Running head: MANAGERIAL ACCOUNTING IN NON-PROFIT ORGANIZATIONS 1

Issues in the Decision-Making Process and Managerial Accounting Practice in Non-profit

Organizations

Student Name

Institution
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Issues in the Decision-Making Process and Managerial Accounting Practice in Non-profit

Organizations

Introduction

Various trends are emerging and are affecting how organizations implement the

principles of managerial accounting in their operations. Practices in managing people and

financial and non-financial assets are fast evolving owing to the environmental, legal, and

technological changes the world is experiencing (Grossi, Kallio, Sargiacomo & Skoog, 2019).

The focus of the current report is on non-profit organizations, which is an emerging trend

globally that is impacting the practice and professional performance in the field of managerial

accounting. The current report focuses on identifying ways to improve managerial accounting

practice in non-profit organizations, which are emerging in various parts of the world, creating

and delivering public services without pursuing profits, as is the case with commercial

companies. The report focuses on responding to the issues raised in the assignment prompt

regarding the emerging trends in managerial accounting.

How Non-Profit Organizations Can Assist or Hinder Decision-Making Process in

Managerial Accounting

The nature of non-profit organizations is that they operate mainly by rendering public

services, usually to the vulnerable in the societies in which they operate (Perica, 2021). Such

organizations offer services related to causes marked by the public good, which private

commercial companies and government agencies cannot meet owing to their interests and

responsibilities. Non-profit organizations focus on obtaining funding and voluntary aid from

various stakeholders, which are then deployed to run their operations and meet their intended

objectives (Ortega-Rodríguez, Licerán-Gutiérrez & Moreno-Albarracín, 2020). Managerial

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accounting is vital in the operations of non-profit organizations because such organizations need

to demonstrate that they are responsible and use the available resources responsibly and in ways

that enable them to realize their intended aims and objectives. Due to their nature, the practices

and activities run in non-profit organizations may assist or hinder the decision-making process as

expected in managerial accounting. The current section addresses how non-profit organizations

can assist or hinder decision-making as required in managerial accounting.

Non-profit organizations can assist in decision-making as expected in managerial

accounting because of the requirement of consensus building before any action is initiated and

implemented (Kingston, Furneaux, de Zwaan & Alderman, 2019). Unlike private commercial

firms and government institutions in which structured approaches are in place to guide the

decision-making process, non-profit organizations focus on building consensus with all

stakeholders before any action is undertaken (Rüsch, Wilkesmann & Bastini, 2019). The

leadership of the non-profit organizations must ensure their actions satisfy the interests of all the

stakeholders before they are implemented. The leaders must explain the objectives of their

programs and action plans to their stakeholders to obtain funding and obtain the approvals to

utilize all other available resources as required. Therefore, through the building of consensus,

non-profit organizations can assist in the decision-making process as expected in managerial

accounting practice.

Non-profit organizations operations and activities can also hinder the decision-making

process in managerial accounting. Unlike commercial companies, which pursue profit and share

it with their shareholders, non-profit organizations obtain resources from donors and utilize them

to deliver public good through their operations (Ortega-Rodríguez et al., 2020). Such a difference

means that some of the standards of the accepted accounting principles do not apply to the
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accounting procedures of non-profit organizations (Prentice, 2018). For example, since

investments are not intended to generate profits for shareholders, it could not be easy to

guarantee accountability among those making decisions for non-profit organizations. The lack of

proper standards to ensure accountability may affect the decisions made following the decision-

making process. The lack of accountability follows the reality that no specific and effective

criterion has been presented to measure the performance of non-profit organizations. Effective

accountability measures must be established before the operationalization of non-profit

organizations to ensure the implementation of effective managerial accounting principles in such

entities, especially in making and executing decisions.

Theoretical Models for the Decision-Making Process in Non-Profit Organizations

The success of non-profit organizations depends largely on the quality of decisions made

regarding utilizing donated resources to realize the operational objectives of such entities

(Treinta et al., 2020). Some theoretical models have been presented intended to inspire effective

decision-making process outcomes in the operations of non-profit organizations. The first

theoretical model that explains the decision-making process adopted is patron-clientelism, which

seeks to balance formal and informal relationships between the various stakeholders involved in

the operations of non-profit organizations (Kang, 2020). The patron-clientelism model demands

that the decisions of non-profit organizations consider the formal and informal needs of different

stakeholders to make decisions that will lead to stable operations and appealing performance of

the involved entities.

