Examining the Organisational Context of Management Accounting Essay

“ Accounting involves the binding of organizational infinite in the really existent sense in which one of the most of import boundaries of an administration is defined by the boundaries of its system of answerability. To be portion of an administration is to be capable to that administration ‘s system of answerability ” ( Robert and Scapens, 1985 )

Ever since the corporate dirts affecting really big companies such as Enron and WorldCom, many modern-day administrations most perceptibly accounting patterns, have been capable to their administrations system of answerability. The consequence of these events is that large inquiry Markss have been placed over the competency and answerability of comptrollers ( Gray & A ; Manson, 2008 ) .

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This essay will critically discourse the statement and explicate the function of comptrollers and accounting patterns in pull offing modern-day administrations. In support of my statement, I will see theories and constructs.

Bacharach ( 1989 ) has argued that the primary end of a theory is to reply the inquiries of when, how and why. Therefore to back up my position, I will be using the ‘Contingency Theory ‘ into the model of this thesis.

Boundaries of Organisations & A ; Organisational Space

Administrations may possibly locate of import restrictions to adhere ‘organisational infinite ‘ in line to avoid put on the lining any actions which would harm the administrations prominence. Consequently such boundaries are needed ; nevertheless is accountability one of the most of import boundaries? I believe it is unimpeachably one of the most important.

In the comprehensiveness of clip, boundaries became considered to be abstract differentiations made by societal histrions to categorise objects, people, patterns, and even clip and infinite. They are tools by which persons and groups struggle over and come to be of the same head on definitions of world ( Lamont & A ; Molnar, 2002 ) . Thus boundaries can be seen to move as systems of categorization to convey order to the societal universe, moving as tools with which to adhere infinite. These boundaries can be defined by the internal and external environment of an administration. ( Hatch, Schultz 1997 ) . Therefore, the boundary is typifying the moral integrity of the organisation where an false common intent absorbs societal tensenesss by adhering together the separate ends of all organisational members.

Boundaries can besides be defined in a figure of different domains of organisational activity ; the physical, fiscal, psychological, legal and temporal kingdoms are all countries where boundaries are represented. The boundaries of the organisation in physical/special footings are co-terminous with its employees and with those sections which interface most straight with the environment ( Llewellyn 1994 ) .

The word ‘environment ‘ has antecedently been mentioned several times, and coincidently it is one three chief variables ( along with engineering and the administration construction ) in the eventuality theory stated by Otley ( 1980 ) and Thiessen ( 1978 ) for administrations. Thus we can utilize this theory in support of Llewellyn ‘s account.

Contingency theory has two basic underlying premises: First, that there is no 1 best manner to form. Second, any manner of forming is non every bit effectual. ( Galbraith, 1973 ) . The place of the organisational theoretician is that “ the best manner to form depends on the nature of the environment to which the organisation relates. ” ( Scott, 1992, page 89 )

But what is an administration? Harmonizing to Huczynski and Buchanan ( 2001 ) an administration is a societal agreement for accomplishing controlled public presentation in the chase of corporate ends.

Again in support of Llewellyn ( 1994 ) , this definition emphasises that people in the administration interact in order to accomplish some aims and in footings of concern those certain intents ever appear to be related to the binding of administration infinite. In such an organisation infinite, there are no fixed locations attesting themselves in physically mensurable signifiers. In support of Lamont & A ; Molnar, Yeung ( 2005 ) stated alternatively ; locations and distances in an organisational infinite are relational and therefore ramblingly constructed through actor-specific schemes and pattern. Even so, what is the differentiation to a ‘contemporary ‘ administration?

Post modern administrations are characterised by flexibleness ; exceeding the bounds of conventional and cosmopolitan societal norms outlined by modernness. Nohria and Berkely ( 1994 ) develop this impression of the postmodern administration, explicating how modern-day administrations no longer be as a rational physical system.

Yet once more looking into a modern-day administration position, we can utilize the contingencyA theory attack that focuses on accommodating public presentation to the peculiar fortunes of the organisation and to each given state of affairs. This perspective differs from the “ one best manner ” that the traditional theoreticians sought because they assumed that rules are cosmopolitan in all instances, despite the organisation ‘s typical fortunes.

