2.

Post-Independence
Post-Independence till the beginning of the economic reforms of 1991, accounting in India
revolved heavily around the public sector organizations since they enjoyed majority of market
share in majority of industries. The public sector organizations get budget allocations from the
appropriate administrative departments (eg: telecommunication department get it from the
ministry of telecommunications). The proceeds of these organizations then go to the
consolidated fund of the respective state or central govt whose control they are under, and the
responsibility of their audit lies with the Comptroller and Auditor General of India (CAG).
2.1. Regulation and Education
Post-independence period also saw the establishment of two statutory bodies to regulate the
professions of auditing the financial and cost accounting systems of public and private sector
companies, namely the Institute of Cost and Works Accountants of India (ICWAI) and the
Institute of Chartered Accountants of India (ICAI). The ICWAI was established in 1959 as to
train cost and management accountants in India. Under the Indian Companies Act, cost and
management auditing of government companies (PSUs) and other companies in industries of
strategic importance like metals, chemicals and pharmaceuticals are required to be performed
by a cost auditor who is a member of the ICWAI. The ICAI was established on May 1, 1949
through the Chartered Accountants Act with the purpose of regulating the statutory auditing
profession in India. Chartered accountants are trained to serve as public accountants, similar to
a certified public accountant in the US, they also serve as tax accountants and company
accountants. India also has the Indian Audit and Accounts Service (IAAS), established in 1950
to perform the audit and accounting of the federal and state governments, government
companies and companies receiving substantial state and federal government revenues.
Here we discuss the factors affecting management accounting regulation and education:
Especially in India, the evolution of management accounting has gone unnoticed in academia.
The role of cost management and accounting has rapidly changed from cost collection and ratio
analysis to active participation in formulation and execution of long-term strategy of companies
as well as governments. But this important contribution is unknown to all except those who
research or teach in the area of management accounting.
First, the evolution of management accounting is unheard of because there is no culture of
systematic field studies in India to capture it which can be in part a result of a lack of initiatives
on the part of the accounting bodies and the academia and reluctance on the part of companies
and conglomerates to share information in the form of case studies with researchers or
consulting bodies. Second, most companies are bereft of the usage of management accounting
to its full potential and therefore, an average management accountant neither participates, nor
has any insights on all those activities in which he/she is expected to participate.
On the other hand, researches by the Chartered Institute of Management Accountants (CIMA)
of UK and the Institute of Management Accountants (IMA) of USA have captured the
evolution of management accounting. In June 2008, IMA modified their definition of
management accounting thereby changing the earlier definition issued in 1981. The new
definition is: “Management accounting is a profession that involves partnering in management
decision making, devising planning and performance management systems, and providing
expertise in financial reporting and control to assist management in the formulation and
implementation of an organisation’s strategy”.
IMA also observed that the field of management accounting has evolved considerably since
the issue of the earlier definition. In 1980s management accounting function was located at the
lower end of the information supply chain and was dealt with by certified accountants as well
as the lower level management. Now it is perceived to be functioning at the highest end of the
same. The people and processes involved in collecting data, designing the information system,
analysing the same and using information in formulation and execution of the strategy together
form the information value chain. Management accounting has successfully transitioned from
transaction and compliance orientation to that of strategic business partner. It is now a crucial
factor in deciding corporate performance management, planning and budgeting; champions of
corporate governance process, providing risk management, internal control, and financial
reporting at the time of great change; and experts in cost management methods that help the
organisation to become more competitive and successful.
CIMA also observed that management accounting combines knowledge of accounting, finance
and management with the leading-edge techniques needed to drive successful business.
The activities in which a member of a professional community participate in, the body of
knowledge form and most importantly professional ethics form the core entities of a profession.
The body of knowledge changes over time and by extension, every profession wants to expand
its boundary and moves upward in the supply chain when tasks at the lower end of the supply
chain are worsened by another profession or technology. Technology (E.g. ERP) has taken
over lower level tasks in the information supply chain, which are data collection and conversion
of data into information. Therefore, the sustainability and growth of the management
accounting profession is dependent on its ability to move upward in the information supply
chain. In fact, the evolution of management accounting is driven by the rapid innovations in
information technology in the industry and is perceived as the increase in competition in the
business environment.
The body of knowledge mainly focuses on the future development of the profession. Therefore,
members of the profession may not be using all the tools and techniques that they have acquired
during the professional training in their current assignments. However, the training and the
body of knowledge makes them ready to quickly respond to the new demands on the profession
in future. Therefore, the new definition issued by IMA and the current body of knowledge may
be futuristic, but it definitely signals the role that management accounting is expected to play
in enhancing the competitiveness of companies.
The body of knowledge and training provides the needed orientation and it also provides the
necessary skills and knowledge required to carry out higher level tasks that a member is
expected to perform as he/she grows in the profession. For example, business schools are
expected to provide general management orientation and provide students with the required
skill and knowledge that a manager is required to carry out the general management functions
effectively. However, a budding manager acquires in a business school a certain set of skills
and knowledge that remain unused at the early stage of their careers.
When a manager occupies a lower level position in the organisation hierarchy, label or
professional affiliation is important and it gets blurred as he/she moves up the ladder. Anyone
who reaches the top management level is more of a leader rather than member of a particular
profession. As the management accounting function has moved to the upper management in
the information supply chain, a management graduate who understands the business process
and information need of the business can conceptualise the design of the integrated information
system; and can use the information for formulation and implementation of strategy can play
the role of management accountant effectively and help make the processes more efficient.
Therefore, it is imperative that a traditional accountant or a specialist in that particular
functional area may play the role of a management.
The Institute of Cost and Works Accountants of India (ICWAI) is the custodian of the
management accounting profession in India. It has a vital responsibility of bridging the gap
between the roles of management accounting articulated by it and the role that its members
actually play in the economy at large. The first and foremost step is to strengthen its efforts to
create awareness about the same and educate users of the services of its members about the
potential of the management accounting profession. For example, government should be
educated on how strengthening and restructuring of cost audit will improve the productivity
and competitiveness of industry. More importantly, it would also help the government view its
finances in a better light. Moreover, it would also display the role management accountants can
play to improve the efficiency and effectiveness of welfare and infrastructure projects in the
social sector. Especially, the small and medium enterprises can be benefitted by the use of
management accounting and should be educated on its potential.
Management accounting also provides a unique platform for cross-functional research in
academia. Moreover, the educators in the field of management accounting should take the
initiative in that direction which will definitely be supported by companies who will extend
their support if they are convinced that Indian academia has the capability to deliver world
class product. The expectation from the academia, ICWAI and industry is that they will work
together to strengthen management accounting practices in India.
2.2 Impact of 1991 liberalisation
The effect of 1991 liberalisation on management accounting practices in India has been studied
using Contingency theory framework. Contingency theory states that organizational structure
is a function of context, which is simultaneously controlled by the external environment,
history, and other organizational factors
Figure 1. Contingency theory framework, source: Shannon W. Anderson, William N. Lanen,
1999.
With respect to planning and control processes, there is evidence that planning process has
become more decentralized, that strategic objectives are more widely understood, and that the
critical information inputs for strategy formulation have changed with the reforms. Managers
especially in planning and human resource management functions are now more involved in
developing corporate strategies. Increased budget accuracy has been achieved by firms by
greater use of standard budget developing procedures and greater involvement of employees
in all stages of budget setting and revision. We posit that increased budget accuracy follows
from these budgeting process changes as well as the previously described changes to broader
strategic planning processes. External perspectives such as customer satisfaction have been
quantified and included in organizational performance measures. In the overall evaluation of
the organization, these measures have obtained parity with traditional measures of
manufacturing productivity
2.3 Key Management Accounting Practices in India

