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  • Published: 27 November 2021

Strategic management accounting and performance implications: a literature review and research agenda

  • Jafar Ojra 1 ,
  • Abdullah Promise Opute   ORCID: orcid.org/0000-0001-6221-1856 2 , 3 &
  • Mohammad Mobarak Alsolmi 4  

Future Business Journal volume  7 , Article number:  64 ( 2021 ) Cite this article

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The important role that management accounting plays in driving organisational performance has been reiterated in the literature. In line with that importance, the call for more effort to enhance knowledge on strategic management accounting has increased over the years. Responding to that call, this study utilised a qualitative approach that involved a systematic review to synthesise existing literature towards understanding the strategic management accounting foundation, contingency factors, and organisational performance impact. Based on the evidence in reviewed literature, we flag key directions for advancing this theoretical premise towards providing further insights that would enable practitioners strategically align their strategic management accounting practices for optimal organisational performance. The limitations of this study have been acknowledged.

Introduction

Successful managerial decisions enable organisational profitability and accounting aids effective managerial decisions [ 75 ]. Aimed at optimising the decision-enabling substance of accounting, management was criticised in 1980s as being too focused on internal operational issues that offer little to management from the point of strategy formulation and sustaining competitive advantage (CIMA Report Footnote 1 ). Recognising the importance for a broader impact of accounting on managerial decision-making, Simmonds [ 82 , p. 26] introduced and defined strategic management accounting (SMA) as “the provision and analysis of management accounting data about a business and its competitors, for use in developing and monitoring business strategy” .

Subsequently there has been increasing efforts that stress the importance for organisations to embrace strategic management accounting theory towards boosting strategic decision-making and organisational performance (e.g. [ 4 , 8 , 9 , 17 , 23 , 53 , 58 , 86 , 90 , 48 ], amongst others). As rightly noted by Turner et al. [ 86 ], organisations that aim to enhance their competitiveness and performance, must not only develop but also “implement internal policies and procedures such as strategic management accounting that are consistent with their business strategies and account for changing competitive demands” (p. 33). Doing that will enable the strategic management accounting tool to be effectively used to drive corporate success. This is the underlying argument in this study.

The task of profitably satisfying customers is becoming more challenging [ 61 , 65 , 67 ]. Meeting that challenge requires that organisations recognise the importance for effective decision-making. Accountants play a significant role in enabling effective decision-making in organisations (e.g. [ 21 , 23 , 27 ]). Accounting information enables the organisation determine the going concern [ 6 , 36 ]. Accounting provides the management with relevant information for ensuring and sustaining growth and profitability. The strategic management accounting foundation emphasises that in order to fully fulfil its management decision-making enabling function, accounting practices must not only focus on the internal but also on the external components relating to the organisation's operations. In other words, accounting should embrace a much broader and market-oriented approach and focus on costing (e.g. [ 8 , 17 , 58 , 78 ]); planning, control and performance measurement (e.g. [ 17 , 58 ]), strategic decision-making (e.g. [ 8 , 58 ]), customer accounting (e.g. [ 58 , 86 ]) and competitor accounting (e.g. [ 17 , 58 , 86 ]).

Given the importance of strategic management accounting to effective management decision-making and corporate success, there remains a growing interest in understanding the topic. Little wonder therefore that the advocacy for more research towards a better understanding of what strategic management accounting practices organisations adopt and what motivates their preference for one technique over the other (e.g. [ 4 , 53 , 58 , 86 , 90 ]) remains current. While embracing strategic management accounting is a critical path for enabling effective managerial decision-making and boosting organisational performance (e.g. [ 3 , 9 , 58 ]), the enablement outcome of strategic management accounting practice would hinge on the effectiveness of the organisation in tailoring its strategic management accounting practices to its strategy and environment [ 9 , 11 , 58 ].

Following that contingency logic, this research is a response to the aforementioned call and the aim in this study is to contribute to strategic management accounting discourse by critically analysing the body of knowledge towards enhancing the understanding of how knowledge has evolved in this theoretical domain and also to contribute to knowledge by flagging directions for further knowledge development. To achieve the aim of this study, the theoretical focus in this study is premised along three questions:

What strategic management accounting techniques can organisations use towards driving organisational performance?

What factors would influence strategic management accounting techniques usage and performance association? and

What future research gaps exist based on the explored literature?

Literature review

This study follows the theoretical foundation that strategic management accounting would aid effective management decision-making, and ultimately boost organisational performance. In line with the aim of this study, relevant literature is reviewed to explain the theoretical premise of this study. The literature review is organised along three core themes in strategic management accounting discourse, namely, strategic management accounting techniques, contingency factors of strategic management accounting usage, and the impact of strategic management accounting on organisational performance.

Strategic management accounting: definition and techniques

Management accounting is noted to involve the “generation, communication, and use of financial and non-financial information for managerial decision-making and control activities” ([ 28 ] p. 3). One major criticism of accounting in the 1980s relates to the fact that accountants have hardly taken a proactive role in the strategic management process [ 7 , 8 ]. According to Nixon and Burns [ 55 , p. 229], although strategic management has been variously defined, there is “broad consensus that the key activities are (1) development of a grand strategy, purpose or sense of direction, (2) formulation of strategic goals and plans to achieve them, (3) implementation of plans, and (4) monitoring, evaluation and corrective action”. The role of management accounting is to enable effective decision-making, and it involves typically information gathering and analysis, identifying options, implementation, monitoring and evaluation [ 16 ]. Thus, the focus in strategic management accounting, rephrased also as accounting for strategic positioning [ 73 , 74 ], is to embrace a broader approach that incorporates a strategic management focus into its dynamics towards effectively enabling management decision-making and organisational performance [ 8 , 80 ]).

Since the first attempt by Simmonds [ 82 , p. 26] who defined strategic management accounting as “the provision and analysis of management accounting data about a business and its competitors, for use in developing and monitoring business strategy” , there have been numerous attempts to enhance that definition and identify core techniques of strategic management accounting. For example, CIMA [ 16 ] describes strategic management accounting as a management accounting form that emphasises focusing on information relating to external factor of the entity and also on non-financial information as well as information that is generated internally. In a much earlier contribution, Bromwich [ 7 , p. 28] offers a description of strategic management accounting as involving “the provision and analysis of financial information on the organisation’s product markets and competitors’ costs and cost structures and the monitoring of the organisation’s strategies and those of its competitors in the market over a number of periods” (Cited in [ 56 , p. 14]).

In their 2008 study, Cadez and Guilding asked the question “what is strategic management accounting?” (p. 838). In that same study, they conclude, based on evidence from reviewed literature, that there are two perspectives of strategic management accounting. While one perspective focuses on strategically oriented accounting techniques, the other focuses on the actual involvement of accountants in the strategic decision-making process. Following the former perspective (e.g. [ 8 , 9 , 17 , 58 ]), existing literature distils sixteen (16) strategic management accounting techniques that are categorised under five SMA themes (e.g. [ 9 , 11 , 58 ]):

Strategic costing;

Strategic planning, control and performance measurement;

Strategic decision-making;

Competitor accounting; and

Customer accounting.

Strategic costing

According to literature (e.g. [ 8 , 11 , 23 ]), strategic and marketing information-based cost data can be leveraged by organisations to ensure effective strategies for achieving sustainable competitive advantage. Thus, organisations must recognise the importance of integrating cost strategies and undertake multiple strategic cost analyses. Literature distils five key costing techniques: attribute costing (e.g. Roslender and Hart 2003), life-cycle costing (e.g. [ 8 , 17 ]), quality costing (e.g. [ 17 ]), target costing (e.g. [ 8 , 17 ]) and value chain costing (e.g. [ 8 ]).

Strategic planning, control and performance measurement

Literature has also underlined the need for organisations to give due attention to planning, control and performance measurement features of the strategic management accounting, as doing that is important in the pro-active market orientation approach for competing effectively in the marketplace (e.g. [ 8 , 58 ], Chenhall 2005). Core components under the strategic planning, control and performance measurement tool includes benchmarking (e.g. [ 8 , 17 ]) and integrated performance management (Balanced Scorecard) (e.g. [ 8 , 17 ]).

Strategic decision-making

As a strategic management accounting tool, strategic decision-making is a critical tool for supporting strategic choice [ 11 ]. Core strategic decision-making options include strategic costing (e.g. [ 58 ]), strategic pricing (e.g. [ 11 , 58 ]) and brand valuation (e.g. [ 11 , 58 ]).

The importance of addressing strategic costing as a key strategic decision-making element has been emphasised in the literature (e.g. [ 58 , 78 , 79 ]). In this discourse, it is underlined that effectively driving competitive advantage requires cost analysis that explicitly considers strategic issues. In line with that viewpoint, Cadez and Guilding [ 8 ] note that strategic costing involves “the use of cost data based on strategic and marketing information to develop and identify superior strategies that will produce a sustainable competitive advantage” (p. 27).

In the literature too, strategic pricing is underlined as another core element the strategic decision-making typology of strategic management accounting (e.g. [ 8 , 58 ], Simmonds 1982). According to scholars, understanding market competition level, which as noted by Guilding et al. [ 29 , p. 120] entails the appraisal of the following factors: “competitor price reaction, price elasticity; projected market growth; and economies of scale and experience”, is important (e.g. [ 8 , 11 , 58 ]).