Regardless of the obstructions the comptrollers brush, administrations have some latitude in the picks they make and in the actions they instigate. However, things that we took for granted in answerability are non at that place any longer ( Miller, 1998 ) . But what is answerability?


Accountability is concerned with giving accounts through a “ believable narrative of what happened, and a computation and reconciliation of viing duties, including moral 1s ” ( Boland and Schultze, 1996, page 62 ) . Others have seen answerability as a relationship affecting the “ giving and demanding of grounds for behavior ” ( Roberts and Scapens, 1985, page 447 ; Robinson, 2003, page 172 ) .

It is this facet of answerability which has been a focal point in the accounting literature ( Jacobs and Walker, 2004 ) . Nevertheless why is answerability such a hot subject today? It is approximated that a deficiency of systemic answerability costs Corporate America 10s of one million millions a twelvemonth in footings of inefficiency, workplace struggles and mistakes.

Accountability may be dictated or implied by jurisprudence, ordinance, or understanding or outlook ; the comptrollers have to bear the effects for failure public presentation as they are accountable for ( Hoskin, 1996 ) . As Emmanuel ( 1990 ) provinces, there are different ways where control in an administration can be accomplished. However, the most effortlessly implemented to understand is accounting. For that ground, accounting is to all purposes and intents, a agencies of control in the administration.

Management control systems ( MCS ) can be viewed as a tool in understanding the systems of answerability. An accounting system is accordingly a agency of providing information to directors to assist them to be in bid of the administration.

Accounting Practices/ Management control Systems

Accounting practicians should understand the practical chances and challenges of accounting patterns by placing what restraints they have in their activities. As a professional, they are intimated by the system of answerability. Further explication is needed of the external eventualities which constrain accounting pattern beyond organisational boundaries, sing that situational variables are frequently more ambitious than predisposing variables ( Cancel et al. , 1997 ) .

An administration can hold in place accounting systems, but if they are non being exploited, so they are non assisting the control of an administration. These systems need to be utilised so that the administration has a system of answerability which each patterns and the comptrollers in the administration is under the control of. Therefore, if it is under the control of the system of answerability, I believe it is being accounted for its portion of the administrations boundary.

There used to be the general impression that comptrollers were ‘bean counters ‘ . Due to the dynamic, political and societal transformative nature of the field, it has grown to busy a more important place within modern administrations, which enables better investing determinations ( Hopwood A and Miller P, 1994 ) . Accounting is non all about Numberss but has a societal position to it ( Hopwood, 1971 ) .

Calculations and the impression of fringy costing are cardinal to modern-day direction accounting ( Miller, 1998 ) , such patterns support managerial determination devising. This is supported by Chow, Shields and Wu, ( 1999 ) . They hold the analysis that MCS are proposed as a agency of motivating/influencing the employees of an administration to move in its best involvements ; this is concerned with the determination devising and actions of all employees. However are these determinations restricted to the administrations system of answerability?

No uncertainty answerability is a limitation of many facets. No 1 will desire to be accountable for any sort of loss in an administration ; hence this limitation will keep them back from accomplishing a certain aim, and in consequence hampering in adhering the organizational infinite.

Organizational infinite is enormously reliant on how good an administration is able to calculate and respond to alterations in engineering and the environment. An drawn-out position of eventuality theory is that the construction of an organisation is dependent on the company ‘s engineering and environment and the effectivity of the MCS is contingent on the organisation ‘s construction ( Waterhouse and Tiessen, 1978 )

MCS is an agreement which assembles and uses information to measure the public presentation of different organisational resources such as human, physical, fiscal and the organisational schemes. ( Otley, 1994 ) . These schemes will organize boundaries of many systems, one of which may be answerability. The in writing illustration below reflects my reading of these theoretical constructs.

