The effects of perceived business uncertainty, external consultants and risk management on organisational outcomes

Purpose – The purpose of this paper is to investigate the relations between perceived business uncertainty (PBU), use of external risk management (RM) consultants, formalisation of RM, magnitude of RM methods and perceived organisational outcomes.
Design/methodology/approach – This paper is based on a questionnaire survey of members of the Chartered Institute of Management Accountants in the UK. Using AMOS 17.0, the paper tests the strength of the direct and indirect effects among the variables and explores the fit of the overall path model.
Findings – The results indicate significant and positive associations exist between the extent of PBU and the level ofRMformalisation, as well as between the level ofRMformalisation and the magnitude of RMmethods adopted. The use of externalRMconsultants is also found to have a significant and positive impact on the magnitude of RM methods adopted. Finally, both the extent of RM formalisation and the magnitude of RM methods adopted are seen to be significantly associated with overall improvement in organisational outcomes.
Research limitations/implications – The study uses perceptual measures of the level of business uncertainty, usage of RM and organisational outcomes. Further, the respondents are members of a management accounting professional body and the views of other managers, such as risk managers, who are also important to the governance process are not incorporated.
Originality/value – This study provides empirical evidence on the impact ofRMdesign and usage on improvements in organisational outcomes. It contributes to the RM literature where empirical research is needed in order to be comparable with the traditional management control system literature.

An era of governance through performance management - New Labour's National Health Service from 1999 to 2010

In 1997, the New Labour government inherited a ‘crisis’ in the UK National Health Service from the outgoing Conservative government. To address this perceived crisis, New Labour offered investment and, contrary to expectations, further neo-liberal health service reforms. In particular, the government extended the scope of performance management beyond financial numbers to encompass all aspects of managerial and organisational performance. Drawing on an analytics of government framework, this paper demonstrates how reforms were framed and given meaning through a framework of hierarchical accountability and centralised control. These panoptical arrangements relied on performance-management technologies of targets and ratings, which were linked to patient choice and a prospective funding system called ‘Payment by Results’. In turn, these top-down technologies disciplined knowledge, identity, and visibility and control of practice.

Chalk and cheese: Grounded theory case studies of the introduction and usage of activity-based information in two British banks

During the conduct of a research project into influences on the use of management accounting information, the use of activity-based techniques and information in two British banks was studied by the application of grounded theory principles. Juxtaposition of these two case studies reveals insights about the managers' significantly different experiences of ongoing applications, and the different outcomes of implementation that may arise, despite commonality in the organization and industry environment. This paper presents these two case studies, highlights the similarities and differences between them, and draws some conclusions about the causes of the differences. Factors that can be managed to achieve a greater use of these particular management accounting techniques, and the information they generate, are revealed. In particular, the findings suggest that the introduction of transfer charging between the bank's internal units highlights the need for activity-based techniques, and that education, communication and implementor support are vital, both for implementation success and for the widespread continuing use of the resultant applications. Further, between the two cases the greatest consensus was found in a common concern about the amount of detail in the databank and reports.

Managers' trust, reliance on control mechanisms and performance of subordinates

Many organisational scholars claim that interpersonal trust between managers and subordinates will bring about a number of positive organisational outcomes including enhanced job performance in subordinates. Recent management accounting literature implies that the trust's positive effect on performance is achieved by using trust-based controls such as 'social control'. While the former indicates a direct positive relationship between trust and performance, the latter indicates an indirect positive relationship between trust and performance through controls. Whether the trust's relationship with performance is direct or indirect is particularly important issue for management accountants because of the possible implications of the nature of the relationship for the design and exercise of management control in organisations.

Evaluating the efficiencies of university faculties : adjusted data envelopment analysis

Efficiency measurement is at the heart of most management accounting functions. Data envelopment analysis (DEA) is a linear programming technique used to measure relative efficiency of organisational units referred in DEA literature as decision making units (DMUs). Universities are complex organisations involving multiple inputs and outputs (Abbott & Doucouliagos, 2008). There is no agreement in identifying and measuring the inputs and outputs of higher education institutes (Avkiran, 2001). Hence, accurate efficiency measurement in such complex institutes needs rigorous research.

