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Exam Revision (Management Accounting (Lectures (Value Chain and VBM…
Exam Revision
Management Accounting
Lectures
Changing Role of Management Accountant
Traditional Role
No specific role, just to discuss historic figures monthly (backward looking)
Taking business information and organisation for managers to make decisions from
Provided sector performance reports for managers to encourage healthy competition
Moore's Law (1965) - Processing speed doubles every two years
Four Key Forces For Change
Globalisation
Less barriers to trade
Quicker distribution networks
Technology
Need to produce information faster than ever
Change in Accounting Standards & Regulation
Reaction to ethical scandals
New controls in place
Requirement for transparency
Corporate Trends
Downsizing of businesses
Privatisation in the public sector
Hybridisation
Combine accounting and business knowledge
Compare short and long term performance measures against each other
Advisory and consultancy requires wide knowledge of business and units within
Requirement for communicative/strong leaders
More involved in the decision making process through integration of different sources of information
Combining strategic issues with performance measurement
Consulting Accountant
Shared control
Leadership and support services to clients
Analytical capabilities
Seamless systems and communications
Reduction in day to day work
Performance based economy
Value Chain and VBM
Sustainable Competitive Advantage
Differentiation (Unique Selling Point)
Focus (Specific)
Cost leadership (Low cost strategy)
Porter (1985)
Value Chain
Series of value-creating activities
Industry value chain - linked set of activities from raw materials to finished product
Gaining and sustaining competitive advantage requires understanding of entire value delivery system
Value Chain Analysis
Evaluate a firm's strategic position within the industry as a whole
Take advantage of specific value activities
Challenges
Accounting systems not designed for classifying costs by value activities
Difficulty in obtaining information for relevant ratios
Some industries maintain complex value chains
Sainsburys
Changed from product focused to supplier focused
Inform suppliers what they were doing but not how they were doing it
Analysed cost of activities between suppliers
Integrated cost and activity information
Analyse behaviour of costs
"Value chain analysis needs to create value for consumers and society" (Fearne, Martinez, and Dent, 2012)
"Figment of academic imagination" (Dekker, 2003)
Value Based Management
Intensifying the management and control of activities that stimulate value creation
VBM Control Activities
Proper execution of decisions and plans
Enablement of action through effective communication and creating optimal conditions
Measurement through KPI's
Evaluating and learning from effects of value
Implementation of Controls Conditions
Nature of products/services
Nature of market
Legal requirements
Social and political setting
Criticisms
Anything that involves making money is regard as suspicious due to accounting scandals
Not immune to strategic and operational problems
Evaluation of intangibles can be difficult
Responsibility centres lead to restrictions in structure
"Commitment to continuous improvement" (Fearne, Martinez, and Dent, 2012)
Collapse of Enron and Parmalat destroyed value
Failed as a result of strategic error in achieving business objectives
Lack of understanding between decisions of higher profit and those of higher value
Enron - Failures in revenue recognition - 2001
Parmalat - Money laundering - 2003
Return on Management
Equation between management time spent and quantity of productive energy
MA and the Environment
The Way Forward
More than green glossing
Rethink ethical constructs in society
Not anti-business
The need for immediate solutions to combat urgent issues
Focus
Sustainability disclosures
Regulation and transparency
Promoting accountability
Respond to stakeholder needs
Build stakeholder trust
Take a responsible future outlook
Monitor changes in the environment
Strategic Management Accounting, 1981
Evaluation of alternatives available
Brings in competitor information
Product focus / market orientated
Bhopal, 1984
Facts
550,000 injuries
Pipe maintenance caused a back flow of water into the chemical storage tanks
Seven employees receive a fine of $2,000
Lax safety measures compared to other plants
Refusal to clean up site as it would accept responsibility
Aftermath
$470mln in compensation
Increased need for international standards on environmental safety
Union Carbide manipulated and withheld data to defer responsibility
Economy>Environment in India
Low Level Response
Business sector as a whole does not believe in the seriousness of environmental crisis
Does not see how business can help
Is unable or unwilling to take action
Bounded Rationality
One mind cannot grasp more than a limited number of objects or phenomena at any one time
H.A. Simon, 1957
Organisations simplify decision making by setting targets and only considering few alternatives over an infinite array
MA, Strategy, and Investment Decisions
Balanced Scorecard
Kaplan and Norton (1992)
Fast but comprehensive view of the organisational unit
Translating vision and strategy into specific strategic objectives, and identifying drivers of strategic objectives
Aligning strategic initiatives through planning
Four Perspectives
Customer
Market Share
Customer retention/loyalty
Duration of relationship
Surveying defective customers
Referrals by existing customers
Customer acquisition
Internal Business Process
Delivers value propositions
Satisfies expectations
See Internal Value Chain
Break-even period
Learning and Growth
Can we continue to improve and create value?