Within the strategic management accounting literature, brand valuation is the third element of the strategic decision-making technique. The brand valuation component “involves combining projected brand earnings (an accounting-orientated measure) with a multiple derived from the brand’s strength on strategic factors such as the nature of the brand’s market, its position in that market and its level of marketing support” [ 29 , p. 118]. In the view of Cescon et al. [ 11 ], brand valuation enables organisations to understand market reputation trends over time and potential implications for marketing executives and strategic accounting. Cescon et al. [ 11 ] contend that organisations would achieve a variable brand valuation that would provide a potential measure of marketing achievement when perceived quality and branded products are considered, while Guilding et al. [ 29 ] remind that achievable impact of brand valuation would hinge, amongst others, on the valuation method used.

Competitor accounting

According to Porter [ 72 ], strategy involves developing appropriate tools that enable a firm to analyse and determine its position in a competitive market. Thus, a firm selects suitable strategies that enables it compete more effectively over its rivals. To effectively do that, a firm needs to collect competitor accounting information. The importance of giving due attention to competitor accounting has been underlined in the literature (e.g. [ 11 , 17 , 58 ]). Three forms of competitor accounting tools are described in the literature, namely, competitor cost assessment (e.g. [ 11 , 17 , 58 ]), competitor position monitoring (e.g. [ 11 , 58 ]) and competitor performance appraisal (e.g. [ 11 , 17 , 58 ]).

Customer accounting

The fifth cluster of strategic management accounting techniques described in the literature relates to customer accounting (e.g. [ 49 , 58 ]). Customer accounting concerns practices aimed at appraising profit, sales or costs related to customers or customer segments [ 58 ]. Core customer accounting techniques include customer profitability analysis (e.g. [ 30 , 58 ]), lifetime customer profitability analysis (e.g. [ 58 ]) and valuation of customers as assets (e.g. [ 30 , 58 ]).

The contingency factors of strategic management accounting

According to management accounting discourse, when organisations carefully embrace appropriate strategic management accounting practices, they would ensure successful managerial decisions that would ultimately lead to optimising organisational performance (e.g. [ 48 , 53 , 56 , 58 ]). Thus, the extent of improved performance that an organisation would achieve would depend on its careful utilisation of appropriate strategic management techniques. As noted by Roslender and Hart (2003), p. 4 and further supported by subsequent literature (e.g. [ 34 , 58 ]), “the adoption of strategically oriented management accounting techniques and accountants’ participation in strategic management processes”, is a core research premise. In line with the carefulness notion mentioned above, the contingency perspective has been widely utilised in the effort to understand strategic management accounting practices and performance impact (e.g. [ 8 , 12 , 30 , 34 , 58 ]). The underlying foundation in the contingency perspective is based on the notion “that an organisation maximises its efficiency by matching between structure and environment” [ 22 , p. 49]. According to Otley [ 68 ]:

The contingency approach to management is based on the premise that there is no universally appropriate accounting system that applies equally to all organisations in all circumstances. Rather, it is suggested that particular features of an appropriate accounting system will depend on the specific circumstances in which an organisation finds itself. Thus, a contingency theory must identify specific aspects of an accounting system which are associated with certain defined circumstances and demonstrate an appropriate matching (p. 413).

Thus, the central foundation in the contingency perspective is that no one single accounting system is universally fit for all organisation in all circumstances (e.g. [ 41 ]). No one accounting control system can be seen as “best” for all situations; rather, the appropriateness of any control system would depend on the organisation's ability to adapt effectively to the environment surrounding its operations [ 41 , 58 , 86 ].

From reviewed literature, numerous researchers have flagged key contingency factors that should be considered in relation to strategic management accounting practice. Four factors were identified as critical contingency factors in the strategic management accounting systems design in Cadez and Guilding's [ 8 ] study, namely: business strategy, strategy formulation pattern, market orientation and firm size. On their part, Islam and Hu [ 41 ] identify core organisational effectiveness factors to include technology, environmental volatility, organisational structure, information system and size of the organisation.

Analysed together, the conceptualisation in the aforementioned studies [ 8 , 41 ] reflect perspectives that have been recognised in the 1980s. For example, Merchant [ 50 ] describe contingency factors to include firm size, product diversity, extent of decentralisation and budgetary information use. In their study of accounting information systems, Gordon and Narayanan [ 26 ] classify three core contingency factors to include perceived environmental uncertainty, information characteristics and organisational structure. Based on a study that examined the extent to which accountants were involved in the strategic management process, CIMA Footnote 2 reports three key contingency factors: “organisational influences, accountant led influences and practicalities” (p. 12). Exploring strategic management accounting practices in the Palestinian context, Ojra [ 58 ] conceptualised a comprehensive contingency perspective that considered (1) organisational structure (involving formalisation and decentralisation), (2) organisational size, (3) technology and (4) organisational strategy. In more recent literature, Pavlatos [ 70 ] suggests seven factors that affect strategic management accounting usage in the hospitality industry (hotels) in Greece, namely, “perceived environmental uncertainty, structure, quality of information systems, organisational life cycle stage, historical performance, strategy and size” (p. 756).

The contingency framing in this study draws from the theoretical guideline which suggests that both the internal and external environments of organisations should be considered in the effort to advance strategic management accounting literature (e.g. [ 58 , 70 ]). The conceptual framing in this study includes two external (perceived environmental uncertainty—competitive intensity, and market turbulence) and three internal (organisational structure—formalisation, and decentralisation, and organisational strategy) factors.

Perceived environmental uncertainty and strategic management accounting usage

From the perceptual lens, the environment could be viewed as certain or uncertain only to the extent that decision makers perceive it to be (e.g. [ 1 , 11 ]). Perceived environmental uncertainty is described as the absence of information relating to organisations, activities and happenings in the environment [ 20 ]. According to Cescon et al. [ 11 ], organisations must give due attention to their operational environment because engaging with environmental uncertainty factors would enable them identify key change drivers.

Prior literature has documented that perceived uncertainty significantly influences the extent to which firms would embrace strategic management accounting practices (e.g. [ 49 , 58 , 70 ]). According to that foundation, how firms respond from the point of strategic management accounting practices that they would endorse would depend on the nature of environmental uncertainties that surround their operational activities.

Studying the hotel property setting, Pavlatos [ 70 ] documents a positive correlation between the degree of environmental uncertainty and the use of strategic management accounting tools. In other words, the higher the perceived environmental uncertainty, the higher the need for use of strategic management accounting tools. Intensified use of strategic management accounting tools is essential because that will enable the hotels to manage the uncertainties, and be more effective in managerial decision-making, and ultimately improves organisational performance [ 70 ]. The notion of a significant influence of environmental uncertainty on strategic management accounting practices is supported by prior literature (e.g. [ 15 ]). According to them, managers who operate in highly uncertain environments would require information that is timely, current and frequent. Other scholars have also argued that environmental uncertainty would be associated with more pro-active and externally focused accounting systems (e.g. [ 32 , 38 ]).

In their study of Italian manufacturing companies, Cescon et al. [ 11 ] found a positive association of perceived environmental uncertainty and strategic pricing usage as a feature of the strategic decision-making SMA technique. In other words, the more the perceived environmental uncertainty, the higher the usage of the strategic pricing feature of the strategic decision-making SMA component.

In the perceived environmental uncertainty literature, two core dimensions have been distilled, namely competitive intensity and market turbulence (e.g. [ 30 , 58 ]). Market turbulence—a subset of environmental turbulence [ 47 ], is defined by Calantone et al. [ 10 ] as characterised by continuous changes in customers’ preference/demands, in price/cost structures and in the composition of competitors. In settings where there is high market turbulence, organizations would need to modify their products and approaches to the market more frequently [ 44 ]. On the other hand, the notion of competitive intensity relates to the logic that organisations compete for numerous resources, such as raw materials, selling and distribution channels, as well as quality, variety and price of products [ 26 , 46 ]. Achieving organisation-environment alignment in highly competitive environments requires that organisations have the capacity to effectively detect environmental signals and timely communicate environmental information (e.g. [ 88 ]).

Exploring Australian hospitality industry, McManus [ 49 ] examined the association of competition intensity and perceived environmental uncertainty on customer accounting techniques usage. The study suggests that competition intensity positively associates with customer accounting practices but also found that higher perceived environmental uncertainty would not lead to greater usage of customer accounting techniques in the explored hotels. In a much similar conceptualisation, Cescon et al. [ 11 ] examined the association of environmental uncertainty and competitive forces on strategic management accounting techniques usage in large Italian manufacturing firms. Empirically, that study found that external factors (environmental uncertainty and competitive forces) positively associate with SMA usage (strategic pricing, balanced scorecard, risk analysis, target costing, life-cycle costing). Based on the two-dimensional conceptualisation, Ojra [ 58 ] examined the relationship between perceived environmental uncertainty and SMA usage in Palestinian firms. Ojra [ 58 ] hypothesised a positive correlation of perceived environmental uncertainty (conceptualised to include competition intensity and market turbulence) but found no support. To the contrary, Ojra [ 58 ] documents a potential for negative influence of perceived environmental uncertainty on strategic management accounting techniques usage, however only significant for the market turbulence dimension. In other words, Ojra [ 58 ] suggests that market turbulence associates negatively with strategic management accounting techniques usage in medium Palestine firms.

