Managerial Auditing Journal

Are budgets useful? A survey of Malaysian companies

Nik Nazli Nik Ahmad Maliah Sulaiman Norhayati Mohd. Alwi
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To cite this document:
Nik Nazli Nik Ahmad Maliah Sulaiman Norhayati Mohd. Alwi, (2003),"Are budgets useful? A survey of Malaysian
companies", Managerial Auditing Journal, Vol. 18 Iss 9 pp. 717 - 724
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budget planning models and performance", Management Decision, Vol. 51 Iss 1 pp. 120-140
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 Are budgets useful? A survey of Malaysian
companies
Keywords
Budgets, Participative planning,
Performance measurement
Downloaded by International Islamic University of Malaysia At 19:00 01 October 2014 (PT)
(quality), Malaysia
Abstract
This study examines if budgets are
still used in Malaysian companies.
There are two divergent views on
the usefulness of budgets.
Proponents of budgets argue that
they are still relevant and useful.
Meanwhile, critics claim that
budgets are obsolete. The study
uses the instrument developed by
Drury et al.. Results are compared
to those of Guilding et al. The
results show that budgeting
practices in Malaysia are similar to
those in the UK and New Zealand.
There are only three major
differences. First, Malaysian
managers appear to feel that a
participative approach to budgeting
may encourage budget padding.
Second, a much higher percentage
of respondents compared to the
Guilding et al.'s study, agree that
top management should evaluate
performance mainly on ability to
achieve budgetary goals. Finally,
companies in Malaysia appear to
use flexible budgets more than
those in the UK and New Zealand.
The authors gratefully
acknowledge funding for the
research from the IIUM
Research Centre. A special
note of thanks to Dr Shahul
Hameed for his insightful
views. The authors also wish
to extend our thanks to all
our research assistants who
worked very hard to allow
them to complete the
research on time.
Managerial Auditing Journal
18/9 [2003] 717-724
# MCB UP Limited
[ISSN 0268-6902]
[DOI 10.1108/02686900310500479]
Nik Nazli Nik Ahmad
Department of Accounting, Kulliyyah of Economics and Management Sciences,
International Islamic University Malaysia, Kuala Lumpur, Malaysia
Maliah Sulaiman
Department of Accounting, Kulliyyah of Economics and Management Sciences,
International Islamic University Malaysia, Kuala Lumpur, Malaysia
Norhayati Mohd. Alwi
Department of Accounting, Kulliyyah of Economics and Management Sciences,
International Islamic University Malaysia, Kuala Lumpur, Malaysia
Introduction
Recent developments such as globalisation,
intense competition, rapid advances in ICT
and shorter product life-cycles have
substantially transformed the environment
in which businesses operate. As a result,
various cost management systems, including
budgets and standard costing practices have
come under greater scrutiny. Criticisms of
the inadequacy of such systems in a changing
business environment emerged as early as
the mid 1980s. Johnson and Kaplan's (1987)
seminal book Relevance Lost has been a major
catalyst in questioning whether traditional
control systems have been rendered obsolete.
According to Johnson and Kaplan (1987),
the changes in the business environment
have profound implications for cost
management systems. As a result, for
example, it is even more crucial now, that
businesses which want to remain
competitive have excellent control over their
costs. Otherwise, these businesses may cease
to operate in the near future, as they will not
be able to compete very effectively.
Budgets are used in organisations, for
diverse purposes. They include, for example,
performance measurement and evaluation,
staff motivation, pricing decisions and cost
control. Hence, budgeting had been
considered, in the past, as an integral
element of the management control system.
However, over the past few years, budgets
have been increasingly criticised as a
management control technique, which is no
longer useful or appropriate. Budgets, for
example, have been linked to various
behavioural problems including motivation,
budget games, etc. (see for example, Jensen,
2001; Stewart, 1990). There appears, therefore,
to be two divergent views on the usefulness of
budgets.
The divergent views on budgeting as a
management control tool have provided the
The Emerald Research Register for this journal is available at
http://www.emeraldinsight.com/researchregister
major motivation for the present study.
Furthermore, there is also a dearth of
research involving surveys of budgetary
practices in developing countries. Most of the
research in this area has focused on the USA,
the UK and Australia.
