The Emerald Research Register for this journal is available at www.emeraldinsight.

com/researchregister

The current issue and full text archive of this journal is available at www.emeraldinsight.com/0268-6902.htm

Management accounting practices in selected Asian countries

A review of the literature
Maliah bt. Sulaiman, Nik Nazli Nik Ahmad and Norhayati Alwi
Department of Accounting, Kulliyyah of Economics and Management Sciences, International Islamic University Malaysia, Kuala Lumpur, Malaysia
Keywords Singapore, India, Malaysia, China, Accounting research, Accounting procedures Abstract Traditional management accounting techniques such as standard costing and variance analysis, traditional budgeting and cost volume prot analysis are said to be less useful in the present manufacturing environment. To succeed in the present dynamic business environment, tools or strategies such as JIT, ABC, TQM, process re-engineering, life cycle assessment and target costing would greatly enhance the ability of corporations to meet global competition. Through a literature review, this study examines the extent to which traditional and contemporary management accounting tools are being used in four Asian countries: Singapore, Malaysia, China and India. Overall, the evidence reviewed suggests that the use of contemporary management accounting tools is lacking in the four countries. The use of traditional management accounting techniques remains strong. The paper concludes with various recommendations for future research, the most important of which is the need for future studies to be grounded in theory.

Management accounting practices 493

1. Introduction Various authors have argued that traditional techniques such as standard costing and variance analysis, traditional budgeting and cost volume prot (CVP) analysis are no longer adequate to be used as planning and control tools in the present manufacturing environment (Bromwich and Bhimani, 1994; Kaplan, 1983; Lucas, 1997). Further, many have predicted that the shorter product life cycles, advanced manufacturing technologies, decreasing emphasis on labour in the production process and global competition may lead to the demise of the above tools (Drury et al., 1993; Hilton, 2002). To succeed in the present dynamic business environment, companies should link their strategies to quality improvement, increased exibility in meeting customers individual requirements, reduced lead times, inventories and production cost (Lucas, 1997). Thus, tools or strategies such as JIT, activity based costing (ABC), TQM, process re-engineering, life cycle assessment and target costing would greatly enhance the ability of corporations to meet their objectives. Consequently, it is not unreasonable to want to examine the extent to which contemporary and traditional management accounting tools are being adopted by companies in emerging economies in Asia. Through a literature review, this study attempts to investigate the management accounting practices in four Asian countries: Singapore, Malaysia, China and India. The primary objective of this study is to identify and highlight the management accounting practices in these four countries. It is hoped that the results of this review will help reveal whether or not we are teaching our students what the practitioners actually need. More specically, is there a gap between the theory that we teach in our classrooms and management accounting practice (Scapens, 1988)? Should a gap exist, then academics have got to seriously think about restructuring the management accounting curriculum to better reect the needs of the industry. Further, the focus of

Managerial Auditing Journal Vol. 19 No. 4, 2004 pp. 493-508 q Emerald Group Publishing Limited 0268-6902 DOI 10.1108/02686900410530501

MAJ 19,4

494

earlier studies examining management accounting practices in these four countries has been on individual countries. For example, Abdul Rahman et al. (1998) and Sulaiman et al. (2002) surveyed Malaysian companies, Ghosh and Chan (1996) and Ghosh et al. (1987) surveyed companies in Singapore, Firth (1996) in China and Joshi (2001) in India. Thus, the second objective of this study is to provide a comparative analysis of management accounting techniques used in the four countries. It is hoped that the synthesis of earlier studies will help provide an overview of management accounting practices in the four countries under review, thus enhancing the literature in the area of management accounting practices in Asia. This would, in part, address Willett et al.s (1997) concern that studies on management accounting practices in this region lag behind studies in nancial accounting. Last but not least, the results of this study will shed some light on whether or not the national culture is an important variable in explaining the management accounting practices across the four countries. This issue is pertinent primarily because it has often been cited that accounting is a product of its environment (Choi and Mueller, 1992; Perera, 1989; Radebaugh and Gray, 1993). If, indeed, accounting is shaped by the environment, then one would expect there to be differences emerging in the adoption of the various management accounting tools by companies in these countries. This paper is organised as follows. Section 2 examines the extent to which traditional management accounting planning and control tools such as budgets, standard costing and CVP analysis are used by companies operating in India, China, Singapore and Malaysia. Section 3 examines the extent to which contemporary management accounting tools such as ABC, target costing and the balanced scorecard (BSC) are used by such rms. Section 4 concludes with a discussion of the various possible reasons as to why traditional management accounting tools are still being used by a large majority of rms in Asia, suggestions for future research and the limitations of a comparative analysis of this nature.

