Traditional Management Accounting -- Opposing

Traditional Management Accounting -- Opposing Views

The past decades have seen tremendous changes within the business community, some referring to a grater focus on the satisfaction of the customer, the training of the human resource or the creation of more value to the stakeholders. Just as these changes became more prominent, managers saw the need for evolving accounting techniques. Today, most organizational leaders use a combination of traditional and modern tools, but the dispute on the superiority and efficiency of one of the two categories has yet to be settled. The main difference between traditional and modern accounting systems is that the first is largely focused on pegging all costs to the final products, whilst the more modern approaches place less emphasis on this technique. In this context then, two sets of opinions are emergent. The first sees that the traditional management accounting techniques, largely cost accounting techniques, are no longer relevant in today's business community. The second opinion on the other hand, strives to explain that the traditional systems are still useful, but more consideration must be given to the pegging of costs to the final service, not just the product. This view seems extremely relevant given the major switch from manufacturing to services. Within the United States for instance, services play a crucial role in the national economy, accounting for 79.2% of the total national revenues (in the composition of the gross domestic product) and employing nearly 77% of the overall labor force (Central Intelligence Agency, 2009).

It can be mentioned that both arguments are based on solid reasons, and while it is true that traditional accounting many not apply to the contemporaneous business sectors, some alterations in the initial perceptions could be made, and these would further increase the relevance of traditional systems. For decades now, traditional management accounting has focused on ensuring that everybody worked and all machines were utilized at full capacity. Today's managers however, are not interested in these features, but focus on issues such as increased operational efficiency or stakeholder satisfaction. The traditional system could be modified to address these new needs, and as the second view holds, could be adapted to more faithfully reveal costs in services, but the efforts in this direction would be intense. Yet, success would be reached as the system would be better able to account for the intangible assets within a corporation and link them to the final costs of the service. This view argues that despite its recognized reduced applicability in today's business community, traditional management accounting systems enjoy the benefit of vast expertise and advantages which have been consolidated across time. Therefore, their elimination would have a negative impact and the most desirable course of action would be that of a readjustment of the system to meet the new and continually emerging needs (Financial Executive, 2002).

The next proposition that is being then forwarded revolves however around the idea that it would be even more efficient to replace the traditional systems altogether, rather than spend additional time and efforts to repair the old one. The traditional techniques of management accounting, despite their past benefits, are nowadays less applicable. And not only that they are less relevant, but they also represent impediments in conducting a proper business operation. "Traditional methods of accounting and measurement quickly can become a hindrance -- they measure the wrong things. Rather than focusing our efforts on measuring those things that our customers care about, we rely on traditional and complex accounting measures that are long on variance reports and short on measures that drive the business" (Niedenthal, 2001).