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ARTICLE REVIEW
Of
How Can We Deal With Misleading Management Accounting Data

Presented by:
DEMAPE, ROI
TAGALOG, CYRIL DHUNE
JARAP, JUVY PEARL
LADIONA, KHRISHIA KAYE
RETUYA, ANGELENE

Presented to
RAYMUND COMETA, CPA
INTRODUCTION
Some of the failure in the business is to be related with the issue of providing inaccurate
information that is to be used in decision making. Is it the fear of the consequences in telling
true information or is it the misconceptions about what determines and influence accurate
costing, who knows? In this article, Professor Gary Cokins focused on the paradox of how
CFOs and controllers can be aware that their managerial accounting data is flawed and
misleading, yet did not take action to do anything about it and he argues that this is a
counterintuitive phenomenon, and provides a metaphor of a navigator on a ship who knowingly
provides inaccurate navigational information due to fear of blame and extra work. He then
applies this metaphor to a management accountant who knowingly provides incorrect cost
information, also due to fear of blame and extra work. He argues that accountants' resistance to
change is based on misconceptions about what determines and influences accurate costing,
and that commercial ABC software and their associated analytics have dramatically reduced the
effort to report good managerial accounting information. Moreover, he concludes that
reasonably accurate cost and profit information is one of the pillars of performance
management's portfolio of integrated methodologies, and that accountants and managers
should change their ways before real damage is done. Although there are good points in the
article, it contains a bias in which not all accountants get off the ship before the damage is done
but some stay on the ship until the end.

