Planning and Control

The significance of the role which the management accountant fulfils today lies in his contribution to the overall management of business operations rather than in the set of procedures for which he is responsible and which relate purely to the financial aspects of management control. Accordingly, an appreciation of management accounting as a field of knowledge is more appropriately developed through the systems approach, is really a way of viewing accounting in the context of the organization as a whole.

The objective of this part is to provide our readers with a coherent and intelligible management framework in which the importance of accounting information may be understood.

One difficulty which arises in this respect is that there is a great deal of controversy about management theory itself. For example, writing in the early 2000s Harold Koontz described management theory as a jungle in which he could identify six different schools of thought. Today, the position remains just as confused and there does not exist a coherent theory of management in which the role of accounting could be unambiguously analysed.

Another difficulty arises from conflicts with regard to the theory of the firm itself. For example, classical economic theory assumed that the firm had the sole objective of profit maximization. This theory provided a purpose for management decision making which was clearly defined, and a need for a type of management accounting information which was unambiguously stated. The subsequent erosion of the supremacy of the classical theory of the firm by the appearance of either modified assumptions about profit maximization or different assumptions about the objectives of the enterprise have destroyed the basis for a coherent view of the objectives for which accounting information might be required by decision makers within the enterprise. Thus, neo-classicists assume that profit maximization cannot be achieved and that the objective of management ought to be to 'satisfice' a profit requirement. Behavioural theories of the firm assume that the firm seeks to expand through the maximization of sales, or alternatively that the objectives of the firm can only be defined from the objectives of the dominant personalities in the enterprise. Finally, there are now radical theories which re-define the role of the business enterprise within society in terms of socially oriented objectives, which may either be assumed to be free enterprise in the process of adjustment to social change or to be imposed by political dictat.

It follows that the absence of coherent theories of the firm and coherent theories of management prohibits the formulation of a normative theory of users' needs for accounting information which would define the information objectives to which accounting might be addressed in the context of decision making within the firm. Consequently, in this part the analysis of accounting information in the context of management decision making is constrained and suffers from the immaturity of extant theories.

There remains, however, the need for some kind of framework in which the contribution of accounting to the management process could be examined. Many would agree that the following factors are important in this regard:

(1) The best way to understand the complexities of enterprise decision making is to recognize that each separate situation requires its own organized solution. Accordingly, companies should be managed in the context of their own peculiar circumstances. Moreover, different companies are, in effect, trying to accomplish different things. They are so diverse in such respects as markets, production methods, ownership and size, that they inevitably have a diversity of objectives.

(2) Regardless of the variety of theories about the firm or about management, it is generally accepted that management has a set of specific functions to perform such as planning, organizing, controlling, communicating and motivating people.

(3) The decision-making process integrates all the management processes, for all managerial functions involve decision making. Hence, the key to understanding management behaviour is the decision-making process. In Part 4, we examined investors' and employees' decisions and developed criteria for information relevant to their decisions. These criteria, which emphasized-among others-relevance and understandability, are applicable to management decisions. Accordingly, these criteria suggest that our concern should be with such questions as:

What decisions do management make?

What information is relevant to particular decisions?

(4) Managers of business enterprises are faced with constant changes in the environment within and outside the firm. To survive, business enterprises must themselves be susceptible to change. The ability to evaluate past decisions, to react to current situations and to predict future events should be regarded as critical success factors. Management accountants may be seen to be concerned with the process of change by the analysis of past decisions, the provision of information that appreciates current trends, and participating in the decisions that will affect the future of the enterprise by ensuring that the information that is needed will have relevance to those decisions.


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