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Role of Accountants in Managing Contemporary Organizations - Research Paper Example

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The goal of this paper "Role of Accountants in Managing Contemporary Organizations" is to asses the contribution of accounting to organizational performance. Moreover, the paper discusses how one can improve time and cost management within the company using quality accounting management…
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Role of Accountants in Managing Contemporary Organizations
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RUNNING HEAD: Management Accounting Management Accounting Introduction The process of accountancy involves the communication of financial information regarding any business (Elliot, & Elliot, 2004). The mode of communication is usually in terms of various financial statements that depict the economic resources of the company that are under management’s control. Accountancy deals with the selection of information that is important and relevant for the user (Elliot, & Elliot, 2004). It is a branch of mathematics that is important in finding out the reasons behind the success and failure of a business. Accountancy could be divided into three main divisions: accounting, bookkeeping, and auditing (Goodyear, 1913). According to the definition provided by the American Institute of Certified Public Accountants (AICPA) as the , “the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof (Singh, n.d.). Accounting is not a new phenomenon, it is centuries old; during those times, accounting was carried out in a conventional manner, however, with time accounting has evolved and several advancements have taken place in the field (Friedlob, & Plewa, 1996). Accounting systems have evolved with time and they have become much more complex and diverse in nature. Accountancy and organizational time and space “We can define organizational space as the influence of the spatial environment on the health, mind, and behavior of individuals in and around an organization” (Becker, 1981). With the changing role of accounting in the overall organization, we see a number of debates on the issue of the impact of accounting on the organizational time and space, and how it binds the two together. A number of elements of management accounting try to deal with the issues concerned with the purpose and elements of an organization that include both tangible and intangible assets. Intangible assets include things such as cost management structure, performance management. Once the organization space has been perceived, the processes, strucutures, and people are aligned in a manner to serve the purpose of the organization. Accounting facilitates the overall organizational space in delivering those processes, and structures. Accounting management has an impact on the design and development of processes. However, other theorists believe that accounting is not only responsible for the definition of processes, it is responsible for the definition of organizational space even well before operations management comes into play. The basic design of an organizational space might be based on the initial financial information such as: information regarding strategic, operational, structural, and other parameters resulting from an accounting analysis. We can also say that accounting practices would be responsible for choosing a certain space over another based on some set preferences. The space of the organization that has to deal with frauds, misunderstandings, overlapping of duties, conflicting assignment, etc. accountancy plays the role of providing the organization as a means of individual accountability. If we talk about personal accountability, it comes from within (Chinn, 2010). Thus, we can say that the line that accounting measures draws are so robust and refined, that it is difficult to consider them as being virtual. These lines or constraints in terms of capital budgeting measures, revenue management, performance measurement, etc. form the actual boundary of the organization. Those boundaries define the functioning, processes, and the overall system of how the organization would monitor and control its activities. Employees are the most important organizational assets. They need to be encouraged and rewards. An organization’s system of accountability not only defines the space of the organization, it also provides the employees a set of ground rules that they can use for reaching a certain level of performance. They need to adhere to the accountability system in order to succeed and move forward in the organization. The time of an organization is an extremely important entity. If an organization itself and its employees according to time constraints, they can be successful. Time also plays an important role in management of change, and accounting helps in realizing the future trends, circumstances, current situation, analysis of available data, opportunities, etc. and helping the management to take timely decision. As we have discussed earlier, accounting binds organization space and it also binds time, thus, bringing the two entities together. The time and space of an organization depen heavily on accounting practices as the initial accounting analysis would shape the virtual and physical structures forming the scope whereas latter analysis would result in deciding the future plan of action for the organization. Accounting