Management Accounting in China and Southeast Asia: Empirical Studies on Current Practices (Contributions to Management Science) 3030662446, 9783030662448

Table of contents :
Foreword
Acknowledgments
Contents
About the Editors
Introduction
References
Chinese Enterprises´ Use of Management Accounting Tools
1 Introduction to the Chinese Economy
1.1 Brief Economic History
1.2 China´s Balance of Payments and Trade Structure
1.3 China´s Fiscal, Monetary, and Exchange Rate Policies
1.4 Problems
2 Overview of Management Accounting in China
2.1 The Chinese Accountancy Profession
2.2 Development of Chinese Management Accounting
3 Literature Review and Hypotheses
3.1 Management Accounting Evolution
3.2 Institutional Theory
3.3 Employee Motivation Theory
3.4 Information Science Theory
3.5 Hypotheses
4 Research Methodology
4.1 Survey and Interview Questionnaires
4.2 Data Collection
4.3 Descriptive Characteristics of the Surveyed Enterprises
4.4 Descriptive Characteristics of the Survey Respondents
4.5 Descriptive Characteristics of Interview Respondents
5 Findings
5.1 H01: More Traditional Versus Newer MATs
5.2 H02, H03, and H04: MATs´ Usage Frequency, Satisfaction, and Perceived Importance
5.3 H05: Tool Users´ Versus All Respondents´ Perceptions of MATs´ Importance
6 Discussion
7 Case Studies: Convergence and Form of Ownership
8 Limitations, Research Suggestions, and Conclusions
Appendices
Section 7 t-Tests (All Respondents)
Section 7 t-Tests (Only Users)
References
Management Accounting Practices in Indonesia
1 General Portrayal of Indonesia and Its Economy
2 Accounting System, Accounting Standards, and Accounting Profession in Indonesia
3 The Need for Professional Accountants in Indonesia
4 Research Method
5 Empirical Findings
6 The Results of Content Analysis
7 Conclusion
References
Management Accounting Practices in Export-Oriented Manufacturing Small and Medium Enterprises in Malaysia
1 Introduction
2 Background of Malaysia
3 Introduction to Malaysia´s Political and Economic Landscapes
4 The Accounting Profession in Malaysia
5 Other Related Issues
6 Study Objectives
7 Small and Medium Enterprises (SMEs) in Malaysia
8 Perceived Environmental Uncertainties
9 Traditional Management Accounting Practices
10 Contemporary Management Accounting Practices
11 The Emergence of Digital Technology
12 Data Collection Process
13 Research Findings
14 Conclusion
15 Limitations and Suggested Future Study
Appendix
References
The Stages of Management Accounting Evolution in Taiwan´s Hotel Industry: Evidence from Taipei City
1 Introduction to Taiwan Economy and Hotel Industry
2 The Accounting Profession in Taiwan
3 IFAC Evolution Model and Literature Review
3.1 IFAC Evolution Model
3.2 Literature Review on Management Accounting Evolution and Practices
3.3 Management Accounting Environment in Taiwan
4 Research Background
5 Methodology
5.1 Methods
5.2 The Instrument
5.3 Sample Firms
6 Empirical Findings
7 Conclusion
8 Limitations and Suggested Future Study
Appendix
References
Management Accounting Practices in Thailand: Case Study of Manufacturing Companies
1 Introduction to Thailand´s Industry
2 The Accounting Profession in Thailand
3 Management Accounting: A Literature Review
4 Management Accounting Practices in Thailand
4.1 Samples
4.2 Data Analysis
4.3 Characteristics of the Participating Manufacturing Companies
5 Results and Discussion
6 Conclusions and Implications
7 Limitations and Suggestions for Future Research
References
Management Accounting Practices in Vietnamese Enterprises
1 Introduction to Vietnam
2 Introduction of Management Accounting Profession in Vietnam
2.1 The History of Management Accounting in Vietnam
2.1.1 The Period Before 1954
2.1.2 The Period from 1954 to 1987
2.1.3 The Years from 1987 to 1994
2.1.4 The Period from 1995 to Present
2.2 Review of Vietnamese Management Accounting Literature
3 Research Methodology
3.1 Data Collection
3.2 Method
3.3 Questionnaires
4 The Current Evolutionary Stages of Management Accounting Practices in Vietnamese Enterprises
4.1 Overview of Data
4.2 Evaluation of Roles of Management Accounting
4.3 The Current Evolutionary Stages
5 Conclusions, Suggestions and Limitations
References

