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Dysfunctional Behavior in Accounting

Dysfunctional Behavior in Accounting

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Published by Hans Jonni
Hirst (1983, 596) considers dysfunctional behavior to be translated in rigid bureaucratic behavior, strategic behavior, resistance and invalid data reporting
Hirst (1983, 596) considers dysfunctional behavior to be translated in rigid bureaucratic behavior, strategic behavior, resistance and invalid data reporting

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Published by: Hans Jonni on Mar 03, 2013
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BEHAVIORAL ACCOUNTING HOMEWORK
 
2012
HANS JONNI [A 311 10 268]
Page 1
NAMA : HANS JONNINIM : A 311 10 268
DYSFUNCTIONAL BEHAVIOR IN MANAGEMENTCONTROL SYSTEMS
There are various forms of dysfunctional behaviors that can occur in an organization butwith one common and underlying objective: to use the rules and
 procedures to one‟s
advantage. Hirst (1983, 596) considers dysfunctional behavior to be translated in rigid bureaucratic behavior, strategic behavior, resistance and invalid data reporting. But, a morethorough description of the forms of dysfunctional behavior, as reviewed by Birnberg et al.(1983), can be listed as follows:
 
Smoothing
 – 
The subordinate utilizes the information system to his/her benefit byaltering the pre-planned free flow of data without altering the actual activities of theorganization (Ronen & Sadan, 1981). The most common example would be the booking of sales/expenses achieved/incurred in the current period to subsequent periods.
 
Biasing & Focusing
 – 
The manager has flexibility over the various indicators or types of information he/she can report. Biasing would imply selecting the one(s)suiting best the circumstances and more favorable to the manager. Such situationsusually exist when managers are being required to provide estimates of futureevents12 (Birnberg et al., 1983, 121). This is very much related to the idea of focusing, since the attention of superiors is being diverted to specific, and more positive, elements of a system.
 
Filtering
- According to Read (1962), filtering occurs when information is withheld because the subordinate thinks that this could be used by his/her superior to hinder 
the subordinate‟s personal
goals (e.g. career progression). This was later confirmed
 by O‟Reilly & Roberts‟ (1974) study.
Birnberg et al. (1983) also classify thedelaying of reports, over-presentation (to cause information overload) or over-aggregation as a form of filtering.
 
Illegal Acts or Falsification
 – 
Such dysfunctional behaviors may include forgery of documents and reports i.e. existing information is intentionally altered to satisfy
 
 
BEHAVIORAL ACCOUNTING HOMEWORK
 
2012
HANS JONNI [A 311 10 268]
Page 2
required norms and variances. Examples of studies that have documented such practices are Mars (1982), Vaughn (1983) and Simon & Eitzen (1986).These two broad categories of dysfunctional behaviors (information manipulations andgaming) identified above may not necessarily contain all the types of dysfunctional behaviors14. Nor do these practices actually operate in isolation of one another15.Managers may thus be engaged into gaming and manipulation at different levels of combination. Therefore, a methodological problem has been to determine how tooperationalize the concept of dysfunctional behavior. Indeed, Hirst (1983, 603) andMerchant (1990, 298) note the difficulties in obtaining honest responses, given the sensitive
and “illicit”
nature of dysfunctional behavior. In this respect, Hirst (1983) used surrogatemeasures such as tension and social withdrawal (viewed in terms of subordinate-superior relations) to capture dysfunctional behavior but eventually suggests the use of case studyapproaches for future research.On the other hand, Merchant (1990), Jaworski and Young (1992) and Chow et al. (1996)used various constructs to measure dysfunctional behavior. Appendix 1 provides a summaryof the various questions used by these earlier studies and their respective Cronbach-Alphastatistics. It was noted that measures used by Jaworski and Young (1992) do overlap between the different categories and types of dysfunctional behavior in contrast to themeasures used by Merchant (1990) and Chow et al. (1996) i.e. the latter studies attempt todistinguish between strategic information manipulations (manipulation of performancemeasures) and gaming (short-term orientation). Also, and despite earlier arguments to avoid
direct “sensitive” measurements (e.g. Hirst, 1983 and Otley, 1978), the questions relating to
data manipulation (in Merchant, 1990) were unambiguous and may have resulted in non-responses16. Finally, direct questions involving specific and detailed dysfunctional practices (e.g. shifting funds between accounts to avoid budget overruns) may elicitrespondents to provide ethically motivated attitudes rather than generating a measure theincidence (or extent) of dysfunctional behavior.
 
 
BEHAVIORAL ACCOUNTING HOMEWORK
 
2012
HANS JONNI [A 311 10 268]
Page 3
DYSFUNCTIONAL BEHAVIOR IN COST ANDMANAGEMENT ACCOUNTING
Poor morale on the part of managers is the root cause of most of the disadvantages suffered by a system of budgetary control. Unless adequate attention is given to the behavioralfactors and the right atmosphere is created in which the system can flourish, the efficiencyof the system may be seriously impaired. Applying budgets without adequate participation,setting standards which are not attainable, reporting exceptions as though they are failures,and fixing responsibility without control, will certainly lead to resentment and distrust onthe part of managers within the budgeting system, Being human they will act to defeat whatthey consider to be a system which disadvantages them, and may link the budget accountantwith this action if they consider him to be an adversary, a critic or an investigator.Dysfunctional behavior manifests itself in a variety of ways.1.
 
Line managers faced with the threat of adverse variances will adopt a defensiveatti
tude to avoid responsibility. They may „build in slack” by increasing their 
expenditure estimates when the budget is drafted, so that their department iscushioned against adverse condition, variances disclosed are usually favorable.2.
 
A manager may conceal some expected advantage when budget forecasts are madeor may delay some profitable activity until it can be used to offset the effect of other losses.3.
 
A manager who is worried by adverse variances may avoid taking risk: in escapingcriticism he or she also forfeits to the business the chance of large profits.4.
 
Managers who expect their budget to be cut will automatically enlarge their forecastof expected costs. If the costs prove lower than anticipated, they will be entrustedwith a greater expenditure budget than they require to run their departmentefficiently. As the year-end approaches, and they have not spent as much as wasexpected, in order to escape discovery they will then spend up to the padded budgeton items which are not really required.5.
 
It is not unknown for managers who are pressured by unattainable budgets to falsify
information in order to „beat the budget‟.
 6.
 
If pressure is put on a manager it will spoil atmosphere of teamwork and co-ordination in the business, as a pressured manager may try to pass pressure back up

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