Our study investigates the budgeting
practices of selected companies in Malaysia.
Specifically, we examine three important
aspects of budgeting practices. These are the
technical aspects of budget-setting, budget
participation (including the propensity to
create budgetary slack) and finally, the use of
budgets in performance measurement. In
addition, we will also compare our results to
those reported by Guilding et al. (1998). We
are able to do so as we purposely utilised the
same survey instrument used by the above
researchers. Such inter-country comparisons
of budgeting practices will allow us to better
understand whether there are any major
differences in such practices between
developed and developing countries. Given
the paucity of research into this area, the
present study will provide useful insights.
Another significant contribution of the
present study is for accounting academics.
Currently budgets and budgeting practices
are given significant emphasis in the
undergraduate accounting curriculum. If it is
true that budgets are no longer widely used
in organisations, then the emphasis on
budgets in accounting education is not
appropriate. The managerial accounting
syllabus will then need some modifications to
ensure that accounting graduates are
equipped with the most relevant skills.
The next section provides a background for
the divergent views on budgeting examined
in this study and offers a justification for the
present research. The subsequent sections
respectively, describe our methodology,
results, discussion and conclusions.
The current issue and full text archive of this journal is available at
http://www.emeraldinsight.com/0268-6902.htm
[ 717 ]
 Nik Nazli Nik Ahmad,
Maliah Sulaiman and
Norhayati Mohd. Alwi
Are budgets useful? A survey
of Malaysian companies
Managerial Auditing Journal
18/9 [2003] 717-724
Downloaded by International Islamic University of Malaysia At 19:00 01 October 2014 (PT)
[ 718 ]
Background
For many decades, empirical research has
documented extensive use of budgeting
systems (See for example, Puxty and Lyall,
1989; Cornick et al., 1988; Cress and Pettijohn,
1985; Scarborough et al., 1991). These studies
have largely highlighted the significant
emphasis, which diverse types of
organisations in various countries, put on
budgeting systems, as key elements of
management control.
Increasingly, however, there appears to be
a paradigm shift in the management
accounting literature. While there are still
advocates of budgeting, critics argue that the
traditional budget is no longer appropriate
given changes in technology and the rapidly
changing business environment (Kaplan,
1988, 1990; Johnson and Kaplan, 1987).
Proponents of budgeting argue that
budgets have several important roles.
Blocher et al. (2002), for instance, argue that
budgets help to allocate resources, coordinate
operations and provide a means for
performance measurement. Hilton et al.
(2000) agree with this view and claim that the
budget is the most widely used technique for
planning and control purposes. Clarke and
Toal (1999) too, are of the opinion that
budgets are still essential and can, for
example, be incorporated as part of the
financial component of the Balanced
Scorecard. Pierce and O'Dea (1998) also
subscribe to the view that budgets are still
relevant to today's business environment.
Meanwhile, critics of budgets claim that
budgets are bad for business are no longer
adequate and are ``fundamentally flawed'' as
a planning and control mechanism in today's
complex and highly uncertain business
environment (McNally, 2002). Stewart (1990)
claims that experts criticise budgets as being
ineffective. According to him, ``Budgets, says
experts, control the wrong things, like head
count, and miss the right ones, such as
quality, customer service- and even profits''
(Stewart, 1990, p. 179). Another article by
Prendergast (2000) lists a number of problems
with budgeting for planning and control
purposes. First, a lot of guesswork is involved
in the budgeting process. Second, budgets are
increasingly inaccurate as a result of shorter
product life cycles and the rapidly changing
business environment. Finally, another
concern with budgets, according to
Prendergast, is the extent of budget
gamesmanship. He argues that over the
years, budgets have resulted in a conflict
between top management and their
subordinates. While top management
attempts to ``get the most out of their staff'',
subordinates, on the other hand, work to
build in slack in their budgets in an effort to
make budget numbers easier to attain.
Another major criticism of budgets is the
over-emphasis on short-term profits at the
expense of continuous long-term
improvements such as new product
development and customer satisfaction
(Hayes and Abernathy, 1980). McNally (2002)
is also very critical of the traditional budget.