The Contingency Theory of Organisations

In my sentiment, a MCS should be to restrict an comptrollers function in which their actions will keep effects if they are non initiated decently. This position of MCS is besides supported by Merchant and Van der Steede ( 2007 ) . Rather than taking a strategic control position, they take the observation that MCS is concerned with guaranting employees of the administration are acting right, that is, within the parturiencies ( administrations boundary ) of what they should be set abouting.

Otely ‘s variables of the eventuality theory is besides supported by Chenhall ( 2003 ) who discusses eventuality theories from a functionalist position where the premise is that MCS are developed, or adopted to help in accomplishing coveted organizational infinite.

Execution of a eventuality attack was a work of fiction because it required comptrollers to sort and see the impact of contingent variables on the design of a MCS. Otley concluded that the given was better in acknowledging contingent variables than it was in mensurating their impact on the design of a MCS. He stated that this could be slightly explained as the theory focused entirely on MCS ‘s but in fact, administrations use a batch more other overall controls. What comprises a successful MCS accordingly depends on the conditions environing its usage ( Drury 2004 ) .

Consequently, the matching MCS is non suited for every administration, nor is it suited for one administration in different state of affairss. Therefore for administrations to accommodate to the environmental accommodations, they must go accustomed their MCS ‘s.

However, it is non merely direction control systems that help directors efficaciously control the administration. It is how they are used. The end product of accounting systems is clearly the information that is provided. It is this information that must be used by directors and comptrollers likewise to accomplish effectual MCS ‘s.

Cardinal to contingency analysis is the chase of equilibrium, as “ accommodations ” harmonize structural and contextual “ variables ” . As eventuality analyses assume that functional jussive moods determine organisational restructuring, they can non embrace the active achievement through bureau of the organisation as an embedded, but differentiated, portion of wider society. ( Willmott, 1990, page 45 ) .

Systems of answerability reproduce an organisation which is, physically and psychologically, more cohesive and coherent. Besides, by making mutual rights and duties, they bind organisational members together and travel some manner towards ostracizing the possible riotous influences of race, category and gender from the organisational sphere: Systems of answerability besides embody a moral order: a complex system of mutual rights and duties. The pattern of answerability institutionalises the impression of answerability ; it institutionalises the rights of some people to keep others to account for their actions ( Roberts and Scapens, 1985, page 448 ) .

As an administration increases its figure of comptrollers, pull offing them in an ad hoc and inconsistent manner becomes hard. Therefore boundaries are required to guarantee answerability and dependability. Therefore, I believe the bulk of administrations ‘ accounting patterns are its systems of answerability.

Role of comptrollers

Different activities in an administration will necessitate the administration to keep different sections in which each will keep its ain set of directors. Therefore comptrollers can be perceived as directors in an administration who are accountable for commanding the concern activities in each section.

“ Management control [ hence ] is the procedure by which directors assure that resources are obtained and used efficaciously and expeditiously in the achievement of the administrations aims ” ( Anthony, 1965 ) . This implies that directors are accountable for the achievements of the concerns aims. Sing that this is a motivation for the executing of MCS, it can be assumed that in the broadest sense, an comptroller ‘s function is to use and set into operation the MCS.

I believe the function of Accountants depict the procedure in which designation, measuring, accretion, analysis, readying, reading and communicating of information used by direction to be after, measure and command within an entity and to guarantee appropriate usage of and answerability for its resources.

As mentioned earlier boundaries can besides be defined in a figure of different domains, and one I believe is cardinal to understanding answerability, which is psychological. Accountants play a large portion in the stimulation and psychological science of duty ; puting budgets to puting single marks. Through the interaction of sections, this is a signifier of adhering organizational infinite.

The changeless alteration of the nature makes a direction comptroller ‘s function become more demanding than antecedently. They are accountable to hold a through position related to the frauds and mishappenings that exists in a company.

The common function of scrutinizing to bridge the spread between stockholders and managers, I believe is an of import component of answerability in the sense of trust. Building up trust is non easy ; comptrollers may hold different motivations and a batch of witting attempt has to be made in this way. This requires comptrollers doing changeless attempts to reflect the true and just position of the histories. The more they explore, the more they can manage contradictions good. After all most of the jobs in relationships occur because administrations do non desire to open up. As a consequence, hearers tend to look at administrations with uncertainty. This will heighten their credibleness, which will take to constructing trust, and in return will adhere the organizational infinite. The weight of answerability is huge on the hearer ‘s behalf ; if they are to be caught with carelessness.

