Impairment test

T he changing role of the process of management accounting have great implications to the world of practice. Before that we should first look into the issue of its evolution. The industrial revolution in the early 19th century resulted in the emergence of a factory system that create a new demand for accounting information & this dramatically change the production process. Johnson & Kaplan suggest that emergence & rapid growth of railways in the mid-19th century was the major driving force in the development of management accounting system (MAS).

By 1920, sophisticated systems to record & analyze variances from standard had been implemented & articulated in the literature. In the early decades of the 20th century giant vertically integrated & multi-divisional organizations emerged out & it was that time when new management techniques like budgetary planning & control systems, ROI were devised to measure the success of the division & the entire organization.

The management accounting system in service organizations evolved at a later stage compare to manufacturing organizations. In a nutshell, we can summarize the evolution in the followings - 1880 - 1925 : Most of the product-costing & internal accounting procedures used in this century were developed 1925 : Emphasis of inventory costing for external reporting 1950s/60s : Effort to improve the managerial usefulness of traditional cost systems 1980s/90s : Significant efforts have been made to radically change the nature & practice of management accounting.

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Overall, these traditional management accounting practices such as cost variance analysis & profit-based performance measures, focus on concerns internal to the organization & are financially-oriented. In 1987, Johnson & Kaplan through the book "Relevance lost: The rise and fall of management accounting" concluded that the lack of management accounting innovation in recent decades & the failure to respond to its changing environment resulted in a situation in the mid 1980s where firms were using 30 year old management accounting systems that were obsolete & no longer relevant to today's competitive ; manufacturing environment.

Since the 1980s, the growth of privatization, deregulation, international businesses, global competition ; new information ; production technology has changed the world of management accounting. These changes have special implications for transitional ; newly industrialized or emerging economies. Consequently, this emergence ; need due to the rapid changes have emerged in the introduction of new management tools combining both financial ; non-financial information ; taking an explicit strategic focus. These are 'valued-based' management accounting methods ; take an explicit strategic focus such as just-in-time (JIT), flexible manufacturing systems (FMS), computer-integrated manufacture (CIM), total quality management (TQM), time-based management (TBM), business process re-engineering (BPR), while activity-based cost management (ABCM), life-cycle accounting (LCA), ; balanced scorecard (BSC) are examples of new MASs.

Future Management Accounting

On an organisational level, in future greater emphasis will be put on core competencies, emphasis on customer ; supplier relationships, downsizing, outsourcing, flatter organisational structures ; team work (Barbera, 1996a; Binnersley, 1997; Burns et al, 1999). Sharma (1998) claims that in the future, management accounting will develop in areas involving "a broad spectrum of cross-functional disciplines" such as:

Performance Management (eg developing key financial and non-financial indicators, Asset Management eg. managing a product through its life cycle,Business Control Management eg corporate governance and internal control frameworks, Environmental Management eg accounting for the environment, Financial Management ,eg activity based management, Intellectual Capital Management eg measuring and managing employee satisfaction,Information Management eg implementing and generating value from e-commerce and EDI, Quality Management eg implementing TQM within and organisation and managing quality improvements, and  Strategic Management eg value chain analysis for assessing competitive advantage.

Peter Booth in his article "The future of management accounting" states that "The area of greatest changes in the management accounting discipline will be the types of practices and their underlying normative framework(s) that form 'management accounting' in the next millennium." He has given some directions which are: The accounting quantitative base of current management accounting will merge with other general management control issues ; knowledge. The focus of this management control discipline will be more on facilitating managements' actions rather than the controlling & evaluating of them that is the present focus. The more knowledge work that involves creativity in the use of information systems will still be done within the firm.  The new 'management control' discipline will be based around a new customer-focused framework (Armitage et al., 1994).

A generic framework for looking at the value of what a firm does, relative to others, which is independent of how a firm is actually structured ( Under a value chain orientation, the key performance metrics will be those that link & coordinate activities as to how value is to be delivered to customers under the firm's strategy. Under a customer-focused value chain framework, the focus of the new MAS will be on supporting continuous improvement ; process re-engineering. The customer focused framework is the types of measurement systems which will put greater emphasis on non-financial information.

Today's environment is characterized as dynamic, uncertain, competitive, turbulent, information and technology based, globalized. In such a situation, the need of Management Accounting has grown in proportion to the management technique developments. So, future emphasis of Management Accounting will be very much on the areas which are non-traditional and these can be categorized in the following broad areas - Creativity, Quality, Value Creation, Employee Skill, Technical Know-How, Team Work, Non-Financial Information, Activity, Customer Relation, Information Management.

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