The Role of Accountants and Accounting Practices in Managing Contemporary Organisations - Essay Example

?The role of accountants and accounting practices in managing contemporary organisations Introduction With the emergence of trade globalisation, business organisations across the globe have undergone a strategic reformation along with the changes in the way a business operates. The intensifying market competition makes it difficult for organisations to address various business aspects effectively, and hence many organisations are challenged by operational pitfalls. Earlier, managements considered accountants as technical partners who deal with account preparation and reporting. However, the scope of accounting profession has tremendously changed over the last two decades, and today top managers encourage the accountants to be a management partner instead of a mere technical partner. In addition, the emergence of new business concepts like beyond budgeting has greatly increased the significance of the accounting profession because top executives cannot deal with those newly developed practices without the external support of accountants. This paper will identify the key contributions of the paper written by Anatoli Bourmistrov and Katarina Kaarboe and critically evaluate the role of accountants and accounting practices in managing contemporary organisations. Beyond Budgeting The work titled ‘From comfort to stretch zones: A field study of two multinational companies applying “beyond budgeting” ideas’ was prepared by Anatoli Bourmistrov and Katarina Kaarboe. In this paper, the authors give particular focus to management control systems (MCSs) operating on the basis of beyond budgeting ideas. They explore how changes in the design principles of these systems have affected the transition of decision makers from comfort to stretch zones. The research work also identifies how this transition has influenced the supply of and demand for managerial information. This paper has been prepared in the background of the evidence that there are many organisational problems in connection with using budgets. From this scholarly work, it is identified that elements like discomfort with the establishment and comfort zones maintenance for decision makers through annual budgeting have persuaded organisations to think of new management control systems. The major aim of implementing beyond budgeting was to change the structure of the information supply. This process greatly assists organisations to effectively manage budget information relating to target setting, forecasts, and resource allocation processes. This paper clearly illustrates that new information from an MCS based on new design principles has significantly influenced the behaviour and mindset of decision makers. It is also observed that information use is different under this situation as compared to previous budget-focused practices. This study is greatly helpful for readers to understand that beyond budgeting (BB) practices aid organisations to develop a new type of management control system and information supply with intent to facilitate the transition of decision makers into the stretch zone. Bourmistrov and Kaarboe (2013) state that “BB is thus a search for new and more nuanced ‘comfort’ zones, where decision-makers will be, to an increasing degree, able to positively appreciate the entrepreneurial and challenging nature of managerial work and also be able to use new information for increasing interaction with the internal and external business environment, as well as for negotiations and learning”. This study is helpful to recognise how organisations that see budgeting as a problematic practice make changes to their management control systems and information supply. The paper also addresses the way the individuals in organisations change the practice of using information in connection with the change in BB practices. The authors present the concept of beyond budgeting as a change in mindset in contrast to traditional norms where BB was perceived as a small operational change. They add that the transformation identified seems to be a matter of changes in accounting techniques in addition to the change in the mindset of managers or controllers. Considering the importance of the effects of beyond budgeting concepts on political, economic, and ideological regimes, the authors say that it is better to study the concept of BB as a new accounting regime. The writers clearly indicate that changes in the accounting dimension are greatly linked to the applications of well-known accounting practices including target setting and forecasts. They continue that there is a scope for further studies on how these hard accounting techniques shall be coordinated and mobilised. These accounting techniques should be balanced with more efficient performance measures with the help of words instead of numbers. As the authors point out, today more and more organisations think about or join BB movement so as to take advantages of increased operational efficiency. Therefore, the evaluation of the accounting regime in connection with BB is of significant importance in the modern business environment. Management of contemporary organisations Business environment is becoming more and more competitive each day, and therefore it would be a challenging task for the management to improve the operational efficiency constantly. As a result of intense market competition and increased business complexity, business houses often fail to address different growing business challenges effectively. Evidently, the fast changing nature of modern business environment also contributes to the management complexity in contemporary organisations (Feist et al 1999, p.54). As a result of new developments in business practices and management activities, firms