Introduction to Management Accounting System (MAS)Management Accounting System (MAS)is a broad system which assists management in decision making and it is veryvital to all industries nowadays for them to survive through the competitivecircumstances. MAS comprise a lot of components such as inventory managementsystem, environmental management system, risk management system and so forth.As per the case of Top Glove CorporationBerhad (TG), (Topglove.
com, 2017) few systems are applied such as EnvironmentalManagement System (EMS), Risk Management System and Management Control System(MCS) Environmental Management System (EMS) EMS is a system used by organization to be more environmental friendly and in the same time to increase its efficiency in operation. TG applies this system in order to produce great quality gloves with low efficiency cost and keep healthy environment (Topglove.com, 2017). This had cause TG to be the largest glove manufacturer in the world with the famous in good quality gloves Risk Management System TG also implements risk management system.
Risk management system is mainly used for assisting companies to access and identify the level of risk occurred. TG frequently faced inherent risk factors mainly arising from the business operation. By applying this system, this enables TG to differentiate the risks arise base on the level such as extreme, high, medium or low risk (Topglove.
com, 2017). A matrix called “Possibility of Occurrence” is associated with the rating in order to help the management to access the monetary and non-monetary consequences of the risks and considered about the measures to be taken to reduce the effect of risks to the company (Topglove.com, 2017). This could be one of the main reasons why TG could survive for 26 years in the rubber glove industry. Management Control System (MCS) MCS is a system used to collect and apply information to gauge the performances of organizational resources as well as resource allocation. It affects the manner of usage of organizational resources and implementation organizational strategies. The application in MCS can be found in TG through the water management and the wastage management (Topglove.com, 2017).
In the case of water management, TG had successfully decreased the consumption of water by 11.7 % between year 2016 and 2017 (Topglove.com, 2017). This is due to the effort to recognise and minimise the water wastage in the production line and optimise the use of water through automated water level control system at the production water tanks. In the case of waste management, TG focuses on the control of manufacturing waste in line with the concentration on cost efficiency (Topglove.com, 2017). In all the factories of TG, methods to allocate the waste and minimise the effects to the nature is applied.
Besides, TG places better efforts in practicing tracing and controlling waste to guarantee disclosure of data of the operation (Topglove.com, 2017). Benefits of ManagementAccounting System (MAS) to Company Asmentioned in the part of “Introduction to MAS”, MAS is really essential to allindustries, it brings a lot of gains to the entities in order to survive in theintensive competitive market and even to be success. A company can be consideras success not only when the company able to surpass from its competitors butalso have the ability to survive in the highly competitive business environmentand also regardless the economic condition especially during recession orinflation. Firstof all, the management accounting system enhances the management team to make amore informed decision. It concerns on both qualitative and quantitativeinformation and thus enable the managers to generate a more detailed reportwhich is essential in the planning process as well as the decision-makingprocess.
In the process of formulating the plan, the managerial accountinginformation is more forward-looking and all the relevant information regardedwill affect the future organization are taking into consideration. By doing this,the manager able to forecast all the possible outcomes with their correspondingrisk as well as the opportunity cost of the option. Besides, managementaccountant is proactively taking part in the management team to carry out a lotof what-if scenarios, profitability analyses and risk assessment before anydecision is taken.
For example, a company needs to buy a factory foroperational motive, the management accounting system may assist the owner ofcompany to purchase it and prevent debt increases. Onthe other hand, the management accounting system is significant to facilitatethe managers in implementing and controlling the plan. During theimplementation process, the management accounting system supply both financialand non-financial information to the managers which prevent theshortsightedness and lead to cost efficiency. Through having a big picture ofthe implementation, the routine process can be improved and become moreeffective. Whereas in controlling the plan, the actual costs incurred are comparedwith the budgeted cost.
The necessary correcting action is taken in order toadjust the deviation of activity and meet the organization’s objectives.Meanwhile, the management accounting system has an attention-directingfunction. It might not solve the problem arise, but it draws the attention ofmanagement team to the potential problem areas and framing the problem.