Employee capabilities
Information system capabilities
Motivation and empowerment
Financial
How do we look to shareholders?
Financial performance on a unit level
Asset utilisation
Cost reduction
Revenue growth
Cause and effect relationship between perspectives
Objectives/Measures/Targets/Initiatives
Communicating Strategy
Allows for financial and non-financial measures to be incorporated into the information systems
Front line employees understand the financial consequences of decision making
Executives understand drivers of long term success
Barriers
Confusers - Uncertainty of BSC role
Frustrators - Existence of other cultures
Delayers - Difficulty in specifying strategy
Internal Value Chain
Innovation Process
Number of key products first introduced to the market
Percentage of sales from newly introduced products
Break-even time
Operations Process
The use of multiple suppliers
High amount purchasing
Quality measures (Yields/Scrap/Waiting Time)
Cycle time (Difference between order and retrieval)
Cost measures (Tracking costs to processes)
Post-Sales Service Process
Warranty and repair activities
Treatment of defects and returns
Otley (1987)
What are the dimensions of performance the organisation is seeking to encourage?
How are standards to be set?
Whats rewards/penalties for meeting targets?
Underpinnings
Standardised systems that gather historical information for internal management to make short term operating decisions
Limitations
Relies on financial information
Deals in historical information
Internal looking
Competitive Environment
Must align firms strategies and capabilities with that of the environment
Change is slow due to historical info
Change is frequent in modern industries
Need for more timely information
The Way Forward
More qualitative information
More future orientated information
Broader range of information
More timely information
SMA highlights each of these factors
Public Sector Accounting
Lectures
Political Context of Public Services Management
1945-76 - Post-War Dream
Shared commitment to full employment
Shared vision of welfare state through taxation
Stability and consensus in greater role for local authorities
Shared understanding of welfare capitalism
Post War Consensus
Modern welfare state, free at point of delivery
A national health service
Education for all - 1944 Education Act
Town and Country planning system
Nationalisation of key sectors of the economy
1976-79 - Straining the Consensus
Labour Government - Focus on admin approach
Impact of economic recession
Rising costs to the State
1979-90 - Smashing the Consensus
Challenge of collectivism/social division
The cuts/attack on local Government
The force of the regulatory state
Mixed economy of welfare
Focus on managerialism
Impact on Local Government
Fragmentation and Plurality
Competition - Compulsory tendering
Enabling of strategic direction
Paying for and receiving services
'Businesslike' management style
1990-97 - Fighting for centre ground
Labour Party reinvention
Low taxation, low inflation
Commitment to mixed economy
End of automatic welfare entitlement
1997-01 New Labour, New Britain
The Third Way
Economic policy
Social policy
Second and Third Blair Govs
Comprehensive spending review
More money for healthcare
Reduce poverty/unemployment
Greater local Gov. controls
Implications for PS Managers
Pressures of budgetary restraint
Move towards competitive environment
Changes in mgt methods/practice
Technology Context
Pervasiveness - Used in all contexts
Convergence - Combination of networks
Reflexivity - Appraisal of old systems
Connexity - Bringing new logic
Flexibility - Inherent in everyday society
Public Spending, Social Policies, and Management
Privatisation
Cable and Wireless (1981)
British Petroleum (1981)
British Telecom (1984)
Gas (1986)
Water (1989)
Electricity (1990)
Size and Scope
PS expands in relation to expansion of economy
Tax system in place encourage growth
To gain votes, growth is encouraged
Managers want to expand agency they work in
More unemployed = Larger PS for income support
Conversion to Private
Reduce public expenditure allowing for the lowering of income tax
Sale of assets such as council houses
Exposing services to competition
Uniqueness of Public Sector
Objectives are ill defined
Strategic planning is more difficult
Functions are limited by statute
Funding by tax with no charge for services
Certain goods have to be provided by State
Managing Public Spending
Iterative process between the Treasury/Departments/Ministers
Best value approach
Expenditure surveys
Six Themes of Social Policy (Move to Welfare State)