and social impact Not only accounting practices help bind the time and space of organizations, the accounting framework also has an influence on an organization’s definition of success. Historically, the main aim of accounting measures was to improve shareholder value to the maximum and on the financial bottom line. As accounting and organizations have evolved, their space and scopes have widened and now they want to focus on double or triple bottom line accounting. Such organizations want to formulate their time and space in a manner that they are able to find out the affect of their business on the financial bottom line but also the impact of the system of accountability on the employees. Moreover, they would also like to measure the impact on the communities that they operate in. Therefore, as the interest of manager increases more and more in terms of double or triple bottom line accounting, we see that the impact of accounting on the society has also improved. Now, organizations are not only interested in accounting for the financial aspects of their endeavors, they also want to measure the social goals and their achievements. All of these practices have given rise to the phenomenon of social accounting that tries to widen the perspective and includes social and environmental objective along with the financial objective within organizational space as well as the time frame. Social accounting tries to take into accounts methods through which organizations are creating value by taking their social and environmental measures into account. An example of one such measure would be the Expanded Value added Statement that tries to account for the social value creation by an organization (Accounting for social impact, n.d.). Moreover, besides it gaining form in terms of social accounting, it has always been an integral part of the economic development of societies as the investors, creditors, policy makers, etc. have always been interested in measuring the performance and other attributes of different organizations. Role of accountants in managing contemporary organizations An accountant could be described as a someone who has undertaken professional education in the subject and is responsible for managing and handling information relating to accounts and accounting systems. The accounting system takes the economic events and situations into account and applies some processes on the gathered data. It then provides the processed data to the managers, sales representatives, supervisors, etc. to help them in taking decisions and necessary measures. Systems of accountability provide useful information such as financial statements, performance evaluation reports, etc. (Baxter, & Chua, 2003). The most conventional and basic role of an accountant in an organization could be described as follows: Formulation and arrangement of the information regarding company accounts and finances to the higher management Monitoring and control of areas that are cost centers, wastage of resources, and other inefficiencies in the organization They are also sometimes responsible for handling the treasury functions, such as: raising financial investments, managing cash flows, etc. Formulating a structured system for monitoring and controlling internal accounting Conducting and supervising feasibility studies helping the managing in evaluating the profitability of a particular project or a portfolio of projects. It also helps in finding out the breakeven point of the project. Research on the accounting and other techniques adopted by competitors helping an organization improve internally. Monitoring and control on the internal frauds Providing valuable insight on tax laws (Colar, 2008). Changing role of accountants With the rise of competition and globalization of economy, the profession of accounting and its job has become much more complex than what it used to be. Today, accountants are responsible for allocating organizational resources, along with control and management of the overall company performance (Birnberg, Turopolec, & Young, 1983). Moreover, recession in the economy along with cut throat competition has increased its role in the economy. The role of management accountants and accounting has not only gained tremendous significance within the corporate environment but also on a national level as well as internationally due to the factors and changes mentioned above (Brownell, 1987). Today, we see the involvement of management accountants in helping, planning, monitoring and controlling, communicating and coordinating activities that involve important strategic decision-making. This is true not only for private organizations but also for public ones. The role of management accountants has evolved so much with time that now they are considered for providing advisory and information services as major areas of their work. Their major tasks as advisors would be to provide valuable insight, helping in setting up standards for evaluations or setting up targets, along with the formulation of the standard accounting practices and system of accountability. Besides acting as advisors, they also provide information services that include providing historical data, forecasts. Historically, the main task of management accountants in an organization used to be control and monitoring compliance to standard procedures. Presently, accountants are motivated to provide strategic support to the organization. The current business environment