Challenges Faced by Management Accountants in the 21st Century

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Procedia Economics and Finance 37 ( 2016 ) 466 – 470

2212-5671 © 2016 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (

Peer-review under responsibility of Faculty of Business Management, Universiti Teknologi MARA doi: 10.1016/S2212-5671(16)30153-8



INCOMaR) 2015

Challenges Faced by Management Accountants in The 21st Century

Zairul Nurshazana Zainuddin

*, Suzana Sulaiman


ᵃFaculty of Accountancy,Universiti Teknologi MARA,40450 Shah Alam, Malaysia.


Management accountant in the twentieth centuries is no longer a traditional ‘bean counting’, but now has to become a ‘hybrid accountant’ within an organization. They are now facing intense challenges and are expected to adapt with rapid changes in business environment. Companies demand for more proactive management accountants, who are now expecting to become part of management and ready to accept exciting challenges ahead. This paper discusses issues on environmental and organizational factors, which are believed to be the major contributor to the key challenges faced by management accountant nowadays. A

conceptual framework was developed which forms the relationship between management accountants’ roles, tasks and factors

driving to the changes that leads to challenges faced by management accountants in the 21st century. © 2016 The Authors. Published by Elsevier B.V.

Peer-review under responsibility of Faculty of Business Management, Universiti Teknologi MARA.

Keywords: management accountant; challenges; management accounting change; factors drive the change.

1. Introduction

Since late 1980s, management accountings were being heavily criticized by accounting practitioners and educators on the grounds that such practices are not in path with the radical changes in the business environment (Roslender, 1996). An enormous amount of publicity has been generated Johnson and Kaplan (1987) as a result of their claim that current management accounting practice has lost its relevancy with recent business environment. The continuous changes in environment influence management accounting practices, which leads to intense challenges faced by management accountants nowadays. Besides that, the rising in accounting scandals such as failings of the accounting and auditing profession also contributes to the changing in governmental regulation (Tomasic, 2011).

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© 2016 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (


This resulted in recent increases for imposition on regulations; monitoring and sanctions (Loo, 2011) hence indirectly drive the changes in organizations’ activities. This is due to the fact that it is closely connected to ethical failures in the business community (Foote and Bange, 2006). The changes of organizations’ activities due to

globalization (Sulaiman, 2008), intense competition (Kariyawasam, 2009), information technology (Talha, 2010) and changes in regulations (Loo, 2011) definitely change the role of management accountants in an organization. Moreover, advances in production technologies, including advanced manufacturing technologies, computer-aided design and computer-aided manufacture also give significant impacts to the companies (Cooper and Dart, 2009). Recent years have witnessed changes in how products and services are supplied and delivered to customers (Cinquini and Tenucci, 2009) as well as advances in information technology (Tuanmat and Smith, 2011). Preparation of information and dissemination become much easier and processing capacities are much greater hence

leads to faster customers’ response times (Lobo, 2004). Traditional tools such as standard costing, variance analysis, budgeting and cost volume profit analysis are believed to be no longer adequate to today's manufacturing companies (Tuanmat and Smith, 2011). In global market, intensifying competition has obligated many organizations to use innovative managerial practices such as just in time (JIT), total quality management, advanced manufacturing technology (AMTs) in managing their business. The pressures from market competition have created challenges for management accountants in adapting contemporary management accounting practice such as activity based costing and balance scorecard in order to react to business changing need (Abdel-Maksoud, 2007).

Therefore, this study discovers several factors may influence the changes in management accounting practices that lead to challenges in management accounting profession. Environmental factors and organizational factors are believed to be an underpinning theory for challenges faced by management accountants in the 21st Century. Based on previous literatures, a proposed framework was developed which describe on the relationship between

management accountants’ roles, tasks and factors driving the changes in the study. The remainder of the paper is

organized as follows; Section 2 addresses previous studies on factors that caused changes to management accounting profession. Section 3 is dedicated to the proposed framework developed in the study. Finally, a concluding section which overviews the study main contribution, its limitations and recommendations for future research are identified in Section 4.

