Behavior in the Context of Management Accounting

In the context of management accounting, Behavioral issues are the basic foundations where the Management accounting was build. Its objective is to influence the behavior of individuals within organization in a desirable direction (Ahmed Riahi-Belkaoui, 2006).

Behavior in the Context of Management Accounting (cont,) In general, these characteristics pertain to three factors: (1) the perception by the individual of what should be the objective function or goals in the organization; (2) the various factors likely to motivate the individual to perform; and (3) the decision-making model most relevant to particular contexts and most preferred by the individual.

Behavior in the Context of Management Accounting (cont,)

A Responsibility Center (Caraiani and Dumitrana, 2005) represents an organizational segment which can be defined through an aggregate of tasks to be done, and executive, clearly identified management procedures. The responsibility center, the responsible decisional factors engage themselves in obtaining certain results having a certain decisional autonomy.

Behavior in the Context of Management Accounting (cont,) Management controls Behavior that achieves the strategic objectives of an organization, such as budgets, performance measures, standard operating procedures and performance-based remuneration and incentives.
What we want to do? Lead times Market trends Material supply Forward view

Forecast
How we did? Accurate Timely Appropriate What we used Output Rejects/Rework What we did not do Performance

Variance Report
What are we going to do about it?

Plan

How to do it? Machine capacity Labour availability Yield Efficiencies Quality Work sequence

Control
Doing it Delegate Produce Follow up Checklist

Behavior in the Context of Management Accounting (cont,) At USM, the Responsibility Centre which known as PTJ (Pusat Tanggungjawab), decentralization has been done in terms of financial activities such as empowerment the top management of PTJs to manage their own fund and budget. There are four categories of fund which has decentralized to PTJs such as :1. 2. 3. 4. Operational budget KPI/KIP fund Research grant Enterprise account

Behavior in the Context of Management Accounting (cont,)

The empowerment is to enhance the value of integrity and accountability to the top management of PTJs in ensuring the mission and vision of USM to be the first APEXs university in Malaysia is achieved. PTJs to ensure its administrative staff have the desired behavior which congruent with USM mission and vision. The desired behavior must be guided with a proper internal control system to curb any wrong behavior.

Internal Control System

The Committee of Sponsoring Organisations of the Treadway Commission (COSO). To provide reasonable assurance that risks are managed to ensure the achievement of organization objectives, effective and efficient accomplishment of goals and operations, the safeguarding, economical and efficient use of resources, the reliability and integrity of information and the compliance with policies, plans, procedures, law and regulations.

Internal Control System ( Cont,)

Based on Daugherty, Brian;Anderson Urton s article, MCS can be derived by three line of defence which can use an analogy of castle. First line of defense The physical barriers, such as its moat and castle walls. The castles analogy applies to the risk control in operational management. Providing assurance to themselves and others regarding the effectiveness of the risk management process through supervisory reviews, control self assessments and to monitoring processes.

Internal Control System ( Cont,)

The second line of defense The castle is the archers and soldiers at top of the castle walls. This is a staff function such as compliance, quality environment, health and safety. These functions assist operational management in implementing and monitoring effective risk management and control practices across organization. They may be centralized or decentralized reporting to managers at lower level in the organization.

Internal Control System ( Cont,) The theory of third line of defense The soldiers within the castle. It is the various independent and objective assurance functions. The internal auditing function in most organization is the primary third line with contributions from independent assurance providers such as external audit, regulatory audits or ISO reviews. Normally the third line reports directly to those ultimately charged with organizational governance (board, committees of the board, and executive management). This line of defense provides the final assurance necessary for those responsible for governing the organization to fulfill their oversight responsibilities.

Internal Control System ( Cont,)

From the Internal Control initiative, the USM is expected to achieve : 1. An Improvement on Business Performance 2. A reduction on Non Compliance Gaps 3. Control layer of processes into one Manageable Management Model 4. Improvement on Productivity 5. Provide a Focus for Continuous Improvement through Structured Monitoring System 6. To Improve Operational Accountability

Control Environment The control environment (CE) provides an atmosphere in which people conduct their activities and carry out their responsibilities. It serves as a foundation for the other components.

Every organization operates differently, which is revealed through organizational ethics, values, structure, reporting lines, authority, rules and the documentation of policy. By doing so, this study is attempt to find whether the management of PTJs has or has not incorporate any control system to prevent any unnecessary behaviors occur within PTJs.

LIMITATIONS There are few limitations pertaining to this research study. About the time limitation, since the duration of our project study is approximately about 2 months.

The population of this group is quite small and feedback received from the respondents is about 60% from the overall population and it might not represent the overall picture of the research.
The questionnaire designed to analyze the employees attitude towards the use of financial behavior and the impacts of behavior; it seems not to provide enough evidence of the employees actual behaving to their actual behavior performance.

LIMITATIONS (Cont,) The analysis is not sufficient to fulfill the overall assessment due to the limitation number of respondents available.

On the other hand, part of the group members come from the various background (not in business or accounting) and less of experience in business or accounting research. Few interesting remarks were made by respondents which could also be a limitation of the study such as control have been put in place by the top management of PTJ, but unfortunately are not In the control of a particular school or PTJ.
This mean the top management of USM should also give a 100% trust to the process of empowerment not only on the decision making process but also in other part of empowerment mechanism.