Discussion Questions:

1. What do you draw from your reading and understanding of the evolution of
management accounting?

Managerial accounting, also called management accounting, is a method of accounting that

creates statements, reports, and documents that help management in making better decisions
related to their business' performance. Managerial accounting is primarily used for internal
purposes. Management accounting evolution model includes four phases: (1) costs determination
and financial control, (2) information for management planning and control, (3) reduction of
resources waste in business processes and (4) creation of value through effective resource use
（Abdel-Kader, M. and Luther, R. (2006).

2. Explain how management accounting evolved. （give the environment on that time
on manufacturing process, mention the year the stages happened)

Management accounting has been shifting for many years. According to Abdel-Kader, M.
and Luther, R. (2006), IFAC's framework explains the evolution of management accounting
in four stages: cost determination (stage 1), generating information (stage 2), cost
reduction (stage 3), and value creation (stage 4). The stages are not mutually exclusive &
each stage encompasses the concepts of the previous stage.

Stage 1 (Cost determination & Financial Control)

According to IFAC, before 1950 management accounting was mainly focused on determining
the cost of products. Production technology was simple, with products going through a series of
distinct processes. Direct labor was used as a basis for assigning overheads to individual
products. The focus on product costs was supplemented by budgets and financial control of
production processes. Management Accounting techniques that are used such as budgeting &
cost accounting systems (Standard costing method)

Stage 2 (Information for Management Planning & Control)

During the 1950s and 1960s, management accounting shifted its focus to providing information
for planning and control purposes. In Stage 2, as described by IFAC, management accounting
was considered a staff role that provided support to line management through decision analysis
and responsibility accounting. Management controls were primarily focused on manufacturing
and internal administration, rather than strategic and environmental considerations.
Management Accounting techniques that are used such as Managerial accounting,
management control system, Investment appraisal, decision analysis, responsibility accounting,
contingency theory

Business environment

Allocation overhead cost: before ABC approach, we use traditional approach (Direct material,
Direct labour, volume). Relation with mass production is that volume depends o production unit

ROI = management accounting practices use to measure performance of division

Dupont

Drivers of evolution: mass production, technology…

Stage 3 (Reduction of Waste)

From 1965 to 1985, to address the challenge of global competition (world recession), new
management and production techniques were introduced, with a focus on controlling costs and
reducing waste in business processes. Employee empowerment was often used to support these
efforts. In this decentralized environment, management information and decision-making needed
to be diffused throughout the organization. Management accountants played a key role in
providing this information, using process analysis and cost management technologies to
ensure that appropriate information was available to support managers and employees at all
levels. Management Accounting techniques that are used such as Just-in-Time, ABC, LIFO, &
FIFO.

Stage 4 (Creation of Value)

In the 1990s, industries faced uncertainty and rapid advances in manufacturing and information-
processing technologies. The emergence of the worldwide web and e-commerce further
intensified the challenge of global competition. As a result, management accountants shifted
their focus to generating value through the effective use of resources. This was achieved
through the use of technologies that examined the drivers of customer value, shareholder
value, and organizational innovation. Management Accounting techniques that are used
such as Value-based management, Economic Value added, value-chain analysis.

Stage 5 (Environmental and sustainability issues)

It is started from 1990s-present

Risk assessment

Environmental Management Accounting(EMA) ->Strategic Management Accounting

SMA
Stage 6 (Current issue: Big Data & Digitization)

It is started from 2000’s

MA Techniques not develop yet for the digitalization

However, use digital/technology as a tool to assist in doing management accounting task

 3. Describe drivers of management accounting innovations.

There are several drivers of management accounting innovations, including:

 Changes in Business Environment: Due reduce cost, compete to competitor price .

As the business environment changes, the needs of the market will become different, so
companies need to remain competitive. This requires management accountants to develop
new techniques and tools to provide managers with the information they need to make
informed decisions. For example, companies may need to develop new sustainability
metrics or adopt new environmental accounting practices to meet stakeholder
expectations.
 Technological Advancement: Due to increased competitive environment firms have
adopted ‘innovative products and production techniques to provide increased flexibility,
and to satisfy customer demands’ (Foster & Gupta, 1994). Advance in technology have
made the firm possible to collect, analyze, and present data more efficiently and
effectively. In order for MA to help business compete with the highly competitive
markets, MA has improved their system and businesses have made considerable
investments in the advanced management systems, such as computer-aided design, cloud
based systems. As results, this has led to the development of new software applications
and analytical tools, such as big data analytics, machine learning, and artificial
intelligence.
 Globalization: The increasing interconnected of the global economy can create new
complexities in cost accounting and financial reporting. As companies become more
global, management accountants need to develop techniques to manage complex supply
chains, monitor performance across different regions, and deal with currency
fluctuations.
 Competition: Intense competition in many industries has led companies to focus on cost
reduction, process improvement, and innovation. Management accountants play a critical
role in identifying areas where costs can be reduced and processes simple. Increased
competition can result the need for more complicated management accounting practices.
For example, companies may need to adopt new cost accounting techniques or develop
new performance metrics to stay competitive.
 Changing Regulatory Environment: Regulatory changes, such as new accounting
standards or tax laws, can create new challenges for companies. For example, the
adoption of new accounting standards such as IFRS or US GAAP can require companies
to change their accounting policies and practices. Management accountants need to stay
up-to-date with these changes and develop strategies to comply with them.
 Organisational Structure–Management System
 Another driver of change to MA is the new management style. If there is a new
management in place, ‘the organisational structure and information flow in an
organisation will also change’ (Cloud, 2000). This will ultimately change the work
pattern and attitude among the employees. MA will need to interact with operations and
directors. Because of the driver of change to organisational structure, MA and business
managers have worked cross-functionally therefore, demand for information by
stakeholder has strengthened.