He argues that ``The days of traditional
budgeting and planning are numbered''
(McNally, 2002, p. 10). Some of the criticisms
that McNally has of budgeting are that
budgeting processes consume too much time
and incur very high costs. Consequently,
when the budget is authorised, it may no
longer be accurate and this causes problems
for businesses in ``today's unpredictable and
fast-paced business climate'' (McNally, 2002,
p. 11).
The previous studies reviewed above,
therefore, lead to the conclusion that there is
an increasing perception that budgets are
less useful in today's highly challenging
business environment. Consequently,
knowledge about budgeting practices is
useful to provide insights into whether
budgets are still appropriate planning and
control tools. The following section discusses
the survey instrument and the sample.
Methodology
A questionnaire survey was sent by mail to
relevant managers who have some role in
budget preparation in 162 companies in two
sectors; industrial products (104 companies)
and consumer products (58 companies).
Attached to each questionnaire was a cover
letter, emphasising the significance of the
research and instructions to complete the
questionnaire. The respondents were also
given an assurance of confidentiality and the
letter stressed that the findings of the
research were to be used solely for academic
purposes. To encourage response, a self-
addressed stamped envelope was provided
with each questionnaire. A total of 66
completed questionnaires were returned
after the first mailing, yielding a response
rate of 41 per cent. Due to time and cost
constraints, as well as the reasonable
response rate, no follow-up was conducted.
The characteristics of respondent
companies are as shown in Table I.
The questionnaire instrument is divided
into two sections. Section I contained
questions on the demographics of the
respondents such as position, type of
business, size of companies and number of
 Nik Nazli Nik Ahmad, Table I
Maliah Sulaiman and Company characteristics
Norhayati Mohd. Alwi
Are budgets useful? A survey Frequency Percentage
of Malaysian companies
Managerial Auditing Journal Type of business
18/9 [2003] 717-724 Manufacturing
Services
Others
Total
Net assets (book value)
0-100 millions
101-200 millions
201-500 millions
Above 500 millions
Total
Downloaded by International Islamic University of Malaysia At 19:00 01 October 2014 (PT)
a five- point Likert scale, ranging from ``1'' =
Never to ``5'' = Always. Table II presents the
results of the survey. Interestingly, the table
suggests that the extent to which each of the
approaches used is similar between the three
42 64 countries, with ``subjective estimates'' being
21 32 the most popular way to estimate future sales
3 5 and ``statistical techniques'', being the least
66 100 used. However, the means for the Malaysian
data are more closely clustered as compared
35 57 to those for the UK and New Zealand.
7 11 Accordingly, it appears that companies in
12 20 Malaysia make almost equal use of each of
7 11 the three methods to forecast sales. On the
61 100 other hand, it is evident that companies in

Number of employees New Zealand and the UK make significantly

Below 500 39 60
501-1,000 7 11
1,000-5,000 16 25
Above 5,000 3 4
Total 65 100
employees. Section II contained questions
identical to those used by Drury et al. (1993)
and Guilding et al. (1998), and covered both
budgeting as well as standard costing
practices. The present paper, will however,
only focus on budgeting practices. The
questions covered three important aspects of
budgeting practices, namely, the technical
aspects of budgeting, budget participation
and the use of budgets in performance
measurement. There were two questions on
the technical aspects of budgeting. A further
three questions address the issue of budget
participation. Two of the items used a five-
point Likert scale. Finally, a total of four
questions were asked on the use of budgets in
performance measurement. Out of these, two
questions were Likert-scale type questions.
Results
This results section will present the results of
the present survey, as well as, the results of
Guilding et al. (1998) to allow comparisons
between budgeting practices in Malaysia and
those of the UK and New Zealand. Thus, all
tables of findings will present the data in
three columns, for Malaysia, New Zealand
and the UK respectively.
Technical aspects of budgeting
Two questions were asked on the technical
aspects of budgeting. The first question asked
respondents the extent to which they used
three different techniques to forecast
budgeted sales. These are statistical
forecasting, market research and subjective
estimates based on the experience of staff.
