Contemporary Management Accounting

Citation

Crombie, N. (2009), "Contemporary Management Accounting", Journal of Accounting & Organizational Change, Vol. 5 No. 1, pp. 117-120. https://doi.org/10.1108/18325910910932250

The Australian edition of Contemporary Management Accounting is an adaptation of the US edition of Cost Management: Measuring, Monitoring and Motivation Performance by Eldenburg and Wolcott (2005). However, the two texts are quite different in structure and content. There are 16 chapters in Contemporary Management Accounting covering “conventional cost and management accounting tools and practices with more recent developments in the discipline” (p. xiii). The authors have created a text that encourages readers – students and instructors – to think deeply about management accounting. The text illustrates that management accounting should provide relevant information to decision‐makers in any given organisational setting.

The text has been adapted for the Australian market with chapter scene‐setters that are by‐in‐large based on Australian organisations. The text is aimed at the introductory and intermediate levels. Students will respond positively to the text as it has been concisely written using everyday language. Instructors will find the text can be easily used as the basis for a management accounting course. Accompanying the text is a comprehensive range of instructor's resources including a solutions manual, an instructor's manual, test bank, and PowerPoint presentations. I have found these instructor's resources to be very useful and almost error‐free.

The structure of each chapter is quite similar to that of other intermediate management accounting texts. The first page of each chapter briefly describes its purpose and content including learning outcomes. Next a scene‐setter – usually one or two pages long – puts each chapter's topic in context and highlights issues for the reader to reflect upon as they study the chapter. The main body of each chapter describes, explains and illustrates the topic's most relevant concepts and theories. Often comprehensive examples are included in the chapters which illustrate how to analyse problems using both quantitative and qualitative techniques. The summary at the end of each chapter is concisely written and makes good use of diagrams. Finally, each chapter's exercise set includes self‐study problems with solutions, questions of a conceptual nature, and exercises and problems that vary in complexity and difficulty.

The foundations of management accounting are presented in Chapters 1, 2 and 3. A framework for management decision making, the role of management accounting, and value chain analysis are presented in Chapter 1. It is argued that the quality of management decisions is dependent on the quality of the information provided by management accountants. However, strategy – the cornerstone of managerial decision‐making – is explained superficially, and the link between strategy and management accounting is not explicitly discussed. Cost concepts such as cost behaviour and estimation techniques are presented in Chapter 2. Of particular note is that the assumptions and limitations of the cost estimation techniques are thoroughly scrutinised. A costing framework which explores cost objects, drivers and allocation is presented in Chapter 3. The costing framework is applied to a support department setting including the direct, step‐down and reciprocal methods.

While the typical management accounting text would present job‐order and process costing next, Contemporary Management Accounting is refreshingly different as modern costing and control systems are presented in Chapters 4 and 5. Activity analysis and management are introduced in Chapter 4 including activity‐based costing (ABC), implementation issues, and time‐driven ABC. While ABC is shown to be theoretically superior to conventional costing, the discussion of the pitfalls of ABC leaves the reader with a more balanced view. Chapter 5 explores the strategic management of costs and revenues including just‐in‐time, total quality management, theory of constraints, and pricing methods as well as kaizen, target and life cycle costing. The number of costing and control systems that are covered in this chapter overwhelms the reader. One chapter is simply not enough to adequately discuss all of these concepts. Thus, these costing and control systems are covered superficially with, for example, only one page dedicated to just‐in‐time.

The following five chapters are somewhat pedestrian in their presentation of traditional management accounting practices. Chapter 6 introduces cost‐volume‐profit analysis and discusses its assumptions and limitations. Traditional budgeting is covered in Chapter 7 including issues in performance evaluation and motivation. Alternative approaches to budgeting are also briefly described. Relevant costs for decision making such as non‐routine decisions and joint product cost allocation are discussed in Chapter 8. The importance of analysing qualitative factors when making decisions is emphasised. Investment decisions including discounting and non‐discounting methods of evaluation are presented in Chapter 9. Again, this chapter stresses that decision‐makers must consider both quantitative and qualitative factors, particular strategy. Chapter 10 describes standard costs and variance analysis including profit‐related variances and journal entries. This chapter lacked a discussion of the advantages and limitations of standard costing as a management control system.

The next two chapters are dedicated to performance management systems. Chapter 11 covers performance evaluation and compensation including agency theory, responsibility centres, performance measures (e.g. economic value added), compensation schemes and transfer pricing. While this chapter is quite interesting with agency theory steering the discussion, other theories of motivation such as goal‐setting, expectancy and self‐efficiency are not mentioned. Exemplifying contemporary management accounting, Chapter 12 presents strategy and the balanced scorecard, which includes strategy maps, steps in implementing a balanced scorecard, and discussion of its limitations. Of particular note is use of interesting examples from the health sector. However, strategy was not adequately examined in the chapter. The authors should have shown that different strategies (e.g. cost leadership and differentiation) require different performance measures.

Traditional cost accounting is relegated to the penultimate chapters. Job costing for financial reporting including T‐accounts and journal entries is covered in Chapter 13. Process costing for financial reporting including weighted average and FIFO methods, multiple production departments, and spoilage costs is presented in Chapter 14. Absorption, variable and throughput costing including uses and limitations are discussed in Chapter 15. The final chapter is dedicated to contemporary management accounting. Sustainability management accounting is presented in Chapter 16 and is thought‐provoking as the management accountant's role in promoting and achieving sustainability is discussed in light of economic, environmental and social goals. However, the views expressed with this chapter are more conventional than radical. At the end of the text, there are 16 articles – one for each chapter – selected from professional journals and business magazines. These articles provide the reader with greater insight into how management accounting tools and practices are used in organisations.

While the text is entitled Contemporary Management Accounting, the contemporary aspects of management accounting are confined to Chapters 4, 5, 12 and 16. The authors have certainly not produced an original or classic text, although the text is well‐written, easy‐to‐read, thoughtful and quite adequate for the typical intermediate management accounting course. The peculiar order of the text's chapters is refreshing as having a somewhat disjointed flow between chapters keeps the reader thinking. Many of the exercises and problems at the end of each chapter require students to think deeply and apply their knowledge. The instructor's resources allow for easy adoption of the text. Overall, the authors have produced a very good text on management accounting, but it is more traditional than contemporary.