2. Traditional management accounting tools 2.1 Budgets Various authors have suggested that there are several advantages to preparing budgets. Budgets aid planning and facilitate interdepartmental communication and coordination. Budgets also provide a means for companies to allocate scarce resources more efciently. Additionally, budgets may also be used as a tool to evaluate the divisional or managerial performance (Garrison and Noreen, 2003; Hansen and Mowen, 2002; Hilton, 2002). More recently, however, there have been numerous criticisms levelled at traditional budgets. In particular, the Consortium for Advanced Manufacturing-International (CAM-I), an international research consortium of companies, management consultants and academics, argue that the traditional budget acts as a barrier to effective management, particularly in the present dynamic business environment. They claim that the budgeting process, as traditionally practised, is simply an exercise in justifying the increase and decrease in the previous years spending. As a result, companies are better off without budgets, especially since budgets can also create a climate of going by the book and contribute to a control by constraint mechanism. This would, in turn, suppress an individuals creativity and innovativeness (Clarke, 2001).

Interestingly, despite the preceding criticisms, the use of budgets as a planning, control and performance evaluation tool (to enable managers to make more informed decisions) is widespread in the selected Asian countries under review. In Singapore, for example, about 95 per cent of the 174 companies surveyed by Ghosh in 1984 (Ghosh et al., 1987) used budgets as a nancial control tool (Table I). Another survey conducted in 1996 also revealed similar results. Out of 109 companies surveyed, 97 per cent reported the use of budgets (Ghosh and Chan, 1996). Thus, the use of budgets, over the years, has not diminished. Indeed, the 97 per cent indicates an increasing use of budgets by companies in Singapore. Further, all the 106 companies that said yes to budgets reported that they used budgets to evaluate performance. However, overall, only 83 (76 per cent) companies prepared the cash budget. It is interesting to note that the cash budget is prevalent amongst companies in the retail, manufacturing and the hotel sectors. Ghosh and Yoongs (1988) study comparing the management accounting practices of 64 multinationals and 110 local rms in Singapore also revealed consistent results. Ninety-seven per cent (97 per cent) of the multinational rms and 93 per cent of the local rms reported that they used budgets. Malaysian enterprises also report a high rate of use for budgets. Abdul Rahman et al. (1998) in their survey reported that 98 per cent (out of 48 manufacturing rms) of the companies used budgets. In contrast with the Singapore surveys, only 40 per cent (out of the 98 per cent who said they used budgets) actually used budgets as a performance evaluation tool. Sulaiman et al. (2002) surveyed 61 companies in the industrial and consumer products sectors of the Kuala Lumpur Stock Exchanges (KLSE) main board and found that 98 per cent of the survey respondents used budgets. With regard to nal budget authorisation (of a particular department or budget holder), for the Sulaiman survey, 97 per cent of the respondents reported that senior management has the greatest inuence and supervisors the least at 29 per cent. Abdul Rahman et al. (1998), on the other hand, found only 32 per cent of the respondents reported that senior management provides the most important inuence in authorising the nal budget. Table II (Panel A) provides the details. When asked to indicate the extent to which they agreed with participative budgeting, 58 per cent in the Sulaiman survey and 60 per cent in Abdul Rahmans survey said that budget holders should not have too much inuence in determining their own budgets. These results contrast with Drury et al.s (1993) survey of companies in the UK. There, a mere 23 per cent felt that budget holders should not have too much inuence in their own budgets. On whether or not budgets should be used as a performance evaluation tool, 63 per cent of the respondents in both Malaysian surveys agreed that top management should judge a managers performance primarily on his/her ability to meet the budget. Interestingly, 46 per cent of the respondents in Drury et al.s (1993) survey thought so. Although the percentage from the UK survey is lower than that of the two Malaysian surveys, the gure is relatively high. Accordingly, it must be emphasised that using budgets to evaluate a managers performance may lead to dysfunctional consequences (Hopwood, 1977). According to Bart (1988), the potential for budget games[1] may be high if budget holders are evaluated primarily on their ability to meet their budgets. In India, Joshi (2001), who examined the adoption rate of 44 management accounting techniques, sought the managers perceptions on the benets of such tools and their importance in the future by surveying 60 large and medium size rms. All (100 per

Management accounting practices 495

496

MAJ 19,4

Traditional tools Standard costing CVP ROI Budgets Contemporary tools TQM ABC Target costing BSC 68 65 100 100 47 55 63 95 56 66 56 98 49 17 97 4 40 20 35 16 48 13

Notes: aChinese partner of JV; bsee Table III (Panel A) for details

Table I. Broad areas of management accounting practices in India, Singapore, Malaysia and China India Joshi (2001) % 60 165 109 48 61 Singapore Ghosh et al. Ghosh and (1987) Chan (1996) % % Malaysia Abdul Rahman Sulaiman et al. et al. (1998) (2002) % % China Firth (1996) a Private SOEs % % 432 94
b

