TOPIC 1 OF MAF635

THE EVOLUTION OF

MANAGEMENT
ACCOUNTING
evo of MA - nsam

IFACS CONCEPTION OF THE MA

EVOLUTION
By Abdel-Kader,M & Luther,R. (2006)

The IFAC (international

Federation of Accountants) is a
global organization for the
accountancy profession.
In 1998, IFAC provided a
framework explaining the
development of MA.
A four stage MA evolution model
was identified
evo of MA - nsam

IFACS FOUR STAGES

EVOLUTION in
Management
Accounting
Stage 1: Cost Determination
and Financial
Control (prior to 1950)
Stage 2: Information for Management
Planning (1950 - 1965)
Stage 3: Reduction of Waste of Resources in
Business Process (1965-1985)
Stage 4: Creation of Value Through Effective
Value creation
Resource Use (by 1995)
evo of MA - nsam

STAGE 1: Cost Determination &

Financial Control
Prior to 1950
MA described as a technical activity
necessary to achieve organizational
objectives
Concerned primarily with internal
matters especially production
capacity
Mainly focused on determination of
product cost
Eg of MA techniques used LIFO &
FIFO stock
valuation methods,
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STAGE 2:

Information For
Management Planning and
Control
1950 - 1964
Focus more on providing
information for planning and
control purposes
Eg. Marginal costing, CVP
analysis and responsibility
accounting
Management control were
oriented
evo of MA - nsam

STAGE 3:

Reduction of Waste of
Resources in Business Process
1965 - 1984
Global competition was very stiff &
companies worldwide looking for ways to
minimise waste & improving their value
added activities
More process analysis made together with
cost management efforts
Eg. JIT & ABC
evo of MA - nsam

STAGE 4:
CREATION OF VALUE
THROUGH EFFECTIVE
RESOURCE USE

1985 to date
Focus on enhancing the creation of
value through resources
Tried to identify factors/drivers that
could potentially increase shareholders
value & eliminate non-value added
activities
Eg. TQM, ABM & Re-engineering
evo of MA - nsam

Informally identified and

categorised Stage # 5:

In the early 21st Century,

management focus more
on risk management and
strategic management
accounting

evo of MA - nsam

RELEVANCE LOSS OF MA IN
MODERN BUSINESS
ENVIRONMENT
(Kaplan & Johnson, 1987)

evo of MA - nsam

Relevance

lost

by Kaplan & Johnson (1987)

is an overview of the
evolution of
management accounting
in American business,
from textile mills in the
1880s and the giant
railroad, steel, and retail
corporations, to today's
environment of global
competition and
computer-automated
manufacturers.
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MA Relevant Lost:
Four criticisms by Johnson & Kaplan
Limited technical developments within MA
practices despite major changes occurred in
manufacturing technology
MA information was found to be historical, less
timely and too aggregated
The accounting academics failed to innovate &
address the issues of the practice in their
teaching
The development on MA had slowed down ,
causing MA to lose its relevance in the new
millennium
sma ~nsam

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 The book shows that

modern corporations
must work toward
designing new
management accounting
systems that will assist
managers more fully in
their long-term planning.
Suggests that in order to
sustain & remain
relevant MA has to keep
up to date in line with
the changes that occur
in the environment

RELEVANCE LOST: K & J (1987)

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THE RELEVANT LOST:

The rise and fall of Management
Accounting (Johnson & Kaplan, 1987)

Argued that MA has to change if it is to

provide appropriate support to managers in
a changing environment
The old system developed was no longer
suitable for the current environment

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MA & ENVIRONMENTAL CHANGE

ENVIRONMENTAL
CHANGE

ORGANISATIONAL
CHANGE

evo of MA - nsam

CHANGES IN
MA CONCEPTS
& PRACTICES

14

evo of MA - nsam

THE
END
OF
TOPIC
1

15

NOW

LETS
DISCUSS
ABOUT
YOUR
FORTHCOMI
NG
GROUP
WORK
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TOPICS FOR SMA PROJECTS:

1.JustinTime (JIT) including back flush
accounting
& Kaizen Costing

2. Total Quality Management (TQM)

including Quality Costs & Life Cycle Costing

3. Target Costing & Business Process Reengineering

4. Customer Profitability Analysis &

Pareto Analysis

5. MRP, MRP II & ERP

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