Bydoing so, the management team can address the potential issue before it bringsany harmful effect to the organization. Besidesthat, management accounting system can enhance the efficiency of the overallorganization by motivating the managers and other employees to approach towardsthe organization’s goal. The management accounting encourages the managers tohave a good communication line with the employees in order to keep theminformed about the organization’s goal. One of the ways to motivate employeesto devote their efforts to the organization is through providing a challenge ortarget. By setting a target, the employees have an initiative to improve theirworking performance. Therefore, the quality of goods and services can beimproved and the efficiency of human resource can be achieved. Besides, theconcept of employee empowerment also plays a critical role to enable employeesto strive their best in their work position.
The on-the-job employee might bethe one who is most clear about the weakness and strength of his routineworking process. Thus, the employee empowerment may lead to the reduction ofcosts wasted and the effective working process. Inaddition, management accounting system can be used to improve the performanceof employees and organization. Through establishing a rewarding system, theemployees are motivated to maximize the value of the organization. The managementaccounting system would save the target sales or production and record theoutput of employees in order to appraisal the performance of employees. Oncethe employees hit the target or accomplished the task, the managers wouldreward them the positive feedback, chance to get promotion or paying themhigher salary. Different management levels are evaluated on the different basissuch as the salespersons should be measured based on their number of sales madewhereas the manufacturing employees should be evaluated based on their thequantity of the product produced. Otherwise, the management accounting systemcan be used to act as a mean to evaluate the performance of the organization’ssubunits such as departments, divisions and product lines.
The managers of thesubunit are encouraged to strive their highest possible effort to achieve thetarget in line with the organization’s goal. It highlights to the manager thearea of successful operation and area needs improvement. The performanceevaluation report also helps the top management to identify whether a subunitis a feasible economic investment or an idle and cost-wasting investment.
Furthermore,as all we know, the advanced technology leads to the rapid spread of idea andthe changing of the business environment which become more and more boundlessand competitive. Therefore, the continuous improvement is vital for the eachorganization to promote the improvement in quality of goods and services andthe effectiveness of processes and systems. The management accounting systemplays a crucial role to make sure the competitiveness of an organization inlong-run. It acts as a benchmark to measure the ability of the organization tocompete with others and flexibility of the organization against the changing businessenvironment. By using the balanced scorecard, the performance of theorganization can be assessed based on the internal control system, flexibilityto cater the changing needs of customer as well as the innovative andcontinuously learning operation.Next, the application of MAS atnational level suffers, mostly deserved due to the lack of professionals in thefield and also the lack of an appropriate managerial vision(Seaopenresearch.eu, 2017). The advanced of managerial accounting barely manageto enter the Romanian environment and tend to be considered with theunwillingness.
The economic, political, legal and fiscal contexts represent thebona fide of encouragement to adopt practices that are contrary to the conceptof real performance (Seaopenresearch.eu, 2017). The reason for a company tobecome successful is because of the enforcing of authority (Seaopenresearch.eu,2017). It can be said that it was a tradition in the organization of managerialaccounting systems (Seaopenresearch.eu, 2017).
However, it only applies to theknowledge and abilities of multinational companies which can able to enforcethe Romanian practice to act within the limits of how powerful the managerialaccounting systems are. In fact, the migrate of immediate liquidities that areobtained by any mean ruin any intention of efficient functioning of amanagerial accounting system. Approach that used by the survival had completelymisrepresent the quality and relevance of accounting information.
Therefore,the force of implementation had cause the vulnerabilities exploitation in theadopted systems and also creates an image of functionality beyond reproach.Besides that, the managerialbehavior will also influence the managerial practices, as evidenced in thenational context (Seaopenresearch.eu, 2017). Management decisions can establishthe form which been given to the accounting information in compliance withcertain objectives. The managerial approach which counted to be wrong is due tothe reoriented on a very short-term which involves variation in the productionof accounting information. The national principle that can be found is”tomorrow is another day” which sincerely brings overwhelming for themanagerial accounting tools (Seaopenresearch.eu, 2017).
