Reputed to be one of the most iconic monographs on the history of accounting book, ‘Relevance Lost, Rise and fall of Management Accounting’, Thomas Johnson and Robert Kaplan (J&K,1987) who’s thesis and perspectives stated that numbers of reasons why the management accounting system can be obstructions for development when it came with inefficiency and defects to organisations, as well as it brings negatives effect to internal and external users.
Moreover, through relevant literature likes Ezzamel et al. (1990) and Hopper and Armstrong (1991) viewed on J article within remedies it can enhance the ability of comprehensions to J. In below will state my research topic and argument that supported by sufficiency evidence to critical management accounting issues within my point of views. According to J (1987) believed that the original concepts of management accounting information should be provided on time, genuinely relevant to managers planning and control decisions that can be associated with reducing the costs and improving the productivity. Nothing comes out as planned, due to managers ordered to meet the monthly or quarterly profit target by modern organisations. Under pressure, these can be done by occasionally reducing their expenditures like the long-term investment in the market post-tensioning.
More importantly, manger’s ‘Tunnel Visions’ can be an obstruction for the future development of the organisation. While simplistic and aggregate costing methods often used in management accounting system to produce product costs, which only represent the direct-labour side and not mention about demand for each unit. Although it can view as yield values in the inventory and able to satisfy external users, it exists a risk for misleading the decision on the product price, product mix as well as response to rival. Ezzamel (1990) cited J&K (1987) article which especially focused on Alexander Hamilton Church’s thesis; he believed the costs of necessary information processing is required for long-term development plus the top management decisions making. J doubted on Church’s views as numerous firms implemented this system could find complex, and the data cost can be prohibitive. However, J&K had a few remedies on this, deemed falling in the cost of data processing can be feasible. An effectiveness method as known as ‘return on investment'(ROI) which invented by Du Pont company, ROI ensured the most profitable allocation of capital and assess the financial performance of business segment by an operation ratio formula (revenues / operating cost). In other hand, firms also confronted the problem of coordinating dispersed and decentralised activities.
General Motor company raised the power of MAS by a clear corporate goal to each division mangers, each of them was made responsible for achieving a target of ROI while having an authority of capital request and freedom in operating activities.Ezzamel (1990) also illustrated J&K evaluation that stated why Japanese management style played an important role in American business cultures. Japanese emphasised on benevolent in management, through little incentive to employees that can encourage employees being active in work and improve their ability to works. Furthermore, the Disciplinary system was implemented in Japanese management which regarding an interrelation with rewards and punishments to manage an organisation via a regime of calculability.
Unlike, Western organisation have ignored behavioural in management and treated their employees like ‘cogs in well-oiled machine’ that result to fail to provide a logic and sufficient views of ‘management by the number’ as ‘calculable person’.Hopper (1991) critiqued of J&K’s ‘Relevance Lost’ based the common management accounting history who argued essentially all modern techniques of management accounting was in operating use by about 1920. Under the basic evolutive model to argue that many of accomplishments of this ‘Golden Age ‘ haven afterwards been stifled by the effects of financial reporting as well as academic teaching. This theoretic twist causes the authors to transmit a powerful attack from the historical ground of 1920 which resulting inefficiencies from the modern teaching and practice of management accountancy. In contradistinction to the social harmony and self-equilibrating behaviour of individuals, corporations and markets assumed in the transaction cost framework employed by J. Many of the historical events used to argue the thesis of ‘Relevance Lost’ by better understood through a ‘labour process’.
The labour process approach which influence of financial accountants and academics was sufficient to arrest the development if management accountancy for over sixty years with the most dynamic economy in the capitalist worlds. The researching topic would focus on why J believed management accounting should supplant cost accounting. For the reasons of irrelevance is getting worse and manage of inappropriate in cost accounting caused three major negatives effects found on J views, comprised a field of short-termism, failure of the control function and academic accounting. Back to the pervious discussion, one of the elements cause an inefficacy of MAS due to modern firms set a target to managers to meet a short-term profit goal which can be a similar case to the purpose of cost of accounting. The general purpose of cost accounting that aims at generating data to control operations to maximize profits and efficiency of the company which usually suitable for short-range planning as stated by Ross L (1990).
Failure of the control function as the form and timing of accounting information based on the past performances and records that used to determine future development of the firm. Moreover, the function can be helpless and too narrow views for the operational control that can be misleading the decision or direction for the firm. J’s final views on the cost accounting damaging effect, modern textbooks writers in US and UK represented the fundamental techniques with the essential elements in management differentially that confused students. More importantly, the method of analysis has been deductive in a simplification way that abstracted from a real experience which lost interrelation between the business school and real worlds. As specified by Soobaroyen (2008) clarified that management accounting refers to the preparation of financial and non-financial data for the operating the management in the organisations.
The information used to provide directions in making policies and strategies, budgeting, forecasting plans, making comparisons and evaluating the performance of the management. Soobaroyen (2008) believed such as full information can efficiency analysed. For instance, the raw material transferred to completed goods involved lots of costs, under it report, can be providing a useful and helpful data to analysis both the direct and indirect cost of manufacturing a product allowing the company to determine a price for the product to maximizing it’s profitable as well as created a short-term and long-term planning. Considered by Otley (1999) although there contained many benefits for the business to apply the management accounting tools, there still involved a potential threat especially ‘Adaptability’. While the management accounting procedures guidelines can be flexible to the range of corporation’s users, which can have incurred a trouble to compare between company to company that also possible confused managers with a different benchmarking.Based on my option, even though the management accounting cannot be working indecently without cost accounting.
I still believed and agreed on J&K perspectives as well as its tools provided a comprehensive data within quantitative and qualitative which can be greater understanding to managers.In conclusion, an efficiency develops management accounting system or cost accounting system both can be useful for development which able to fulfil the different requirement and demand for corporations. Moreover, both tools also contained merits and defects during invented it, therefore, corporation’s duty to consider carefully when choosing it. In the meanwhile, a labour process is a helpful tool for analysis the J article to deeper understanding .