Management Accounting Literature Review
The business environment in Malaysia has experienced several changes over the recent years. These changes have been brought about by globalization that has introduced new technologies in the country. The technologies have opened the business environment in Malaysia to new challenges and competitive forces. The central Government economic policy has helped business people to mitigate challenges associated with management accounting. The policy is in line with the country’s vision 2020, which aims at reforming the management of its resources, and it has contributed greatly to the manufacturing industry in the country. The manufacturing industry is a key contributor to the country’s economy. This means that then sector ought to be managed well. There is a need to understand the changes that have been taking place in the country, particularly in management accounting. Management accounting plays a critical role in the development of the country. This paper contains a detailed literature review of various studies in Malaysia. It addresses key concepts regarding management accounting and how it affects the entire economy.
Literature shows that changes in both external and internal factors influence changes in management accounting methods. The management accounting system plays a crucial role in an organization. It provides useful information to management, particularly in decision making. It is worth noting that poor decision making in an organization results to poor accounting practices. Many researchers have shown a lot of interest in understanding how the management accounting, as well as organizational structure responds to globalization. However, most of the researches have been conducted in developed countries like the United States and the United Kingdom. Little has been done in developing countries like Asia, and Sub-Saharan Africa. The following is a detailed literature review of some of the researches that were done in Malaysia.
The studies confirm that there has been an increase in competition faced by Malaysian manufacturing sector over the past five years. There has also been an increase in the use of Advanced manufacturing Technology. Different studies confirm significant changes in differentiation strategy, and the use of management accounting techniques. Such an outcome is significant for companies that wish to compete in the globalized market. (Zainun 56) Tested the relationship between Advanced Management Technologies and organizational structure. The results indicate a positive relationship between organizational structure and environmental change. Moreover, competitive environment affects the design of an n organization. The research also shows that organizations, which operate in a highly competitive environment, continue to embrace decentralization. Studies show that competitive environments tend to respond to changes in strategy, which later changes organizational structure.
Management accounting and innovations
Management accounting practices have been changing overtime. According to (Zawawi and Hoque 515) the development has not been radical. It has been a gradual process which has seen managers adopt new technologies. The two researchers found that management accounting has been influenced by other disciplines. One of the major innovations in management accounting is accounting management systems. These systems have increased dissemination and sharing of information among managers, as well as making it easy for error detection. Information systems use the internet, which is a very powerful communication tool. According to (Zawawi and Hoque 535) management control systems have helped the banking sector by easing transactions, which has reduced the workload for managers.
A study done by Zainun shows indirect relationship between Advanced Management Technology (AMT) and organizational structure. This means that manufacturing companies in Malaysia will change their organizational, as a way of reacting to AMT. this is because when a company adopts AMT, its production activities change, prompting for a better cost management. It is worth noting that advancements in production processes require detailed management. This tends to change the company’s routine and work units. This change becomes successful where employees are empowered. Employee empowerment helps employees to perform duties efficiently.
According to, a change in a competitive environment or AMT brings a change in differentiation strategy. The study shows that a strategy is an important variable when studying the behavior of organizations. Different studies suggest that organizations that are faced with the competition and increased use of the AMT adopt differentiation strategy. The combination of these variables increases performance by a great percentage. (Zainun 78) demonstrate a direct relationship among the competition and the use of AMT with differentiation Malaysian manufacturing companies. These findings confirm that a competitive environment and the adoption of effective manufacturing technologies require organizations to develop a solid business strategy as a way of differentiating themselves with other organizations, and create value for their clients. This means that there should be a proper match of these three variables regardless of how they operate either in developed or non-developed economies.
Change in competition AMT and MAP (Management Accounting Practices)
(Hope 25) Suggests firms that operate with AMT and in a global market are expected to have high changes in the MAP. These findings show a positive relationship between MAP and competition. The study suggests that to remain competitive in the global market, an organization must monitor a diverse range of competitive forces using an appropriate strategy which tracks both non-financial and financial performance of that organization. This means that the increases in the competition, in Malaysia, do not cause drastic changes in the MAP, in the manufacturing industry. This might be as a result of government intervention in the market, which favors manufacturing companies in the country. The government offers various incentives such as tax holidays and other financial incentives to small and medium enterprises. This tends to boost their performance because it reduces operational costs by a great percentage. It has been argued that the manufacturing sector in Malaysia is not based on firm domestic producers, but instead relies on foreign multinationals, which produce for export. As a result, globalization opens Malaysia to a greater competition. This is because while traditional companies continue to use traditional methods of accounting, foreign companies use advanced methods. This makes it difficult for the traditional companies to compete in the same phase with the foreign firms. Since it becomes very difficult for traditional companies to adapt to the changing environment, managers of these companies may decide to continue using traditional methods of accounting because they are cheap and easy to adopt.