MAJOR POINTS
Managerial accounting is the type of accounting that provides financial information to
managers and decision-makers within a company or organization. Managerial accounting, such
as weekly or daily budgeting, is used to help managers make decisions that increase the
organization's operational effectiveness and efficiency (Tarver, 2021). It is also stated in the
article that the reason why CFOs give misleading accounting data despite the consequences
the company will receive is because of fear of receiving more work in fixing the problem in other
term laziness. suggesting that people aren’t always biased toward only believing information
that supports their ideology. More often than not, they fall for misinformation because it’s easier
to accept than trying to expend greater cognitive resources to analyze it (Flynn and Li,2019).
Moreover, it is said that Accountants are unwilling to adopt logical costing methods, which is
very important in the decision. Cost accounting is a system that many organizations use to track
and evaluate business costs. It's key to helping companies make informed decisions about their
operations (Krosel et al., 2022). In other terms, it is important to make accountants adopt logical
costing and show them how effective it is, it is where good corporate governance is a crucial
role in a business and in supporting decisions, The corporate governance agreement is as
critical to success as the overall business plan for the company, and this is because it’s meant
to create enough checks and balances among all of the owning and governing bodies of a
company so that decisions can be made peacefully and ethically, (Smyth, 2019).
Managerial data are those used by the managers of the company to make business
decisions and steps towards achieving the organization’s goal. Managerial accounting allows
much flexibility in the assumptions and choices used to prepare managerial accounting reports
(Freedman, 2019). Unlike financial accounting and reporting which is governed by different
regulations and standards, managerial accounting is not governed by any regulation and is not
enforced by any laws which makes it subjective since the person in the position can apply
whatever accounting practice or cost allocation method he/she favors. A common failing also
occurs when the management accountant realizes that the calculations and practices on which
the cost system is based were incorrect and did not reflect the company's economic realities.
Management accountants will sometimes also not mention these inaccuracies as it will lead to
more questions and work (Wann, 2022). This is the reason why managerial data are most
commonly misstated. Above all the reasons he presented, he stated that accountants’
resistance to change is based less on ignorance and more on misconceptions about what
determines and influences accurate costing. It is not because they don’t have the knowledge but
because of what they are used to is not accurate and they failed to accept new ideas and try out
new ways for improvement. Too many are stuck in their own ways of willful blindness, incorrect
methods, and siloed interpersonal style (Wann, 2022). Significant change is a disruption in our
expectations about the future. This disruption causes a loss of control, and we will resist this
loss of control--even if we think the change is a sound one (Marshall and Conner, 1996). The
article concludes that reasonably accurate cost and profit information is essential for
performance management and accountants and managers should change their ways before
real damage is done.
Cokins suggests that commercial ABC software and its associated analytics can be used
to avoid misleading data, which is widely acknowledged by many. ABC is considered an
essential tool for management accounting and decision-making. It is instrumental in complex
organizations with multiple products and services and when there is a need to allocate costs to
specific activities or processes (Cgma.org, 2013).There are also so many myths as far as this
concept is concerned, for example, ABC systems are too difficult to implement and use, ABC
systems are too costly and lastly, ABC systems are too complex to understand (Patil, 2017).
Even though there are many myths attached in implementing this system, still the concept of
ABC enables you to make better strategic and operational decisions to increase profitability,
manage costs, and improves operational efficiency.
To help avoid misleading managerial information, Cokins suggested that ABC costing or
software is used and its benefits are now widely acknowledged. The preferred ABC
implementation method is rapid prototyping through its iteratively scaled modeling, which has
destroyed myths about implementing ABC as being too complicated and lengthy. Employee
resistance is the single biggest obstacle to implementing ABC: Some feared ABC would change
the existing power structure. Some felt threatened because they knew ABC would reveal
inefficient practices that had been hidden by the traditional cost-accounting systems. Others did
not like ABC, simply because it was new. And many managers, especially those who felt ABC
was being imposed on their operations, resisted because they knew installing it was a
tremendous amount of work (Ness and Cucuzza, 1995). Organizations still aren't taking
advantage of activity-based activity costing or alternative cost analysis models. Instead, they're
using inaccurate reports with misleading input controls, which leads to the inaccurate analysis
used to support making essential decisions about your business (Wann, 2022). Companies that
try to satisfy all the needs for cost information with a single system have discovered they can’t
perform important managerial functions adequately (Kaplan, 1988). The idea of applying
activity-based costing is contradicted since you must not use only one costing system as it must
be appropriate to the accounts you intend to allocate.
 Furthermore, in order to provide useful information for decision-making, the
management accounting and control system (MCS) should be designed to reduce errors and
bias in the numbers and reports that are produced by the organization. Such design should at
the same time take into consideration the cost versus the benefit of reducing errors and biases.
One important driver of error is poorly designed MCS, which causes the reported performance
to differ from the actual economic performance of interest. One important driver of bias is the
agency problem, i.e., decisions within firms are made by managers whose goals are not aligned
with those of the shareholders (Famaand Jensen,1983; Jensen andMeckling,1976). Goal
incongruence is a problem in decentralized firms because of the inability of shareholders to
observe managerial effort, which could encourage managerial shirking. Furthermore, relative to
shareholders, managers often have better information about operations. This can cause
managers to misrepresent their private information and maximize their own interests rather than
the interest of the firms. Incentive compensation is often used as a tool to address this goal
incongruence problem between managers and shareholders. However, poorly designed
incentive compensation systems can encourage managers to build bias into the numbers. For
example, excessive incentive compensation combined with poor quality and incongruent
performance measures can encourage budgetary slack, earnings management, and fraud
(Baiman,1990).

