TOPIC 1 OF MAF635

THE EVOLUTION OF
MANAGEMENT
ACCOUNTING

evo of MA - nsam 1
IFAC’S CONCEPTION OF THE MA
EVOLUTION
By Abdel-Kader,M & Luther,R. (2006)
• The IFAC (international
Federation of Accountants) is
a global organization for the
accountancy profession.
• In 1998, IFAC provided a
framework explaining
the development of MA.
• A four stage MA
evolution
was model
identified
evo of MA - nsam 2
IFAC’S FOUR STAGES
EVOLUTION in
M• Satangea1:gCeosmt

DeetenrmtinAatciocnoanud

Fnintainncigal Control (prior to 1950)

• Stage 2: Information for
alueManagement
creation Planning (1950 -
1965)
• Stage 3: Reduction of Waste of Resources
3
evo of MA - nsam
STAGE 1: Cost Determination
& Financial Control
 Prior to 1950
 MA described as a technical activity
necessary to achieve
organizational objectives
 Concerned primarily with
internal matters especially
production capacity
 Mainly focused on determination
of product cost
 Eg of MA techniques used LIFO &
FIFO stock valuation methods,
evo of MA - nsam
4
STAGE 2:
Information For
Management Planning and
Control
• 1950 - 1964
• Focus more on providing
information for planning
and control purposes
• Eg. Marginal costing, CVP
analysis and
responsibility accounting
• Management control were
oriented evo of MA - nsam 5
S TAGE 3 :
R e d u c t i o n o f Wa s t e o f
Re s o u rc e s in Bu s in e s s Pro c e s s
• 1965 - 1984
• Global competition was very stiff &
companies worldwide looking for ways
to minimise waste & improving their
value added activities
• More process analysis made together with
cost management efforts
• Eg. JIT & ABC
evo of MA - nsam 6
4
STAGE 4:
CREATION OF VALUE
THROUGH EFFECTIVE
RESOURCE USE
• 1985 to date
• Focus on enhancing the creation of
value through resources
• Tried to identify factors/drivers that
could potentially increase
shareholders’ value & eliminate non-
value added activities
• Eg. TQM, ABM & Re-engineering
evo of MA - nsam 7
Informally identified and
categorised Stage # 5:

In the early 21 s t Century,

management focus
more on risk
management and
strategic management
accounting

evo of MA - nsam 8
RELEVANCE LOSS OF MA
IN MODERN BUSINESS
ENVIRONMENT
(Kaplan & Johnson, 1 9 8 7 )

evo of MA - nsam 9
“ Relevance lost” by Kaplan & Johnson (1987)

• is an overview of the
evolution of
management accounting
in American business,
from textile mills in the
1880s and the giant
railroad, steel, and retail
corporations, to today's
environment of global
competition and
computer-automated
manufacturers.
evo of MA - nsam 10
M A Relevant Lost:
Four criticisms by Johnson & Kaplan
• Limited technical developments within MA
practices despite major changes occurred in
manufacturing technology
• MA information was found to be historical, less
timely and too aggregated
• The accounting academics failed to innovate &
address the issues of the practice in their
teaching
• The development on MA had slowed down ,
causing MA to lose its relevance in the
new millennium
sma ~nsam 11
 (1987)

• The book shows

that modern
corporations must
work toward
RELEVANCE LOST: K & J

designing new
management accounting

evo of MA - nsam
systems that will assist
managers more fully in
• their long-term planning.
Suggests that in order
to sustain & remain
relevant MA has to keep
up to date in line with
12

the changes that occur

in the environment
THE RELEVANT LOST:
The rise and fall of Management
Accounting (Johnson & Kaplan, 1987)

• Argued that MA has to change if it is to

provide appropriate support to managers
in a changing environment
• The old system developed was no
longer suitable for the current
environment

13
MA & ENVIRONMENTAL CHANGE

ENVIRONMENT
AL CHANGE

CHANGES IN
ORGANISATION MA
AL CHANGE CONCEPTS &
PRACTICES

evo of MA - nsam 14
 THE

END
OF
TOPIC
evo of MA - nsam 15
1
NOW
LET’S
DISCUSS
ABOUT
YOUR
FORTHCOM
I NG
GROUP
WORK
evo of MA - nsam 16
TOPICS FOR SMA
PROJECTS:
1. Just–in–Time (JIT) including back flush
accounting & Kaizen Costing

2. Total Quality Management (TQM)

including Quality Costs & Life Cycle Costing

3. Target Costing & Business Process

Re-
engineering
4. Customer Profitability Analysis &
Pareto Analysis

5. MRP, MRP II & ERP

evo of MA - nsam
17
evo of MA - nsam 18
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