1.1. Challenges faced by Management Accountants in the 21st century

Management accounting profession should adapt to the recent changes in order to be relevant and competitive in the near future. Generally, there are several factors that may influence the transformation to the current state of the management accounting profession. Prior study by (Talha, 2010) , factors that caused the changes include:

x Environment of Business – Globalization, Customer focus and Rapid changes in technology

x Responses by business – Flattering hierarchical structures, World class manufacturing, Cell type of layout, Business to Business, Business to Customers, Reduce inventory costs and Value Chain

x Management Accounting tools - Benchmarking, Activity Based Costing, Enterprise resource planning, Balance Scorecard, Target Costing, Supply chain management and Just in Time inventory.

Based on a study conducted by Sulaiman (2008), in Malaysia, there were two categories to trigger changes in management accounting namely, Environmental factors and Organizational factors. Environmental factors consist of the impact of market competition and emphasize of new non-financial performance indicators (Sulaiman,

2008). This leads to the changes in customers’ behavior due to globalization and there was a link between financial

accounting requirements and regulations with management accounting practices. Organizational factors were related to changes in organizational ownership such as acquisition or merger, organizational restructuring such as decentralization, hierarchical structure, downsizing and outsourcing and the enhancement of corporate governance (Sulaiman, 2008).

1.2. Environmental Factors

Environmental factors are also known as external factors. For example, rapid changes in business environment such as globalization of markets, intensifying competition and advances in information and production technologies


are among the major factors contributing to the evolutions in management accounting practices in recent years (Allot, 2000). Changes in the business environment often lead to changes in how organizations do their business, operate and managed (Lobo, 2004). This may indirectly influence the management accounting profession, since management accountants play a vital role in providing information to facilitate and support the effectiveness of business operations and management (Atkinson, 1997). Talha (2010) in their study highlighted that the emergence of latest information technology and manufacturing technologies as well as environment trends also contribute to the changing in management accounting. Management accounting must take lead in providing companies with customer oriented information (Cloud, 2000). This is due to the fact that management accounting practices in organizations covers a broader scope and it has also become an integral part of the management process (Sulaiman and Ramli, 2006). Due to globalization, firms not only compete locally but are also exposed to the international market. It is important to ensure an attractive price, good quality product, speed of delivery, and

customer service is meeting the customers’ expectation. Therefore, managers need measures on all these factors. This is when the management accountants, as the information provider of the organization should play their role. The establishment of global markets, emphasis on customer relationships, improved product quality and enhancement of production technologies all served to increase the level of competition between organizations (Kariyawasam, 2009). The availability of user-friendly financial and analytical software and technological tools such as e-mail, the Internet, Intranet as well as intense business competition lead to challenges faced by management accountant nowadays (Lobo, 2004).

The emergence of tremendous advances in information technology may provide better capacity and speed in database that enables to store vast amount of information in the system (Lobo, 2004). The information will be easier to be accessible by different users at the same time [17]. Rapid progress of information technology gives

‘signal’ to management accountants to become more aware of the availability for more accurate, timely and relevant information in the future. The rise of modern technologies also means that management accountants can renounce

much of the ‘bean counting’ and ‘number crunching’ tasks to computerized accounting systems (Lobo, 2004). This is due to the fact that technology advancement in business improves efficiency and effectively of business operated (Burns and Scapens, 2000). Other factors such as deregulation of finance sector, implementation of new practices and increased importance of service sector are also highlighted by Talha (2010) in their previous study. The introduction of new manufacturing tools and techniques and imposition on new regulation made the management accounting profession to be more challenging.

1.3. Organizational Factors

According to Laitinen (2006), organizational factors can be described as organization, strategy, products, perceived uncertainty and competition. This is one component of internal operations as organizational factors may influence directly to the day-to-day operations. Organizational factors emphasis on core competencies, customer and supplier relationships, downsizing, outsourcing, flatter organizational structures and team work (Talha et. al, 2010) Survey done by Yazdifar and Tsamenyi (2005), discovered that ‘information technology’ and ‘organizational

restructuring’ due to ‘take-over’ and ‘merger’ events as the top two most important change drivers between

independent and dependent companies in United Kingdom. Organizations are influenced by a multiplicity of interests whereby some interests are located primarily within the organization; some are located in the environment within which organizations operate and some straddle in between organizations and the environments (Sulaiman and Ramli, 2006). Organizational factors relate to internal factors within the organizations, for example, new management style. If there is new management in place, the organizational structure and information flow in an organization will also change (Cloud, 2000). There will also change in work patterns and attitudes among the

organization’s staff. Management accountants have to liaise with both operation and top level. They are expected to

act as middle person to ensure both parties get relevant and timely information (Kariyawasam, 2009). Product quality, changing work pattern and new management style or organizational restructuring have been more observed as the organizational factors that leads to the challenges faced by management accountants (Sulaiman, 2008).