are forced to modify their accounting practices frequently in a way that would best fit their changing needs. Since the time of Enron accounting fraud and some other major corporate failures like WorldCom, organisations have been giving specific attention to their corporate governance practices. Due to the implementation of strict corporate governance regulations, firms are forced to alter their accounting practices in a way that would ensure the proper functioning of the accounting system as well as the overall organisational environment. Qiong and Jianjun (n.d.) suggest that since accounting is a key function in an organisation, the accounting system should operate in unison with the surrounding environment and perform well in the organisational environment to enhance the quality of accounting practices. According to a number of scholarly works published in recent years on the quality of accounting system and accounting reporting functioning, a healthy organisational environment and an independent organisational structure can significantly improve and maintain accounting system performance and reporting quality (Ibid). It has been also identified that public ownership, institutional ownership, and even managerial ownership are capable of influencing accounting conservatism and reporting quality (Ibid). Internal control systems constitute another potential accounting challenge in modern organisations (Internal Control: A Practical Guide, 1999). It is obvious that internal control systems represent the first and major front-line prevention systems against potential violations and fraud and therefore any pitfall in an internal control system would end up in inappropriate business practices. Current researches indicate that promotion of accounting ethics and moral education is better to strengthen internal control systems and to prevent fraud to a great extent (Internal control: integrated framework, 1994). Studies indicate that today business environments do not pay proper attention to internal accounting system functions and this negligence often makes them vulnerable to accounting fraud. However, it seems that effectiveness of accounting functioning with respect to internal control systems is yet to be researched in detail. Contemporary business managements also struggle to effectively address areas like accounting measurements and estimations, outcome of accounting practices, and quality of financial reports. Accounting irregularities associated with earnings management become a potential risk to modern managements. In addition, shortcomings of internal and external auditing often lead to non-disclosure of some crucial information and this situation is likely to end up in even a total business collapse. Today principles and techniques of accounting are more adaptive to societal development and economic growth (Qiong & Jianjun (n.d.)). Although this practice is good to address the overall needs of the organisation efficiently, it may compromise the quality of accounting system performance and reporting if not monitored properly. Role of accountants and accounting practices As discussed already, there are many potential challenges to accounting systems and operations in contemporary organisations. In addition, new business concepts like beyond budgeting also contribute to accounting complexity in the current business environment. As Butz (2013, p. 9) points out, the main aim of the activity-based budgeting is to improve the current budgeting process for planning purposes whereas the concept of beyond budgeting suggests replacing budgetary control with “performance evaluations based on relative performance contracts with hindsight”. This concept was developed by EU practitioners and it gives specific emphasis to the performance evaluation role of budgeting. Management professional indicate that beyond budgeting is more flexible and facilitates more effective and timely allocation of resources. This concept does not rely on obsolete figures and it promotes a culture of innovation (Kfknowledgebank.kaplan.co.uk. 2013). As the beyond budgeting approach is entirely different from traditional annual budgeting, it is essential for accountants to modify current accounting practices to accommodate the change. Hence, the role of accountants and accounting practices in modern organisations is to keep the accounting system adaptive to the fast changing business environment. Although the business procedures or methods have been notably changed over the last few decades, the purpose of the accounting remains the same. Still many business firms rely on accounting to measure their financial performance and to make sound business decisions. In the words of Weil et al (2012, p. 814), proper accounting practices will provide the management with accurate information relating to income, cost of sales, liabilities, assets, and equity. Since financial statements are the end product of accounting, they are expected to express a true and fair view of the current state of affairs of the company. Generally a company relies on its financial statements to take numerous business decisions including promotional strategy, employee incentives, dividend distribution, and short term investments. Evidently, a falsified financial report would adversely affect the potentiality of company’s decisions, which in turn has great influence on overall organisational performance. Today governments and people focus particularly on environmental safety so as to fight issues like deforestation, global warming, greenhouse effect, and climate change. Therefore, neither the government nor the community is likely to support a business venture which poses threats to environmental safety. As a result, today companies pay particular attention to social responsibility programs by emphasising long term