Cost & Management Accounting: Relevance Lost A Critique
Critical Appraisal Of The Main Arguments Of Relevance Lost
“Today’s management accountant information, driven by the procedures and cycle of the organisation’s financial reporting system, is too late, too aggregated, and too distorted to be relevant for managers’ planning and control decisions.” (Relevance Lost 1987. Johnson & Kaplan)
The above quote is the opening paragraph in Johnson & Kaplan’s book, summarising what they felt was wrong with management accounting, below is a set of bullet points which develop the key arguments made in the book.
Main Arguments
Management accounting systems and techniques in the Western World were as they had been since 1920.
Information systems were geared towards financial reporting, as was the decision making process, causing a general drift from cost management to cost accounting.
Existing management accounting could not adapt to new competitive environments, management styles, production techniques and organisational structure.
Management accounting facilitated the growth of large enterprises, throughout in early C20th and was not just a by-product.
The first argument that will be analysed is the issue that management accounting techniques had not changed since the 1920’s. On the whole Johnson & Kaplan’s argument was true, from 1920 to the mid 1980’s there were no pioneering new management accounting techniques that were established. The issue raised is why no new management techniques were developed. During the 1920’s and onwards USA firms such as General Motors and Dupont were using to a great extent heavy mass production and Fordist principles. They could out produce and under cut competition while providing a high quality product to a market that was in very high demand. From this point in the 1920’s to the 1970’s these firms could produce huge amounts of products and sell them to an ever-expanding market. Competition was essentially localised, markets were secure and the USA was becoming more consumer society orientated, for reasons such as the introduction of the credit card, baby bust etc. Research revealed that firms did not need to change. The following quote summarises why no key issues techniques developed:
“There was little incentive to minimise manufacturing costs, as increased costs could be passed on to the consumer”(Changing Nature Of Issues In Management Accounting. Scrapens, Hopper, Ashton).
In a situation where firms did not need to keep or require elaborate costing records, organisations had no real need to invest capital or time developing them. Where existing methods were producing acceptable resultsmeasurement, firms had a “if it...