too was highly grouped and misleading by financial reporting making it irrelevant for decision making. Moreover the conventional set of management accounting tools and managers’ role did not make provision for communication or strategy implementation.

Sources of change

Sulaiman, Ramli and Mitchell (2008) have identified the sources of changes in the role of management accountants. These can be categorized into the following three categories:

  • External:  Rise in market competition has influenced the consumer behavior significantly which has transformed the market dynamism and companies were compelled to find financial systems which can quantify customer knowledge and lower customer dissatisfaction. Globalization has led to dissemination of the accountancy practices across countries and organizations tend to adopt internationally best practices of accountancy and management. Also, many companies hire external consultants which bring with themselves a set of unique ideas of management accounting tools and techniques (Ajami, Arrington, Mitchell and Norreklit, 2005). Also, variations in financial accounting requirements and regulations across countries also compel the firms to alter their management accounting practices accordingly.
  • Internal operations: Management accounting is deeply influenced by internal organizational operations and factors unique to the organization like core competencies or work dynamics of the facility as it is intended to be befitting to the prevalent operational surroundings. Likewise, with the induction of contemporary production technologies also steer subsequent change in the product costing practice. Also, the degree of adoption of information technology also has a potent effect on the management accounting aspects. Like e-commerce or accountancy software implementations may call for alterations in management accounting (Terry, 2003). Also, the style of management prevalent in the company and performance practices like Total Quality Management also influences the management accounting practices.
  • Organizational: Organizational structures also warrant alterations in management accounting. Mergers and acquisitions, organizational restructuring, decentralization, centralization, hierarchical structure, downsizing, outsourcing, corporate governance etc. all have implications on the management accounting and eventually modify the role of the management accountants accordingly.

Drivers of management accounting

These factors along with the gradual progression of the global business paradigm have influenced management accounting eventually, making it expansive in its horizon. Conventionally, management accountants were concerned with formal, financial and historical information obtained from a financial accounting system. It had a short-term outlook as it facilitates information for internal happenings of the company without any strategic intentions. Even the time frame is fixed like a financial accounting period or calendar time. The management accountants traditionally reviewed the standard cost objects like products or responsibility centers department wise for which drivers were production volume, labor hour and machine hour (Chenhall, 2007). Contrariwise, the present day management accountant explores and supplies informal, non-financial and pro-active information. Apart from internal aspects, management accountant considers and analyzes external factors like customer information, supplier information, competition analysis and society as a whole. They work on a broader perspective with a strategic base. Information is not time bound rather it is subject to management requirements. An array of cost objects are considered like departments, consumers, societal factors, supply chain, brand and marketing function and even industry competition which result in both volume and non-volume drivers (Chenhall, 2007).


  • Horngren, C., Bhimani, A., Datar, S. and Foster, G. (2005). Management and Cost Accounting, Harlow: Financial Times/ Prentice Hall.
  • Johnson, T. and Kaplan, R. (1987). Relevance Lost: The Rise and Fall of Management Accounting, Boston: Harvard Business Press.
  • Kaplan, R. and Norton, D. (2004). Strategy Maps: Converting Intangible Assets into Tangible Outcomes, Boston MA: Harvard Business School Press.
  • Hoskin, K., Macve, R. & Stone, J. (2007). Accounting and Strategy: towards understanding the historical genesis of modern business and military strategy. In A. Bhimani (ed): Contemporary Issues in Management Accounting, Oxford: Oxford University Press.
  • Yazdifar, H. and Tsamenyi, M. (2005).Management Accounting Change and the Changing Roles of Management Accountants: A comparative Analysis Between Dependent and Independent Organizations, Journal of Accounting & Organizational Change, 1(2), Pp. 180-198.
  • Sulaiman, S., Ramli, A. and Mitchell, F. (2008). What Factors Drive Change in Management Accounting in Malaysian Organizations?, Malaysian Accounting Review, 7(1), Pp. 61- 76.
  • Cooper, P. and Dart, E. (2009). Change in the Management Accountant’s role: Drivers and Diversity, Working Paper, University of Bath, 2009.
  • Ax, C. and T. Bjørnenak (2007), “Management accounting innovations: Origins and diffusion,” in T. Hopper, R.W. Scapens and D. Northcott (eds.), Issues in Management Accounting, Harlow: Pearson Education, pp. 357–76.
  • Terry, A. (2003). EDI Adoption: Controls in a Changing Environment, Advances in Management Accounting, 11, Pp. 287-317.
  • Ajami, R., Arrington, C., Mitchell, F. and Norreklit, H. (2005). Globalization, Management Control and Ideology, Copenhagen: DJOF Publishing.
  • Chenhall, R. H. (2007). Theorising contingencies in management control systems research. In C. S. Chapman, A. G. Hopwood & M. D. Shields (Eds.), Handbook of Management Accounting Research, 1, 163-205. London: Elsevier.


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