Move from equality to tailored treatment (Education)
Universal eligibility to rationing (Unemployment)
Reformed housing policy
No choice to some choice
Move to devolved accountability
Changes in funding (Performance measurement)
Audit and Inspection
Flynn (2012)
Facts
Conformity to standards in past
'Clan' governance, shared professional training
Changed to better performance as a whole
Audit Commission, 1983, to examine and improve changes in management practice, abolished in 2011
Care Quality Commission for healthcare
National Audit Office for audit services
Improvement is the target but funding and reputation lies on the result of the audit
Need for a more varied approach to gain improvement
Only acceptable arguments are lack of resources
Modern approach is to wholeheartedly join an initiative and be shaped by it in process
Prescription is generally not the same as practice
Audit
Financial Audit (Statements, reports to Parliament)
Value for money audit (Service improvement plan)
Performance improvement
Holds Government to account for taxpayers money
International bodies audit
Education
Inspects children's' homes over 6 measures
Radical change in 2005 to a 4 point scale
Processes of teaching, outcomes, exam results, value added, and quality of management
Peer review process, collaboration for improvement
Approaches
Less adventurous
Policy of conformance
Understand system to gain points/positive rating
Inspection compliance
Less submissive
Dialogue with scrutineers to persuade them that there are viable alternatives to prescription
Less drastic
External influences to help bring change
NPM
Facts
Linked to election of Conservative Party
Modernisation of public sector in 1980's
Market orientated for better cost efficiency
Economic/Efficient/Effective
Using private companies to deliver services
Hood (1991)
Lessen differences between public and private
More control over public service professionals
Seven Dimensions
Greater disaggregation of public organisations
Stronger competition
Greater use of private management techniques
Increased efficiency of resources
More active control and hands on mgt
Clearer specification of input-output
Use of measurable performance standards
Improve efficiency
Need for Reform
Too centralised/bureaucratic
Public unhappy with service provided
Managers had little control
Staff poorly trained
PS Spending and Accounting
Public Administration
Implementation of Gov. policy
Administrators are public servants working in public departments and agencies, at all levels
Public Management
Management that aims to achieve public good
Market-driven perspective with executives on performance contracts, revenue agencies
Objectives of PSA
Testing the legitimacy of transactions
Providing evidence of stewardship
Assisting planning and control
Ensuring objective and timely reporting
Evaluating costs against benefits
Accountable to the public (Flynn, 2007)
Resources used to achieve results
Resources used efficiently
Money spent as agreed
Bases
Cash (Used)
Advantages
Revenue/expenses recognised when cash received/paid
Simple to understand
Eliminates existence of debtors/creditors
Disadvantages
Unrealistic view of financial transactions
Does not allow for depreciation or provide accurate picture at y/e
Accrual
Advantages
Realistic view of transactions
Accurate picture at end of period
Revenue/Expenses recognised as earned/incurred
Matches always to correct period
Disadvantages
Difficult to understand
Does not allow easy delegation of work
Commitment
Advantages
Records expenses by contract or purchase order
Aids financial control through provisions set
Realistic and accurate view
Disadvantages
Extra work resulting from commitment provisions
Expenditure on commitment basis is hoping Gov releases funds
Measuring Value Creation
Facts
Appraisal process for managers and spending
To evaluate, control, budget, motivate, promote, celebrate, learn, and improve (Behn, 2003)
Outputs and outcomes must be value for money
Value for money is measured by the 3 E's
Maximise outcome of services provided
Problems
Measuring costs
Reliability of output measures
Determining relationship between inputs and outputs
Narrowness/comprehensiveness of measures
Controllability of performance
Outputs
Goods or services provided by the organisation
Generally expressed in non-financial terms
Outcomes
The effect on users/citizens in general
Outcome satisfies the needs
May take time to realise
3 E's
Efficiency - Increasing output from same input
Effectiveness - Measure of success in achieving objectives
Economy - Concerned with the level of input (Not too much / Not too little)
Equity? Ethics?