370 72
b

70 98 52 28

Drury et al. (1993) Panel A: (above average and vitally important responses); Final budget authorisation of a department/budget centres; Inuence of: Supervisors Departmental managers Budget holders Accounts budget staff Senior management Panel B: (agree and strongly agree responses); Budgetary control philosophy; Extent respondents agree with the following statements: Budget holders should not have too much inuence in determining their own budgets because there is a danger that they will seek to obtain easy budgets Top management should judge a managers performance mainly on his/her ability to attain the budget Panel C: Does your company prepare exible budgets? Yes No Total Panel D: (often and always responses); Non-nancial performance measurements: Customer satisfaction/product quality Customer delivery efciency Supplier quality and delivery reliability Panel E: (above average and vitally important responses); Purpose of standard costing: Cost control and performance evaluation Costing inventories Computing product costs for decision making (e.g. setting selling prices) As an aid to budgeting Data processing economies

Abdul Sulaiman et al. Rahman et al. (1998) (2002)

Management accounting practices 497

8 53 64 46 92

29 82 70 56 97

5 17 21 26 32

23 46

58 63

60 63

42 58 100

66 44 110

40 60 100

79 73 72

79 76 76

76 26 70

72 80 82 69 43

82 68 77 68 57

72 60 74 74 50 Table II. Malaysia (all gures in per cent)

cent) respondents indicated that they used budgets for planning day-to-day operations and cash ows. A lower percentage (93 per cent) said that they used budgets for controlling costs and 91 per cent reported that they used budgets for planning nancial position. His study also revealed that Indian rms perceived budgeting to be one of the more important management accounting tools in the future. When asked to rate its benets and future emphasis (and subsequently, ranking the means), the operational budget was ranked 22 in terms of its perceived benets and 8 in terms of its future emphasis. Similarly, the cash budget had a rank of 5 (perceived benets) and 1 (future

MAJ 19,4

498

emphasis), respectively. Anderson and Lanen (1999) examined the use of budgeting procedures, rms budgeting philosophy and involvement of various levels of managers of 14 rms (seven internationally oriented rms and seven domestic oriented rms) in India. They found that economic reforms and greater self-determination on the part of Indian managers had led to an increased use of standard budgeting and planning procedures since 1991. Second, rms set more accurate budgets in 1996 as compared to 1991. They suggest that this may be due to the managers increased involvement in and understanding of the rms strategy as well as decreased government intervention since the liberalisation of the Indian economy in 1991. Third, plant managers in their survey tend to be more involved in budgeting than in strategy formulation. The reverse holds true for divisional managers; they appear to be more involved with strategy formulation than budgeting. Additionally, the only discernible difference between the domestic and internationally oriented rms is the extent to which they used cost data to develop budgets. Internationally oriented rms seem to put less emphasis on cost data to prepare budgets. While the use of budgets in India, Malaysia, and Singapore remains high, there is very limited use of budgets in China. An interesting study quoted in Bromwich and Wang (1991) on a survey of 81 accountants in China (on the perceived practical value of various management accounting techniques) found a mere 4 per cent perceiving operational budgets to be useful. The low percentage may be due to the fact that many Chinese accountants (before the economic reforms in the late 1970s) did not regard sales or production planning as their responsibility. This is primarily because Chinese state enterprises were essentially production units under the purview of an industrial ministry or an administrative corporation (Bromwich and Wang, 1991). However, this may not be the case at present[2]. Another study by Firth (1996), examining the diffusion of management accounting practices in foreign partnered joint venture (JV) rms, also looked at the budget use of various types of enterprises in China. He surveyed 535 foreign rms, 456 foreign partnered JV rms, 432 Chinese partner rms and 370 state owned enterprises (SOE). While the production budget appears to be important to all four types of rms (Table III), the cash/working capital budget, the sales and prots budgets have moderate use amongst the SOEs and the Chinese partner rms. (Table III, Panel A gives the details.) Middle managements participation in the preparation of budgets, across the four types of rms, is rather limited. Only 45 and 49 per cent of the foreign partnered rms and foreign partnered JV rms, respectively, reported some kind of participation. The percentages for Chinese partner rms and SOEs remain low (at 20 and 11 per cent, respectively). There is also less attention given to capital budgeting in China amongst Chinese partner rms and SOEs. This is primarily because in a command economy like China, the government is the primary provider of capital. Consequently, managers of SOEs have few discretionary decision-making responsibilities. Only about 30 per cent of the 81 accountants in Bromwich and Wangs (1991) survey felt that the capital budget was useful. If capital budgeting is undertaken, the method most often used is the payback period (Bromwich and Wang, 1991). However, as China moves toward a more competitive market economy, there will be a heightened interest to evaluate the usefulness of capitalist style management accounting methods and procedures (Firth, 1996).