requires accountants to provide competitive support to their respective organizations due to the exponential increase in competition. The organizational hierarchy has also evolved due to the above mentioned factors, and thus, we have moved to more flatter systems making organizations more flexible, customer oriented. The skill set requirements of accountants has also evolved with now accountants being expected to not only excel in accounting but also in terms of their analytical and communication skills. The job responsibilities of accountants have changed as well with them becoming involved with the managers in taking important decisions. Moreover, they also need to keep the short-term and long-term objectives of the organization in mind. This is where the accounting systems are also very important as the accountant need to develop the system to ensure effective running of accounting practices so that necessary information is circulated to help in taking strategic and operational decisions (Desanctis, & Poole, 1990). Role of Accounting Practices in an organization Accounting practices in an organization are responsible for providing relevant information to managers helping them in directing and controlling the organizational activities. We can divide accounting practices into management and financial accounting. Management accounting has more to do with the directing, planning and controlling of the organization whereas financial accounting provides relevant information to the shareholders, investors, and the external parties of the organization. Managerial accounting is responsible for providing data that helps in running organization. It prepares a number of reports, some reports evaluate the performance of managers, specific business units, or the organization as a whole. Moreover, some reports are indicative of the key indicators such as order information, customer logs, capacity utilization, sales information. Accounting practices manage the organizational activities in the following manner: Planning – Management accounting helps in the formulation of budgets, which helps in estimating the costs of a project or a business unit. It also helps in performing the cost-benefit analysis as well. Budgets are prepared on an annual basis and are representative of the plans of management in financial terms (Nouri, & Parker, 1998; Otley, 1978). Direction – Management’s job is not only to manage projects and data, it is also responsible for motivating and directing the human resource. Managers need to motivate the employees to keep on going in the right direction. Accounting practices bring important data in the organization such as sales returns, target sales, break-even information, etc. to help with the daily decision-making. Monitoring and Controlling – Monitoring and controlling of operations means that managers try to make sure that the operations are being run according to the plan. Accounting practices provide feedback in the form of reports. One such report is performance report that provides the budgeted actual results. This would enable the organization in realizing the efficiency of the operations and finding out loopholes in case the activities are not running as they were planned to. Moreover, an organization can identify problem areas within itself and work towards improving those areas. We can see that the involvement of accounting practices is in every phase of the working of the organization right from the planning phase to the monitoring and controlling. As discussed earlier, businesses, organizations and organizational structures have evolved with the society. As we see numerous different changes in societies, they are not hard to find in the operations of businesses, organizations, and their employees (Otley, 1980). Therefore, accountants need to realize that the management accounting practices have also changed and the reasons behind those changes are quite many. First of all, the major changes that result in accounting practices is due to the changes in the economic and social forums and structures, globalization of economy, technological enhancements, emphasis on quality, and the move towards customer-driven organizations. Moreover, besides the above mentioned global issues, changes on the organizational level have also resulted in bringing changes. The major drivers of change in management accounting also result from the change in contemporary business and their styles of management. Michael Porter in his second book defined the term ‘competitive advantage.’ He explained the methodology through which a firm can achieve competitive advantage providing it with an edge over its competitors. He mentioned that a product is not just the attributes, appearance, configuration, etc. It is more than that. Businesses trying to improve their ‘Value Chain’ has also resulted in increasing the importance of management accountants and accounting practices. It is obvious that the value chain involves those activities that are necessary for manufacturing and delivery of the product to the customer. If a firm concentrates on those activities and improves them, it would be able to deliver a high quality product (Davila, 2000). However, in the competitive world of today, delivering a quality product is not just the target. We also need to keep the price within the range of our target market. This is where accounting and accountants become so important as they can pinpoint those activities where cost savings and