Accountability
Multiple principals to be accountable to
Several ends to achieve
Budgets
Why do we produce budgets?
Aid planning of operations
Co-ordinate activities
Communicate plans
Motivate managers to achieve goals
To control activities
Evaluate performance of managers
Facts
Budget period generally holds to a year
Master budget summarises sub-units
Overseen by budget committee
Part of the accountability process in PS
Budget Committee
Evaluation of budgets produced
Establish roles and responsibilities of individuals
Ensure participation/timeliness
Communicate results to personnel
Uncertainty in Budgeting
Future is uncertain as a rule
Probabilities/Simulations paramount
Sensitivity/Scenario analysis
Appraisal
Advantages
Translates and communicates effectively
Encourages goal congruence
Relates activities and functions
Limitations
Becomes out of date in volatile situations
Time consuming and expensive
Staff may disagree with budget and be demotivated
Discourages new business opportunities
Zero-Based
Have to argue budgets as if activity was occurring for the first time
Dis-advantages
Emphasises the short term
Time consuming with a difficult c/b analysis
Presumes expenses commitments happen at once
Advantages
Identifies inefficient operations
Managers become committed to budget
Encourages avoidance of unnecessary expenses
Activity-Based
Cost of activities to produce and sell items
Separates costs into pools to be allocated
Identify activities that don't add value
Incremental
Takes the budget at base and indexes it forward based on expected changes
Relatively simple
Difficult to respond to specific changes
Programme Planning
Identification and examination of goals and then defining output in relation to goals
Dis-advantages
Very complex and difficult to use
Increasing difficulty comparative to size
Advantages
Rational and focused on outcomes
Long term focus with multi-year plans
Controls
Action (Behaviour)
Behavioural constraints (Link between control and action)
Action Accountability
Focus on prevention over detection
Discourages creativity
Social (Cultural)
Socialise people into adopting certain behaviours
Represents a set of shared values (Inexpensive)
Lack of goal congruence if do not share values
Results
Performance measures minimising adverse behaviour
Providing rewards/punishments
Reporting information on outcomes of work effort
Subject to manipulation
Focus is entirely on outcomes
Performance Measurement
Management Control
How resources are obtained
Resources used efficiently and effectively
Facts
Key Principles
Measurement of performance
Compensation based on performance
Uses
Compensation, implementing strategy
Decision making
Monitoring, translating strategy
Attention focus
Theories
Expectancy Theory
Motivated by desired rewards
Must create rewards and penalties
Desired behaviours will lead to correct reward
Agency Theory
Work in exchange for reward
Must include motivation to work
Align employee's goals to employers
Traditional Measurement Issues
Overly aggregate
Not timely
Backward looking
Promote short term behaviour
Dysfunctional effects
Tunnel vision (Losing big picture)
Sub-optimisation (narrow objectives)
Myopia (Short term achievements)
Convergence (Managers perform at same level)
Ossification (Targets are a disincentive)
Gaming (Manipulate to gain advantage)
Misrepresentation (Cheating by misleading)
Accounting Theory
Lectures
Underpinnings
Why study accounting theories?