Organisational structure (formalisation) and strategic management accounting usage

Across the various streams of management, formalisation has been mentioned as a key contingency factor in understanding the operational dynamics of organisations (e.g. [ 58 , 63 , 64 ]). With regard to strategic management accounting discourse, this notion has been numerously supported (e.g. [ 26 , 58 , 85 ]).

Studying the influence of formalisation in the functional relationship between the accounting and marketing departments, Opute et al. [ 64 ] suggest a positive association. In other words, they argue that the more formalised the processes in the firm, the higher the achieved integration between both functional areas. However, Opute et al. [ 64 ] note that whether this positive association is achieved would depend on the integration component (information sharing, unified effort and involvement) considered.

In the strategic management accounting domain, there is mixed evidence of the association of organisational structure on strategic management accounting usage. For example, Ojra [ 58 ] hypothesised that less formalised organisational structure would lead to higher use of strategic management accounting techniques in Palestinian firms but found no support for that hypothesis. In that study, no support was found for the notion that less formalised structures would lead to higher use of strategic management accounting techniques, both for total SMA as well as for all the dimensions of SMA. Thus, that study concludes that formalisation has no significant influence on strategic management accounting techniques usage in Palestinian firms. That conclusion supports the findings in Gordon and Narayanan [ 26 ], but contrast the view in Tuan Mat’s [ 85 ] exploration of management accounting practices.

Organisational structure (decentralisation) and strategic management accounting usage

Similar to formalisation, management scholars have noted decentralisation as a core organisational structure factor that should be given due attention in the drive to enhance the understanding of contingency theory (e.g. [ 58 , 62 , 63 ]). Organisational structure has been noted to influence the strategic management accounting practices of a firm (e.g. [ 58 , 70 ]). Within that foundation, decentralisation (or its opposite) has been flagged as a major factor. A contention that has been underlined numerously in the discourse is that strategic management accounting usage would be higher in organisations that embrace decentralised structure. Following that foundation, Pavlatos [ 70 ] hypothesised that SMA usage is higher in decentralised hotels than in centralised hotels in Greece. The results support the hypothesis: there is higher need for strategic management accounting practices in decentralised firms, as lower-level managers require more information to aid decision-making.

The above conclusion supports as well as contrasts prior literature, namely Chenhall [ 14 ] and Verbeeten [ 87 ], respectively. According to Chenhall [ 14 , p. 525], “strategic management accounting has characteristics related to aspects of horizontal organisation as they aim to connect strategy to the value chain and link activities across the organisation…”. Chenhall [ 14 ] adds that a typical approach in horizontal organisation is identifying customer-oriented strategic priorities and then exploiting process efficiency, continuous improvements, flattened structures and team empowerment, to initiate change, a conclusion that suggests that higher use of strategic management accounting practices would seem ideal in such decentralised organisational structure. The reason for that outcome is that in decentralised structure, lower-level managers can adapt their MACS as necessary to meet requirements [ 52 ], a logic that finds support in McManus [ 49 ] who found that customer accounting usage is higher in Australian hotels that are decentralised than those that are centralised. In contrast to that logic, Verbeeten [ 87 ] found decentralisation to associate negatively with major changes in the decision-influencing components of MACS.

Insight about the less developed context, namely about Palestinian firms lend support to, as well as contrast past literature. According to Ojra [ 58 ], decentralisation has a tendency to associate negatively with strategic management accounting usage. Therefore, although statistically insignificant, the results indicate that explored Palestinian firms that endorse decentralised decision-making process would seemingly have lesser need for strategic management accounting practices. On the evidence that decentralisation may have a negative influence on strategic management accounting usage, Ojra [ 58 ] supports Verbeeten [ 87 ] but contrasts Pavlatos [ 70 ].

Organisational strategy and strategic management accounting usage

An internal organisational factor that has been considered important in the understanding of contingency perspective of management accounting relates to organisational strategy (e.g. [ 8 , 17 , 58 ]). Hambrick [ 33 ] defined strategy as:

A pattern of important decisions that guides the organisation in its relationship with its environment; affects the internal structure and processes of the organisation; and centrally affects the organisation’s performance (p.567).

In the strategic management accounting discourse, organisational strategy has been mentioned as one of the key factors that would condition strategic management accounting practices of a firm (e.g. [ 9 , 58 , 70 , 86 ]). For example, Turner et al. [ 86 ] note that in hotel property setting, strategic management accounting use would hinge on the market orientation business strategy of the firm. Given the notion that strategic management accounting would aid management decision-making and lead ultimately to improved organisational performance, there is some legitimacy in expecting that organisations that align their strategic management accounting practices to the strategic orientation of the firm would achieve a higher organisational performance.

Following Miles and Snow’s [ 51 ] strategy typology (prospector, defender, analyser, and reactor), efforts to understand the association of strategy to strategic management accounting tools usage have also tried to understand how the various strategy typologies play out in this association. For example, Cadez and Guilding [ 9 ] considered the prospector, defender and analyser typologies in the Slovenian context, while Ojra [ 58 ] considered the prospector and defender typologies in the Palestinian contexts.

Cadez and Guilding [ 9 ] report that companies that endorse the analyser strategy, which is a deliberate strategy formulation approach, are not highly market oriented, but tend to show high usage of SMA techniques, except for competitor accounting technique. Further, they report that prospector strategy-oriented companies also pursue a deliberate strategy formulation approach, but are highly market oriented, and SMA techniques usage is fairly high (for competitor accounting) and averagely high (for strategic costing). For very high prospector-oriented companies, they are highly market oriented, have a strong strategy drive and a very high SMA techniques usage. For the defender strategy-type companies, they suggest that such companies are not only average in their market orientation, but also in their usage of SMA techniques.

In the study of Palestinian companies, Ojra [ 58 ] offers insights that resonate relatively with the findings in Cadez and Guilding [ 9 ]. Ojra [ 58 ] suggests that prospector companies have a higher usage of SMA techniques than defender-type companies. So, SMA technique usage is positively associated to prospector strategy (see also [ 8 ]. Elaborating the findings, Ojra [ 58 ] reports that prospector-type companies focused more on four SMA techniques (mean values reported), namely SMAU-Planning, Control and Performance Measurement (4.601), SMAU-Strategic Decision Making (4.712), SMAU-Competitor Accounting (4.689) and SMAU-Customer Accounting (4.734), statistical results that are significantly higher than the results for 'defender'-type companies. Cinquini and Tenucci [ 17 ] lend support to Ojra [ 58 ]: 'defender'-type companies give more attention to the Costing dimension of SMA.

Without emphasising the strategy typologies, Pavlakos (2015) comments that organisational strategy affects SMA usage in the Greek hotel industry.

Strategic management accounting and organisational performance

A central tenet in the strategic management accounting foundation is that management accounting would significantly aid organisations to achieve sustained competitiveness [ 7 , 82 ]. Implicitly, these scholars argue that in order to stay competitive in the marketplace, organisations should not only focus on cost-volume-profit issues, but rather embrace a broad externally focused management accounting approach that is strategically driven and provides financial information that enables management to effectively formulate and monitor the organisation's strategy. Thus, management accounting should also focus on competitor information as that will enable management effectively organise the firm's strategic structure.

Over the years, there is growing recognition of the importance of strategic management accounting to organisations, leading therefore to increasing research attention. One area that has received attention in the strategic management accounting discourse relates to the organisational performance enhancement notion (e.g. [ 23 , 56 , 58 , 77 , 86 ]).

Insights from Malaysia also add to the discourse on the impact of strategic management accounting usage on organisational performance. In their study of Malaysian electrical and electronic firms, Noordin et al. [ 56 ] examined the extent of usage of strategic management accounting and influence on the performance of the participating firms. The study found that in explored Malaysian companies, the extent of strategic management accounting usage was significantly related to organisation’s performance. That conclusion supports Cadez and Guilding [ 8 ] who contend that there is a positive association between strategic management accounting usage and organisational performance.

In a performance perspective that considers the ISO 9000 Quality Management System (QMS) aspect, Sedevich-Fons [ 77 ] examined the connection between strategic management accounting and quality management systems performance. The findings show that strategic management accounting and quality management are complementary and their effective implementation would enhance overall performance. Sedevich-Fons [ 77 ] notes further that when both are used in conjunction that would spread SMA techniques and enable full exploitation of Quality Management Systems.

Insights from the less developed economy context also associate organisational performance to the implementation of strategic management accounting practices (e.g. [ 3 , 57 , 58 ]). In a conceptual approach that aimed to address one major gap in previous literature, Ojra [ 58 ] examined both the financial and non-financial dimensions of organisational performance. According to Ojra [ 58 ], strategic management accounting usage does not impact the financial dimension of organisational performance but exerts significant positive impact on non-financial performance. That finding resonates with Perera et al. [ 71 ] conclusion that various forms of management accounting associate positively with the use of non-financial measures.

On their part, Oboh and Ajibolade [ 57 ], in their investigation of the association between strategic management accounting practices and strategic decision-making in Nigerian banks, found that explored Nigerian banks “practice SMA not as a concept, but as a principle of operation, and that SMA contributes significantly to strategic decision-making in the area of competitive advantage and increased market share” (p.119).

Alabdullah [ 3 ] offers evidence that adds support to the insights in the aforementioned studies [ 57 , 58 ]. In a study that explored the Jordanian service sector, Alabdullah [ 3 ] found that strategic management accounting enables performance in the service sector in Jordan. If strategic management accounting is effectively implemented, that will enable optimal strategic decision-making and ultimately improve organisational performance.