If a company meets the needs of senior management, there is a need to adopt new management techniques. Apart from this observation, it is found that the use of AMT by Malaysian manufacturing companies has directly affected changes in their MAP. This is supported by other studies that were done on the same area. The study suggests that globalization bring in new technology in the country, which changes the structure of manufacturing costs. To adapt these changes, there is a need to design a proper MAP which can support the introduction of innovations. According to this observation, some technologies such as CAM, CAD and robotics have undesirable consequences to the traditional system of management. This is because these technologies cannot help managers to manage resources and identify costs associated with production processes. This means that changes in the MAP better align to the chosen technology because each technology has a different impact on organizational structure.
Changes in Management Accounting Practices and organizational structure
(Omar 79) proposes an interrelationship between MAP and organizational structures. Other studies strongly support this hypothesis. The studies suggest that changes in organizational structures cause changes in the MAP. It is worth noting that introduction new MAP in organizations brings a formal change. A good example of a new MAP is ABC system, which leads to new administrative procedures, organizational structure and policies. According to (Omar 80) advanced management accounting practices such as ABM, ABC and TQM are not only restricted to production activities, but also provide new methods as part of reforming an organization. (Scapens 74) Suggests that changes in organizational structure alter outsourcing methods, which necessitate changes in the MAP. This shows that management accounting practices are an important element of structure and a consequence of the desired structure. This finding is significant to understand a relationship between structure and management accounting practices.
Changes in MAP strategy formulation
While there is an interrelationship between structure and MAP, only one-way relationship has been found between strategy and MAP. Studies in Malaysia have confirmed this relationship. A study done by Hope confirmed this relationship, contradicting a previous study which had been done earlier. Findings of a new study show that increase in the differentiation strategy causes changes, in management accounting practices. The finding is consistent with a traditional theory which suggested that management accounting performance was a result of good strategy formulation. According to (Hope 26) highly performing differentiator strategy companies are linked with Management accounting practices.
Impact of management accounting on performance
Kamilah Ahmad carried out a study in Malaysian SMES to establish the relationship between organizational change, management accounting and performance. The findings of this study show that there is a positive relationship between management accounting, organizational structure and performance in Malaysian SMEs. The study further confirmed that active interaction of AMT, MAP and organizational structure improves organizational performance. This improvement in performance also results from competitive environment and strategy. These results are in line with the argument that the correct match of the organizational systems yields high performance. (Harisak 49) Confirmed that the use of advanced MAP in SMEs places a strong emphasis on differentiation, which eventually results in high levels of performance. The study also found out that firms that rely on non-financial accounting information performs better than those which only rely on financial statistics. The study adds that the use of both is even much better. It is worth noting that there is a very limited evidence to prove that changes in strategy and structure improves performance.
(Ahmad 180) found out that management accounting in Malaysian SMEs plays important roles in the management procedures. Such roles include, controlling, planning, and evaluating performance as well as decision making. In addition to this, management accounting guides SMES managers in the implementation and formulation of the best strategy and value creation.
Suggestions for Further Studies
The studies confirm that Management that management accounting practices is important in Malaysian manufacturing sector. However, most of the studies aimed at identifying the role of management accounting in the country, which is has a developed economy. It is significant to note that most of the studies reviewed were done in developed countries. This means that a lot has to be done in developing countries to confirm whether there the results will vary, and if they do, at what magnitude.
The other suggestion is that other than carrying out studies on the manufacturing sector, a lot more need to be done in developing sectors of the economy. From the literature review, it is only one study which was done in SMEs. Since the informal sector is rapidly growing, more studies need to be done to measure the impacts of management accounting in those sectors. In addition to this, researchers ought to put emphasis on innovations and how they affect management accounting. Little has been done to factor in the effects of the internet on organizational structure. With increased globalization, a lot need to be done to know what factors are likely to influence management accounting in the coming years. One of the studies discussed claims that strategy formulation has no impact on management accounting practices. This area needs more research to ascertain whether it is true or not.
Ahmad, Kamilah. "The Use of Management Practices in Malaysian SMEs." University of Exeter (2012): 166-180.
Hrisak, D. (2006). The controller as the business strategist. Management Accounting, vol.
78, no. 6, pp. 48-49.
Hope, J. (1997). Beyond budgeting: breaking through the barrier to ‗The Third Wave‘. Management Accounting, pp. 20-26.
Mat, Tuan Zainun Tuan. "Management Accounting And Organizational Change:Impact Of Alignment Of Management Accounting System, Structure And Strategy On Performance." Edith Cowanuniversity Journal (2010): 56.
Omar, Normah. "International Business Conference Journals." of Managemenet Accounting In Malaysian Companies (2000): 79.
Scapens, Burns. "Changing Nature of Management Accounting." Management & Financial Accounting Journal (2007): 234.
Zawawi N.H.M. & Hoque Z. (2010) research in management accounting innovations: and overview of its recent development. Qualitative Research in accounting and management 7 (4), 505-568 "