cost cuttings are possible. They can also point towards those operations that are not profitable for the company so that the company can think about other alternatives and take the right decision at the right time. Moreover, four very contemporary organizational management themes are acting as major drivers for accounting practices and accountants resulting in making them much more important than what they used to be. Those themes are: customer driven environment, value chain analysis, supply chain management, continuous improvement, benchmarking (Kariyawasam, 2009). Introduction to the Theory of Structuration Anthony Giddens proposed this theory in the Constitution of Society. The theory of structuration states that the actions of human beings depend on the social structure prevailing in the society, which exists because of the values, principles, and laws that vary from one social structure to another. Therefore, we can say that the human actions are somewhat pre-decided in due to the social structure they exist in. However, the structure is not permanent, neither are its rules and they can be updated and modified according to the changing situation and needs of the society (Giddens, 1986). According to structuration, a social structure is a combination of structure, modality, and interaction. The set of rules and resources available to the people and governing them is known as the structure (Turner, 1991). Modality means the means by which we can implement the structures and interactions are people interacting with each other within the social system. The structuration theory could be easily linked with the organizational structure. Giddens defined three basic forms of structures: Signification – These are the general rules that help us in understanding the meaning of social actions Legitimation – These rules define the morally right and socially acceptable behavior Domination – This defines the sources of power as power over material objects termed as allocative power or power over other people, which is authoritative power. (Sewell, 1992). It is important to mention here that the structures mentioned above are only theoretically separable, however, in real-time situations, all three of them are interlinked with each other. The significance of accountants and accounting practices can also be expressed in terms of the theory itself. In fact, management accounting practices could be termed as the modalities of structuration. Robert Scapens portrayed management accounting systems as the modality of structuration, shared this view. However, it is worth mentioning here that systems only defines rules and procedures whereas Gidden’s concept has more to do with structures put into action. Consequently, our focus in more on accounting practices rather than the accounting systems. Management accounting represents the three basic structures of the theory. The significance of accounting practices is such that they make the operations and outcomes of organizational activities meaningful by the generation of profit/loss statements, costing, or other similar methods, which comes under the umbrella of signification. Accounting practices and accountants facilitate meaningful communication and interpretation of activities in financial terms such as measuring the economic value of products, services, processes, human resources, and other organizational units. Another significance of accounting practice in the context of presence in the organization is that by assigning value to operations, products, services, etc. they help in differentiating among the ones that are valuable for the organization and the ones that are of no value. Another interesting point worth mentioning is that accounting practices are themselves a product of signification as the actors use concepts to draw on conclusions and finding results. Significance of accounting practices with respect to legitimation, we find that accounting practices and the actions of accountants have to be in line with the values and norms defined within the organization itself as well as the moral expected from the social setup. The organizational norms come from the organizational goals, principles, values and external norms including economic principles, political and social implications. Therefore, accounting practices define approved actions and behaviors for an organization based on the norms mentioned above and accountants enforce those norms in the organizations (Gediehn, 2009). Lastly, with respect to the concept of domination, accounting practices help in determining resources and individuals within the organization that have power and can coordinate and control others. It has tremendous influence on the distribution of resources through budgeting and planning activities. Similarly, in terms of authoritative aspects, it makes individuals accountable and evaluates their performance against some set standards. However, it is important to mention that we cannot practically define a line between the three structures as they are closely linked with each other. Accountants with the help of accounting practices give meaning to organizational activities finding out the activities, resources, and employee that bring in value for the organization and making the actions of the organization legal against some set standards. Weakness of the Structuration theory with respect to implementation in organization Although, the structuration theory has a number of strengths such as: its