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Part III Supporting Information In Part III, Chapter 16 suggests an approach to research in accounting, provides some concluding comments and suggestions for further reading. Four readings are included in Chapter 17 that cover the spectrum of the accounting academic literature and support the most important concepts in the book. Each reading has a series of questions that the reader is encouraged to think about and discuss with others. This part also contains an extensive glossary of the accounting terms used in this book. 16 Research in Management Accounting, Conclusions and Further Reading Research and theory in management accounting Theory is an explanation of what is observed in practice. The development of theory from practice is the result of a process of research. Practice informs theory, which in turn, via various forms of publication and education, can influence the spread of practice between organizations and countries. Otley (2001) argued that management accounting research ‘has, in a number of respects, lost touch with management accounting practices’ (p. 255), having concentrated too much on accounting and not enough on management. Otley reinforced earlier arguments that management accounting had become ‘irrelevant to contemporary organizations, but worse that it was often actually counterproductive to good management decision-making’ (p. 243) and that we need to ‘put the management back into management accounting’ (p. 259). Hopper et al. (2001) argued that there have been few British scholars who have achieved innovation in practice, either because of ‘the anti-intellectualism of British managers and accountants . . . or the marginal role of academics in British policy making’ (p. 285). Both issues are important, because an understanding of accounting tools and techniques without an understanding of theory has the same problems as theories divorced from business practice. An understanding of the underlying assumptions of accounting and the limitations of the tools and techniques of accounting is essential. If we ignore those assumptions and limitations, we are likely to make decisions on the basis of numbers that do not adequately reflect any underlying business reality. Theory has been integrated with practical examples in this book to reflect the importance of taking an interpretive and critical perspective on financial reports. Theory is not developed by academics in ivory towers divorced from practical business situations. It is developed from research, which typically takes one of two forms: ž a quantitative study of a large number of business organizations that yields a large database that can be analysed statistically in order to produce generalizations about accounting practice; 248 ž ACCOUNTING FOR MANAGERS a qualitative study of a single organization or a small number of organizations through case studies comprising interviews, observation and documentary research that aims to explain accounting practice in the context in which it is situated. Both methods are valuable in helping to understand accounting practice. The reader is encouraged to look at some of the literature referred to in the chapters throughout this book in order to understand the context of accounting in organizations. Hopper et al. (2001) traced the development of accounting research through four approaches: ž ž ž ž conventional teaching emphasizing the needs of the professional accounting bodies; the application of economics and management science; history and public-sector accounting; behavioural and organizational approaches. The first approach is that traditionally taken by students of accounting. The second approach relies heavily on econometric and mathematical models, which are outside the scope of this book. This book has taken the view that managers who use accounting information do not need as thorough an understanding of how to prepare accounting information, but rather that they should take a more interpretive and critical perspective. This implies a concern with the behavioural and organizational approach, rooted in organizational history and the unique circumstance of each organization. Power (1991) described his own experience of a professional accounting education and argued that ‘the lived reality of accounting education shows that it does not serve the functional ends that are claimed for it’ (p. 347). He described: the institutionalization of a form of discourse in which critical and reflective practices are regarded as ‘waffle’ . . . of a cynicism and irony among students towards the entire examination process . . . and the public game that they are required to play. (p. 350) Power (1991) concluded that this ‘may be dysfunctional for the profession itself and for the goal of producing flexible and critical experts’ (p. 351). Research in management accounting tends to fall into two distinct categories: ž ž The normative view – what ought to happen – that there is one best way of doing accounting, that accounting information is economically rational and serves an instrumental purpose in making