The second model that ought to be adopted to improve the decision-making process in

non-profit organizations is the cooperative model. In such an approach, non-profit organizations

are not required to employ senior managers and CEOs who will be responsible for making and
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implementing decisions (Defourny, Nyssens & Brolis, 2021). Instead, the focus will be on

creating conditions within the non-profit organizations to ensure all decisions are made through

consensus among all the stakeholders to be affected by the operations, decisions, and activities of

the involved organization. It is the most democratic approach, whereby all the stakeholders will

provide their views and be accorded the opportunity to convince others why their views should

be adopted over those presented by the rest of the stakeholders. The application of the

cooperative model improves the decision-making process of non-profit organizations because all

stakeholders are expected to participate actively in the decision-making activities intended to

build consensus and allow the making of uncontested decisions that will drive the organization's

performance positively.

The combination of patron-clientelism and cooperative model approaches in a non-profit

organization's decision-making process can improve managerial accounting practice. The

leadership boards of non-profit organizations should consider developing approaches that

combine patron-clientelism and cooperative models in the decision-making processes of their

organizations. Besides the models, non-profit organizations should consider adopting an

analytical and proactive decision-making style, viewed as a contingency factor positively

correlated with managerial accounting in non-profit organizations (Perica, 2021). The

performance of non-profit organizations depends on the decision-making approaches adopted by

the leadership of such organizations and the decision-making styles adopted during the

operations of such firms. Efforts targeted at maximizing performance must be adopted in the

decision-making process of non-profit organizations, which will enhance managerial accounting

practice in their activities and operations.

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References

Defourny, J., Nyssens, M., & Brolis, O. (2021). Testing social enterprise models across the

world: Evidence from the “International Comparative Social Enterprise Models (ICSEM)

project”. Nonprofit and Voluntary Sector Quarterly, 50(2), 420-440. doi:

10.1177/0899764020959470

Grossi, G., Kallio, K. M., Sargiacomo, M., & Skoog, M. (2019). Accounting, performance

management systems and accountability changes in knowledge-intensive public

organizations: a literature review and research agenda. Accounting, Auditing &

Accountability Journal, 33(1), 256-280. doi: 10.1108/AAAJ-02-2019-3869

Kang, Y. (2020). Dispersed domination through patron-clientelism: the evolution of the local

state–NGO relationship in post-disaster sichuan. Journal of Contemporary

China, 29(124), 598-613. doi: 10.1080/10670564.2019.1677367

Kingston, K. L., Furneaux, C., de Zwaan, L., & Alderman, L. (2019). From monologic to

dialogic: Accountability of nonprofit organizations on beneficiaries’ terms. Accounting,

Auditing & Accountability Journal, 33(2), 447-471. doi: 10.1108/AAAJ-01-2019-3847

Ortega-Rodríguez, C., Licerán-Gutiérrez, A., & Moreno-Albarracín, A. L. (2020). Transparency

as a key element in accountability in non-profit organizations: A systematic literature

review. Sustainability, 12(14), 5834. doi: 10.3390/su12145834

Perica, I. (2021). The mediating role of managerial accounting in non-profit organizations: a

structural equation modelling approach. Croatian Operational Research Review, 12(2),

139-149. doi: 10.17535/crorr.2021.0012

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Prentice, C. R. (2018, July). Misreporting Nonprofit Lobbying Engagement and Expenses:

Charitable Regulation and Managerial Discretion. In Nonprofit Policy Forum (Vol. 9,

No. 2). De Gruyter. doi: 10.1515/npf-2018-0018

Rüsch, S., Wilkesmann, M., & Bastini, K. (2019). The effects of entrepreneurial orientation on

strategy choice and management control in nonprofit organizations. Problems and

Perspectives in Management, 17(3), 153-168. doi: 10.21511/ppm.17(3).2019.13

Treinta, F. T., Moura, L. F., Almeida Prado Cestari, J. M., Pinheiro de Lima, E., Deschamps, F.,

Gouvea da Costa, S. E., ... & Leite, L. R. (2020). Design and implementation factors for

performance measurement in non-profit organizations: A literature review. Frontiers in

Psychology, 11, 1799. doi: 10.3389/fpsyg.2020.01799

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