Citation preview

Contributions to Management Science

Robert C. Rickards Rolf Ritsert Kanitsorn Terdpaopong   Editors

Management Accounting in China and Southeast Asia Empirical Studies on Current Practices

Contributions to Management Science

The series Contributions to Management Science contains research publications in all fields of business and management science. These publications are primarily monographs and multiple author works containing new research results, and also feature selected conference-based publications are also considered. The focus of the series lies in presenting the development of latest theoretical and empirical research across different viewpoints. This book series is indexed in Scopus.

More information about this series at http://www.springer.com/series/1505

Robert C. Rickards • Rolf Ritsert • Kanitsorn Terdpaopong Editors

Management Accounting in China and Southeast Asia Empirical Studies on Current Practices

Editors Robert C. Rickards German Police University Münster, Germany

Rolf Ritsert German Police University Münster, Germany

Kanitsorn Terdpaopong Rangsit University Pathumthani, Thailand

ISSN 1431-1941 ISSN 2197-716X (electronic) Contributions to Management Science ISBN 978-3-030-66244-8 ISBN 978-3-030-66245-5 (eBook) https://doi.org/10.1007/978-3-030-66245-5 © Springer Nature Switzerland AG 2021 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Foreword

I am excited to see the publication of the book entitled Management Accounting in China and Southeast Asia—Empirical Studies of Current Practices from Springer Nature Switzerland AG. The chapters in this book represent the culmination of APMAA’s first collaborative research project. It was at the 2016 Asia-Pacific Management Accounting Association (APMAA) Conference in Taipei that colleagues initiated a joint research project on “The Stages of Management Accounting Evolution in Asia-Pacific Area.” Dr. Kanitsorn Terdpaopong from Rangsit University, Thailand; Dr. Normah Omar from Universiti Teknologi MARA, Malaysia; and Dr. Kanibhatti Nitirojntanad from Chulalongkorn University, Thailand, were initiators of APMAA’s first collaborative research project. Their efforts led to a Research Agreement on “The State of Management Accounting Evolution in the Asia-Pacific Region” that was signed by six parties at v