decisions in the pursuit of shareholder value. The normative view has been evident in this book through the presentation of accounting tools and techniques in each chapter. The interpretive and critical view – what does happen – the explanation of how accounting systems develop and are used in particular organizational settings. This view recognizes that people do not necessarily make decisions based on economically rational reasons but have limited information, limited cognitive RESEARCH IN MANAGEMENT ACCOUNTING 249 ability and are influenced by organizational structures and systems (including, but not limited to, accounting systems) and by organizational power and culture. The interpretive and critical view has been evident in the theories and case studies presented in the book. This second – interpretive and critical – view is descriptive or qualitative rather than statistical or quantitative. This is a necessary approach to explain the practice of accounting in both its organizational setting and the wider social context in which it exists. This second view has tended to be developed through case study research. For example, Kaplan (1986) argued for empirical studies of management accounting systems in their organizational contexts, by ‘observing skilled practitioners in actual organizations’ (p. 441). Kaplan described empirical research methods, especially case or field studies that communicate the ‘deep, rich slices of organizational life’ (p. 445) and are ‘the only mechanism by which management accounting can become a scientific field of inquiry’ (p. 448). Spicer (1992) argued that case study research is appropriate when ‘why?’ or ‘how?’ questions are asked about contemporary events. He classified two types of case study research: descriptive and/or exploratory, and informing and/or explanatory, arguing that: the case method, when used for explanatory purposes, relies on analytical not statistical generalization. The objective of explanatory case research is not to draw inferences to some larger population based on sample evidence, but rather to generalize back to theory. (p. 12) Hopper et al. (2001) emphasized the rise of behavioural and organizational accounting research from 1975. In the UK, a paradigm shift occurred that did not happen in the US (where agency theory remains the dominant research approach), as contingency theory and neo-human relations approaches were abandoned for more sociological and political approaches that drew from European social theory and were influenced by Scandinavian case-based research. Under Thatcherism: accounting data and the consulting arms of accounting firms had been central to economic and policy debates, involving privatization, industrial restructuring, reform of the public sector, and worries about de-industrialization . . . it appeared apparent that accounting had to be studied in its broader social, political and institutional context. (Hopper et al., 2001, p. 276) Humphrey and Scapens (1996) argued for the capacity of explanatory case studies ‘to move away from managerialist notions of accounting and to provide more challenging reflections on the nature of accounting knowledge and practice’ (p. 87) and to its ‘intricacies, complexities and inconsistencies’ (p. 90). One problem that has arisen in academic research is the variety of theories used to explain practice, which Humphrey and Scapens (1996) believe excessively dominate the analysis of case study evidence. Similarly, Hopper et al. (2001) argued that ‘the research thrust may lie in attempting to integrate and consolidate the 250 ACCOUNTING FOR MANAGERS variety of theories and methodologies which have emerged in recent years, rather than seeking to add yet more’ (p. 283). For example, case study researchers are: becoming aware of the need to study accounting change from the perspective of global competition . . . there is a need to re-incorporate economics into social theory, and case study based research. (p. 284) This book has attempted to integrate both views, i.e. to understand the tools and techniques of accounting as though they were rational, while also introducing alternative ways of seeing accounting. It is hoped that it may also encourage readers to undertake research into accounting, either in an academic environment or in their own business organizations, in order to challenge conventional wisdom and better understand the context in which accounting is practised and the consequences of the use of accounting information for decision-making. In their introduction to a special issue of Management Accounting Research devoted to management accounting change, Burns and Vaivio (2001) noted that many firms have experienced significant change in their organizational design (structures and processes), competitive environment and information technologies. There is a need for management accounting change, despite the relatively recent (in the last 20 years) introduction of activity-based costing and the Balanced Scorecard. Information technology in particular is driving the routine financial accounting functions into centralized head offices or is being