Development and Usefulness of Management Accounting Practices and Balance Scorecard

This report evaluates the development and usefulness of management accounting practices and balance scorecard. It discusses the factors that contributed to the development of management accounting practices and the usefulness of balance scorecard in strategic planning.

Running head: ACC203 MANAGEMENT ACCOUNTING
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ACC203 Management Accounting
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Introduction
Management accounting provides a wide range of opportunities for organizations to
compete within the market to be in a position to give best quality services and products at
affordable amount to the clients (Oyerogba 2015). Organizations utilize management
accounting in assessing their main operations. These include breakeven analysis, variance
analysis and budgeting. In fact, management accounting practice assists organizations in
planning, controlling and directing operating costs and accomplishing profitability. Kamal
(2015) argued that management accounting practices are usually important in the success of a
given firm. It is the application of suitable concepts and approaches in processing projected
and historical economic information of an organization to help the management in setting up
the plan for reasonable goals and in making of some rational decisions with the view of
accomplishing such goals (Gichaaga 2014). Besides, management accounting practices
assists organizations to survive the competitive environment, since it offers significant
competitive advantage for the firms which provide guideline to the managerial actions,
supports, motivates behaviours as well as create cultural values crucial in accomplishing the
firm’s strategic goals. In other words, management accounting practices offer relevant
information from the environment to the management in facilitating the decision-making
process (Oyerogba 2015). Management accounting practices comprises of preparation of the
financial reports for the non-management bodies such as creditors, tax authorities,
shareholders and regulatory agencies (Ahmad & Mohamed Zabri 2015). The general aim of
this report is to assess some of the aspects that contributed to development of the
management accounting practices. The report also evaluates the usefulness of the balance
scorecard.
Factors resulting in development of the management accounting practice

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Development of the management accounting practices has been attributed to a number
of factors. These factors can be grouped into either external or internal.
External Factors
A company cannot decide to reflect objectives and motivations. It has to comply with
constraints imposed or set by its relationship with a specific environment. Therefore,
unpredictability of environment is one of the external factors that might have contributed to
development of the management accounting practices. Basically, environmental uncertainty
is the chief contingent aspects assessed for its impacts on design of the management
accounting practices. According to Kamal (2015), whenever perceived environmental
uncertainty is a bit low, the management of a given firm is able to make accurate projections.
Nonetheless, organizations with high level of the environmental uncertainties tend to adopt a
more stylish management accounting practices compared to those organizations that have
relatively low environmental uncertainties (Oyerogba, 2015). In this case, firms operating in
high environmental uncertainty tend to integrate management accounting practices in their
operations making environmental uncertainty the key external factor that contributed to
development of the management accounting practices (Ahmad & Mohamed Zabri, 2015).
The second factor is market competition.
The increased intensity in competition within the market led to development of
management accounting practices with the aim of providing timely, relevant and accurate
information on a broader range of the issues within the market including productivity,
customer service, quality and customer satisfaction (Gichaaga, 2014). In essence, with market
competition, accountants decided to develop the management accounting practices which was
focused on organization’s value-additional activities relative to the competitors. Basically,
with these development organizations facing intense market competition was to integrate
management accounting practices to deal with such challenges.

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Internal Factors
Some of the internal factors that contributed to development of the management
accounting practices include organization structure, pursued strategy as well as the size.
Organization structure has been one of the most important aspects that have received high
level of attention (Quesado, Aibar Guzmán & Lima Rodrigues, 2018). Based on the fact that
there were different organizational structure with the most dominant being decentralized
structure, accountants developed management accounting practices. This was aimed at
dealing with some of the management issues that might arise from this structure of
organization.
Size is another factor that attributed to development of the management accounting
practices (Oyerogba, 2015). In this context, large organizations were in need of more
complex accounting information systems which were also sophisticated. Therefore, with such
facts, large organizations decided to develop management accounting practices to enable
them in running their operations. In a study by Tanyi (2011) size of the organization was
found to have contributed to development and adoption of the management accounting
practices. This was based on the fact that bigger companies had more resources compared to
the minor ones and count therefore affords adoption of the more refined management
accounting practices. Therefore, as business size increases, management accounting practices
might be projected to be of more importance.
Strategy is also considered as another aspect that contributed to development of the
management accounting practices (Wiersma, 2009). This is based on the fact that the
organizations with more sophisticated strategy of operations required more sophisticated
management accounting practices which were considered to have positive impact on the
organizations’ performance despite their strategy. In essence, management accounting

