Introduction
Management accounting is simply the easy presentation of accounting data to managers so that they can make informed choices regarding the companies they are running. What management accounting is today is different from what was in the past. However, there has been a major debate on the extent in which it has changed. Some have said that, accounting management has not changed since the middle of 20th century while others have said that it has changed dramatically. This paper will explore the major changes that have occurred since 1950s up to today.
Prior 1950
Prior to 1950, the International Federation of Accountants (IFAC) described that era of accounting as one that concentrated on the production cost. Perhaps the 1950s marked the most significant change in account management. Earlier before, it was only about the simple function of finding the cost and financial organization. The technology used in production was relatively simple while costing of labour and raw materials was straight forward. Production cost was complemented with financial plans and statements. Also, accounting structures were formulated to run the pay out such that the managers were able to keep track of their expenditures.
1965 to 1985
Later on, between the years 1950s to 1960s, the main concern of management accounting changed to the provision of information for scheduling and management. The management accounting techniques that were formulated during this period were as a result of the then economic assumptions or theories. One of the assumptions was that; all the duties are formulated at the managerial levels. The other assumption was that; the outside atmosphere of a company remained unchanged. This means that the price or demand of a product remained the same. Finally, it was believed that the accountants were not supposed to make any decisions. However, all that changed when modern accounting was introduced in the learning curriculum in Harvard and MIT.
Thus, new techniques of solving problems started to evolve. The major concern at that time was; raising the profits and improving efficiency. These new techniques were not yet influenced by the technological advancement nor did they consider the competition activities. Therefore, it appeared as though the new techniques assumed limitless rationality, limitless information and that the price of these studies, were lower than the remunerations.
In 1956, the pioneering book about management accounting was released. It was authored by Robert Antony and had two main themes, namely; means of analysing novice problems and the suitable channels of costing. This book, together with the ones that followed, greatly emphasized on function of cost management to be resolution creation rather than just finding the cost.
This shift made the management to start to use certain management strategies such as; judgment scrutiny and responsibility accounting. Accounting management started to lean on industrialization and internal dealings. Therefore, it started to act as a control tool since it could recognize problems in the system. Overall, the main aim was to increase profits by ensuring every department of a firm was operating efficiently. After 1950, 30 or even more techniques have been developed relating to expenditure and organizational accounting. However, most of these techniques were introduced in the previous 2 decades (Dickinson 2009, p 267).
1985 to 1995
In the early 80s, the world had just recovered from a recession that was caused by rapid increase in oil prices. This recession had really shaken up the western markets. On top of that, increasing competition was fuelled by emerging technologies which affected every department of the industrial area. One of the milestones in technological advancement was the introduction of personal computers. This radically changed the amount of financial data which could be available to the managers. Thus, how data should be stored, maintained and presented became a major concern for managers who wanted to be effective.
It was now apparent that the management accounting curriculum went beyond the issues that faced managers. Therefore, accountants like Kaplan advocated for extension of management accounting to fields not related to finance. He also called for improved comprehension of existing problems and the actual information that would be needed by the managers. Finally, he wanted to see innovating practices in the running of companies (Capon 2001, p 268).
This period was marked with a change from mechanical kind of view to an intricate set of managerial interdependencies. However, the main changes can be classified into two; quantity and control issues. It was noted that the factors that affected production of a product, had experienced radical modifications and that management accounting did not cater for the new changes. These new changes in management accounting, required fresh costing models to depict the manufacturing practices. Also, it required that the newly introduced management accounting operations were cost effective (Cheverton 2008, p 219).
This new advancement put the management accountants further away from the issues surrounding managers. In the long run, they distanced themselves away from the organization. Therefore, they had to concentrate on achieving their company’s goals. They started looking into how the workers could be encouraged to follow certain company goals. Thus, there was the emergence of the balanced scorecard; which proved to be vital in the formulation of quantity and control issues.
At this time, there were many materials regarding management accounting and not all of them had the same idea. Some journals recommended other organisational models while others changed their names from “cost accounting to cost management” (Nixon 2005, p 260).
The task of being a competitive and a viable company included the introduction of fresh organization and production procedures. However, during this era, cost was very much reduced by trying to reduce waste originating from the raw materials. Like many other company implementations, this move had to be supported by employees through worker empowerment. In such an environment, there is necessity for administrative information and resolutions be integrated all over the firm (McDonald 2006, 356). The daunting task of management accountants, (who present the just mentioned information) is to make sure the needed information is accessible to all the managers and workers despite of their position in the company. Before the information is released, it had to be analysed and the method of technology to be used had also to be keenly chosen (Solomon 2008, p 276).