outsourced. However, management accounting is increasingly decentralized to business units, where it becomes the responsibility of functional and business unit managers. These operating managers are more and more responsible for setting and achieving budget targets. As the role of non-accounting managers is being extended to encompass (management) accounting functions, the role of the professional accountant is also changing to a business consultant, advisory or change management role, often with responsibilities outside the traditional accounting one. One of the reasons for this changed role for accountants is that they do understand the numbers, both financial and non-financial. The challenge for nonaccounting managers is to understand the numbers sufficiently well to be able to contribute to the formulation and implementation of business strategy. Those who do not understand, or who do not want to understand, the numbers are likely to be increasingly marginalized in their organizations. Conclusion: revisiting the rationale In the preface to this book, its rationale was described as being practitioner centric rather than accounting centric. In this, the subtitle of the book – Interpreting accounting information for decision-making – identifies its aim as not only to describe the tools and techniques used by accountants, but to help managers understand that these tools and techniques exist, to know when to apply them and to appreciate their underlying assumptions and limitations. It is more important for the non-accounting manager to be able to use accounting than to be able to do RESEARCH IN MANAGEMENT ACCOUNTING 251 accounting. Hence, in the Appendices to this book a number of questions and case studies are provided to assist readers in testing themselves as to whether or not they understand the concepts and can draw the appropriate interpretations and critique. The concepts are also illustrated by four key readings from the accounting literature in the next chapter. The aim of the book has been to present both the tools and techniques and the interpretive and critical perspective in an accessible language to the nonaccountant. Every effort has been made to define terms clearly when they are first used and to cross-reference topics to the main chapters in which they are covered. A glossary in this part describes all the terms used in one place, while the comprehensive index should make it easy for readers to find the information they need. References Burns, J. and Vaivio, J. (2001). Management accounting change. Management Accounting Research, 12, 389–402. Hopper, T., Otley, D. and Scapens, B. (2001). British management accounting research: Whence and whither: Opinions and recollections. British Accounting Review, 33, 263–91. Humphrey, C. and Scapens, R. W. (1996). Theories and case studies of organizational and accounting practices: Limitation or liberation? Accounting, Auditing and Accountability Journal, 9(4), 86–106. Kaplan, R. S. (1986). The role for empirical research in management accounting. Accounting, Organizations and Society, 11(4/5), 429–52. Otley, D. (2001). Extending the boundaries of management accounting research: Developing systems for performance management. British Accounting Review, 33, 243–61. Power, M. K. (1991). Educating accountants: Towards a critical ethnography. Accounting, Organizations and Society, 16(4), 333–53. Spicer, B. H. (1992). The resurgence of cost and management accounting: A review of some recent developments in practice, theories and case research methods. Management Accounting Research, 3, 1–37. Further reading One of the aims of this book has been to encourage readers to access the researchbased academic literature of accounting, in particular in relation to the broader social, historical and contextual influences on accounting; the organizational and behavioural consequences of accounting information; and the assumptions and limitations underlying the tools and techniques used by accountants. For those who wish to read further, whether as part of their preparation for academic research at postgraduate level or as part of their personal pursuit of greater knowledge, we identify some recommended additional reading. Books Alvesson, M. and Willmott, H. (eds) (1992). Critical Management Studies. London: Sage Publications. 252 ACCOUNTING FOR MANAGERS Ashton, D., Hopper, T. and Scapens, R. W. (eds) (1995). Issues in Management Accounting. (2nd edn). London: Prentice Hall. Berry, A. J., Broadbent, J. and Otley, D. (eds) (1995). Management Control: Theories, Issues and Practices. London: Macmillan. Emmanuel, C., Otley, D. and Merchant, K. (eds) (1992). Readings in Accounting for Management Control. London: Chapman & Hall. Emmanuel, C., Otley, D. and Merchant, K. (1990). Accounting for Management Control. (2nd edn). London: Chapman & Hall. Gowthorpe, C. and Blake, J. (eds) (1998). Ethical Issues in Accounting. London: Routledge. Hopwood, A. G. and Miller, P. (1994). Accounting as Social and Institutional Practice. Cambridge: Cambridge University Press. Johnson, H. T. and Kaplan, R. S. (1987). Relevance Lost: The Rise and