Sample size Panel A Types of budgets: Operations budgets Cash/working capital Sales Prots Production Budget compared with actual Panel B Participation in budget preparation: Middle management Lower management Workers Capital budgeting Payback method Panel C Standard costing Used for budgeting As a control tool Variances calculated Panel D Product costing: Variable costing Absorption costing Panel E CVP Responsibility accounting Note: aChinese partner rms

Accountants 81 %

Foreign rms 535 %

JV 456 %

Chinese PFa 432 %

SOEs 370 %

Management accounting practices 499

97 87 97 94 94

98 95 92 89 93

42 41 33 94 31

12 15 17 90 16

30 38

45 35 7 98 87 87 86 85 82

49 8 1 93 91 83 76 69 70

20 9 6 30 32 94 87 27 36

11 7 2 14 10 92 85 13 16

79 54

36 64

32 68

57 43

57 24

Table III. China

2.2 Standard costing and variance analysis As a result of changes in the manufacturing environment, the usefulness of standard costing and variance analysis is diminishing (Drury et al., 1993; Lucas, 1997). In the past, standard costing has been regarded as a tool that enhances planning and control and also improves performance evaluation. Further, standard costing also aids in product costing. However, in the present advanced manufacturing environment, the benets of operational control are said to be less evident as standard costing may result in dysfunctional behaviour. For example, a material price variance may encourage the purchasing manager to buy in bulk (to take advantage of discounts) which would subsequently result in high inventory holding costs. This action is inconsistent with the JIT philosophy (Drury, 1999; Hansen and Mowen, 2002). Further, standard cost variance reports prepared monthly are deemed less useful as the information provided is stale and out of date for managers to act upon, particularly in the current competitive environment.

MAJ 19,4

500

Added to that is the notion that current production processes are no longer labour intensive. As such, the calculation of labour variances may not be as useful today as it was in the past. On the basis of the above criticisms, one would not expect the widespread use of standard costing for planning and control purposes. However, empirical results show otherwise. Despite the criticisms levelled at standard costing, many companies still nd standard costing useful for planning and control purposes. In India, for example, 68 per cent of the 60 rms surveyed still use standard costing (Joshi, 2001). Ghosh et al. (1987) found that 47 per cent of the Singapore companies surveyed still use standard costing. A later survey by Ghosh and Chan (1996) found the percentage to be higher at 56 per cent. In Malaysia, the percentage is moderately high at 49 per cent in Abdul Rahman et al.s (1998) survey and 70 per cent in Sulaiman et al.s (2002) study. Most of the companies used standard costing to compute product cost (74 per cent), as an aid to budgeting (74 per cent) and for cost control and performance evaluation (Abdul Rahman et al., 1998). The results appear to be consistent with Sulaiman et al.s (2002) survey. Tho et al. (1998), in their survey of 214 manufacturing companies, reported that 69 per cent of the companies used standard costing. If this is a reection of the trend in Malaysia, then the demise of standard costing, as suggested by various authors, may not hold true. Similarly, in the UK, it was reported that 76 per cent of the companies that responded to Drury et al.s (1993) survey said that they used standard costing. In China, standard costing is predominantly used for joint product costing and budgeting. About 94 per cent of the Chinese partner rms and 92 per cent of the SOEs use standard costing for joint product costing. The high adoption rates for standard costing by both private and SOEs in China may be due, in part, to the similarities between the standard and normative costings. The latter costing system was adopted from the former USSR in the 1950s (Bromwich and Wang, 1991). Similarly, foreign rms and foreign partnered JV rms also indicate high adoption rates (at 87 and 83 per cent, respectively) (Table III). While traditionally, standard costing has been used to aid budgeting, standard costing is increasingly becoming a control tool, especially amongst the foreign and foreign partnered JV rms in China (Firth, 1996). The calculation of standard cost variances is also prevalent in both types of rms. On the contrary, Chinese partner rms and SOEs reported very limited use of standard costing as a control mechanism. Further, only 36 per cent of Chinese partner rms and 16 per cent of SOEs said that they computed variances as compared to 82 and 70 per cent in foreign rms and foreign partnered JV rms, respectively. In India, 68 per cent of the 60 companies that participated in Joshis (2001) survey reported that they used standard costing. When asked to indicate the perceived benets of standard costing on a Likert scale of 1 (no benet) to 7 (high benets), the mean obtained was 4.37. Ranking the means puts standard costing as 23rd out of the 44 management accounting tools investigated in the survey. On the future emphasis of standard costing, the managers again ranked it 23rd (out of 44) with a mean of 4.69. This may, perhaps, signal the fact that companies in India are not about to discard standard costing, not just yet!