Research methodology

Research design.

Qualitative research method [ 18 , 76 ] is used in this study to achieve the objectives of this research. Following the methodological approach, as well as responding to the research call, in a past study on the contingency perspective of strategic management accounting [ 41 ], a study which was literature review-based, literature review-based qualitative research approach was deemed fit in this study.

A systematic review approach (e.g. [ 5 , 39 , 81 ]) is used in this research on the topic of strategic management accounting. Using the systematic review approach in this study is appropriate because it enables a systematic and transparent approach in identifying, selecting, and evaluating relevant published literature on a specific topic or question [ 42 , 83 ]. Furthermore, systematic review approach was deemed appropriate for this study as it has been documented to aid core research gaps identification and steering future research (e.g. [ 40 , 59 , 66 ]).

Alves et al. [ 5 ] forward a two-stage guideline for systematic review of literature: planning the review and conducting the review and analysis. As they noted, researchers should describe how the systematic approach was planned (in the former) and also describe the phases of the review and selection of literature (in the latter). In this research, effort was made to combine the best evidence: careful planning was used to determine literatures for inclusion or exclusion (e.g. [ 5 , 65 , 67 ]). The planning was focused at identifying relevant publications in various academic journals on the topic of strategic management accounting. First, the theoretical themes to be considered in the conceptual premise of this study were confirmed and academic resource for tracking relevant publications determined [ 5 , 66 , 83 ].

In the preliminary stage of the literature review, electronic search was carried out to identify relevant literature relating to strategic management accounting. Three steps were taken in the systematic review: we searched the literature, analysed and synthesised the literature, and wrote the review. Several databases were scanned using key search terms to capture relevant literature [ 81 ]. Core search terms were used, such as strategic management accounting, historical aspects of strategic management accounting, contingencies of strategic management accounting practices, strategic management accounting and organisational strategy, strategic management accounting and organisational performance, amongst others. Relevant publications were also found using data extraction tools such as Google Scholar, Emerald Insight and Research Gate.

Using the aforementioned methodological approach, a collection of relevant articles published in academic journals was identified. Identifying the relevant literature in this study followed methodological guideline [ 69 ]: criteria of language, relevance and type of research to identify relevant studies were embraced, and articles that contained non-English contents and also articles that did not fit closely to the thematic premise of this study were excluded. It is important to emphasise here that this study recognises that not all publications relating to the topic of strategic management accounting may have been considered in this research. However, for the scope of this piece of research, the body of literature covered in this study was deemed adequate for the conceptual framing.

Table 1 shows a sample of selected literature covered in this piece of research, pinpointing clearly the focus, context of the studies and findings from the studies.

The analysis

The interpretive approach of analysis was followed in processing the qualitative data to achieve reliable meaning in this study (e.g. [ 59 , 65 , 67 , 84 ]). Following that precedence, an iterative approach that involved reading reviewed literature back and forth, was used in this study. Using that approach, a synthesis of literature was undertaken to capture the core threads, debates and themes in the literature (e.g. [ 65 , 67 ]). Guided also by that methodological approach, relevant directions for future research have been flagged towards enhancing the knowledge about strategic management accounting and performance association.

Subjectivity is a major concern in qualitative researches (e.g. [ 18 , 76 ]). To address that concern, steps taken in this research to validate the articles incorporated into this research include rigor of conduct and strength of evidence by cross-referencing, as well as undertaking a duplicate check (e.g. [ 76 , 81 ]).

The findings

Prompted by the central threads that emerged from the analysis of the selected literature, the findings from this study are organised along three core themes: strategic management accounting techniques, contingencies of strategic management accounting techniques usage and the organisational performance implications of strategic management accounting usage.

The importance of management accounting, and in particular the strategic management accounting element as a tool for enabling top management to make effective decisions that enable organisation compete effectively in the marketplace, is gaining increasing mention in management discourse. In that discourse, five core categorisations of SMA techniques: strategic costing; strategic planning, control and performance measurement; strategic decision-making; competitor accounting; and customer accounting. While literature distils numerous forms of strategic management accounting techniques that organisations may embrace towards enabling effective management decision-making and organisational performance, evidence was found in reviewed literature that in some organisations, practitioners do not believe that strategic management accounting as a separate concept is a notion they subscribe to (e.g. CIMA Footnote 3 ; [ 48 , 55 ]). For example, CIMA Footnote 4 documents that participants unanimously do not subscribe to the notion, a conclusion which lends support to prior literature [ 48 , 55 ] that notes that strategic management accounting as a term, did not exist in the lexicon of accounting practitioners.

Grounded on the substance that effective use of the SMA techniques would improve organisational performance, immense research effort has focused on how organisations can effectively align the SMA usage towards achieving desired performance improvement. Premised in that theoretical domain, this study examined existing literature on the contingency factors of competitive intensity, market turbulence, formalisation, decentralisation and organisational strategy and SMA usage. Cumulative evidence obtained from the review of literature reinforces the need for organisations to pay particular attention to their operational environment in their use of SMA techniques. Reinforcing the fit principle, the cummulative evidence underlines that optimising the benefits of the strategic management accounting techniques in enabling effective customer orientation and boosting organisational performance is dependent on the organisation's ability to effectively align strategic management accounting practices to its operational environment. In other words, what works for an organisation would depend on the organisational dynamics, internal, as well as external. For example, formalisation may work for some but not for some, as decentralisation could work for some but not for some. Similarly, the utility of SMA techniques would hinge on the competitive intensity and market turbulence features of an organisation. Thus, aligning SMA practices to the internal and external features of an organisation is essential to enable them adapt effectively to their circumstances, make rational decisions and optimise their performance. So, alignment is critical because there is no one-size fits all approach for achieving customer orientation and organisational performance goals.

The third focal point of this study relates to the association of SMA techniques usage to organisational performance. Reviewed literature shows that organisations are achieving higher performance through the use of SMA techniques. In other words, effective use of SMA techniques would improve organisational performance. The plausibility in that performance outcome lies in the fact that organisations are able to utilise appropriate SMA measures to ensure effective, customer, competitor, strategic decision-making, costing, and planning and control orientation in their operational activities. Further on the performance point, literature also suggests that management control systems (MCS)–performance relationship is mediated by business strategy (e.g. [ 2 ]). Also, that study documents that the impacts (both indirect and total) of MCS on performance are stronger for family businesses than non-family businesses.

Conclusions

Conclusions and implications.

One of the major challenges that organisations are facing in today's dynamic marketplace is to steer their organisations in a way that they can stay competitive. In the contemporary world, where globalisation and technological evolution have expanded the options that customers have (e.g. [ 31 , 61 , 65 , 67 ]), organisations must strive hard to win the loyalty of customers. For organisations wishing to achieve that, strategic management accounting practices offer a strategic pathway. Organisations must embrace strategic management accounting practices that would enable them understand the market, their competitors, and the customers and leverage the intelligence from that knowledge to organise their operations towards profitably satisfying the customer. To effectively do that, organisations must avoid the mistake of focusing only on the internal issues; rather, their effort must be tailored towards embracing strategic management accounting practices that would enable them to be fully informed of the market trends, customer dynamics and competitor trends. Thus, organisations must ensure that good costing, planning, control and performance measurement; strategic decision-making, customer accounting and competitor accounting measures are embraced to enable them compete effectively.

Furthermore, in that drive to compete effectively in the market and profitably satisfy customers, organisations would not only need to embrace appropriate strategic management accounting techniques but also do that bearing in mind the environments that surround the operational activities. In other words, organisations must give due attention to the contingencies of their operational setting. Organisations must ensure a good blend of critical factors that would enable their optimal operation. Due attention must be given to organisational structure (centralisation or decentralisation of decision-making process), external environment (dynamism and turbulence), technological development, strategic approach, size of the organisation, amongst others. Doing that is critical for corporate success because there is no one size fits all approach—the outcome achieved would depend significantly on the dynamics surrounding the operational activities of the firm.

Thirty-three months on after Covid 19 was documented, Footnote 5 the pandemic is still ever present and has remained a daunting global challenge. Competing effectively in the dynamic marketplace is a major challenge for organisations, and with the Corona pandemic exerting unprecedent effects on organisations globally, most organisations are facing a more daunting challenge to survive (e.g. [ 65 , 67 ]). Organisations must strive to strategically orientate their management accounting practices to enable them find ways to effectively navigate the daunting challenges they face in this Corona era.

Implications of this study

The implications of this study are organised along managerial and theoretical implications.

Managerial Implications —Managers are reminded that optimal use of strategic management accounting techniques would boost organisational performance. Achieving high levels of organisational performance would however hinge on an organisation's ability to effectively align its SMA techniques usage to its internal and external dynamics. In other words, managers must bear in mind that there is no one-size fits all approach; therefore, they should endorse SMA techniques usage that fits their operational dynamics.

Theoretical Implications —In line with the central objective of this paper to sensitise the need for enhancing the understanding of the contingency perspective of strategic management accounting, the theoretical implications of this study are tailored towards specifying core gaps in the reviewed literature.

Overall, evidence from reviewed literature underlines the criticality of SMA techniques usage to organisational performance. Thus, if organisations strategically align SMA techniques usage to their operational setting, this would positively impact organisational performance. Within the goal of enhancing the literature on how to optimise the performance impact, much gaps still exist from the point off illuminating how differences in marketing and national culture differentiate SMA acceptance, usage, contingencies and performance impact.