The respondents were required to answer on
more use of ``subjective estimates'' compared
to market research and statistical
techniques. Though statistical forecasting
and market research respectively, have their
own advantages in terms of providing
estimated sales figures, subjective estimates
based on experience are still necessary. As
Blocher et al. (2002, p. 350) insist, ``No model,
however, can replace human judgement, no
matter how complete or sophisticated it
might be. A combination of experienced
judgement and analyses often leads to a
better forecast than does relying on only one
technique or the other''. Hence, it appears
that most companies in all three countries
are appropriately making use of a
combination of all three techniques in
forecasting their sales figures.
The second question looked at whether
companies separate fixed costs from variable
costs for budgeting purposes. The literature
shows that a majority of companies in the
USA, the UK and New Zealand classify costs
into fixed and variable components. Again,
the findings appear to suggest that this aspect
of budgeting in Malaysia is not different from
those of more developed countries. As many
as 95 per cent of the respondents claim that
they distinguish the fixed from the variable
costs when they prepare the budget. This
compares to 77 per cent in the USA
(Karmarkar et al. (1989); 84 per cent in New
Zealand and 90 per cent of the sample in the
UK (Guilding et al., 1998). Table III presents
the results on techniques used to segregate
fixed costs from variable costs. The table
shows that Malaysian companies also favour
the same two most popular approaches as
New Zealand and the UK, i.e. ``classification
on a subjective basis based on managerial
experience'' and ``treating overheads as fixed
costs and direct costs as variable''.
Another interesting finding from the table
is the fact that companies in Malaysia appear
to make more use of statistical regression
techniques to segregate fixed and variable
[ 719 ]
 Nik Nazli Nik Ahmad,
Maliah Sulaiman and
Norhayati Mohd. Alwi
Are budgets useful? A survey
of Malaysian companies
Managerial Auditing Journal
18/9 [2003] 717-724
Downloaded by International Islamic University of Malaysia At 19:00 01 October 2014 (PT)
Table II
Techniques used to forecast budgeted sales level
Statistical forecasting
Market research
Subjective estimates based on experience
of staff
Table III
Techniques used to classify fixed and variable costs
Statistical regression techniques
Classification on a subjective basis based
on managerial experience
All overhead are classified as fixed costs
and direct costs are classified as
variable costs
Fixed and variable costs are not separated
Others
Total
[ 720 ]
costs, as compared to those in New Zealand
and the UK As many as 8 per cent of the
companies we surveyed used statistical
techniques whereas Guilding et al.'s study
showed that no companies in New Zealand
and only 2 per cent of the respondents in the
UK used such techniques. This is surprising,
as one would expect companies in the
developed West to make more use of
sophisticated techniques such as statistical
regression.
Budget participation
The management accounting literature
advocates participative budgeting as it
provides managers with a sense of belonging
(``this is our budget'') and increases the
possibility that they will make greater
attempts to achieve the organisation's
budgetary goals. Prior studies on the
relationship between budget participation
and performance have obtained mixed
results. Stedry (1960) and Cherrington and
Cherrington (1973) found that a participative
budgeting approach has a negative impact on
performance. In contrast, Merchant (1981)
and Brownell (1982) found a positive
relationship between budget participation
and performance. The more recent literature,
however, appears to advocate a participative
approach as it can be more effective and
people may be more inclined to attempt to
achieve budgetary goals if they have been
consulted in the budget-setting exercise
(Hilton et al., 2000). The authors however,
stress that certain precautionary measures,
Mean
Malaysia NZ UK
3.65 2.64 2.93
3.76 2.85 3.13
3.88 4.3 4.24
Percentage
Malaysia NZ UK
8 0 2 companies' budget philosophy agrees with
19 40 58
68 44 28
5 16 10
0 0 2
100 100 100
such as providing incentives for accurate
budget projections are necessary if
participative budgeting is to be effective.
In the present study, three questions were
asked in the area of budget participation.
First, we examine managers' perceptions of
the degree of influence of five different
organisational positions in determining the
final budget authorisation. The respondents
were asked to indicate the relative
importance of the influence of the five
positions in authorising the final budget. A
five-point Likert scale was used, ranging
from ``1'' = Not Important to "5' = Vitally
Important. Table IV presents the results.
The results are suggestive of a dominant
``top-down'' philosophy. However, it appears
that lower-level personnel, including
supervisors, department managers and
budget holders also have some influence in
authorising the final budget. These findings
are consistent with those of Guilding et al.