2.3 CVP analysis CVP is claimed to be one of the most powerful tools that help managers in planning and decision making (Garrisson and Noreen, 2003; Hansen and Mowen, 2002). CVP helps managers understand the interrelationship between the quantity sold, cost, selling price and prot. However, because of its limiting assumptions, some managers are of the opinion that the tool may have very little use in practice. For example, the assumptions that selling price and costs remain constant over the relevant range may not be practical in this ever changing business world. Further, the assumption that there are no opening and closing inventories of nished goods may also not be realistic. As such, the CVP technique may slowly lose its importance. However, empirical results of the four countries reviewed reveal otherwise. Seventy-two (66 per cent) companies in the Singapore survey used CVP (Ghosh and Chan, 1996). The earlier study by Ghosh et al. (1987) reported only a 55 per cent adoption rate, thus showing an increase of 11 per cent. In Malaysia, Tho et al. (1998) reported that 53 per cent of the 214 manufacturing companies in their survey have often or always used the CVP technique. Joshi (2001) reported a 65 per cent adoption rate amongst medium and large companies in their survey. In China, it was reported that the CVP was of special interest to both academics and practitioners because of its ability to link target prot with operational planning. Because, the concept of contribution margin enabled new perspectives on many operational problems, this technique was adopted in almost all large and medium sized enterprises (Bromwich and Wang, 1991). A survey investigating the perceptions of 81 accountants on the practical value of CVP found that 79 per cent of the respondents perceived CVP to be useful (Table III, Panel E). Bromwich and Wang (1991) argue that the ready acceptance of CVP is due, partly, to the economic environment in China in the early 1980s (where xed costs increased and they had problems with regard to operating capacity) that was similar to that which prevailed in the West when CVP was introduced (in the 1950s and 1960s). CVP continued to be a favoured technique at the time the survey was conducted primarily because many of the environmental conditions which have challenged the use of CVP techniques in the West such as uncertainty and rapid changes of production techniques had not yet arisen at that time. Further, there is also reason to believe that, initially at least, most Chinese practitioners were too busy learning the technique to critically evaluate it (Bromwich and Wang, 1991). However, the survey quoted in Bromwich and Wang (1991) merely examined the perceptions of accountants, not the adoption rate of the CVP technique by Chinese companies. Additionally, Firth (1996) did not examine the use of CVP. Thus, it would be interesting to examine whether or not companies in China do use CVP in planning and decision making. 2.4 Performance measurement Performance evaluation is an important function of management accounting, particularly in companies that have a divisionalised organisational structure. The most often cited methods used to measure the divisional performance indicated in our management accounting textbooks are the return on investment (ROI), the residual income (RI) and the economic value added (EVA). More recently, however, there have been suggestions that relying on accounting related measures is not enough. Proponents of the BSC have argued that non-nancial measures should also be

Management accounting practices 501

MAJ 19,4

502

measured. Subsequently, many companies are currently focusing on both accounting and non-accounting related measures. In India, for example, Joshis (2001) study revealed that although 100 per cent of the companies that responded to his survey evaluated performance on the basis of ROI, a sizeable percentage (about 53 per cent) also focused on non-nancial measures. Eighty per cent of the companies reported that they evaluated performance based on customer satisfaction (Table IV, Panel B). However, nancial-based performance measures were still the favoured techniques as far as Indian companies are concerned. Variance analysis and divisional prot were used to evaluate performance by all the respondents in the survey. Interestingly, 37 per cent reported that they also used qualitative measures to evaluate their plant management, senior corporate managers and chief executive ofcers (Joshi, 2001). Business enterprises are increasingly focusing on customer satisfaction. About 80 per cent of the rms surveyed used customer satisfaction to evaluate the performance.
Adoption rate % Panel A Types of budgets: Operations Cash budget Budgets used to: Coordinate activities Control costs Panel B Performance evaluation: ROI Variance analysis Divisional prot Non-nancial measures Qualitative measures Residual income Customer satisfaction Panel C Product costing: Variable costing Absorption costing Panel D Standard costing CVP Product protability analysis Panel E New techniques: ABC Target costing BSC