Prior DEA studies have investigated the application of the technique at university (Avkiran, 2001; Abbott & Doucouliagos, 2003; Abbott & Doucouliagos, 2008) or department/school (Beasley, 1990; Sinuany-Stern, Mehrez & Barboy, 1994) levels. The organisational unit that has control and hence the responsibility over inputs and outputs is the most appropriate decision making unit (DMU) for DEA to provide useful managerial information. In the current study, DEA has been applied at faculty level for two reasons. First, in the case university, as with most other universities, inputs and outputs are more accurately identified with faculties than departments/schools. Second, efficiency results at university level are highly aggregated and do not provide detail managerial information.

Prior DEA time series studies have used input and output cost and income data without adjusting for changes in time value of money. This study examines the effects of adjusting financial data for changes in dollar values without proportional changes in the quantity of the inputs and the outputs. The study is carried out mainly from management accounting perspective. It is mainly focused on the use of the DEA efficiency information for managerial decision purposes. It is not intended to contribute to the theoretical development of the linear programming model. It takes the view that one does not need to be a mechanic to be a good car driver.

The results suggest that adjusting financial input and output data in time series analysis change efficiency values, rankings, reference set as well as projection amounts. The findings also suggest that the case University could have saved close to $10 million per year if all faculties had operated efficiently. However, it is also recognised that quantitative performance measures have their own limitations and should be used cautiously.

A note on work-related values, budget emphasis and managers’ organisational commitment

Managers’ work-related values (WRVs) have important implications for designing appropriate management accounting systems (MAS) in organisations. This paper examines the effect of the interaction between managers’ WRV for innovation and budget emphasis (an integral part of MAS) on their organisational commitment. The sample consisted of 109 managers from production, marketing and support departments within Australian manufacturing firms. Hypotheses were tested using both quantitative and qualitative data collected by a questionnaire survey and post-survey interviews. The results indicate that the adoption of low budget emphasis led to high organisational commitment when managers’ WRV for innovation was high, but not when managers’ WRV for innovation was low. The results also indicate that marketing managers held higher WRV for innovation than production managers. The post-survey interviews provide further insight into how a more customer- and competitor-focused subculture of marketing managers and a more technical- and efficiency-focused subculture of production managers may promote the difference in their WRV for innovation, and affect their attitudes towards budget emphasis. The findings of the study have implications for design of performance evaluation systems for managers in functionally differentiated organisations.

Risk management and ethical environment : effects on internal audit and accounting control procedures

This study examines the impact of the scope of risk management and ethical environment on internal audit activities and the quality of accounting control procedures (ACPQ). The conceptual framework for the study is guided by COSO’s frameworks on internal controls and enterprise risk management and data from a questionnaire survey of 64 Australian firms are analysed using a structural equation model. The results of the study support that (1) internal audit activities have a significant intervening effect on the relationship between the scope of risk management and ACPQ, and (2) a direct and positive relationship exists between ethical environment and ACPQ. Our findings suggest that widening the scope of risk management activities do not directly improve ACPQ, but that it leads to more extensive internal audit activities and in turn such activities promote better ACPQ. Further, the results indicate that fostering a more ethical environment directly leads to higher ACPQ. These results have implications for the design of internal controls, namely with respect to the role of internal audit activities and ethical environment in enhancing ACPQ.

Does the change of accounting regulation on employee share options give rise to greater scope for earnings management?

Purpose – The purpose of this paper is to address the concern about the impact of accounting regulatory change pertaining to employee share options (ESOs) on earnings management. Following Australia’s adoption of International Financial Reporting Standards (IFRS) in 2005, companies are required to recognise the fair value of ESOs as expenses. Due to inherent imprecision in the estimate of ESO’s fair value, the regulatory change from disclosure to recognition was widely claimed to potentially give rise to an alternative mechanism to manage earnings. This study provides empirical evidence on whether the regulatory change leads to earnings management problems.

Design/methodology/approach – This study uses the regulatory change in accounting for ESOs to provide a direct test of earnings management between disclosed versus recognised regimes for the same sample of firms. The sample consists of Australian firms from S&P/ASX300 for the period from 2003 to 2006.

Findings – The results show that, although the accounting regulatory change from disclosure to recognition may provide an alternative earnings management vehicle, there is no evidence of this occurring. There could be several reasons for this finding. First, the statistical tests lack power. Second, there are stricter audit tests on recognised amounts than on disclosed amounts. Third, given the concern of excessive pay and the close scrutiny of compensation, managers may have already understated ESO values in the disclosure regime. Finally, managers have limited time and resources and the effort involved in the adoption of IFRS in 2005 could have restricted the time available to manage earnings via the ESO reporting channel.