In order to preventthis matter to happen again, the tendency to invent and use of creativeaccounting techniques in a poisonous matter becomes a must for Romanianmanagers, who tend to transform it into a common practice. And lastly, the cashflow route will also impose to the form of the accounting information and alsoperformance level.Moreover, the results applying MASshould not be recognized independently from the organizational and managerialcontext (Seaopenresearch.eu, 2017). New skill should be link up with theinterdependence of all organizational process and informational revolutionbetween managerial accounting and managers at all levels (Seaopenresearch.eu,2017).
The transition to a new aspect regarding production accompanied by theequivalent accounting challenges. This does not mean that all organizationalissue will find their solution. There is no turning back once the changesapplied. Somehow, no tool or method can be overrated in any kind of perception.
The organizational and managerial context plays a radical role in the change ofprocess and also the subsequent application of MAS. On the other hand, thetransition process should be gently and attentively being formed.In addition, the adoption of modernMAS has an extensive effect in all organizational structures.
But, managerialaccounting yet not able to reach the stage in which the financial interferenceof an organizational “earthquake” of this kind can be examined. Allorganizations develop in time at certain particular characteristics that becomenecessity for their operation. The implementation of new managerial systems,otherwise considered to be compulsory, cannot solve the difficulties caused bythe reaction of the human factor and by the specific racial type. These problemsbecome fundamental aspect that can regulate the failure or even success of theimplementation, regardless of the benefits offered by the new system.Lastly, applying MAS can means agreat effort to promote change, this involved the purpose for change, goal forapplying changes and the tactic, creative respond. One MAS is applied it willalso attract the occurrence of creative accounting nature, especially whencrisis time. As such, MAS presented most relevant sets of information whichenables managers to differentiate the effectiveness of various techniques,degree of questionable, level of legal methods used to enhance the financialstatement presentation.
As the financial presentation gave a good picture, itmay leads to better credit ratings of the company. When a company have a greatcredit ratings, it may cause the lift of level of creditworthiness whichenables company get bank loans easier. Meanwhile, more potential investors willbe lesser reluctant to invest their money in the company. So, the company willhave high level of capital and leads them going concern from liquidation andhave a greater share price which may even let a company to stands out in themarket. Criticismsof Traditional Budgeting Solutions for the Criticismsof Traditional Budgeting Criticism 1: Complicated process consuming times Flexible ways to reach goals Managers can give greater flexibility in how they achieve their targets. For example, top management may agree to specific goals with the managers and the managers to achieve their goals in their own way by given authority. No detailed budgets are required and focusing on managers who achieve their overall targets.
Continuous or rolling budget Another alternative is to reduce the time of budget planning by executing a continuous or rolling budget. CIMA Official Terminology defines rolling budgets as plans or budgets which are kept continuously updated by adding a further accounting period during the earliest accounting period has expired (Walker, 2008). The continuous budgeting concept usually applied to a twelve-month budget, so there is always a complete annual budget. It also can be applied to monthly budget or quarterly budget. If a company elects to use continuous budgeting for a shorter period of time, such as three months, its ability to create a high-quality budget will be greatly enhanced. Sales forecasts tend to be much more accurate over periods of just a few months, so the budget can be revised according to the likely estimates of the company activity (Bragg and Bragg, 2017). It also forces management to reassess the budget regularly and to produce budgets which are more up to date (Kfknowledgebank.kaplan.
co.uk, 2017). Decimal’s Budgeting Software The Decimal’s Budgeting Software has been developed as budgeting approach to improve this criticism and budgeting process. Processes of Decimal’s Budgeting Software are accelerated by automatic data consolidation in a centralized database which provides simultaneous access to multiple users (Decimal.