Benets rank

Future emphasis rank

100 95 95 93

22 5 16 1

8 1 22 7

100 100 100 53 37 43 80

26 20 12 10 3

5 8 6 18 10 18

52 50 68 68 82

19 11 23 2 8

4 24 23 11 3

Table IV. India

20 35 40

14 4 35

17 1 19

The same is evident in Malaysia. About 76 per cent of the companies in Addul Rahman et al.s (1998) survey reported that they measured customer satisfaction/product quality as part of performance evaluation. Of the 61 companies in Sulaiman et al.s (2002) study, 59 per cent of the respondents said they measured customer satisfaction/product quality. As for ROI, its use as a performance evaluation tool in Malaysia is rather limited. Only 17 per cent reported that they used ROI to evaluate managers (Abdul Rahman et al., 1998). In Singapore, 56 per cent (61) of the companies said they used ROI as a management control technique. Out of these, 13 used gross investment, 32 used net assets, 26 used share capital and reserves while six companies did not specify the basis used. Additionally, 29 companies (48 per cent) reported that ROI was computed for each division/department (Ghosh and Chan, 1996). The earlier study by Ghosh et al. (1987) reported a higher percentage (63 per cent) of the companies adopting ROI and 45 per cent of those companies computed divisional/departmental ROI. Then, the two most common bases used were gross investment (45 per cent) and net investment (44 per cent). In China, there appears to be some kind of traditional responsibility accounting comprising international business accounting (IBA) and normative costing. As stated elsewhere in the paper, the latter is a type of standard costing borrowed from the USSR in the 1950s. According to Bromwich and Wang (1991), various features of the IBA bear considerable similarity to Western responsibility accounting. An interesting feature of the IBA on performance measures and incentive devices within Chinese enterprises is the belief that no individual can perform well without the efforts of his subordinates and colleagues. Thus, the emphasis is more on the group as a unit rather than the individual orientation of accounting controls of the West (Bromwich and Wang, 1991). This, in itself, may not have signicant implications on the techniques used to evaluate managers. Rather, how the technique is used may differ. In other words, instead of evaluating the individual using ROI, the performance of the whole department will be evaluated. The extent to which Chinese rms use responsibility accounting can only be discerned from the survey of accountants cited in Bromwich and Wang (1991). In that survey, 54 per cent of the accountants perceived responsibility accounting to have practical value. 3. Contemporary management accounting tools Often, we have heard criticisms that traditional management control tools are produced too late and at too aggregate a level to be relevant for todays planning and control decisions (Kaplan and Johnson, 1987). To better meet the challenges of the present dynamic business environment, techniques such as ABC and target costing are said to be more appropriate. Additionally, the use of accounting measures to evaluate the performance is no more sufcient. Companies need to focus on non-nancial accounting measures too. The introduction of the BSC helps enterprises to concentrate on both the nancial and non-nancial aspects of a rms activities. The following subsections provide detailed discussions on ABC, target costing and the BSC. 3.1 Target costing Target costing is said to provide companies with a competitive edge as it provides continuous improvement both at the design and production stages. Subsequently, this will help companies, particularly Japanese companies, to maintain their competitiveness (Sakurai, 1989). In India, amongst the contemporary management

Management accounting practices 503

MAJ 19,4

504

accounting tools, target costing looks promising. Although only 35 per cent of the rms reported that they have adopted target costing, in terms of its benets, survey respondents ranked it fourth. In terms of its future emphasis, target costing was ranked number 1, thus indicating a possible increase in its use in the future. In Malaysia, about 41 per cent of the 214 companies that responded in Tho et al.s (1998) study reported that they had implemented target costing and another 4 per cent said that they would implement target costing in the next ve years. Surveys conducted in Singapore and China did not examine the use of target costing. 3.2 ABC ABC has gained increasing attention amongst practitioners as a tool to help allocate overheads with a greater degree of accuracy. The issue of more accurate overheads allocation is pertinent because, often when pricing relies on awed cost data, the problems/errors will be perpetuated. It is also said that ABC corrects for the limitations of traditional costing by identifying all the work activities and the costs that go into manufacturing the product. The traditional accounting approach where cost allocation is based on labour hours or machine hours rarely reects the true cause and effect relationship between indirect costs and individual products. Recent surveys have reported the increasing use of ABC, particularly amongst Western enterprises (Scapens, 1991). It has been suggested that the decreasing cost of computing power (Filman, 2000) and the ABC software that complements the software on enterprise resource planning may have contributed to this phenomenon. Studies in the West have reported an adoption rate in the range of 6 to slightly more than 50 per cent. In Singapore, 14 of the 106 companies surveyed said that they used ABC. This represents 13 per cent of the sample. Their primary reason for using ABC was that it helped them to identify activities that drive costs. More importantly, ABC enabled them to understand their activities better (Ghosh and Chan, 1996). In Malaysia, while Abdul Rahman et al. (1998) found a mere 4 per cent in their sample using ABC, Sulaiman et al. (2002) had 28 per cent of the respondents indicating that they used ABC to allocate overheads. In India, only 20 per cent of the 60 companies surveyed said they had adopted ABC. Chinas percentage is even lower. For Chinese partner rms and SOEs, the percentage was 2 and 1 per cent, respectively. Amongst foreign rms and foreign partnered JV rms, ABC usage was much higher. The former reported 15 per cent and the latter 10 per cent. It would seem that the use of ABC has not caught on in the four countries surveyed. Consequently, an interesting area to address in the future research is the obstacles to ABC implementation in Asian rms. 3.3 BSC The BSC has gained increasing popularity since its introduction by Kaplan and Norton. Scholars and practitioners alike have argued that relying solely on accounting metrics to evaluate performance may not be adequate. With this in mind, the introducers (inventors) of the BSC have focused on four perspectives of a business: the internal business process, learning and growth, customers and nancial aspects. Atkinson et al. (1997) argue that the BSC may be regarded as one of the most signicant developments in management accounting. Hoque and James (2000) are of the opinion that using a BSC:

. . . does not mean using more measures: it means putting a handful of strategically critical measures together in a single report, in a way that makes cause-and-effect relations transparent and keeps managers from sub optimizing by improving one measure at the expense of the others (p. 3).