(1998). This indicates that companies in the
UK, New Zealand and Malaysia are similar in
terms of their budget authorisation
philosophy, with the majority of companies
not implementing a participative approach in
the budget process.
To further investigate the budget-setting
situation in Malaysian companies, we asked
the respondents to indicate which of three
possible reasons best describes their
companies' preferred action when managers
submit budgets, which appear to be
excessive. The reasons listed are ``automatic
decrease by a fixed per cent'', ``reduction by
amounts that upper management deem
appropriate'', and ``reduction through
negotiation between manager and superior''.
Table V presents the results. Again, the
results here are consistent with the findings
of Guilding et al. (1998). As many as 72 per
cent of the respondents indicated that their
companies' response would be ``reduction
through negotiation between manager and
superior''. It appears, therefore, that the
budgetary participation practices of
Malaysian companies are similar to those in
the UK and New Zealand.
Since increased budgetary participation
has been associated, in previous studies, with
the propensity to create slack, our study also
investigated the extent to which their
the statement ``Budget holders should not
have too much influence in determining their
own budgets because there is a danger that
they will seek to obtain easy budgets''. A five-
point Likert scale was used ranging from ``1''
= Strongly Disagree to ``5'' = Strongly Agree.
Table VI summarises the results. It is evident
from the table that more than half of the
 Nik Nazli Nik Ahmad,
Maliah Sulaiman and
Norhayati Mohd. Alwi
Are budgets useful? A survey
of Malaysian companies
Managerial Auditing Journal
18/9 [2003] 717-724
Downloaded by International Islamic University of Malaysia At 19:00 01 October 2014 (PT)
Table IV
Degree of influence carried by five different organizational positions
Supervisors
Departmental managers
Budget holders
Accounts budget staff
Senior management
Table V
Approach to managing excessive budget cost estimates
Automatic decrease by a fixed per cent
Reduction by amounts that upper
management deem appropriate
Reduction through negotiation between
the manager and his/her superior
Total
respondents (57 per cent) perceive the findings for the first two questions are
propensity to create slack as a significant reported in Table VII.
problem. This result is contrary to the results As many as 78 per cent of the respondents
of studies conducted in other countries feel that variances are of either above
(Guilding et al., 1998). average importance or are vitally important
in judging managerial performance. This is
Budgets as performance measurement consistent with the findings of Guilding et al.
tools (1998). On the second question, 68 per cent of
Four questions in the survey related to the
the sample agrees with the view that top
issue of budgets as performance
management should assess managerial
measurement tools. The first question was
performance mainly on the basis of budget
``How important do you think variances from
attainment. This figure is higher than that
budget are in judging managerial
found in the Guilding et al. (1998) study.
performance?'' Respondents were given a
The third question related to the style of
five-point Likert scale ranging from ``1'' = Not
performance reports received by budget
Important to ``5'' = Vitally Important. The
holders. The item contained four statements
second question asked respondents to
and required the respondents to indicate
indicate the extent to which they agree with
the statement ``Top management should which statement describes the style of
judge a manager's performance mainly on performance reports in their respective
his/her ability to attain the budget''. The companies. Table VIII presents the results.
The table shows that the style of
performance reports in Malaysian companies
is similar to the ones received by budget
holders in New Zealand manufacturers. The
Mean practice in the UK, however, is different. The
Malaysia NZ UK most widely used approach in the UK is to
report both controllable as well as non-
2.97 2.33 2.09
controllable costs, but these are
4.04 3.52 3.57
3.84 3.64 3.89 distinguished in the performance reports.
3.52 3.29 3.3 These results suggest that UK companies use
4.7 4.67 4.58 better designed performance reports than
New Zealand and Malaysian companies.
Previous studies have documented the need
to make a clear distinction between
controllable and non-controllable costs in the
Percentage budget holders' performance reports (see for
Malaysia NZ UK example, Drury, 1992; Horngren et al., 1997).
4 0 3 Finally, the last question in the survey
focused on the use of flexible budgets.
