Contemporary Issues in Management Accounting - Essay Example

Contemporary Issues in Management Accounting Introduction: A business and its operations involve several transactions, and it is essential forbusiness organizations to effectively manage those transactions. Management accounting is the field that deals with this aspect of the business. The transactions occurring in a business can be measured and expressed in terms of the value of money. Such transactions and their measurements are all recorded for future use and analysis and help the company to realize the current state of its performance (Thukaram 2007). In the present world of business, organizations are encountered with significant globalization pressures and increased competition in the market. There are both internal and external factors that affect the overall performance of the organizations. All these factors influence the management accounting of the businesses as well (Drury 2005). The present study focuses on the contemporary issues in management accounting and discusses on two major issues related to management accounting – Total Quality Management (TQM), and Just In Time (JIT). Total Quality Management (TQM): Total quality management (TQM) is considered as an enhanced way of performing business. It reflects upon achievement of high quality in business performance that enables a business organization to survive effectively in the competitive world. It requires changing the management and accounting practices of the business thereby focusing on management of the entire business towards excellence (Zumbo 2003). As a fundamental feature of the TQM, quality is extensively focused by the management of the organization. These include quality management, quality policy, quality assurance, quality control, quality system, quality plan, and quality audit (Bagad 2008). TQM was initiated with Japan developing upon its quality in businesses and surpassing the results than the United States, focusing on improved quality of products and services (Jurow and Barnard 2013). Some of the major principles that are associated with TQM include: Executive Management, Training, Customer Focus, Decision Making, Methodology and Tools, Continuous Improvement, Company Culture, and Involvement of the Employees. Thus the role of the top management is essential in determining the quality measures in an organization and implementing them effectively. Regular training and development of the employees hold importance as they are the ones who accomplish the basic tasks of a business. Also, making the right decisions and making use of suitable methodologies and tools lead to high quality products and services that can be offered by the company (Murray 2014). The most influential impact of TQM has been found on the financial performance of a business organization. Several management gurus and successful businesses have supported this view. Successful implementation of TQM results in timely and effective production and delivery of products and services, thereby allowing business organizations to gain significant competitive advantage against other companies in the industry. The outcomes of using TQM in business organizations however vary depending upon the size of the business, the intensity of the company’s capital, diversification strategies and maturity of the implementation of TQM (Hendricks and Singhal 2000). The benefits of implementing TQM have been reported throughout the world with reports being presented from large companies. Business organizations have become highly competitive as a result of the high quality that businesses are focused in developing their products, which in turn are targeted towards effectively meeting the requirements of customers and satisfying them. The market share and profitability of companies have been found to be increased significantly with successful implementation of TQM (Goh 2000). Quality has become an important factor for every business organization as with the passage of time, the market as a whole has changed and demands for new preferences that cannot be met without high quality products and services. This has necessitated the incorporation of TQM in business organizations. However in order for a business organization to successfully achieve TQM, it has been found to be essential for all the components of the business to act coordinately towards attaining high quality in performances. Such quality does not only include the improvements of products and services, but also involve enhancement of other factors associated with business performance that include leadership, dedication, commitment, training, team work, and involvement and participation of employees (Jha and Joshi n.d.). Thus it can be realized that Total Quality Management (TQM) is a significant issue of the present day management accounting as the processes of TQM positively influence the activities of a business and allow it to perform towards attaining high quality products and services, hence delivering high quality performance. With high quality performance the financial transactions of the companies would also enhance reflecting improved outcomes of the businesses. Hence TQM has proved to be an essential part of business organizations in the present day business world and is an important contemporary issue of management accounting. Just In Time (JIT): JIT represents Just In Time manufacturing process that was initiated in Japan and was first applied on making Toyota. According to this system, a company would start manufacturing products only when it receives orders from the customers. Thus no inventories are kept for the company and the services target fulfilling the exact needs of the customers when demanded. Hence this is the process where the materials are gathered and the products are manufactured only when there is a need for it. The philosophy is based on Japanese management and involves manufacturing of the right products at the right time using the right materials on demand from the customers (Kootanaee, Babu and Talari 2013). JIT was developed in the 1970s for improvement in the Japanese management systems. The primary objectives of the system include: Elimination of activities that do not add to the value of the products and services of the company; High quality of products and services being committed by the company; Continuous improvement being targeted in activities of the organization to make them more efficient; and Focusing on simplification and increased power of vision to recognize those activities that need to be eliminated. There are five basic steps that constitute the JIT manufacturing system. These include proper arrangement, orderliness, cleanliness, cleanup, and discipline (Adeyemi 2010). While JIT is incorporated in the operations of any business organizations, measurement of its production, manufacturing, and performance is also essential to obtain. The production scales of JIT include the schedule for the JIT, the JIT layout, JIT delivery by the suppliers for the required materials, link of the system with customers, pull system, and setup time reduction. Both the competitive and financial performance of an organization are associated with the JIT manufacturing system, and it has been observed that the manufacturing strategy followed by an organization has a direct influence on the JIT thereby creating a relation between JIT and the manufacturing strategy (Abdallah and Matsui 2007). One of the major positive features of the JIT manufacturing system is that as it involves manufacturing products depending on the exact order placed by the customers, hence wastage of materials and resources is the minimum. In the present day times, new technological advancements are also been taken advantage of to ensure that the JIT is more efficient and effective in meeting the demands of the customers at the right time. New practices are gradually been developed such as better control of the quality of performance of the business, elimination of wastes, cleanliness and organization, expert manpower, and smooth flow of materials and products from one department to another during the process of manufacturing (Holl, Pardo and Rama 2011). Other advantages of JIT for the business organizations include saving on costs that are associated with maintaining inventories, handling of materials, storage of the inventories, paperwork, records, and regular monitoring measures. Customers are in need for high quality. Hence unless JIT is performed, the above mentioned tasks would have to be performed effectively along with inspection in order to satisfy the customers. On the other hand, JIT not only develops and enhances the manufacturing processes of a company; it also develops the relationships shared between business organization and suppliers. Thus value gets added to the products and services being offered to the customers (Kerzner 2009). Hence it can be realized that like TQM, JIT production system is also an essential issue of the modern businesses where it has assisted manufacturing companies to save on their costs and effectively deliver their products and services based on the demands of the customers. This is turn results in improved business activities and transactions and hence influences the management accounting positively as well, reflecting upon JIT being a significant contemporary issue of management accounting. Conclusion: From the above study it can be said that TQM and JIT are two important contemporary issues related to management accounting. Both these management and production philosophies are focused in developing the activities of businesses and hence targeted towards effective performance and delivery of products and services to satisfy the customers to the highest extent possible. This in turn influences the performances of the organization positively thereby causing the financial transactions of the business to be improved and enhanced. Hence, TQM and JIT both can be said to be effective in influencing management accounting positively for the successful maintaining of records of the companies and their effective transactions. References Abdallah, A.B. and Y. Matsui (2007) The relationship between JIT production and Manufacturing strategy and their impact on JIT performance. POMS. [Online]. 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