How elements of accounting should be measured
The types of motivation for organisations to provide the information that they do
The motivation for individuals to support or lobby regulators in favour of certain theories
Implications for organisations for picking certain theories over another
Theory
"To provide a basis for the prediction and explanation of accounting behaviour and events" (Riahi-Belkaoui, 2000)
Composed of a body of knowledge
Internally consistent
Explains or predicts phenomena
Addresses problems and presents solutions
Pragmatic Approach to Theory
Non-theoretical
Constructs a theory based on the conformity to real-world practices
Practical solution rather than the optimal solution
Solutions are known as Generally Accepted Accounting Principles
GAAP is not considered a theory as it provides no understanding of the nature of function of accounting
Approach to Theory
Inductive
General principle is inferred from particular instances of observation (Bottom-Up)
Begin with observations/measurements and move to generalised conclusions
Open-ended and exploratory
Just confirms the status quo through lacking innovation in the initial reasoning
Deductive
General to the more specific (Top-Down)
Theory - Specific hypotheses - Observations - Confirm or reject original theory
Used for specific testing of theory
Sprague (1907): The Philosophy of Accounts
Early attempt at providing a theoretical framework for accounting in 20th century
Wanted to break from current practice
Follows the a priori set of reasoning
A priori is truth known by pure reason
A posteriori is truth determined by facts or the way the world is
Gaffikin,1987
Early theorists produced no discernible theory of accounting and their methodology has been rejected by all of the most recent accounting theorists
The text was a manual of practices observed and did not follow Sprague's methodological intention (Gaffiken, 1987)
Recognised the need for more formal methodology which is sound in intent but not in deed
Conceptual Frameworks
D.R Scott 1941 (Lawrence and Stewart, 1993)
Deductive approach to development of accounting theory and standard setting
Willing to adapt to environment
Ahead of the Time
Need for normative theoretical base to provide unity across different accounting principles
Deductive approach for foundation
Accounting has the key role in the economic control of the organisation
Profession needed to reassure users as to the reliability of accounting information
Issues of the Day
Users needs were not clearly identified
Accounting was not standardised
Calls on Gov to control profession
Threat of self regulation
"Invisible hand of competitive marketplace is no longer effective in regulating the marketplace" (Scott, 1941)
Theoretical framework would aid in facilitating social control of organisations
Multi-Level Approach
1st Level - Orientation Postulate
Defines the moment between accounting and the environment it is set in
Must show the perspective in which accounting reports are prepared
2nd Level - Pervasive Principle of Justice
Equitable treatment of all interests
No group is above another
3rd Level - Truth and Fairness
True and accurate statement of the information they wish to purport
Fair, unbiased, and impartial
4th Level - Adaptation and Consistency
Change to adapt evolving environment
Balance the need to adapt with consistency
Building Blocks of CFs
"Coherent system of inter-related objectives and fundamentals that can lead to consistent standards" (FASB, 1976)
Provide prescription so are considered under the normative theory of accounting
Why do we need?
More than one method used
Need to smooth earnings
Failure to predict problems
Choice in approaches available
Limited consistency between standards
Development currently in an ad hoc manner
Make standard setters accountable
Development becomes more economical
Problems of CFs
Small organisations feel overburdened
Typically ignore transactions that do not involve the market due to economic focus
Privilege certain sections of society?