ability to identify structures by focusing on the process and its applicability to various groups. However, it also has a number of weaknesses. It does not provide any means through which we can forecast the situation that result in the development of any structures. If we discuss this with respect to implementation in organizations, we see that the theory would not be able to forecast the future of the organization, which is of utmost importance. An organization needs to know where it is heading and it needs to plan accordingly. If we cannot predict the future structure, resulting from changing circumstances that we would not be able to plan. Moreover, it also neglects small changes happening on a day-to-day basic within the organization that may result in bringing about larger changes in the future. Moreover, on more aspect of the theory is that it is very easy to base it on individuals, however, it is extremely difficult to generalize the theory and hence, it is difficult to generalize it for different organizations (Small group communication, 2000). References Giddens, A. (1986). Constitution of society: Outline of the theory of structuration, University of California Press; Reprint edition. Elliot, Barry & Elliot, Jamie (2004). Financial accounting and reporting, Prentice Hall. p. 3. Goodyear, Lloyd Earnest (1913).Principles of Accountancy, Goodyear-Marshall Publishing Co., Cedar Rapids, Iowa, p.7. Retrieved on December 2, 2010 from Singh Wahla, Ramnik (n.d.). AICPA committee on Terminology. Accounting Terminology Bulletin No. 1 Review and Résumé. Friedlob, G. Thomas & Plewa, Franklin James (1996). Understanding balance sheets. John Wiley & Sons, NYC, p.1. Colar, Haday (2008). The Accountant’s Role in the Organization. Retrieved on December 3, 2010 from Kariyawasam, Udayasri (2009). Changing Role of the Management Accountant. Securities and Exchange Commission of Sri Lanka, and the Chairman of Insurance Board of Sri Lanka at the Achievers CIMA Graduation ceremony. Retrieved on December 4, 2010 from Sewell, Jr., W. H. (1992). A theory of structure: duality, agency, and transformation. The American Journal of Sociology, 98(1):1-29. Gediehn, Oliver (2009). Management accounting and strategic behave: on the dysfunctional effect of RAPM on long-term G. Research in management accounting and control. Dawson, P. 2003. Understanding organizational change: The contemporary experience of people at work. London: Sage. Small group communication, (2000). Theories of small group communication. McGraw Hill Companies. Retrieved on December 4, 2010 from < http://www.mhhe.com/socscience/comm/group/instructors/theory.htm > Turner, J.H. (1991) Structuration Theory of Anthony Giddens. In The Structure of Sociological Theory (5th ed). California: Wadsworth, pp. 519 – 539. Brownell, P. (1987). The Role of Accounting Information, Environment and Management Control in Multi-National Organizations. Accounting and Finance. 1-16. Nouri, H. and Parker, R.J., (1998). The Relationship between Budget Participation and Job Performance: The Roles of Budget Adequacy and Organisational Commitment’, Accounting, Organizations and Society. Vol. 23, No. 5/6, pp. 467-483. Otley, D.T. (1978). Budget Use and Managerial Performance. Journal of Accounting Research 16: 142-149. Otley, D.T. (1980). The Contingency Theory of Management Accounting: Achievement and Prognosis.Accounting, Organizations and Society 15: 194-208. Baxter, J., and W.F. Chua. (2003). Alternative Management Accounting Research – Whence and Whither. Accounting, Organizations and Society 28: 97-126. Birnberg J.G., L. Turopolec, and S.M. Young. (1983). The Organizational Context of Accounting. Accounting, Organizations and Society 8 (2): 111-129. Desanctis, G. and Poole, M. S. (1990). Understanding the use of group decision support systems: the theory of adaptive structuration. In J. Fulk, C. S., editor, Organizations and Communication Technology, pages 173-193. Sage, Newbury Park, CA. Davila, T. (2000). An Empirical Study on the Drivers of Management Control Systems’ Design in New Product Development. Accounting, Organizations and Society 25: 383-409. Hopwood, Anthony G. , Chapman, Christopher S., Shields, Michael D. (2008). Handbook of Management Accounting Research, Volume 3. Publisher: Elsevier, 2008. pp: 1251. Retrieved on December 8, 2010 from < http://books.google.com.pk/books?id=dIbYmN57sMwC&pg=PA1215&lpg=PA1215&dq=impact+of+accounting+on++organizational+space&source=bl&ots=QqsbKH0vtY&sig=jZgs2qXiA_1vAEl0nnATM4N1aQ8&hl=en&ei=lE7_TOnJBsHprAf1m-S4CA&sa=X&oi=book_result&ct=result&resnum=1&ved=0CBcQ6AEwAA#v=onepage&q=impact%20of%20accounting%20on%20%20organizational%20space&f=false> Chinne, Diane (2010). Accountability and responsibility: Working in the white spaces of the organization chart. Retrieved on December 8, 2010 from < http://www.helium.com/items/1728806-leadership-responsibility> Becker, F.D. (1981). Workspace: Creating Environments in Organizations. New York: Praeger. Accounting for Social impact, (n.d.). The Ontario Trillium foundation. Retrieved on December 8, 2010 from < http://docs.google.com/viewer?a=v&q=cache:eoCnPLJ2ZYAJ:www.carleton.ca/cedtap/stories/evas.pdf+how+does+accounting+impact+society&hl=en&gl=pk&pid=bl&srcid=ADGEESgrLVxp0c5u6UBkJTARikpmUmSt7HUkO9elBs8vTef-_1eStOqEinMD-pLBujDijrKW9j-N50aBgNAyT7nB1jgVGPBYDbE6nUuqOpQ9MwWQeNpv12VgeB1us9jTQE4Yx3I38oql&sig=AHIEtbTV77iOktA87GSeb01k8yFoErsQaQ> Read More
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