Figure 2. Comparison of adoption of management practices by Indian and Australian

companies. Source: P L Joshi, 2001.
Although it was seen that Indian manufacturing companies adopted most of recently developed
practices, Indian companies mainly relied on the traditional management accounting
techniques and adoption rates have been slow and low for new practices. Though, higher
benefits were obtained from the traditional practices compared to the recently developed
practices, some of the new practices like activity-based costing, product profitability analysis,
target costing and customer satisfaction surveys that had low adoption rates had higher benefits.
However, there is definitely a signal towards a shift in their practices. Factors like size of the
company, long term orientation, conservative attitude of Indian management influenced the
low adoption rates
2.4 Effect of culture
A very popular question is whether national culture (measured using Hofstede’s dimensions)
affect management accounting practices. Studies of firms across the four countries (including
India) shows that the firms even when their national cultural values differ from the management
accounting practice, they are consistent taking on board traditional management accounting
practices. Thus, it is likely that the management accounting practices are being strongly driven
by factors at the macro level where strong global pressures lead to similar practices across
boundaries. However national culture was found to have an effect on the adoption of recently
developed management accounting practices, with India being slow and late adopters of such
practices.
References
1. Kallapur, Sanjay, and Ranjani Krishnan. "Management Accounting in
India." Handbooks of Management Accounting Research 3 (2009): 1399-1410.
2. Anderson, S. W., & Lanen, W. N. (1999). Economic transition, strategy and the
evolution of management accounting practices: the case of India. Accounting,
Organizations and Society, 24(5-6), 379-412.
3. Joshi, Prem Lal. "The international diffusion of new management accounting practices:
the case of India." Journal of International Accounting, Auditing and Taxation 10.1
(2001): 85-109.
4. Maliah bt. Sulaiman Nik Nazli Nik Ahmad Norhayati Alwi, (2004),"Management
accounting practices in selected Asian countries", Managerial Auditing Journal, Vol.
19 Iss 4 pp. 493 - 508