Management accounting practices 505

Thus, to achieve a balance, rms need to focus on all the four perspectives. As to be expected, Hoque and James (2000) found that there is a positive relationship between the size and BSC usage. Thus, the bigger the company, the more practical it is to use BSC to support their strategic decision making. Joshis (2001) survey, to some extent, supported this contention. He found that large companies tend to use newly developed management accounting techniques to a greater extent than medium sized enterprises. In Malaysia, Sulaiman et al. (2002) found very little usage of the BSC in the 61 companies that they surveyed. Only 13 per cent (eight companies) of the companies surveyed actually used a BSC. In India, the percentage was 40 per cent. Surveys in Singapore and Chinese did not examine the BSC. 4. Conclusion Overall, the evidence reviewed suggests that the use of contemporary management accounting tools is lacking in the four countries studied. For example, the future emphasis in India is on traditional management accounting techniques. It was perceived by the survey respondents that the benets accruing to traditional management accounting practices were high (Joshi, 2001). Perhaps, this is because Indian managers generally avoid risks, and are quite conservative and tend to be less innovative. Thus, it is taking Indians a longer time to adopt new management accounting tools. Another factor may be the high costs involved in implementing contemporary management accounting techniques. Indian companies perceived that it is rather expensive to implement new management accounting tools (Joshi, 2001). As observed in Table IV (Panel B), the respondents envisaged traditional tools such as ROI and variance analysis to be further emphasised in the future, ranking the latter eighth and the former fth amongst the 44 techniques investigated. Similarly, in Singapore, there is an increasing use of CVP, standard costing and traditional budgeting over the period from 1987 to 1996. Tho et al. (1998) provide various reasons as to why traditional management accounting practices are still widely used in developing countries: the lack of awareness of new techniques, the lack of expertise and, perhaps, more importantly, the lack of top management support. Additional factors include the high cost of implementation and the fact that there simply was no reason to change from the traditional technique to the new tool. One primary limitation of this study is the fact that there is limited overlap. This is due to different survey instruments being used in each country. Further, the size of companies surveyed, sampling procedures and types of measures may have major implications on the reported ndings. These issues may pose a signicant threat to the validity of the results (Guilding et al., 1998). Consequently, future research on cross-country comparisons should address the matters just discussed. One way to circumvent these shortcomings is, perhaps, to conduct each countrys survey using the same instrument and to ensure that the sampling procedures and the sample chosen are consistent[3] across countries. Second, all the studies reviewed here are largely exploratory in nature and the results are generally descriptive. Ultimately, there is a need for such studies to be grounded in theory. It is time that the exploratory phase of

MAJ 19,4

research in this area was minimised. To this end, detailed case studies on management accounting in practice may have to be undertaken. Case studies, according to Scapens (1988), will enable researchers to:
. . . describe management accounting systems, explore how those systems are used, attempt to identify best practices and explain the determinants of existing practices (p. 28).

506

Additionally, a rigorous statistical analysis of the results of earlier studies is lacking. Results are limited to percentages and frequency. Finally, future studies should attempt to examine specic factors as to why rms in Asia (with the exception of Japan) are not adopting newly developed management accounting tools such as ABC and target costing. What are the obstacles to implement such techniques? Is culture a predominant factor? As far as this review is concerned, rms across the four countries are consistently taking on board traditional management accounting practices despite the fact that their national cultural values differ (to some extent). Thus, are current management accounting practices being strongly driven by factors at the macro level where considerable global pressures lead to similar practices across countries (Grandlund and Lukka, 1998)? Consequently, the global similarities perspective of management accounting practices is certainly an area that is worth examining.
Notes 1. The deliberate and premeditated manipulation of current year sales, cost and prot forecasts by managers to project an overly conservative image into their budgets (Bart, 1988). 2. Lai (1985) provides a full discussion on the impact of the changing social and business environment on management accounting practices in China, at present. 3. A consistent sample may be possible across countries, to some extent, if researchers control the size of the companies and the sectors to be studied. References Abdul Rahman, I.K., Abdul Rahman, A.Z., Tew, Y.H. and Omar, N. (1998), A survey on management accounting practices in Malaysian manufacturing companies, Management Accounting Practices Paper 3, Concurrent session IC, International Management Accounting Conference, National University of Malaysia, Selangor. Anderson, S.W. and Lanen, W.N. (1999), Economic transition, strategy and the evolution of management accounting practices: the case of India, Accounting, Organisations and Society, Vol. 24, pp. 379-412. Atkinson, A.A., Balakrishnan, R., Booth, P., Cote, J.M., Grout, T., Mali, T., Roberts, H., Ulan, E. and Wu, A. (1997), New directions in management accounting research, Journal of Management Accounting Research, Vol. 9, pp. 80-108. Bart, C. (1988), Budgeting gamesmanship, Academy of Management Executive, pp. 285-94. Bromwich, M. and Bhimani, A. (1994), Management Accounting: Pathways to Progress, Chartered Institute of Management Accountants, London. Bromwich, M. and Wang, G. (1991), Management accounting in China: a current evaluation, The International Journal of Accounting, Vol. 26, pp. 51-65. Choi, D.S. and Mueller, G. (1992), International Accounting, 2nd ed., Prentice-Hall, Englewood Cliffs, NJ. Clarke, P. (2001), Traditional budgeting: help or hindrance?, Accountancy Ireland, pp. 12-15.

