Management accounting - financial reporting Essay

Management accounting - financial reporting - Essay Example Recent literature suggests that the environment that supports management accounting practices have changed considerably with advances in information technology, mounting competition among companies, globalization of businesses, economic recession, new management strategies and the shift of focus to customer services and improve quality. To support such changes, companies have altered their management accounting practices to adapt to the ever changing environment. There is sufficient research done by the authors discussed in this work, to support such a statement. The authors have also identified the factors that led the companies to implement such changes in their respective subject groups.To remain competitive in such a globally advanced environment, developing countries have introduced new cost and management accounting systems such as activity-based costing (ABC), activity-based management (ABM), target costing, product life cycle costing, quality cost management, customer account ing and the balanced score card (BSC) approach to performance measures. The difference in the systems used by the developed and developing nations can be attributed to the difference in cultural values between them. The systems in practice in the developed nations need not suit the developing nations as the environments surrounding the two are significantly diverse.A study of the South African firms by Waweru et al (2004) revealed that on average 63 percent of the management accounting changes were implemented in the last decade... The study reveals that Australian companies are early adopters while Indian companies are late adopters. The final study discussed by Damant (2003) in this work deals with a specific aspect of financial accounting, the income statement. The author of the study supports the view that a proposed change is needed to the traditional profit and loss account to promote better understanding and transparency in reporting. Although it is evident from the study that financial accounting requires a standardized format across companies and industries to enable comparisons and benchmarking, the author is of the opinion that implementing the new matrix would clear away many past and present difficulties in financial reporting. Theoretical insights by the authors According to Waweru et al (2004), all organizations are subject to their external environment and are dependant on them for their inputs and their output. "A company has to maintain a consistent relationship with the environment for its success." The changes in the external environment cause a rippling effect that causes alterations in the management accounting principles adopted by a company. The authors concur with the statement and conducts further research to identify the factors that induce and hinder the companies to alter their management accounting principles. Studies have proved that the political, social, economic and cultural aspects that surround a company influence its management accounting practices. Bearing in mind the diverse conditions under which companies operate, developing countries are cautioned against adopting principles practiced by the developed countries. Joshi (2001) also supports previous studies conducted concerning management accounting