But why should this carelessness or bad luck occur in the first topographic point? We can utilize the eventuality theory once more to explain this treatment. Accountability is linked to contingency theory and is a broader impression than resource allotment as it focuses on both past public presentation and how the entity is positioned for the hereafter.

Fiedler ( 1967 ) found that administrations are more successful in highly ‘favourable ‘ or ‘unfavourable ‘ state of affairss. The eventuality theory allows for foretelling the features of the appropriate state of affairss for effectivity. One constituent find the favorableness of situational control in relation to the grade of regard common, trust, and confidence is the undertaking construction, mentioning to the extent to which group undertakings are clear and structured.

Accountant ‘s trustiness has been the ruin of such late since the closing of Arthur Anderson. It is imperative that the attitudes of comptrollers are doubting in their function, but this is up to every comptroller to how they want to pattern.

These sort of attitudes are a boundary themselves, nevertheless if these mentalities are cosmopolitan ; this itself is adhering the organizational infinite by affecting their milieus and conveying the patterns together. This brings us back to controllability which is an implicit in construct of duty accounting. A director should merely be held responsible for those facets he or she can command. In my position, this is construct is seldom applied successfully in accounting patterns because of the system fluctuation nowadays in all systems. Again we can use Llewellyn psychological sphere, as it provides a manner to actuate lower degree directors and adhere the organizational infinite in civilization.


The mere fact that criterions alteration, and that old direction accounting patterns are on a regular basis replaced by new 1s, suggests that accounting has an arbitrary nucleus. The basic averment of eventuality theory is that the environment in which an organisation operates determines the best manner for its direction control systems to adhere its organizational infinite ( Scott, 1992 ) . As accounting is a agency of commanding these sections and activities which provide the restrictions, anything that does non come under the compass of answerability is accordingly non an component of the administration.

Although accounting patterns needfully operate harmonizing to preset regulations, directors of administrations do hold the option of moving in a scope of ways to adhere the organizational infinite, and eventuality theory recognizes this individualism. In peculiar, theoreticians have applied eventuality theory to organizational jobs of determination devising, organisation alteration, and organisation construction. Although critics recognize the benefits of suiting these rules to single state of affairss, they besides argue that eventuality theory provides no utile generalisations for administrations to use.

You ‘ll see positive and negative reactions, because answerability is equal with duty, guilt, and moralss. It ‘s ordinary for person to oppose being accountable ; non basically because they do n’t desire to make a good quality occupation, but due to the negative emotions that habitually come as a effect. Accountability within accounting patterns can one time once more regenerate the dependability of comptrollers. This in-turn will adhere the organizational infinite.

Social psychological science would propose it is difficult to acquire comptrollers to have up sometimes. Directors can non anticipate to keep others accountable for their actions if they do n’t keep themselves accountable for theirs. Therefore, accounting concepts peculiar signifiers through which information can be represented ( Cooper, 1992 ) . The “ peculiar signifiers ” in systems of answerability which accounting green goodss facilitate the binding of organisational infinite, therefore maintain the organisation as an entity.

In near, I am in understanding with the above statement, that one of the most of import boundaries to adhere organizational infinite is defined by its system of answerability. Management control systems are an illustration of a system of answerability in accounting patterns implemented by administrations which can be recognised as another signifier of direction accounting system.

However I have come to believe that, MCS ‘s itself is a system of boundary in commanding an administration to a certain graduated table, where answerability is limited to certain functions of comptrollers. Additionally, trust is besides another of import boundary which is concurrent to the system of answerability. If there is no trust within the function of comptrollers and their accounting patterns, how will an administration pull itself together and adhere the organizational infinite? From my thorough research, I believe modern-day administrations boundaries are limited to its administrations control systems introduced. It is of paramount significance that administrations have successful control mechanisms that will ease direction to do certain the binding of organizational infinite.


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