Fall of Management Accounting. Boston, MA: Harvard Business School Press. Jones, T. C. (1995). Accounting and the Enterprise: A Social Analysis. London: Routledge. Kaplan, R. S. and Cooper, R. (1998). Cost and Effect: Using Integrated Cost Systems to Drive Profitability and Performance. Boston, MA: Harvard Business School Press. Kaplan, R. S. and Norton, D. P. (2001). The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Boston, MA: Harvard Business School Press. Macintosh, N. B. (1994). Management Accounting and Control Systems: An Organizational and Behavioral Approach. Chichester: John Wiley & Sons. Munro, R. and Mouritsen, J. (eds) (1996). Accountability: Power, Ethos and the Technologies of Managing. London: Internation Thomson Business Press. Puxty, A. G. (1993). The Social and Organizational Context of Management Accounting. London: Academic Press. Ryan, B., Scapens, R. W. and Theobald, M. (1992). Research Method and Methodology in Finance and Accounting. London: Academic Press. Scapens, R. W. (1991). Management Accounting: A Review of Recent Developments. (2nd edn). London: Macmillan. Scott, W. R. (1998). Organizations: Rational, Natural, and Open Systems. (4th edn). Prentice Hall International, Inc. Articles published in the following journals ž ž ž ž ž ž ž Accounting, Auditing and Accountability Journal Accounting, Organizations and Society British Accounting Review Critical Perspectives in Accounting Financial Accountability and Management (public sector) Journal of Management Accounting Research (US) Management Accounting Research (UK) These articles are generally available on-line for students through university libraries. 17 Introduction to the Readings A rationale for this book was to provide a theoretical underpinning to accounting, drawn from accounting research, to assist in interpretation and critical questioning. This underpinning provides a critical perspective on the most common accounting techniques and describes the social and organizational context in which accounting exists. This context influences accounting but is also influenced by accounting, as the way we see the world – even if only our small organizational part of the world – is significantly influenced by the ways in which accounting portrays and represents that world. In this part of the book, we reproduce four readings from the academic literature to present four different yet complementary perspectives on accounting in organizations. Each reading has several questions that the reader should think about and try to answer in order to help understand the concepts. The article by Cooper and Kaplan is a classic, explaining clearly how traditional management accounting techniques have distorted management information and the decisions made by managers. The authors criticize the distinction between variable and fixed costs, the limitations of marginal costing and the arbitrary methods by which overhead costs are allocated to products. The activity-based approach recommended by Cooper and Kaplan treats all costs as variable, although only some vary with volume. Covaleski, Dirsmith and Samuel’s paper describes the contribution of contingency theory, and interpretive perspectives using organizational and sociological theories (including institutional theory) and critical perspectives. The authors call for ‘paradigmatic pluralism’, not as competing perspectives but as ‘alternative ways of understanding the multiple roles played by management accounting in organizations and society’ (p. 24). Otley, Berry and Broadbent’s paper reviews the development of the management control literature in the context of organization theories and argues for the expansion of management control beyond accounting. The authors use a framework of open/closed systems and rational/natural systems to contrast each of these four perspectives and give examples of research in each. They conclude that management control research needs to recognize the environment in which organizations exist. While the definition of management control is ‘managerialist in focus . . . this should not preclude a critical stance and thus a broader choice of theoretical approaches’ (p. S42). 254 ACCOUNTING FOR MANAGERS Dent’s case study of EuroRail is a highly regarded field study of accounting change in which organizations are portrayed as cultures, i.e. systems of knowledge, belief and values. Prior to the study, the dominant culture in EuroRail was engineering and production, but this culture was displaced by economic and accounting concerns that constructed the railway as a profit-seeking enterprise. Dent traced the introduction of a revised corporate planning system, the amendment of capital expenditure approval procedures and the revision of budgeting systems, each of which gave power to business managers. Dent describes how accounting played a role ‘in constructing specific knowledges’ (p. 727). Taken together, these readings provide a practical critique of traditional costing methods, several theoretical perspectives from which accounting can be viewed and a field study of how accounting changed the reality in one organization.