Finally, on the point of performance, reviewed literature documents an obvious gap in the literature from the point of illuminating SMA techniques usage impact along the performance dimensions. As noted by Ojra [ 58 ], for some societies (especially ones that are Islamic cultured), non-financial performance is of central importance. Theoretical development from the point of SMA techniques usage, contingencies and non-financial performance impact is scanty.

Limitations of the study

Based on systematic review approach, this study aimed to drive further knowledge development on the contingency perspective of strategic management accounting, drawing on the evidence from reviewed literature to understand the core debates in the literature and pinpoint directions for future research. Two core limitations of this research relate to the conceptual framework and volume of literature reviewed.

The conceptual framing of this study embraced only three themes in the SMA discourse, namely perceived environmental uncertainty, organisational structure and organisational strategy. Elaborated, the contingency premise considered in this study relates to perceived environmental uncertainty (competitive intensity, and market turbulence), organisational structure (formalisation and decentralisation), and organisational strategy. This study recognises that there are other contingencies of strategic management accounting practices that have not been included in the conceptual framing of this study.

To capture the central debates in the SMA discourse, extant literature was reviewed. It is however important to acknowledge that this study may have ignored some literature relevant to the conceptual premise of this study. Finally, although efforts were made by the researchers to ensure validity in this research by adopting an analytical approach that involved thorough reading of literature to ensure valid meaning in the interpretation, it must be reminded that subjectivity is a concern in every qualitative research.

Future research directions

In explaining the theoretical implications of this study, core gaps in the literature were underlined (Section “ Implications of this study ”), while the limitations of this study were acknowledged in Section “ Limitations of the study ”. Building on these, this Section “ Future research directions ” extends the contribution of this study by specifying core directions for further knowledge development on the contingency perspective of strategic management accounting.

No doubt, this study has limitations, amongst which are the conceptual framework and the literature review scope. In their study, Naranjo-Gil et al. [ 54 , p. 688] note that “future research is needed to examine other factors to add a more comprehensive view of management accounting”. Given the conceptual limitation of this study, this study reinforces the research call by Naranjo-Gil et al. [ 54 ]. Future research could expand the work done in this research and knowledge development by incorporating contingency factors that have not been considered in the conceptual framing of this study. More research is required in that regard, both from the point of a systematic literature review approach, as well as from the point of empirical investigations that seek to illuminate the contextual (industrial sectors and geographical settings) differentiators to the contingency impacts on the use of strategic management accounting techniques.

Furthermore, more research effort is required from the point of gaining deeper understanding of the various strategic management accounting techniques. Marketing dynamics (e.g. [ 62 ]) and national culture [ 35 , 60 ] differ from one setting to another, therefore exploring the nature of strategic management accounting techniques that organisations endorse and why are core premises for research.

As flagged in the findings, there is a growing support of the notion that accounting practitioners do not subscribe to the use of the term strategic management accounting (e.g. CIMA Footnote 6 ; [ 48 , 55 ]). Further research could help to shed more light not only on why practitioners may not subscribe to the use of the term strategic management accounting, but also on the understanding of how practitioners would prefer to describe the management accounting practices that they embrace, and also why the specific practices are prioritised.

Furthermore, on the point of the content of strategic management accounting, researchers have also noted that not much effort is given to highlighting clearly the accounting information that organisations should give much attention to towards boosting organisational performance (e.g. [ 53 , 89 ]). Future research should aim to fill this gap. Doing that is critical to fully optimising the performance benefits of strategic management accounting [ 56 ].

Reviewed literature has documented that the extent to which strategic management accounting practices would aid management decision-making and organisational performance would depend on the contingency dynamics of the organisation (e.g. [ 11 , 58 ]). Understanding the contingency premise of strategic management accounting utility in driving effective management decision-making and organisational performance is a critical research premise, and future research should aim to shed more light on that. No one size fits all approach that works for all organisations in all contexts. Therefore, future research should seek to enhance the 'fit' foundation of strategic management accounting relevance and performance outcome. In that regard, future research should seek to illuminate further how perceived environmental uncertainty, decentralisation, formalisation, strategy and other contingency factors not considered in this study, would influence strategic management accounting techniques usage and organisational performance impact. In the particular case of perceived environmental uncertainty, more research is not only required from the point of understanding the influence of the construct, but also clarifying the competitive intensity and market turbulence associations.

An insight that emerged from the reviewed literature relates to the fact that majority of efforts to improve strategic management accounting discourse have considered mainly financial aspects of organisational performance (e.g. [ 58 , 86 ]). Focusing only on financial performance is inadequate as the customer perspective of performance is neglected [ 45 , 58 ]. The importance of focusing on customer performance has been re-echoed in further literature: organisational-level customer satisfaction associates positively to financial performance (e.g. [ 24 , 86 ]), and customer performance enables business strategy and an organisation's ability to deliver value to its shareholders as well as customers [ 25 ]. Supporting prior research (e.g. [ 49 , 58 , 86 ]), this study underlines the need for more studies that illuminate non-financial performance aspects and strategic management accounting association.

Finally, the Corona pandemic, which remains a global crisis, has exerted unprecedent global economic damage. Organisations are facing daunting challenges as a result of the Corona pandemic and are still seeking ways to successfully navigate these challenges. Future research should illuminate what strategic management accounting practices organisations are endorsing in the effort to effectively navigate the Corona-crisis-induced challenges.

Availability of data and materials

This study is based on the review of literature.

Management Accounting in support of the strategic management process. https://www.cimaglobal.com/Documents/Thought_leadership_docs/Management%20and%20financial%20accounting/Academic-Research-Report-Strategic-Management-Process.pdf .

January 9—WHO Announces Mysterious Coronavirus-Related Pneumonia in Wuhan, China.

Abbreviations

  • Strategic management accounting

Strategic management accounting usage

Chartered Institute of Management Accountants

Management accounting and control system

Management control systems

Quality management system

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OJ—the lead author—has made substantial contributions in the design of this study, in the design of the methodological approach and analysis of data, as well as in writing up the conclusions for this study. OA—the corresponding author—has made substantial contributions in the design of this study, the review of literature, the methodological approach and analysis of data, as well as in writing up the conclusions for this study. AM has contributed substantially to the design of this study, review of literature, methodological approach, as well as in writing up the conclusions for this study. All authors read and approved the final manuscript.

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Ojra, J., Opute, A.P. & Alsolmi, M.M. Strategic management accounting and performance implications: a literature review and research agenda. Futur Bus J 7 , 64 (2021). https://doi.org/10.1186/s43093-021-00109-1

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未能顺利毕业怎么选择回国学历认证!致力于为未能正常毕业的留学生提供信息帮助! 因为疫情学校推迟发放证书、证书原件丢失、没有正常毕业未能认证学历面临就业该怎么解决? 微信717549916马上添加马上咨询!办理周期:5个工作日。办理流程:定金下单→电子版→实物→尾款 A.为什么留学生需要操作留信认证? 留信认证全称全国留学生信息服务网认证,隶属于北京中科院。①从2018年上半年开始,教育部认证系统已经完善,未能正常毕业的留学生已经不能再花钱操作教育部认证,所以只有选择留信;②留信认证门槛条件更低,费用更美丽,并且包过,完单周期短,效率高③留信认证虽然不能去国企,但是一般的公司都没有问题,因为国内很多公司连基本的留学生学历认证都不了解。这对于留学生来说,这就比自己光拿一个证书更有说服力,因为留学学历可以在留信网站上进行查询! B.为什么我们提供的毕业证成绩单具有使用价值? 查询教育部认证是国内鉴别留学生海外学历的唯一途径,但认证只是个体行为,不是所有留学生都操作,所以没有办理认证的留学生的学历在国内也是查询不到的,他们也仅仅只有一张文凭。所以这时候我们提供的和学校颁发的一模一样的毕业证成绩单,就有了使用价值。 毕业证添加极速办理 成绩单专业计算GPA安排课程 毕业证办理:专业安排24H在线 毕业证复刻copy没有人比我更专业 如果您是留学生或者正在从事留学行业,想赚取一手资源留学业务差价,请加微信717549916工作轻松自由无压力,帮助留学生解决各种留学疑难杂症。

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Term Paper on Financial Accounting

term paper on management accounting

Here is a term paper on ‘Financial Accounting’. Find paragraphs, long and short term papers on ‘Financial Accounting’ especially written for school and college students.

Term Paper Contents:

  • Term Paper on the Limitations of Financial Accounting

ADVERTISEMENTS: (adsbygoogle = window.adsbygoogle || []).push({}); Term Paper # 1. Introduction to Financial Accounting:

Financial accounting is the preparation of financial information in accounting form. It refers to the preparation of general purpose reports of financial nature for use in the analysis of the performance of any economic unit. It can be used by both the external users and internal Management. It helps the external users for diverse purposes depending upon the users. For example, financial analysts and investors use them for valuation of the firm’s share, intrinsic worth of the company and the profitability and profit earning capacity.

Stock Exchanges use this information for dissemination to public and for examining the Company’s compliance with the listing requirements as per the Listing Agreement. This information gives direct and indirect tools for control and audit and decision-making by the management. But Management has also access to other information on different segments, divisions and sections and breakdown data from ledgers, Journals and internal books of account.