24 38 40 Interestingly, it can be seen from Table IX
that more companies in Malaysia (66 per
72 62 57 cent) use flexible budgets compared to those
100 100 100 in New Zealand and the UK
Table VI
Perceived propensity to create budgetary slack
Percentages
Strongly Strongly
disagree Disagree Uncertain Agree agree
Budget holders should not have too much
influence in determining their own budgets
because there is a danger that they will
seek to obtain easy budgets
Malaysia 3 15 24 40 18
NZ 19 45 9 27 0
UK 21 48 7 22 1
[ 721 ]
 Nik Nazli Nik Ahmad, Table VII
Maliah Sulaiman and Degree of emphasis placed on the budget in performance measurement
Norhayati Mohd. Alwi
Are budgets useful? A survey Percentages
of Malaysian companies
Below Above
Managerial Auditing Journal
18/9 [2003] 717-724 Not average Average average Vitally
important importance importance importance important
Importance of variances from budget/
standard in managerial performance
appraisal
Malaysia 1 1 14 51 32
NZ 0 7 22 45 26
UK 1 4 14 39 28
Top management should judge a
manager's performance mainly on his/her
Downloaded by International Islamic University of Malaysia At 19:00 01 October 2014 (PT)

ability to attain the budget

Malaysia 0 10 26 38 25
NZ 5 39 14 37 5
UK 3 37 14 40 6

Table VIII
Style of performance reports received by budget holders
Percentage
Malaysia NZ UK
Only costs controllable by the particular manager are
presented 13 26 23
Both controllable and non-controllable (e.g. allocated)
costs are presented but they are distinguished 48 31 52
Both controllable and non-controllable costs are
presented but they are not distinguished 36 40 23
Budget holders do not receive performance reports 3 3 2
Total 100 100 100

Table IX findings of Guilding et al. (1998) where only

Flexible budget usage
Percentage
Malaysia NZ
Flexible budgets used 66 27
Flexible budgets not used 34 73
Total 100 100
Discussion
The results of the present study reveal no
systematic differences in the budgeting
practices of companies in Malaysia, New
Zealand and the UK Results were largely
similar on all the three aspects of budgeting
examined. There were, however, three
questions where the results of our study
showed some significant differences from
those reported by Guilding et al. (1998). The
first question was in the area of budget
participation. A significantly higher
percentage of respondents in our survey (58
per cent) agree and strongly agree to the fact
that a highly participative approach to
budgeting may result in a greater propensity
to create slack. This is in contrast to the
[ 722 ]
23 per cent of the UK respondents and 27 per
cent of the New Zealand sample subscribe to
the same view. Though the reasons for this
UK difference are not clear, it is possible that
42 cultural factors may account for the
58 difference (see Hofstede, 1991)[1]. Thus,
100 future research should examine this
particular aspect. The remaining two
questions, which had, significantly different
responses to the ones reported in Guilding et
al. (1998) are in the area of the use of budgets
in performance measurement. First, the
percentage of respondents who agree or
strongly agree to the statement ``Top
management should judge a manager's
performance solely on his/her ability to
attain the budget'' amounted to a substantial
63 per cent (compared to 42 per cent for New
Zealand and 46 per cent for the UK sample).
This finding is surprising as the normative
literature strongly discourages such an
approach to performance measurement as it
could lead to motivational and morale
problems, particularly if the budget-setting
exercise is dominated by a very strict ``top-
down'' philosophy (see, for example, Hilton et
al., 2000). This appears to suggest that some of
 Nik Nazli Nik Ahmad,
Maliah Sulaiman and
Norhayati Mohd. Alwi
Are budgets useful? A survey
of Malaysian companies
Managerial Auditing Journal
18/9 [2003] 717-724
Downloaded by International Islamic University of Malaysia At 19:00 01 October 2014 (PT)
the budgeting practices in Malaysia may not
be as good as those used by companies in the
UK and New Zealand. However, in another
area where there was a significant difference
in our results compared to those of Guilding
et al. (1998), i.e. in the use of flexible budgets,
companies in Malaysia appear to make more
use of flexible budgets compared to those in
the UK and New Zealand. This would be
reflective of better budgeting practices. This
is because the use of flexible budgets, as
opposed to static budgets, in performance
measurement will result in a fairer
evaluation system. Further research is
required to examine the reasons for these
differences in budgeting practices.