Drury, J.C. (1999), Standard costing: a technique at variance with modern management?, Management Accounting, pp. 56-8. Drury, J.C., Braund, S., Osborne, P. and Tayles, M. (1993), A Survey of Management Accounting Practices in UK Manufacturing Companies, Certied Accountants Educational Trust, London. Filman, H. (2000), Manufacturing masters its ABCs: activity-based costing can help boost prots, Business Week, No. 3693, p. 86. Firth, M. (1996), The diffusion of managerial accounting procedures in the Peoples Republic of China and the inuence of foreign partnered joint ventures, Accounting, Organisations and Society, Vol. 21 No. 7/8, pp. 629-54. Garrison, R.H. and Noreen, E.W. (2003), Managerial Accounting, 10th ed., McGraw-Hill, New York, NY. Ghosh, B.C. and Chan, Y.K. (1996), Management accounting practices in Singapore: the state-of-the-art, unpublished manuscript, Nanyang Business School, Singapore. Ghosh, B.C. and Yoong, W.C. (1988), Management accounting in Singapore (II) comparing multinationals with local/regional companies, Singapore Accountant. Ghosh, B.C., Chung, L.H. and Wan, C.Y. (1987), Management accounting in Singapore, Management Accounting, pp. 28-30. Grandlund, M. and Lukka, K. (1998), Its a small world of management accounting practices, Journal of Management Accounting Research, Vol. 10, pp. 153-79. Guilding, C., Lamminmaki, D. and Drury, C. (1998), Budgeting and standard costing practices in New Zealand and the United Kingdom, International Journal of Accounting, Vol. 33 No. 5, pp. 569-88. Hansen, D.R. and Mowen, M.M. (2002), Management Accounting, 5th ed., South-Western College Publishing, International/Thomson Publishing, Cincinnati, OH. Hilton, R.W. (2002), Managerial Accounting: Creating Value in a Dynamic Business Environment, 5th ed., McGraw-Hill Irwin, New York, NY. Hopwood, A. (1977), Accounting and Human Behavior, Prentice-Hall, Englewood Cliffs, NJ. Hoque, Z. and James, W. (2000), Linking balanced scorecard measures to size and market factors: impact on organisational performance, Journal of Management Accounting Research, Vol. 12, pp. 1-17. Joshi, P.L. (2001), The international diffusion of new management accounting practices: the case of India, Journal of International Accounting, Auditing and Taxation, Vol. 10, pp. 85-109. Kaplan, R.S. (1983), Measuring manufacturing performance: a new challenge for managerial accounting research, The Accounting Review, Vol. 58 No. 4, pp. 686-705. Kaplan, R.S. and Johnson, H.T. (1987), Relevance Lost: The Rise and Fall of Management Accounting, Harvard Business School, Boston, MA. Lai, J. (1985), Management accounting in China, Management Accounting, September, pp. 26-8. Lucas, M. (1997), Standard costing and its role in todays manufacturing environment, Management Accounting, Vol. 75 No. 4, pp. 32-4. Perera, H. (1989), Towards a framework to analyse the impact of culture on accounting, International Journal of Accounting, Vol. 24, pp. 42-56. Radebaugh, L.H. and Gray, S.J. (1993), International Accounting and Multinational Enterprises, Wiley, New York, NY. Sakurai, M. (1989), Target costing and how to use it, Journal of Cost Management, pp. 39-50.

Management accounting practices 507

MAJ 19,4

508

Scapens, R.W. (1988), Research into management accounting practice, Management Accounting, December, pp. 26-8. Scapens, R.W. (1991), Management Accounting: A Review of Contemporary Developments, Macmillan Education Ltd, London. Sulaiman, M., Nik Ahmad, N.N., Alwi, N. (2002), Management accounting practices in Malaysia: a survey of the industrial and consumer products sectors, unpublished research report, International Islamic University, Kuala Lumpur, Malaysia. Tho, L.M., Md. Isa, C.R. and Ng, K.T. (1998), Manufacturing environment, cost structures and management accounting practices: some Malaysian evidence, Akauntan Nasional, August. Willett, R., Nishimura, A. and Baydoun, N. (1997), Reections on the relationship between culture and accounting practices in the Asia Pacic region, in Baydoun et al. (Eds), Accounting in the Asia Pacic Region, Wiley, New York, NY. Further reading Wijewardena, H. and Zoysa, D.A. (1999), A comparative analysis of management accounting practices in Australia and Japan: an empirical investigation, The International Journal of Accounting, Vol. 34 No. 1, pp. 49-70.