Accounting Information:

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Accounting information means economic and financial information in a broad sense of any economic unit, be it a company, firm, govt., etc. This information is provided in terms of a monetary unit, say Rupees in India or Pound Sterling in U.K. or Dollars in U.S.A., under the assumption that the monetary unit retains its original value.

Financial accounts are concerned with the measurement of economic re­sources, obligations and changes in them in a monetary unit in the form of financial statements. These financial statements include a wide variety of statements of accounts some of which are Income-Expenditure statements, Balance Sheets, Profit allocation statements, flow of funds statements, etc. The contents of these statements have meaningful information to decision makers. These are all recorded facts regard­ing the economic unit on their operations, production, consumption, sales and marketing, net results, allocation of profits, etc.

The importance of these accounts lies in the configuration and true represen­tation of the operations and the results of the operations. This gives the necessary background material for understanding the position, financial or otherwise of any economic unit, called the economic information, in an accounting form.

Accounting System:

Accounting system varies from unit to unit but with the same basic objective of measuring, describing and communicating the financial data to users. Journals, ledgers and other accounting books used in processing financial accounting informa­tion depend on the concept what is called Double entry book-keeping system. Generally Accepted Accounting Principles (GAPP) are used as the most widely acceptable Technique of accounting. The GAPP encompasses many conventions, Rules, procedures and methods of presentation, which are necessary to define the accounting practice at any point of time. The GAPP also includes broad guidelines of general application along with the detailed practices and procedures.

The method of recording accounts may be on cash basis or accrual basis. Cash basis means recording only on the basis of actual cash inflow or outflow. Accrual basis means reporting only on the basis of the time of accrual whether received or paid at that time or not. These two reporting systems should not be clubbed in any accounting system as that would give a distorted picture which is not economically meaningful. The two systems may give completely different pictures of the opera­tions of the economic unit.

Term Paper # 2. Users and Uses of Financial Accounting:

The users of financial accounts are diverse groups and for different purposes and objectives. Some users which are mostly external may have direct interest, as in the case of shareholders, who are owners of the company. This accounting informa­tion is also useful to creditors, suppliers of inputs, users of output, tax authorities, Govt., Trade and Industry Associations, Trade unions among a number of others. Stock exchange brokers and financial analysts and reporters use the data for the benefit of general public and actual and potential investors. As this is general purpose information, many groups of users may be there.

Financial accounting has many uses and provides rich conceptual and opera­tional data. It shows the operational results and the actual distribution of the operational profits. It helps the owners to know the value of their investment. The creditors and other public members come to know the credit standing, liquidity and solvency of the company. It helps the managerial decision-making take a review of the operations and pursue corrective measures as and when necessary. The manage­ment derives the maximum use from this data for improving their efficiency and the corporate profitability.

Term Paper # 3. Managerial Accounting and Financial Accounting:

The two major branches of accounts of a corporate unit are Managerial accounting and financial accounting. There are also other branches like cost ac­counting, social accounting etc. Managerial accounting refers to internal accounting of various departments, divisions, sections, etc., and encompasses all operational data useful for planning and budgeting, control and decision-making. It has relevance to planning and decision making based on segmented product wise or process wise costs, and other relevant data. It is used for budgetary exercises, target fixing, and control of Management, top level, middle level and lower level, etc.

Internal reporting from bottom to top on target achievement, cost control, observance of work norms and operational Manual helps the middle and top level management for effecting managerial control, cost control and performance evalu­ation, based on work norms and targets fixed.

Managerial accounting is thus aimed at accounting of all internal departments, divisions and processes to the management — Lower, Middle and Top Management for the purposes of control, planning and budgeting, proper administration for efficiency and productivity with the objective of maximisation of investor wealth. It is internal accounting for internal use by the management mainly aimed at helping the management at cost control, improvement of efficiency and profit making through proper decision-making.

Financial accounting is on the other hand external reporting through formalised, legalised and regularised statements giving the financial and economic information, useful to outsiders, other than the corporate unit. The interested parties are share­holders of the company, investors in general, creditors and debtors of the company, employees, government departments, Stock Exchanges, SEBI, R.O.C., under the Companies Act, Investor Associations, Financial Analysts and Intermediaries in the Capital Market, financing banks and F.I.s and Industry Associations.

These data throw light on the operations and their results, profitability, value of the firm and their efficiency, solvency and liquidity. The financial accounts encompass, among others, income or revenue statement, capital expenditure, projected or work in progress, Balance Sheet, profit allocation statement and funds flow and cash flow statements and other related financial information.

Financial accounting has objectives and purposes completely different from those of Managerial accounting. Ideally both should cover the same information about the company, with differences in details and emphasis. Managerial accounts involve also some specialised reports of experts and consultant on operational research, Market research, M.I.S. computer systems, etc. As such, it involves and encompasses a diverse range of disciplines like economics, Industrial engineering, Management services, computer science, etc. in addition to accountancy.

Basically cost and price information and analysis are part of both managerial and financial accounting. Both deal with economic events and are part of the total accounting system. Both qualitative and quantitative aspects are involved in the analysis of all economic events. Both the financial accounting and Managerial Accounting deal with financial statements, revenues, expenses costs, cash flows etc. To a large extent, both are based on the same data base, which originate from the accounting requirements and reporting requirements of any economic unit.

Managerial and financial accounts are two phases of the same data base, arising out of the operations in physical form of the economic unit. Both aim at analysing the data for productivity and profitability. While management proceeds with a view to maximise the investor wealth assuming the management is professional, financial accounting enables the user to examine and assess the extent of achievement of the Management in its objectives and goal of maximizing the investor wealth. The tools and techniques may be different but the ultimate goal of maximizing the investor wealth through improvements in efficiency and productivity remains the same for the management as well as those interested in the unit.

Term Paper # 4. Backdrop of Financial Accounting :

The need for analysis and forecasting for the purpose of financial operations is well-known. The data, necessary for the purpose emanate from the accounts — income and expenditures statements and balance sheet statements and other related statements. The analysis of these statements is the basis for assessing the financial performance of any company or organisation.

Financial information and data for analysis emanate from another source, namely, internal books of accounts — journals, ledgers, day book, etc. These are not published by the company but are available to the management for the control, monitoring and audit. Both the published financial statements and the unpublished data, as seen above are necessary for Financial Economics.

Banks are providing credit on the need based assessment and not on security alone. For this purpose, the viability of the project, financial soundness of the company and the prospects for its operations are examined by banks. The assessment of credit needs of any unit is based on the purpose, project and performance (three ps). For such an assessment by bankers, financial analysis and tools of analysis are required, which necessitate expertise in accounting concepts and their interpretation and statistical tools for analysis and forecasting.

Thus, a banker, a manager or an investor would look into the accounting concepts and their interpretation and statistical tools for analysis and forecasting. Thus, a banker, a manager or an investor would look into the accounts of company, their financial data and financial state­ments for analysis and interpretation. It is in this background that source of know­ledge of the accounting concepts and conventions should be familiar to the treasury manager and funds manager.

The management has itself a deep involvement in such analysis and their interpretation. They have to plan for the financing of current operations, capital needs for expansion and diversification and for raising of such resources from the least cost sources and least cost combinations of capital. They are interested in the efficient use of capital and keep cost of capital and labour as low as possible to maximise the profits and to improve the net worth of the company, so as to keep share price moving up and investors happy.

Term Paper # 5. Major Financial Accounting Statements:

The accounts of company or any economic unit are recorded on a daily, monthly and annual basis. The physical operations of a company involve financial commitments, viz., inflows and outflows. The most important statement for the accounts are the income and expenditure statements giving out the financial results of the operations over any period of time, monthly, quarterly, half yearly or yearly, profit or loss position seen from statements as also the disposition of profits through profit allocation statement.

There are a number of other statements all presented in the form of schedules to the balance sheet. Balance sheet is a standing position of the company in terms of assets and liabilities at any point of time presented in India every six months and yearly. The net results of the company in the form of profit or loss are carried to the balance sheet.

The assets and the liabilities of any unit should be equal and balance and hence called balance sheet. Thus next to income expendi­ture statements, balance sheet is the most important accounting data for the financial analyst. Not only the above published data, but the unpublished internal records of Stock Receivables, Payables etc. are necessary for assessing the company’s financial position.

In these and other financial statements there are a number of concepts which are subject to ambiguity and misinterpretation. In fact each item in the balance sheet and income expenditure and other related financial statements should be clearly understood by the analyst although only a few of the ambiguous and complicated concepts.

Term Paper # 6. Limitations of Financial Accounting :

There are however many limitations of financial accounting. It does not provide detailed breakdown data of various products, processes and division inside the company. It does not provide cost data on manufacturing, marketing and other related services, which are available internally for the management.

Specific items of information such as on productivity, reasons for losses, seasonal variations in demand etc., are not provided by the Financial I accounting. Besides it does not provide insider information on the process of controlling inventory, accounts receivable, division-wise operations, profits or losses. Historical data including the last, half yearly data does not give an insight into the current costs, demand and market off take, etc. This data do not allow an analysis of costs of different process and activities including marketing. Industry standards of costs of different products are supplied by Industry Associations to the Govt., which is not provided in this information.