1995 to 2000
In 1990s, the global industries were still under significant and unpredictable changes in production and data handling technologies. The increasing rate of the internet use and other related technologies, further built competition in the market. Again, the priority of account managers changed to adding of value to the intended products. To realize this, industries had to use the latest and appropriate technology to research, organize and manufacture products (Miller 2005, p 472).
This meant that the raw materials were made more usable or user friendly to the consumers. The level in which money could be invested to increase the raw material’s value depended on a couple of factors. First of all, the technology used was very important. This determined the cost of the whole value addition process and also the number of workers needed. Also, management accountants had to be sure the extent in which their consumers will be willing to pay for the products. On the other hand, they had to consider how much more was it worth to the customer after the value addition (Sherman 2003, p 128).
Since resources were also become scarce, it was critical to learn how to manage them. Resources included raw materials, skilled labour and other natural resources such as water. Considering that some raw materials are only available at certain times of the year or from another country, the cost of production became complex. Therefore, it was really critical for the financial accountants to propose efficient use of the available resources (Hopwood 2008, p 11).
Decisions concerning resource management are mainly made by the management team. However, in some countries, there are restrictions on the use of certain material or chemical; thus, the government influences the method of operation too (Hudson 2001, p 250).
2000 to present
From year 2000 up to date, there have been major concerns on the environment. Without a doubt, businesses have contributed to the degradation of the environment. Industries such as mining companies, electricity producers and manufacturing industries pour tonnes and tonnes of toxic material to the environment. It is believed that if this continues, there will reach a point when consumers would deteriorate in health such that they will not be able to spend their money as they used to. This issue has concerned the corporate world of course. As a result, the management accountants have shifted their focus on reducing the environmental degradation. Furthermore, in almost all the countries, there are set of regulations which determine the level and manner of toxic release. Obviously, this will bring change in the whole process and at the same time, the consumers are not willing to pay more. Therefore, it is very critical to find a balance point where the toxic disposal requirements are met, and the cost of production does not go up (Atkinson 1997, p 80).
It has also become vital to efficiently use natural resources like water since they are becoming scarce. Managing of energy has also become very critical since the world is currently in the middle of energy crises (Kaplan 1987, p 25). The type of energy and the available technology will drastically affect the cost of operations. It is therefore critical for management accountants to make clear cut decision on which is the best kind of energy to use. Also conserving water is critical in cutting down the operating cost. Most companies opt to recycle water and this has not only reduced the cost, but made it more ‘green’.
Another focus of the modern corporate is social responsibility. It is not quite developed but most companies have started to participate in community development. Corporate responsibility does not have a direct income. However, it plays a major role in building a company’s reputation. Thus, companies have spent a lot of money in building hospitals, schools and other social amenities (Shields 1997, 10).
These shifts in management in this period are carried out by the management team. Even though they make the decisions, they are mostly following standard guidelines set by regulatory bodies concerned with environmental degradation. The implementation is carried out by the employees who must work as a team (Johnson 1987, p 288).
Conclusion
It is evident that management accounting has evolved over the past fifty years. Prior to 1950, the centre of attention was on cost accounting which was basically meant for inventory and financial organization. So this was not actually management accounting but just cost accounting. It was until between 1950 and 1965 when the term management accounting was used to mean giving of information for managerial purposes. During this era, the focus was on venture assessment, critical decision evaluation and scheduling. After around 1985, the focus changed to waste management, procedure examination and cost managing. Afterwards, at the last decade of 20th century, the focus changed to the complex resources management and adding value to raw materials. In the 21st century, the focus shifted towards environmental conservation and corporate responsibilities (Scapens 2010, p 280).
History has proved that the business world is evolving and will continue to evolve. Every new technique developed in account management has changed the way business is practiced and the way research is done on this field. Despite of these radical changes, not all of the initial focus of management of accounting has changed. Some of it has basically remained the same, for example, management accountants still determine the cost of production. The changes that have occurred have been necessary, these changes occurred since there was need to provide accurate managerial information. This is really important since the business world is becoming complex day after day. It is even more important to come up with new techniques in evaluating the viability of any company.
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