As business environments become more dynamic, hardly predictable and competitive, there is a compelling need for management accountants to develop logically consistent strategies and practices to improve company's competitive edge, financial standing and profit potential. As such, many businesses are increasingly embracing strategic management practices marked by involvement of management accountants in planning and competitor analysis to support decision making. Accountants therefore, are continually being relied upon to provide formidable and well tested accounting tools and models to support decision making processes and increase company profit margins.
The conventional role of management accountants mainly revolves around monitoring, controlling and score-keeping, and problem solving. However, as business environment become more competitive every day, the role of management accountants is slowly changing. Today, there is need to link non-financial measures with strategic objectives for improved organizational performance. In the wake of economic recession, companies need to have a very clear focus on what their differentiation is going to be and how to achieve it, not necessarily by cost cutting measures but through sustained business growth strategies. This research paper focuses on the emerging roles of management accounting by critically evaluating how management accounting can support Irish companies affected by economic recession to drive their businesses forward.
Management Accounting Strategies during Recession Period
The traditional roles of management accounting are rapidly being faced out. Traditionally, management accountants largely lacked knowledge regarding business management and performance in addition to lacking creativity. Contrary, today's management accountants are expected to have a good understanding of the business guided by creativity, consistency and timeliness. As Ireland's economy tries to emerge from a considerable period of recession, companies are making strategic responses through formidable management accounting approaches to drive their businesses back to the footing, rather to heal the bruises of the hard hitting recession. Robert Kaplan, the developer of Activity-Based Accounting and the inventor of scorecard, highlighted how management accounting can be utilized to build profitable businesses. In essence, his main argument was that management accountants should focus mainly on the strategies rather than embarking on unproductive growth and cost cutting measures.
In his speech, Kaplan argued that it was during recession times that the true costs of doing business are unraveled and felt. Today's management accountants must acquaint themselves not only in cost accounting knowledge but also in setting financial and costing goals that along the organizations overall strategic plan and goals. When recession hit Irish economy in year 2007, most management accountants were caught napping on the modern accounting requirements hence lacked prudent measures to salvage their companies from sinking under. This is because during periods of steady growth, most managers often become extremely exuberant -building a large customer base, launching new products and brands, and spending widely. As such, Kaplan warns that such periods tend to hide the negative economic fundamentals such as unprofitable products and customer relations.
Management accountants are endowed with the noble role of controlling costs. However, there has been too much over-emphasis on cost accounting that strategic side of sustaining business growth is overlooked. Faced with serious economic recession, most companies adopted the low-cost, low price model which Kaplan warns that is not a strategy that can be sustained during hard economic times. This is because regardless of the industry a company is, there are always alternative and cheaper ways of producing such goods, albeit outside the country and therefore the spiral starts the moment a company chooses to start cutting costs and prices, often being forced to cut even more thus making little or no profits at all.
The Way Forward for Irish Companies
Interestingly, despite management accountants advising their respective companies to cut down costs as recession soared to the heights, most of them are nevertheless, struggling to survive. One of the major reasons is the unprecedented competition being witnessed in Ireland's business environment. This calls for changed strategies of management accounting. In essence, it calls for modern accounting approach which relies on complex accounting models to develop information relating to external factors of the business and reflect the relative cost position of firm and further providing information on how the company may secure sustainable cost advantage over competitors through cost differentiation. However, there is need to identify the targeted customers and the scope of the management accounting strategies. Essentially, management accountants can assist the Irish companies through four main strategic approaches- strategic cost control, accurate financial accounting and reporting, strategic variance analysis, and proper control monitoring.
Strategic Cost Control
Kaplan asserts that with limited resources, a company cannot afford to do lots of things for lots of customers. Strategic cost control goes behold cost accounting to encompass identifying clear goals on organizational differentiation factors which could either be low cost as well as emanate from organizational potential features, services, and the target audience. In other words, as management accountants on cost cutting measures, there is need to focus on the customer base targeted for building growth since eventually, this is where growth will come from, not cost cutting measures. All in all, accounting managers must develop management techniques that will enable a business reduce its costs and gear the organization towards achieving cost-efficiency through standard costs control. Management accountants can achieve this through developing budgets that controls business expenditures that supports organizations strategic growth plan and goals. Moreover, through effective cost control, it will be much easier to evaluate and monitor financial performance of various departments within the larger company. Minimizing administrative expenses will further enable the firm to take greater profits under minimal running costs than its competitors.