The recording of accounts with regard to wages and labour used separately in respect of different jobs, process, products and departments is not done in this information. Social cost and benefit analysis and inflation adjusted rupee value of the companies’ activities are not provided in these data. Some foreign countries insist on their companies to provide economic information relating to inflation adjusted accounting data in a time series fashion to provide comparable data, year wise.

For accurate analysis for forecasting, the accounts in financial statements should be taken with caution, as they may contain changes in Inventory Costing, valuation of fixed assets and in method of providing for depreciation and in taxation. As the objective of the analyst is to know the real and correct position and accurately comparable earnings per share and P/E multiple for security valuation, he should know the primary earnings and secondary or fully diluted earnings per share.

The primary earnings show the prima facie earnings, divided by the number of shares issued and thus assumes that there are no options or warrants to be exercised for conversion into equity and that the earnings reflect the true earnings to be available to all equity shareholders. An example will make the difference clear between primary earnings and secondary earnings per share which are adjusted for any preferred payments or likely conversions of options and warrants.

term paper on management accounting

The International Conference On Global Economic Revolutions

ICGER 2021: Artificial Intelligence for Sustainable Finance and Sustainable Technology pp 512–521 Cite as

Management Accounting in the Digital Era: Literature Review

  • Atheer AlAnsari 10 ,
  • Badreya Alqadhi 11 ,
  • Aysha Aljawder 12 &
  • Rami Abu Wadi   ORCID: orcid.org/0000-0002-4610-7634 13  
  • Conference paper
  • First Online: 01 January 2022

1672 Accesses

Part of the Lecture Notes in Networks and Systems book series (LNNS,volume 423)

The purpose of the paper is to provide a structure overview of literature for digitalization in the managerial accounting. This can serve as a basis for future research, and thus provide a framework for furthermore focused research questions. Papers published in prominent accounting journals during a 14-year period were scanned. These papers pertaining to the field of digitalization in the managerial accounting were categorized and analyzed in more detail and classified in accordance with selected dimensions. The review was focused on papers explicitly exploring the link between accounting and technology. This paper focused on the field of management accounting and its evolving nature in the fastmoving digital world. This literature review aims to shed light on the effects of digitalization on the well-established filed of management accounting.

  • Digitalization
  • Managerial accounting
  • Enterprise resource planning

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AlAnsari, A., Alqadhi, B., Aljawder, A., Wadi, R.A. (2022). Management Accounting in the Digital Era: Literature Review. In: Musleh Al-Sartawi, A.M.A. (eds) Artificial Intelligence for Sustainable Finance and Sustainable Technology. ICGER 2021. Lecture Notes in Networks and Systems, vol 423. Springer, Cham. https://doi.org/10.1007/978-3-030-93464-4_50

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Essay: Management accounting

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Management accounting is those areas of accounting concerned with financial planning, principally through the interpretation and use of financial data for important management of the business. The role of accounting is to provide relevant information, which will assist management with decision-making, planning economic performance, controlling costs and improving profitability. However, note that the information generated by the management accounting function is just one component part of the decision-making process. It is not the ‘be all and end all’; it must be used in conjunction with other data. The purpose of this essay is outline the objectives of and the main stages in, a managerial planning, decision making and control process and describe the role served by managerial accounting in this process.

The aim of management accounting is to provide management with information, which will help them to:

  • Achieve their objectives/goals.
  • Formulate policy.
  • Monitor and assess performance.
  • Appreciate the financial implications of changes in the internal and external environment in which the organization operates.
  • Plan for the future.
  • Make comparisons between alternative scenarios.
  • Manage more efficiently the scarce resources, which are at their disposal.
  • Control the day-to-day operations.
  • Focus their attention on specific issues, which really need their consideration.
  • Solve a variety of problems, e.g. investment decisions.
  • Take account of behavioural factors.

Understanding the nature of measurement and communication, the characteristics of economics information, the theories and practices of the decision making process and the identification of accounting information users are crucial to the understanding of accounting in general.

The major users in accounting information can be divided into three groups:

  • Internal managers who use the information for short run planning and controlling everyday operation.
  • Internal managers who use the information for making non-routine decisions and formulating overall policies and long run plans.
  • External parties, such as investor and shareholders, who use the information for making decisions about the company in general.

An accounting system is a formal mechanism for collecting, arranging and communicating information about an organization’s activities. This will only be develops if the benefits from its use, in term of improved decisions, are expected to exceed the costs of establishing and operating it.

Differing from financial accounting, the focus of management accounting is usually on the information at a more details level, on results for any products and on costs for particular productive operations. Understanding the role of management accounting requires an appreciation of what is involved in management and the kinds of decision that management is faced with.

Information is important in management decision making. The objective of the management accounting system is to provide the best information for assessments of the amounts, timing and uncertainty of cash flows to the business from each alternative course of action available to the business.

The purpose of management accounting involves identifying the types of decision needed in management accounting in order to provide useful information for managers.

The main types of decision include:

  • Output decision-These are decisions on what types of goods or services should be supplied, at what prices and in what quantities.
  • Input decision-These are decisions on how the outputs should be produced, i.e. the allocation of quantities used in raw materials, labour etc.

I think that these two types of decisions are inter-connected, because the cost of resources to produce goods and provide services is relevant to decisions on the best production output and best pricing strategy required.

The framework for managerial planning, decision-making and control process incorporates seven stages, and this is illustrated by a flow chart.

Stage 1 Identify goals of organization

Stage 2 Collect and analyse data about Alternative courses of action

Stage 3 Choose decision rules

Stage 4 Rank alternative courses of action

Stage 5 Make a decision and state expected outcome

Stage 6 Report actual outcome of decision

Stage 7 Monitor actual outcome to ensure actions under control

Stage 1 : The identification of goals

The management process consists of a series of activities in a cycle of planning and control. Planning can be specified as the choice of company objectives and the methods of their attainment.

The most obvious goal of any organization is to maximize shareholders’ wealth, i.e. profit. This is normally assumed in a traditional microeconomics analysis. Maximizing owners’ wealth also implies maximizing market share and long growth. Management must devise realistic goals for it’s firm, achievable in the short term preferably, otherwise there will be no benchmark for comparison between a firm’s progress now and say, a year later. Having said that, it’s often difficult for a firm to follow realistic goals as different participants within the organization may have their own disparate interests.

However, the first and foremost objective in organizational planning is the maximization of the present value of the organization’s future cash flows. This is adapted for a number of reasons:

  • It is quantitative and therefore provides a clear guide for future comparisons.
  • Unlike conventional profit calculations, which are based on arbitrary accounting measurements therefore doesn’t have the problem of imprecision.
  • It deals directly with cash available to individuals for them to acquire satisfactory products or services.
  • It gives some leeway to the distribution of cash among all members concerned in the firm.

Stage 2 : The collection and analysis of data about alternative courses of action

The decisions made by management can be classified into long-term decisions, such as those involving significant changed with an organization’s operation, or short-term decisions such as those, which only affects its running for a short time like the production of a certain product.

Management has the responsibility to draw up and evaluate the relative costs and benefits to the organization whichever of the decisions they are undertaking.

Sometimes, a decision which appears to be easily quantified and clear cut on paper may not be so straight forward when put into practice, thus management must contemplate carefully as these decisions will ultimately determine whether a decision is correct or not.

For example, managers should not only take into accounts the costs, revenues, incomes, etc. But also the less obvious factors such as the competition environment, interest rates imposed by the government, future operating conditions and any other uncertainty associated with the costs and benefits contribution.

Stage 3 and 4 : The choice of decision rules and ranking of alternative courses of action

Making competent decisions depends on two indispensable criteria selected by managers:

  • The appropriate basis for decision making
  • The types of data to use in decision-making and, by implication, the types of data not to use.

Decision means choices, thus decision-making implies making choices between alternatives, competing course of action. If there is no available alternative, then decision-making is not necessary. Management has to assess whether choosing a particular product X has the overall benefits or choosing an alternative, Y i.e. compare the two products, and weight up any differences between choosing on and not the other.

Management accounting is a key part in an iterative decision making process:

  • Alternative courses of actions are identified.
  • Estimating is made of the results of each alternative.
  • Preferred courses of actions are chosen in terms of business objectives.
  • Actual results are compared with corresponding estimates.
  • New course of action are identified.

This is a continuous process.

The fundamental question for consideration here is, “How is management to choose from among these so many possible alternatives so as to maximize the present value of the expected future cash flows?” The answer to this question is indirect. Each potential alternative will have different cash consequences and change continuously with time. Therefore, analyzing the differences between available alternatives is essential to good decision-making. This analysis is called ‘differential’ or ‘incremental’ cash analysis. This basically gives managers an overlook of the advantages and disadvantages of the choice of alternatives. The final decision is to accept the alternative with the greatest net present value or cash flow, i.e. NPV

Stage 5, 6 and 7 : The decision making and control processes

Stage 5 is the forecasting stage in which it predicts the most likely outcome of a decision, expressed in a budget form. The budget is prepared on estimates of differential costs and revenues in the chosen course of action with some valid assumptions.

Meeting budget targets can be implemented by monitoring the actual performance, this is known as the control process. This is illustrated in stage 6 and 7. Regular control reports provide a useful feedback for management to assess the progress so far.

A management control system may be used here. It is a logical integration of management accounting tools to gather and report data and to evaluate performance.

Management accounting has a role in all stages of the management process.

It evaluates capital expenditures, identifies and measures information on products and markets and is especially critical in short term planning through budgets.