environmental sustainability. Multinational corporations and other leading enterprises prepare and publish a sustainability report along with their financial reports at the end of the fiscal period with intent to convince the stakeholders that their operations are not harmful to the environment (Unerman, et al. 2010, p.105). Hence, the role of accounting is extended to environmental operations too in contemporary organisations. Here, the accountants have the responsibility to record environmental expenses and to inform the top management whether or not the organisation has spent its budgeted environmental funds properly. Such a report would assist stakeholders including the government to scrutinise the environmental impacts of a company’s market operations and to determine whether the firm’s operations are in line with existing environmental standards (Blackburn 2012, p.na). As management professional point out, the sustainability report would add to the corporate reputation of an organisation. Traditionally, the top managements considered the accounting department as a technical partner preparing Profit & Loss A/c and Balance Sheet. In contrast to this, today’s managements encourage the accounting department to become a business partner instead of a technical partner. More precisely, today accountants are required to participate in activities starting from account preparation to final analysis and interpretation. Hence, companies keep the business partner aspect in mind while recruiting different profile employees. As accountants are the individuals who are in close touch with the day to day operations of the company, they are able to understand the financial status of the firm more effectively. Therefore, today top executives seek suggestions from accountants while planning a short/long term investment or a new business venture. In contrast to olden days, today’s accountants are expected to have strong communication skills as well as information technology skills. In addition, they must be conversant with new regulations which can have an influence on the accounting practices (Robert Half). Furthermore, accountants working in modern business environments cannot perform their duties and responsibilities successfully unless they maintain strong analytical and team-player skills. In the current high competitive business environment, professional accountants have a pivotal role to play in achieving commercial success because they can use their valuable knowledge in a way that would place the organisation ahead of its competitors in terms of operational efficiency (Mulsow 2012, p.25). In the past, top managers depended on accountants to know only about sales and profitability. Considering the growing needs of the current business environment, today the top management require accountants to maintain information about the level and type of debt, value and type of assets, development plans, and current market conditions (The contribution of accountants to sound, ethical business practice, n.d.). It is identified that accountants can also work on non-financial matters including strategic decisions, which can have a great influence on the long term sustainability of organisations. Some others perform an advisory role so as to enable the management to make sound decisions on various aspects of the business. Similarly, some professional accountants work within firms of accountants or in the public or voluntary sector and meet the client needs on a contract basis. The concept of managerial accounting has a growing importance in the management of contemporary organisations because this concept comprises accounting systems, methods, and techniques that are capable of improving profits (Mowen, et al 2012, p.4). Managerial accounting also facilitates effective flow of management information throughout different channels of the organisation. Today the practice of managerial accounting is extensively used to assess employee turnover rate, customer loyalty, and changing customer behaviour. In the context of increasing complexity of demands, management accounting can be a better tool for organisations to understand the social, political, and psychological sides of the business operations (Kumar, 1989, p.44). Professional accountants are expected to add value to the overall organisational performance by recognising and meeting the needs of the firm on time. It is the duty of the accountants to convince the top management that a ‘green’ production strategy would not affect the profitability of the business, but it can improve the financial health of the organisation in the long run. Today promotion has become an integral element of the modern business, particularly with the development of technologically advanced channel like social networks. In order to confront the stiff market competition, firms spend a considerable percent of their income on promotional activities. However, the top management must necessarily need to ensure that the sales revenues justify the promotional expenditure. Therefore, another role of accountants is to show the relationship between changes in sales revenues with respect to a particular change in promotional expenditure. This practice would assist the top management to form potential decisions regarding the future spending on promotion. In short, today the accounting practices can play a notable role in improving the overall productivity and profitability of the organisation. Conclusion From the above discussion, it is clear that professional accountants have a significant role to play in the long term success of an organisation. In addition to their conventional roles, today accountants are required to participate in other strategic business practices like decision making and market expansion. 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