Effective Financial Accounting and Reporting
Due to the uncertainties and other challenges posed by economic recession, most Irish companies will be relying heavily on outcome of financial analysis to strategically position their businesses and determine their future investments. Therefore, the management accountants are required to produce accurate financial accounting reports which is in essence is a key determinant of business success. The traditional management accountants and practices were inefficient for not only laying excess emphasis on financial reporting but also for focusing mainly on internal processes and inability to react to changes in the market environment. For these companies to raise from the recession, management accountants ought to adopt management accounting techniques that provide information for strategic decision making for instance through activity based costing. Most companies were strongly hit by the recession due to inaccurate financial reports that misled the management to adopt unsustainable growth practices ultimately closing down or sinking in the competition mire. Errors in cost accounting therefore, lead to inaccurate management financial reports that will represent the wrong position of the company.
In any organization, risk and regulatory financial reporting is very useful to the corporate finance team in integrating financial positions and performance of all key departments of the company. Essential financial reports include but not limited to: balance sheet, profit and loss statements, statement of cash flow and statement of retained earnings. These reports show the financial standing of a company hence the directors, hardly with financial knowledge, will clearly see the financial implications of decisions they may take. The financial information will help the management to control the resources and plan how those resources can be most effectively and the course of action they should take when a number of options are open. This rests solely in the hands of management accountants.
Strategic Variance Analysis
This is one of the fundamental roles of modern management accountants in organization can play to enable organizations sail through financial difficulties. In essence, variance analysis as a strategic resource for effective financial management shows the differences between standard costs and actual costs of running and managing a company. As such, it is a profit management tool that can adopted by management accountants as it reflects effectiveness of cost control procedures in an organization which is very important for sustainable growth. In variance analysis, a positive variance indicates that budget exceeds actual costs while negative variance depicts actual costs above budgetary limits thus reflecting inadequate cost control procedures in the company thus raising a red flag. This is important for instance, in laying strategies for future cost control and efficiency various organizational departments. Furthermore, when variance analysis is well aligned with a company's mission and business concept, it can help top management to determine the variations and differences between the standard costs and actual costs and whether they are consistent with its mission. In this respect, it provides management accountants with a fundamental tool for performance monitoring.
Strategic Control Monitoring
All financial aspects of a firm require effective control monitoring. It is not only important during economic recession but also during periods of economic growth. In this regard, management accountants could help Irish companies through providing adequate controls that conform to the company's business concept and industry standards to support senior management decision making processes. Effective control monitoring however, demands that these "hybrid" management accountants who will spend less time in routine accounting activities and more time in strategic business activities.
Almost every aspect of a business ought to be monitored and controlled. This ranges from financial monitoring-effective cost and profit measurement and evaluation techniques, so that when a company goes into the targeted customer segments with product offering, the focus is not only making sales but also making money. Kaplan cautions that the last thing a company should aim at is a growth with products and customers that are unprofitable. Management accountants therefore, must establish strong base for cost and profit measurement as validation procedures for organizational performance monitoring. This further will establish in which areas the company is making money as well as where its strategies are not productive or profitable-where the company is losing money.
This paper evaluated the possible ways in which management accountants can assist Irish companies, hit by economic recession, to get back into footing thus, drive their businesses forward. Over the years, the role of management accountants has undergone dramatic changes due to the dynamic business environment backed by hard-hitting economic recession. Management accountants today must be able to provide useful signals for measuring efficiency of organizational processes and profitability of products in order to facilitate sound decision making.
As such, there is need management are looked at to develop prudent systems to guide capital investment, control cost, provide goals for decentralized managers, coordinate and monitor events, evaluate efficiency of internal processes and profitability of product offerings. Failure by the Irish companies to make these modifications will continuously inhibit their abilities to be effective and efficient in global market competition. In short, with the correct adaptations and innovations, management accountants can indeed, drive Irish companies out of financial difficulties and possibly make resurgence of the sank and sinking companies.