  • Implementation

It develops accounting standards for operations, provides an internal reporting system for a particular business structure and this is known as “responsibility accounting”.

This is broken down further into three aspects:

  • Monitoring performance and results

Here, management accounting identifies any alterations from plans, gives prompt news on any unforeseen problems and explains the nature of results published with the organization.

It encourages staff to work at their best by rewards and incentives, and the budget and performance reports can influence outcome.

  • Communicating

It serves as a language tool for most business organization and provides a useful link to information system.

In conclusion, management accounting ensures the transformation process from inputs, through the production process to output is viable, and it plays a principal role in management decision-making. Management accounting is the process of identifying, measuring, accumulating, analyzing, preparing, interpreting and communicating information that helps managers fulfill organization objectives. Accounting responds to the need for quantitative financial information. It is interpreted as a language of economic activity. The purpose of accounting is ultimately to assist someone to make decisions by the accumulation of all accounting information. The information to be provided by the accounting system depends on who is making the decisions and for what purpose.

BIBLIOGRAPHY

  • Arnord and Turley,  Accounting for Management Decision , 3 rd  Edition, Prentice Hall
  • Arnord, Carsberg and Scapens,  Topics in Management Accounting , 1 st  Edition, Philip Allan
  • Chadwick,  Management Accounting , 1 st  Edition, Routledge
  • Horngren and Sundem,  Introduction to Management Accounting , 9 th  Edition, Prentice Hall
  • R. Hussey,  A Dictionary of Accounting , Oxford University Press

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The Management Accounting - Term Paper Example

The Management Accounting

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It’s Time for Sustainability to Become a Core Part of MBA Programs

  • Magali Delmas
  • Brad Sparks

term paper on management accounting

There’s an unmet demand from companies for climate-savvy business leaders.

Business schools must adapt their curricula in response to the increasing demand for professionals skilled in sustainability and climate change management. This need is driven by evolving global climate disclosure regulations, such as those proposed by the SEC and implemented in California and the EU, mandating corporations to disclose climate-related financial risks and their carbon emissions, including indirect emissions (Scope 3). Currently, many companies fall short in quality and consistency of sustainability disclosures, highlighting a significant skills gap in the workforce. Business schools must incorporate interdisciplinary approaches in their programs, combining environmental and climate science with traditional business skills like carbon accounting, strategy, and governance. The curriculum should foster a common language between disciplines, such as sustainability and accounting, and include hands-on experiential learning. While some accounting firms and trade associations are offering courses in climate finance, these efforts are insufficient compared to what a comprehensive, climate-focused MBA program could provide. The adaptation of business school curricula is not just a necessity but an opportunity to lead in the training of future leaders in corporate sustainability.

With the advent of stringent climate disclosure regulations, corporations are in urgent need of a workforce equipped with the necessary skills to navigate new demands. Yet few professionals possess the interdisciplinary skills essential for this task. Business schools have a prime opportunity to prepare the next generation for leadership in the carbon transition. However, this task surpasses their current scope. It calls for an interdisciplinary approach, broadening beyond traditional business education.

  • MD Magali Delmas is a professor of management at the Anderson School of Management and at the UCLA Institute of the Environment and Sustainability, and faculty director of the UCLA Center for Impact.
  • BS Brad Sparks is the executive director of the Accounting for Sustainability (A4 S) Foundation (US) Inc. He is also a lecturer at UCLA Anderson School of Management.

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Management Accounting Essay

Type of paper: Essay

Topic: Management , Business , Finance , Marketing , Strategy , Planning , Time Management , Accounting

Words: 1250

Published: 11/14/2019

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What is management accounting? What are the sources of data? How are the data used to make management decisions?

According to the official definition by CIMA (Chartered Institute of Management Accountants) management accounting “is the application of the principles of accounting and financial management to increase, protect, preserve and increase value for the stakeholders of for-profit and not-for-profit enterprises in the public and private sectors.” The main difference between financial and management accounting lies in the time frame and the level of details provided. Financial accounting reports information on the monthly and annual level, which may not be enough for some of the daily operations. In this case management accounting comes into place, providing a broader spectrum of information for a wider range of interested parties, however mostly for the internal use of the company. Unlike financial accounting, management accounting is not mandatory, thus no statutory regulations determine its use in the organization. Management accounting incorporates a larger amount and variety of data, including qualitative and non-monetary information. Moreover, it considers both historic and forecasted data equally relevant for the accounting procedures.

Management accounting fulfils six major functions: cost accounting, planning, auditing, control, financial management and decision making. Planning is subdivided into long-term (strategic) and short-term planning. Although, strategic planning is not entirely a part of management accounting, management accounting collects data and provides financial information, required for long-term planning. Short-term planning is usually referred to as “budgeting” and covers a time frame of not more than one calendar year.

Controlling function of the management accounting is exercised through comparing planned results over a certain period of time with the actual ones. The differences arising from this comparison are called variances. They are thoroughly examined by management accountants and the reasons for variation are reported to the senior management for further corrective actions. Disciplinary measures for causing variances are outside of the scope of management accounting.

Cost accounting (responsibility accounting) has always been in the core of management accounting, however at the moment its importance is being lost due to the rise of other functions. Its main role is to collect cost and revenue data, maintain it and “balance the books” by using double-entry system. It is also concerned with determining actual costs for controlling, stock valuation and further decision-making. Typical costing data comes from various sources such as timesheets, requisitions, notes upon goods receipt, and invoices. For the purpose of cost evaluation an entity is usually divided into segments (responsibility centres), which can be of three different types: cost centres, profit centres and investment centres. Cost centres are assigned clear responsibilities and the cost associated with the production or service cost centres is directly charged to them. Profit centres follow a similar idea, however revenues are being charged to them along with costs. Investment centre incorporates the responsibilities of all the investments, related to it. Such segmentation allows easier decision-making and control of the centres by the respective management, as well as simple responsibility assignment.

Financial management function of management accounting is gaining importance in the recent years. It is mostly concerned with financing planned activities and ensuring availability and efficient utilization of the funds.

The primary objective of auditing is to verify accounting information, and check accounting reports. It can be external and internal, with the former considered as a part of financial accounting, while the latter being in the responsibility of management accounting. Internal audit is usually conducted by the entity’s own employees and results are reported to the management. Its primary concern is evaluating management systems’ efficiency, rather than checking financial records.

Decision-making based on the information obtained from management accounting reports is becoming more and more important nowadays. This information usually has to provide not only the actual costs, but also the expected future revenues and expenditures, which would not usually be a part of a traditional accounting report. However, the decision-making power lies with the managers and not accountant, who merely provide them with the necessary information. As problems arising in an entity are often unique, solutions and respective decisions should be targeting the specific problem and cannot be generalized. Moreover, the data available from cost accounting is not sufficient for effective decision-making, therefore necessary information often has to be obtained separately. The scope of decision-making is usually limited to considering the cash flow, resulting only from a particular project. Revenues and costs, which are not influenced by the decision as well as fixed costs, are ignored for decision-making purposes. Moreover, decisions are made considering the opportunity costs, or the benefits foregone in favour of the chosen strategy. As decisions have to be carried out about the future, management accounting often involves probability testing, which helps to estimate the expected value of a specific project.

Decisions, which have to be taken by managers, can be classified into five categories. First and one of the most common decisions faced by the managers is the closure/shutdown one. The decision in this case is being taken, when an enterprise or a segment is considered “unprofitable”. While shutdown indicates a temporary problem, which is expected to be solved in the future, closure decisions imply permanent termination of operations, as no future is predicted for the segment. However, such decisions have to consider multiple factors, including product interconnection, staff involved and general contribution of the segment into the company.

Management accounting assists managers in making make or buy decisions. They concentrate on determining which products are more efficiently manufactured internally, while outsourcing all the activities, which are not core competencies of the company. In this case not only the cost aspect of manufacturing should be considered, but also various non-quantifiable factors, such as the loss of know-how, disturbances in the supply chain and delivery delays as well as difficulties to communicate product requirements to the suppliers.

Another type of decisions undertaken by managers is pricing. It refers to both external pricing (prices charged to external customers) and transfer pricing, which is the price charged internally, by one segment to another. External pricing can be cost based or market based. Transfer pricing can be based on market or adjusted market prices, total cost, variable cost, negotiated prices or opportunity cost.

Finally, management accounting helps managers to determine the strategy related to special orders. It supplies projected as well as historical information, evaluating the consequences of all the decision possibilities. The question usually arises in evaluating whether an entity is able to accept a special order and how much it can charge for it. In this case, excess capacity largely determines the pricing strategy. The lowest possible cost in this case is the variable cost of the order, while charging above that is associated with a higher risk of losing the customer.

Management accounting today is an important organizational function, which largely supports planning, controlling and decision-making. Despite the absence of statutory requirements for management accounting, it is considered to be an essential part of entity operation, which significantly contributes to the achievement of long-term objectives as well as to the day-to-day decision making.

Dyson, J.R. (2007). Accounting for non-accounting students. Harlow, United Kingdom: Financial Times Prentice Hall. Mott, G. (2008). Accounting for non-accountants. a manual for managers and students. London, United Kingdom: Kogan Page.

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  18. History of Management Accounting Term Paper

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  23. It's Time for Sustainability to Become a Core Part of MBA Programs

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  25. The Conflict Surrounding Work-Life Balance in Public Accounting Firms

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