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practices was developed to support strategic priorities of specific firms with the aim of
improving their performance in turn (Ahmad & Mohamed Zabri, 2015).
Usefulness of Balance Scorecard
Balance scorecard is usually the set of the non-financial and financial measures on the
organization’s success factors. This shows the essence of organization’s value-creating
undertakings. While originally balance scorecard was adopted by relatively huge firms, it is
applicable to firms of any size. The increasing number of the small firms are embracing
balanced scorecard technique and accomplishing outcomes (Gichaaga 2014). Balanced
scorecard assists organizations overcome the three fundamental challenges; rise of the
intangible assets, performance measurement and implementing strategy.
Balance Scorecard is useful in that it provides better strategic planning to both small
and large firms (Ahmad & Mohamed Zabri, 2015). In essence, balance scorecard offer
influential outline for communicating and building strategy. The balance scorecard is usually
visualised in the Strategy Maps that forces organizations’ management to contemplate on the
cause-and-effect associations. This process of generating Strategy Map guarantees that
harmony is reached over a set of the unified premeditated goals (Tanyi, 2011). This implies
that both the financial performance fallouts and key enablers of the future enactment are
usually acknowledged in creating comprehensive view of this policy. Further, balance
scorecard is useful in that it enhance improve strategy communication within an organization.
Basically, balance scorecard facilitates understanding of communication and assists in
engaging employees and the external shareholders in reviewing and delivery of the strategy.
In other word, having one-page view of the strategy permits firms to easily communicate the
strategies externally and internally. The plan facilitates understanding of the set strategy
within an organization and assists in engaging the parties concerned (Ahmad & Mohamed
Zabri, 2015).

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Further, balance scorecard is useful since it help the firms map their initiatives and
projects to different strategic goals that in turns make sure that the initiatives and projects are
tightly focuses on delivering some of the most strategic goals (Quesado, Aibar Guzmán &
Lima Rodrigues, 2018). Additionally, balance scorecard is useful since it helps different
firms design chief performance meters for their numerous tactical intents. This makes sure
that organizations are determining what is of greater importance to them. In fact, study shows
that organizations with balance scorecard report high quality management data and has better
decision-making process. Balance scorecard is also useful as it help in improving
performance reporting (Oyerogba, 2015). The BSC could be utilized in guiding design of the
performance reports and the dashboards. This makes sure that organization’s management
reporting focuses more on the most significant strategic issues and assists organizations
monitor execution of the plan. Moreover, balance scorecard enables organizations to better
align the organizational structure with their strategic goals (Wiersma, 2009). To executive the
plan well, companies require confirming that all their support functions and units are
functioning toward similar objectives. Therefore, cascading balanced scorecard to these units
would assist accomplish this and link the strategies to the operations. Finally, balanced
scorecard is crucial in that it assist organizations align their processes like risk management,
analytics and budgeting with strategic priorities.

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References
Ahmad, K. & Mohamed Zabri, S. (2015). Factors explaining the use of management
accounting practices in Malaysian medium-sized firms. Journal of Small Business and
Enterprise Development, 22(4), 762-781.
Gichaaga, P., M. (2014). Effects of management accounting practices on financial
performance of manufacturing companies in Kenya. Research project for the master
of science in finance degree.
Kamal, S. (2015). Historical Evolution of Management Accounting,’ The Cost and
Management, 43(4), 12-19.
Oyerogba, E., O. (2015) Management Accounting Practices in the Developing Economies:
The Case of Nigeria Listed Companies. The Journal of Accounting and
Management, 5(2).
Quesado, P., R., Aibar Guzmán, B., & Lima Rodrigues, L. (2018). Advantages and
contributions in the balanced scorecard implementation. Intangible Capital, 14(1),
186-201.
Tanyi, E. (2011). Factors influencing the use of Balanced Scorecards (Available on
Internet) (Master's thesis, Svenska handelshögskolan).
Wiersma, E. (2009). For which purposes do managers use Balanced Scorecards?: An
empirical study. Management accounting research, 20(4), 239-251.