Accounting for strategic management: introduction

and the conceptual framework

Prepared by: Y Anni Aryani

Strategic Management Accounting: Concept,

Process, and Issues (Haque, 2006) 1
Strategic management accounting
(SMA)
Definition: process of identifying, gathering, choosing
and analysing accounting data for helping the
management team to make strategic decisions and to
assess organisational effectiveness.
SMA is built upon the view that accounting should be
tailored specifically to the strategies and environment
of the business.

Strategic Management Accounting: Concept,

Process, and Issues (Haque, 2006) 2
Ideas of SMA
• Relation of many fields, such as:
• Financial accounting  originated to fulfill the
stewardship function of business, mainly focus on
external reporting
• Management accounting  in general sense, it
identifies, collects, measures and reports information
that is useful to managers in planning, controlling and
decision-making  technical-rational (conventional)
role of management accounting  limitations

Strategic Management Accounting: Concept,

Process, and Issues (Haque, 2006) 3
Ideas of SMA
Limitations of conventional MASs:
Technical orientation
Ignore human-relations aspects
Ignore business context
Focus on short-run decisions

Strategic Management Accounting: Concept,

Process, and Issues (Haque, 2006) 4
Ideas of SMA
• Cost accounting  Hybrid of financial and
management accounting
• Cost management  deeper understanding of the cost
structure of the firms; combination of management
accounting, production and strategic planning
• Strategic cost management  provides costing
information for strategic decisions  long-run focus

Strategic Management Accounting: Concept,

Process, and Issues (Haque, 2006) 5
Theoretical perspective (viewpoints) of
management accounting
• Technical-rational view of management accounting
• Weber’s bureaucratic rational-legal authority
• The human relations view of management accounting
• Contingency view of management accounting
• Agency view of management accounting
• Interpretive approach to control
• Political economy view of management accounting
• Organisation change literature

Strategic Management Accounting: Concept,

Process, and Issues (Haque, 2006) 6
Technical-rational view of management
accounting

Originates in economics
Based on neoclassical economic theory, it presumes
management accounting as a computational decision-
making tool that helps maximise the goal of
organisation

Strategic Management Accounting: Concept,

Process, and Issues (Haque, 2006) 7
Technical-rational view of
management accounting
Key features:
Assumes a preset goal or consistent goal set
Alternative to achieve the goal are mutually exclusive,
separate and easily identified
Always possible to improve accounting information
through the introduction of new technical
developments, e.g. accrual accounting in public sector
Focus on bureaucracy, hierarchical controls and optimal
resource allocation

Strategic Management Accounting: Concept,

Process, and Issues (Haque, 2006) 8
Technical-rational view of
management accounting
Weaknesses:
Ignores the wider social, economic and political context
in which organisations operate
Fails to assess the effect of individual values and beliefs,
organisational conflicts and the divergence of goals in
the organisation upon decisions.

Strategic Management Accounting: Concept,

Process, and Issues (Haque, 2006) 9
Weber’s bureaucratic rational-legal
authority
Weber sees bureaucracy as an organisational form to
achieve rational-legal authority

Strategic Management Accounting: Concept,

Process, and Issues (Haque, 2006) 10
Human relations view of
management accounting
Personal relations among organisational members
are critical to performance
Weaknesses:
Human relations studies on accounting and control
systems provide inconsistent results
The adoption of scientific methods can neglect the
important of individual’s understanding , values,
meanings and culture
Fails to explain how accounting and control systems may
be products of the socioeconomic and political contexts
in which the organisation operates
Strategic Management Accounting: Concept,
Process, and Issues (Haque, 2006) 11
Contingency view of management
accounting
Central idea is no universally acceptable model of the
organisation that explains the diversity of
organisational design  it depends on the contingent
factors relevant to the situation
Criticisms  based on highly technical view of
organisational choice

Strategic Management Accounting: Concept,

Process, and Issues (Haque, 2006) 12
Contingency view of management
accounting
Weaknesses:
The conceptualisation, definition and measurement of
key variables within the theory have not been adequately
elucidate – they require greater theoretical and
empirical attention
Correlations reported in most contingency studies are
small and not always consistent
The theory fails to incorporate the wider context of
organisation (i.e. social, political, economic and
institutional aspects)

Strategic Management Accounting: Concept,

Process, and Issues (Haque, 2006) 13
Agency view of management
accounting
Concerned with the delegation of decision-making
authority by a principal (e.g. owner) to an agent (e.g. a
manager).
Agents will not always take actions that are in the
principal’s best interest
Owner can limit such behaviour with auditing,
controlling, etc.

Strategic Management Accounting: Concept,

Process, and Issues (Haque, 2006) 14
Interpretive approach to control
It can better identify the social, economic and political
aspects of management control systems in the
organisation from the perspective of actors involved in
their operations.

Strategic Management Accounting: Concept,

Process, and Issues (Haque, 2006) 15
Political economy (PE) view of
management accounting
The PE approach emphasises the historical nature of
the social world
Attempts to understand a particular phenomenon
from its socio-political contexts that exist at a time and
place
It takes into account the institutional legitimacy of the
society in explaining management process in an
organisation

Strategic Management Accounting: Concept,

Process, and Issues (Haque, 2006) 16
Political economy (PE) view of
management accounting
PE approach helps an understanding of the mutual
relationship between policy, state, economy and
organisational processes, such as the design and use of
management accounting systems

Strategic Management Accounting: Concept,

Process, and Issues (Haque, 2006) 17
Organisation change literature
Organisation change in response to existing problems
and for continuous improvement
Sources of change:
Temporal
External
Internal

Strategic Management Accounting: Concept,

Process, and Issues (Haque, 2006) 18
Organisation change literature
Types of organistional change:
Developmental
Transitional
Transformational

Strategic Management Accounting: Concept,

Process, and Issues (Haque, 2006) 19
Strategic Management Accounting: Concept,
Process, and Issues (Haque, 2006) 20