CRITIQUE
The article provides a comprehensive overview of the challenges that organizations face
when dealing with flawed managerial accounting data and offers several solutions to overcome
these challenges. Moreover, the author acknowledges that organizations may be aware of flaws
in their managerial accounting data but choose not to take action to address them. The author
also highlights the potential consequences of inaction, such as disasters caused by flawed data.
The author of the article was able to provide clear arguments and aided it with the use of
examples about the navigator and the management accountant. He was able to give
explanations of his claims as well. I agree with what the author stated on how accountants resist
to change for the misconceptions that had already been established in their understanding.
Also, he has a good point in emphasizing that managerial data is often inaccurate and
misleading because it depends on the accountants’ discretion on what method to use. The
article also contains suggested solution to the problem by employing the ABC plan, however, he
failed to provide concrete evidences on its effectiveness. Also, the article is somewhat a
generalization to all accountants which is wrong since not all are doing the same. Aside from
ABC plan, misleading of data can also be minimized if not eliminated by making sure that the
company is employing and using latest technologies and updated systems to not be outdated.
With powerful new software and modeling software available today, you can create a proactive
tool with drill-down capabilities that can't be manipulated. All in all, the article is a big help to
those who are into business and are not well acquainted with the misleading data and to
management accountants so that they will have new ideas on what are the best ways to employ
and that their misconceptions will be replaced. The article is also a good basis for future
research and gives good points in management accounting.
Cokins enlightens the researchers that there are cases in which CFOs and controllers
can easily manipulate and give misleading accounting data to the decision makers especially
when they are experienced ones, but the issue regarding the article is that it only focuses on the
problem of why but didn’t specifically answer how we can resolve the problem. Moreover, it is
can be seen that there are gaps that need to be filled and that is to construct, good corporate
governance, Corporate governance is important in detecting and preventing misinformation
because it provides a framework for ensuring transparency, accountability, ethical standards,
and risk management within a company. By establishing clear lines of responsibility and
promoting a culture of honesty and integrity, corporate governance helps to prevent the spread
of inaccurate or misleading information. This is particularly important in today's information-rich
environment, where misinformation can spread quickly and have significant consequences for
individuals, organizations, and society as a whole. Effective corporate governance helps to
ensure that accurate and reliable information is disseminated, which in turn promotes trust and
confidence in the company and its stakeholders. Good corporate governance is important in a
business since it can detect and prevent misinformation. Corporate governance plays an
invaluable role in identifying and putting a stop to all kinds of fraud within the organization.
Some activities that the board of directors should engage in include implementing a
whistleblower program, developing a code of ethics, engaging in risk management, and
investing in governance systems, (Pham, 2022). Also, in using accounting data, it is seen that
the author hasn’t noticed that there is data validation in order to check the accuracy of the data
that has been made. Data validation is the practice of checking the integrity, accuracy, and
structure of data before it is used for a business operation. Data validation operation results can
provide data used for data analytics, business intelligence, or training a machine learning model
(Kerner, 2022).
Overall, the article presented arguments, which were supported by solid scenarios that
addressed the issue. However, the author failed to solve these issues due to a lack of
supporting data for his proposed solution. In the field of managerial accounting, this article
reintroduces a frequent issue. The author makes his efforts in describing the causes and effects
of misleading data but merely addressing the problem does not immediately solve it.

CONCLUSION
The article pointed out the susceptibility of the internal use of managerial accounting for
analysis and decisions. According to the author, CFOs are mainly the key players when it comes
to accounting practice or methods being used. Reasonably accurate cost and profit information
is significant in evaluating the performance of a business and the methodologies in use. CFOs
have the responsibility with that regard but according to the author, they still have the capability
to run free and avoid accountability. Even when the business goes down due to poor managerial
accounting, the CFOs will not go down with it because they could plan ahead for their escape
before the fall of the business. The author supported these claims with clear examples. He
provided a clear scenario when it comes to a business setting. He also mentioned that the
implementation of ABC nowadays is no longer lengthy or complicated because of the iteratively
scaled modeling. The author has made his points clear but he failed to support these claims
with enough evidences. Mere claims were presented and proving these claims to a reasonable
extent was far from reality. The article addressed the problem well but it failed to solve or teach
its readers to deal with the issues. Instead, the article provided more questions that can lead to
further research.
 In this review, further information was presented in order to prove and refute the
author's argument. The author was successful in addressing the issue regarding the use of
misleading data by the CFOs and controllers. He suggested the implementation of ABC while
this review provided suggestions on how to further utilize the benefits of Activity-Based Costing.
For a long time, ABC was viewed as costly or a hassle until many managers discovered the
need for implementing it in providing accurate cost and profit information.

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