Gore (1999)
Credibility (Political Role) - To gain legitimacy
Defensive Shield - Std consistent with CF
Descriptive Role - Calculate the best practice
Prescriptive Role - The approach to what should be done through assumption no current practice is correct
Common Language - Facilitates discussion
Influences of International Accounting
Models of Financial Accounting
Anglo-American
Emphasises true and fair
Emphasises importance of capital markets
Influenced by accounting profession
Continental European
Strong reliance on Gov
Small input from profession
Reasons for International Differences
Underlying laws and political systems
Common Law
Few prescriptive statutes
Prior judgements act as precedents
Roman Law
Detailed statutes
Spread through continental Europe
Tax systems
Level of education
Level of economic development
Colonial inheritance
Strength of accounting profession
Common law requires a greater influence from accounting profession to create true and fair view
Roman has little need for strength due to a lower requirement in need for judgement
Culture
History
Legislation following scandals
Language
Religion
Islam does not allow for debt financing and prohibits the payment of interest
Financing System
Equity markets require public disclosures
Credit based want protection for creditors
Hofstede
Individualism vs Collectivism
Degree of interdependence a society maintains among individuals
Power Distance
Extent to which members of a society accept that power in institutions and organisations is distributed unequally
Small power distance is power equalisation
Uncertainty Avoidance
Degree to which society feel uncomfortable with uncertainty and ambiguity
Weak avoidance is a relaxed atmosphere
Masculinity vs Femininity
Masculinity - Heroism, Assertiveness, Material Success
Femininity - Relationships, Modesty, Caring for the Weak, Quality of Life
Gray (1998)
Professionalism vs Statutory Control
Uniformity vs Flexibility
Conservatism vs Optimism
Secrecy vs Transparency
Harmonisation
Arguments For
Promotes attraction of foreign capital
Cheaper to develop accounting system
Domestic investor protection
Reduced costs for listing on stock exchange
Increased comparability
Barriers Against
Effects on; business environments, legal systems, cultures, development of profession, political situation
IASs are strongly Anglo-American influenced
Relevance of IASs to some countries is questioned
Normative Theories
Historical Cost
Measure value of assets and liabilities at time of acquisition
No adjustment for inflation or specific price changes
In favour
Meets stewardship/accountability needs
Objective, Reliable, Understandable
Method favoured due to continued use
Still in use as it is useful (Darwinism)
Limitations
Assumes money holds constant purchasing power
Changes in economy since development
Irrelevant in times of rising prices
Continuously Contemporary Accounting (CoCoA)
Proposed by Chambers
Value assets at net selling prices (exit prices)
Also referred to as current cash equivalent
Chambers argues that for key information for decision making is based on capacity to adapt
Assumes objective of accounting is to guide future actions
Profit is tied to increased in current net selling price
Has to be adjusted by changes in purchasing power and reflected in capital maintenance
Advantages
One method of valuation for all assets leaves the ability to total all exit values (additivity)
Gains and losses are based on exit price
Criticisms
Implementation requires fundamental shift
If not selling assets, is exit price relevant?
Ignores the 'value in use' of an asset
Requires assets to be valued separately
W&Z - Too reliant on value judgements
Positive Accounting Theory
Changes in Theoretical Investigation
General prescriptive period (1955-70)
Specific descriptive period (Post 1970)
PAT gained prominence in mid to late 60s
Dominant paradigm in 80/90s
Facts
Descriptive over prescriptive
Explain and predict consequences of managers actions
Criticism in descriptive nature - Fails to provide guidance
All individuals actions are driven by self interest in an opportunistic manner
No notions of loyalty or morality
Requires assumption of market efficiency
Influences
Financial Economics (EMH & CAPM)
Information Economics (Rational decision maker)
Agency Theory and Other Costs (Jensen and Meckling, 1976)
Taking into account the motivational behaviour of managers, management costs. and ownership structure
Most preferred feasible contract between agent and principal
Information asymmetry creates divergent behaviour which results in agency costs
Agents receive a lower salary to protect principle from adverse actions
Monitoring & Bonding Costs (Bonding - Merging behaviour with expectations (Financial Statements))
Watts & Zimmerman, 1986
Accounting theory should be free from value judgements
Purely economics based theory
Methodological Individualism - Every social action is a result of individual decision making
Neoclassical Maximisation Hypothesis - Maximisation of own personal utility
The only accounting theory providing predictions consistent with phenomena is one based on self interest
PAT discovers systematic patterns in accounting choice
Weak results when appraised by criteria
Key Elements of PAT (Mouck, 1990)
Decision makers have correct knowledge of their economic situation
Decision makers prefer best available alternative given the knowledge of the situation
Decision makers create their own internal logic based on the following two factors
Pat was successful due to the use of persuasive language rather than credibility
Key Hypotheses