Conclusion
The results of our study suggest that
companies in Malaysia still use budgets, to a
large extent, as part of their planning and
control mechanisms. This therefore, disputes
the view held by some researchers who claim
that budgets are obsolete or no longer useful
in today's businesses given the rapidly
changing environment. The present research
has several implications for managerial
accounting theory and practice. First, the
present study extends previous research by
proving useful insights into the budgeting
practices in a developing country. Prior
studies have largely been confined to
developed countries such as the US, the UK
and New Zealand. Second, since the present
study utilised the same survey instrument as
Drury et al. (1993) and Guilding et al. (1998),
the results of this study also enable
comparisons in the budgeting practices of
three different countries, the UK, New
Zealand and Malaysia. Such inter-country
comparisons are useful. Third, due to the
divergent views and increasing scepticism on
the usefulness of budgets, the present study is
timely in that it informs us that the budget is
still an important planning and control tool
in Malaysian companies. This therefore,
counters the claims of critics that given the
current rapidly changing business
environment, budgets are no longer useful. In
fact, the findings of the present study may be
seen as a testament of the idea that it is not
the managerial accounting technique that is
``fundamentally flawed'' but it is how
organisations adapt the budget to suit the
needs of today's challenging business
environment. For example, Banham (2000)
cites the example of Fujitsu Computer
Products of America. In 1997, the company's
top management were worried that the
traditional budgeting process was so time-
consuming that by the time ``the numbers
were out'', some of the assumptions used in
the process were already no longer valid.
However, with the help of KPMG and some
process re-engineering, the company was
able to shorten the budgeting process
significantly. Thus, it is clear that the claim
that budgets are no longer useful is not true.
Instead, if budgets were to be effective
control measures, managers need to be
cognizant of the strengths and the
weaknesses of budgets and use them
appropriately (Bowhill, 1987). Finally,
accounting academics, particularly those in
Malaysia, will benefit from the present study.
Knowledge of the fact that budgets are still
very relevant to today's business
organisations is essential to assist them in
designing the accounting curriculum and
thus, ensure that accounting graduates are
equipped with relevant knowledge and skills.
The results of this study are subject to a
number of limitations. First, non-response
bias is always an issue with survey-type
research. However, the reasonable response
rate in this research (41 per cent) reduces the
problem of non-response bias. Additionally,
as mentioned earlier, we also performed a
Mann-Whitney U-test for the Likert-scale
items for the first ten questionnaires and the
last 10 questionnaires. The test showed no
significant difference in the responses of the
early and late respondents. The second
limitation of this research relates to the fact
that the sample is limited to only two
industry sectors. Consequently, the results
may not be generalisable to other industry
sectors, which are different from the
industrial products, and consumer products
sectors. For example, the results may be
irrelevant to companies in the banking and
finance sector or the trust fund sector.
Finally, the present study limited the
analysis to companies only. We did not
survey public-sector organisations. Future
research on the budgeting practices of public-
sector organisations would be useful as the
use of budgets is not limited to the private
sector only.
Despite its limitations, the present study
demonstrates that budgets are still used
extensively in Malaysian companies for
planning and control purposes. The findings
also suggest that the budgeting practices of
companies in Malaysia are, to a large extent,
with some exceptions as discussed earlier,
similar to those in the UK and New Zealand.
The underlying reasons for the observed
budgeting practices may be an important
aspect to be examined in future budgeting
research. Reasons for the higher perceived
propensity to create slack, among Malaysian
[ 723 ]
 Nik Nazli Nik Ahmad,
Maliah Sulaiman and
Norhayati Mohd. Alwi
Are budgets useful? A survey
of Malaysian companies
Managerial Auditing Journal
18/9 [2003] 717-724
Downloaded by International Islamic University of Malaysia At 19:00 01 October 2014 (PT)
[ 724 ]
managers, in an environment of high budget
participation, for instance, may be another
important future avenue of research.
Note
1 Malaysia ranks very high on Power Distance
(Hofstede, 1991). According to Hofstede (1991),
in large Power Distance societies,
subordinates tend to be dependent on their
superiors and bosses have the ultimate
authority. Thus, the fear of failure and the
need to ``look good'' on the part of subordinates
are paramount. As such, participative
budgeting may well lead to a higher
propensity to create slack.
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