In the nineteenth century, many publications began to identify the constraints of traditional management accounting practices. The primary drawback of conventional practices was that it was unable to meet the competitive environment’s requirement. Secondly, conventional product costing systems provided false information leading to poor business decisions. Thirdly, the conventional methods followed the financial accounting requirement rather than addressing every business perspective. Lastly, the major emphasis in traditional management accounting practices was given to the internal environment, and the external environment was not taken into consideration. To cater to these criticisms, management accounting was updated, and new management accounting practices emerged.
The new management accounting techniques have increased the extent of casual variability factors, the descriptive objects, and the period analysis. The innovation brought by contemporary management accounting practices has influenced organizational applications. It delivers accurate, appropriate, and highly relevant information within a suitable period that tackles traditional management accounting practices’ key deficiencies. Major contemporary management accounting methods include:
- Total quality management
- Value-based management
- Activity-Based Management
- Balance scorecard
- Non-financial performance measures
- Strategic management Accounting
The innovation brought by implementing modern management accounting practices has driven away from the old concepts of internal and formal financial information and replaced it with informal and external non-financial information. These management accounting practices are used around the world. The contemporary management accounting practices have also changed the role of accountants; they do not have a narrow role but are more actively participating in the formulation and implementation of business strategies. Moreover, the change brought by modern techniques in the analysis, reporting, and collection has transformed the role of accountants into non-financial line managers.
The implementation of modern management accounting practices has brought huge modifications in business practices. New management accounting techniques are also developed; moreover, some traditional management accounting techniques are updated and modified in modern management accounting to cater to modern business activities requirements. Contemporary management accounting techniques can be implemented in various segments of the company as they deal with all the domains of management accounting, including strategic management, performance management, asset management, and financial management.
Evolving Business Environment
Modern organizations are continuously growing and modifying their business practices. To cater to customer satisfaction and fulfill customer needs, companies produce more than one product with distinguishing qualities. Each product is unique from others and fulfills a unique customer base. To compete, companies are rigorously working towards innovative products to increase their customer base. As a result, they deliver several products at one time and use innovative technologies to reduce cost and increase their performance.
Emphasis on Modern Technology
Modern organizations in this rising business environment are more focused on using technology rather than increasing manpower. The increase in modern machinery and technology has led to the automation of most business activities, which require less labor.
Cost of Implementation
Many modern management accounting techniques, such as beyond budgeting, balanced scorecard target costing, etc., are extremely expensive to implement. Consequently, it makes most organizations reluctant to change their management practices.
Organizational Culture
The organizational culture of any business plays an imperative role in its operations and activities. Risk-averse managers often become a hindrance in the application of new management accounting practices. They are less motivated to switch from traditional practices to modern practices that may negatively affect the project’s beginning.
Lack of Technological Expertise
Organizations in developing and under-developed countries usually have low-income workers and laborers. Implementing modern management accounting techniques in those companies is challenging because the labor force lacks awareness and expertise in technology.
Learning Curve
Whenever a new policy or practice is employed in an organization, it takes time to utilize or implement that system fully. It requires training of employees and workers associated with that project, and there is a constant risk of mistakes in the beginning. Management considering implementing any modern management accounting technique often shows concerns regarding its employees’ learning curve and the associated costs of waste, time, and training.
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