Other factors related to core competencies, customer oriented activities, size and type, form of ownership, autonomy, profitability or authority-driven, calls for broader scope accountability and financial position of


organizations also contribute to challenges faced by management accounting profession in the 21st century (Talha, 2010) As most organizations nowadays are having flexible organizational structure with managers and accountants are working cross-functionally, demand for information by stakeholder has intensified. They demand information for accountability of transaction. The impact of global era such on globalization of the markets, advance in information and production technology, core competency and customer and supplier relationship lead to the challenges among management accountants to be able to work cross-functionally (Ahid and Augustine, 2012).

2. Proposed Framework

The continuous changes in environment influence the changes in management accounting practices. The evolution of management accounting has indeed changed the management accounting profession. A conceptual

framework was developed to show how management accountants’ role and task were affected by the factors drive to

the changes (both environmental and organizational factors).

Management accounting profession is evolving due to both environmental and organizational factors. External forces outside the organization (also known as environmental factors) such as globalization, intensifying

competition and advances in information in technology leads to the changes in organization’s activities and how

they operate and are managed (Lobo, 2004). To succeed and survive, organization should proactively adapt to changes in their environment (Atkinson et. al, 1997). This situation is directly influenced the organization to change, which is known as organizational factors, such as new management style, customer-oriented activities and changing work pattern. Both factors have indirect influences to the changes in management accountants’ roles and tasks

within the organization. Therefore, both environmental and organizational factors are proposed by this study as major contributors to challenges faced by management accountants in the 21st century.

3. Discussion and Conclusion

In the dynamic business environments, management accountants are experiencing significant changes of role and tasks. Therefore, to be competent and reliable in an organization, management accountant should proactively involve in leadership, strategic management, operational alignment and long-life learning and improvement. They are now responsible as the internal business consultants. They are expected to be able to work closely with all managers in the operation and top level. They also assist management by providing valuable information in their decisions making. They also involve in issues pertaining to value added activities. The fast changing environment requires them to adapt with the unexpected changes. They are no longer regarded as conservative accountants. One of the biggest challenges for management accountants nowadays is the preparation to face globalization in local and global market. Globalization, intense competition, changing governmental regulation and innovation in technology led to changes in market environment which have greater impact to an organization. Many of the companies have started going global by undertaking business activities across national frontiers. As a result, the business transaction becomes voluminous and complex to account for. However, with technology advancement, more innovative software and other tools have been developed to assist management accountants in performing their task. This show

that today’s business environment cannot operate without technology. The future of management accountants

depends on how they able to adapt and respond to emerging technologies. As the world becoming unified, entity with board less transactions worldwide need for standardization. This definitely led accounting profession under intense pressure to warrant comparisons uniformity. Management accountant is expected to be able to provide for accurate information then assists them in decision making since they work closely with company’s management.

Intensifying competition and business environment changing has brought into significant challenges and pressures on management accounting profession to change.

The organizational factors such as new management style and customers’ expectations also contribute to the

significant changes. Globalization and intense competition have shifted companies’ focus towards meeting customers’ needs and their core activities. Management accountant has significant role in pursuing business survival


management. The top management themselves were said to be the recent challenge faced by the management accountants in relation to their expectation and requirement in decision making process. In order for management accounting to maintain its relevance, there is a need to react to changes in business environment and expectation from management in an organization. In summary, management accounting profession need to be relevant or else it will be considered as a subservient to financial accountants.


The authors would like to express their gratitude to the Ministry of Education of Malaysia for funding the research project through the RAGS grant. Our appreciation also goes to the Faculty of Accountancy/Communities of Research (Humanities & Quality of Life), Universiti Teknologi MARA for facilitating the research project.


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