Originality/value – This study adds to the limited research on whether a change in accounting regulation for employee share options from disclosure to recognition gives rise to greater scope for earnings management. One reason for the lack of empirical evidence in the research is due to the problem of designing a test. Bernard and Schipper suggest that within-firm studies have limitations for comparing the effects of recognition versus disclosure when the change is driven by an estimate becoming more reliable. A cross-sectional study is also problematic due to self-selection bias if firms can choose between disclosure versus recognition. This study circumvents potential design problems raised by Bernard and Schipper by setting a test using regulatory change which allows the test to be compared directly using the same company.

Nature, extent and antecedents of risk management in accounting, law and biotechnology firms in Australia

This paper provides empirical evidence on the nature and the extent of risks faced by small and medium-sized biotechnology and professional service firms (accounting and law) in Australia, as well as on the style of their adopted risk management methods and approaches. The findings of the study indicate that the top three risks faced by these firms are related to reputation, recruiting and retaining skilled staff, and cost management. The study also finds that more than half of the respondent firms manage risk in an integrated manner. The results of this study provide useful insights into the nature, extent and driving forces of risk management practices in these firms.

The role of internal audit in corporate governance and management

This research report is based on a study undertaken in Australia, and aims to evaluate the role of internal audit in corporate governance and management. It identifies the accountability structures and objectives of internal audit, considers the nature of internal audit functions and the extent of application of The Institute of Internal Auditors Standards of Professional Practice, reviews the relationships of the chief audit executives (CAEs) and assesses the nature of financial report risks and other issues covered by internal auditors. The research findings include a diversity of accountability structures for CAEs and a range of internal audit activities, with the application of the IIA Standards being in need of improvement. In conclusion, the researchers make recommendations for improvements in practice to be considered by The Institute of Internal Auditors and other regulating and governing bodies.

Integrated management system:the experiences of three Australian organisations

Purpose – Management systems and standards have become a key part of the organisation's lifeline and a prerequisite for survival in the twenty-first century. Systems for quality environmental and occupational health and safety (OHS) now form the three main pillars of the organisation, the fourth one being financial accounting. In light of the increasing pressure and demands from different stakeholders, it is becoming necessary for organisations to adopt the different systems/standards. However, to achieve the benefits from the implementation and subsequently maintenance of these systems it is only a practical and logical step that the existing management systems/standards be integrated into a single system.

Design/methodology/approach – This paper presents the experiences of three Australian-based organisations that have successfully undertaken the integration of their management systems/standards. Data for this paper were collected through in-depth interviews conducted with the managers responsible for quality, environment and OHS systems.

Findings – The interviews revealed a number of quantifiable and unquantifiable benefits experienced by the companies from operating one integrated system, such as saving of dollars, better utilisation of resources and improved communication across the organisation, to name a few. However, for the benefits to be realized it is essential that organisations are aware of the challenges and obstacles accompanying integration of systems/standards. If these challenges are not addressed early in the process they can delay the completion of the integration process.

Originality/value – Recommendations for other organisations contemplating integrating their management system include: obtaining commitment from the top management; having adequate resources to integrate the systems; having communication and training across the organisation in aspects of integration; and, last but not the least, having integrated audits. Implementation of these recommendations may vary from one organisation to another; however, it would result in lesser resistance for the organisations following them.

Sustainable development and environmental accounting: the challenge to the economics and accounting profession

Purpose – The purpose of this paper is to examine the role of natural resources accounting in sustainable development. Natural resource accounting is important because the welfare of a nation measured in terms of gross domestic product (GDP) has several weaknesses. Design/methodology/approach – This paper achieves this objective by identifying the present status, the constraints and the challenges for the economics and accounting professions. Findings – The main weakness of GDP as a measure of development is that it does not take into account damages to environmental resources. However, the improvement of the concept to include environmental resource use is made difficult because of the difficulties of measuring environmental damage. The challenge to the economics and accounting profession is to ensure interdisciplinary collaboration, development of a framework to explicitly include the environment, development of credible valuation procedures for the environment, and inclusion of the various ethical positions advanced by various groups on the value of the environment. Practical implications – Some headway has been made on these issues during the last decade but a major challenge still lies ahead in further improving these approaches so that sustainable development becomes an achievable goal. Originality/value – This paper brings together diverse views and fusing them together providing a future path for research in environmental accounting to achieve sustainable development.