ca, 2017). It enables all managers and authorized users to enter budget data directly while keeping track of changes made. Decimal’s Budgeting Software provides users the ability to prepare, manage, track and control their budgets, forecasts, projections and scenarios. Decimal Suite features can efficiently manage your budget, excluding possible budgeting pitfalls as planning errors, losing expertise when employee leaves, unable to monitor cost reduction initiatives, to monitor variances or to provide relevant and timely information (Decimal.ca, 2017). For example, ” The Decimal’ budgeting software enabled the Retraite Québec (company) to reduce by half the time required to prepare the budgets”. Criticism 2: Major focus on temporary financial measurement Participative budgeting This could be overcome by placing more stress on manager’s long-term performance and adopting a profit-focused budget assessment, while also placing more emphasis on participative budgeting. In addition, attention should also be given to expanding the performance measurement system and focusing on areas of key outcomes for short-term and long-term considerations.
In particular, the balanced scorecard approach can be adopted. The balanced scorecard is a strategic planning and management system used to align business activities with the organization’s vision statement. The Balanced Scorecard (BSC) was originally developed by Dr. Robert Kaplan of Harvard University and Dr.
David Norton as a framework for measuring organizational performance using a more BALANCED set of performance measures (Balancedscorecard.org, 2017). Traditionally companies used only short-term financial performance as a measure of success. The “balanced scorecard” added additional non-financial strategic measures to the mix in order to better focus on long-term success. The system has evolved over the years and is now considered to be a complete integrated strategic management system (Balancedscorecard.org, 2017). If the Balanced Scorecard system is implemented, company-wide should be the key to the successful implementation of the strategic plan/vision (Businessballs.com, 2017).
The result of the Balanced Scorecard should be: · Improved processes · Motivated/educated employees · Enhanced information systems · Greater customer satisfaction · Increased financial usage · Monitored progress Criticism 3: Lack of motivation of managers Participative budgeting Participative budgeting is a great motivational tool because people who participate in it may work harder to achieve their budgeting goals, cooperation is facilitated and more realistic budgeting figures are obtained. Wisegeek (2012) define Participative Budgeting as a budgetary process that involves the active participation of a wider range of employees in the process of creating a workable budget for a department or even an entire company. This is also known as “bottom-up budgeting”. This contrasts with imposed or top-down budgets where the ultimate budget holder who has no chance to participate in the budgeting process. With a participative budget, employees of the company structure are invited to provide input into the assessment of the company’s needs for an upcoming budgetary period.
Working within guidelines designed by company management, those employees consider various line items and decide how to allocate funds to improve the company’s opportunities for growth. In many instances, this approach has the benefit of identifying possible strategies that employees who are directly involved in the day to day operation of a particular area of the company can use it to determine the allocations that ultimately save money and help that area to function with a greater degree of efficiency(wiseGEEK, 2017) . Agro Success Berhad is a case study company used a bottom-up or participative budgeting. Changes in rewards and punishment system Besides that, the rewards and punishment system must be changed so that it is linked to a series of performance criteria rather than being controlled by the performance of short-term financial budgets. Consideration could also be given to changing the reward system from focusing on responsibility centre performance to a rewards based on the company’s overall performance. Criticism 4: Concern on inflexible formal organizational structure Dynamic budget The dynamic budget can overcomes the criticism of fixed budget which emphasizing a rigid formal organization structure. This is because the dynamic budget can be recast on the basis of activity level to be achieved. Thus it is not rigid and is a flexible budget.
According to CIMA, “a dynamic budget is defined as a budget which, by recognizing the difference between fixed, semi-variable and variable costs is designed to change in relation to the level of activity attained”. Dynamic budgeting can be used to more easily update the budget for which revenue or other activity data has not yet been finalized. Under this approach, managers will approve all fixed expenses and variable expenses as a part of income or other activity measures. Then the budgeting staff completes the remainder of the budget, which flows through the formulas in the flexible budget and automatically alters expenditure levels.
This approach can improve the efficiency of the budgeting process, especially when the management team is working through a large number of iterations.