Bonus Plan
Managers with bonus plans will use methods that increase reported income
Accounting based - Changes in methods affect bonuses paid - Potential for manipulation
Market based - Market value - Share price changes - Beyond control of managers influence
Debt
Higher D/E ratio = Use methods that increase income
Prevents the firm from hitting debt covenants
Political Cost
Large firm use methods that reduce reported profit
Reduces possibility of potential scrutiny
Systems Theories
Derived from 'Political Economy Theory'
"social, political, and economic framework within which human life takes place" (Gray et al, 1996)
Focuses on role of information and disclosure in the relationships between organisations, the state, and individuals
Entity is influenced and influences the society in which it operates
Reports are a product of the interchange between the entity and its environment
Accountability is the need to undertake certain actions and to provide an account of said actions
Reporting is a responsibility not a demand
Bourgeois Political Theory
Concerned with interactions between groups in an essentially pluralistic (classless) world
Legitimacy and stakeholder theory derive from this
Classical Theory
Focuses on structural conflicts in society
Accounting reports maintain the favoured position of those who control scarce resources
Institutional theory stems from this theory
Facts
Organisations earn the right to operate
No inherent right to resources
Accountable to society in the way they operate
Focus on what is good for both society and the environment leads to financial returns
Limitations of Traditional Accounting
Focuses only on needs of those making resource allocation decisions
Materiality limits information production
Ignore transactions not impacting entity
Externatlities not measured accurately
Legitimacy Theory
Ensure operations are in the bounds and norms of society they operate within
When value system aligns with societys
Society allows organisations to continue as long as expectations are met and conformed with
Adaption and communication is key in achieving (Dowling and Pfeffer, 1975)
Lindblom (1994), educate and inform, change perceptions of activities, manipulate perceptions, and change external expectations
Public disclosure in reports allows for strategy
Relies on notion of the 'social contract'
Stakeholder Theory
Ethical (moral) or normative branch
All stakeholders have right to be treated fairly
Management requires balance of power between all groups of stakeholders
How an organisation should act
Positive (managerial) branch)
Attending the expectations of powerful stakeholders
Power is degree of control over resources
Meeting demands to achieve objectives
Information used to gain support/approval
Institutional Theory
Isomorphism
Coercive - Responsive to stakeholder pressure
Mimetic - Copying for advantage or legitimacy
Normative - Responsive to group norms/values
Decoupling
Difference between actual and apparent practices
Differences between disclosures and performance
Critical Accounting Theory
Facts
Highlight inequities in society and the role of accounting in sustaining these problems
Broader level of society over specific practices
Roslender (2006)
Intimately involved in change
Promotion of a better society
Questioning of current society
Self-awareness of what is and what it could be, and the transformation required within this
Concepts from sociology and political philosophy
Traditional accounting reinforces capitalism
Sikka (2000)
"What is to be done?"
"What contribution can 'critical accounting' make to the debate?"
Doesn't provide active solution
View of S&E Accounting
Disclosure of social responsibility is wasted unless accompanied by fundamental changes in how society operates
New forms of accounting only solidify social structures
"One is using the very process that caused the problem to try to solve the problem"
Role of Accounting Practice
Reports maintain social arrangements
CFs legitimise the profession
Accountants impose own views on which performance characteristics are most important
Attention is directed at particular measures
CSR is harmful as it only gives impression of concern without acting upon it
Criticisms
Often marginalised which reduces influence
Literature is not well known or understood
Writing is often unappealing or inaccessible
Does not provide solutions to problems
Tinker and Neimark (1987)
Purpose
Longitudinal study of General Motors
Monitor the evolution of managerial ideology
Changes in woman's exploitation
"accounting information and corporate reporting to mediate, suppress, mystify, and transform social conflict"
Reports are not describers of objective reality but ideological weapons in influencing distribution of wealth
Two forces in the subordination of women
Role of women as a reserve labour army
Capitalism's periodic crises of overproduction
Findings
1942 - First time women are mentioned
1943 - Series of female photographs
Post-War - Reassignment and harassment to stop women
50/60's - Consumption is tied to GM belief of it being the 'American way of life' to own GM products
50's - Women are seen as symbols of men's achievement
60's-76 - Threats from integration of women and minorities to social harmony and political stability
1967 - Declaration of non-discriminatory employment policy
70's - Minority couples driving cars (Man still driving)
1972 - First explicit mention of female employees since WW2
1973 - Discriminatory lawsuit field against GM
1973 - Used annual report to show surprise and heavy inclusion of women in all areas of report