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the APMAA 2018 in Tokyo, Japan. The participants are teams from Malaysia, Indonesia, Taiwan, Thailand, Vietnam, and Germany. The German team investigated management accounting practices in China, and each of the other teams investigated the management accounting practices of their respective countries. I really respect all the authors who have collaborated closely for their splendid work. On behalf of APMAA, I acknowledge the contributions of Dr. Robert C. Rickards, Dr. Rolf Ritsert (both from the German Police University), and Dr. Kanitsorn Terdpaopong, who also served as the editors of this volume, as well as all the project team members. Also, I would like to recognize Dr. Terdpaopong’s effective leadership, passion, and dedication to this research undertaking. I am proud to be associated with her in APMAA. Please allow me to introduce briefly the Asia-Pacific Management Accounting Association (APMAA), a community of accountants in academia and practice. The formation of the Asian Management Accounting Association was proposed at a meeting of the Asian Management Forum, which was APMAA’s first forum, held in November 2002, Fukuoka, Japan. Members gathered from universities across the Asia-Pacific region all shared the same vision: advancing management accounting research and practices regarding the Asia-Pacific region. They discussed how to set up a voluntary academic organization for disseminating management accounting research and meeting Asian countries’ changing needs in this area. The discussion led to the establishment of the Asia-Pacific Management Accounting Association (APMAA) at the 2004 conference held in Shah Alam, Malaysia. Since that time, conference participants have continued to share the objectives of disseminating and advancing management accounting research and practice in the region. APMAA annual conference organizers have focused on providing regional researchers an easy-to-access platform for publicizing their study results. By being a forum for the presentation and discussion of research papers, APMAA serves as an intellectual seedbed that, over time, has expanded participants’ viewpoints and afforded them new insights. Furthermore, conference participants have opportunities to develop and expand their collegial networks. This book, authored by APMAA members, is a collection of manuscripts that report the results of studies on the evolution and change in management accounting practices in the above-described six Asian countries. Each study explored factors influencing adoption and implementation of management accounting practices in a sample country. The stage of management accounting practices of every sample country is discussed with reference to the IFAC (International Federation of Accountants) evolution model (1998). The IFAC’s model describes management accounting evolution as occurring in four different stages: Stage 1—Cost determination and financial control (pre-1950); Stage 2—Information for management planning and control (by 1965); Stage 3—Reduction of resource waste in business processes (by 1985); and Stage 4—Creation of value through effective resource use (by 1995). Note that each stage encompasses the concepts of the previous stage and incorporates additional ones that arose out of a new set of conditions. What are the empirical results? Here, I describe the Thai sample result. Thai manufacturing firms utilize traditional MAPs (Stages 1and 2). The stage with the least usage is Stage 3.

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The researchers’ cluster analysis shows that most of the samples fall into Stage 2 of the IFAC evolution model. Should we care about this book? I say, yes! Today’s world is changing rapidly as evidenced by technological disruptions and such developments as artificial intelligence (AI), big data, cryptocurrencies, and so forth. Management necessarily must keep up with and adapt to these changes. Management accounting practices also progress over time; however, the practices differ from firm to firm, and from country to country, depending on various factors. A cross-national study provides managers a big picture about their relative situation and helps to compare it with the circumstances of different firms in other countries. The Asia-Pacific region—which accounts for two-thirds of the global economy—is the fastest growing and remains the world’s most dynamic area by a considerable margin. With the IFAC evolution diagram, researchers can illustrate where management accounting practices (MAPs) of a country in this important region stand. I am deeply honored to be asked to write this foreword; however, I confess that I have struggled to prepare sentences that do justice to this work. Indeed, the authors’ passion for this project, combined with their relentless drive to produce rigorous outputs and to address so many important issues, is hard to describe. I believe you will realize the importance of their analyses and assertions as you work through the chapters. The best way is just to encourage you to learn for yourself. I do hope you will enjoy reading this book. Asia-Pacific Management Accounting Association, Konan University, Kobe, Japan March 2020

Susumu Ueno

Acknowledgments

The first APMAA joint research project has been completed successfully. Whenever such a comprehensive, international, multiyear investigative effort leads to the publication of the results, debts of gratitude accumulate. To begin with, we thank the President of the Asia-Pacific Management Accounting Association, Prof. Dr. Susumu Ueno. Without his support for management accounting in the Asia-Pacific Region, this first APMAA joint research project likely would not have taken place. Prof. Dr. Ueno lent valuable support to all phases of the project from its conception in 2016, through signing of the project charter at the 2018 APMAA Conference in Tokyo, to the preparation of the manuscript in 2020. His dedication and expertise inspired every project participant. We also appreciate and would like to thank the APMAA Executive Board of Directors, which continuously supported the joint research project. Editors have a pleasant task when their interactions with contributors are characterized by high-quality work and punctuality. Accordingly, we especially thank the authors, who independently planned, implemented, and reported the studies undertaken in their respective subject countries. In addition to the excellent comments and reviews made at the 2019 APMAA Conference in Qatar, selected authors gave useful feedback in cross-reviewing the individual country chapters. These contributions underscore the fact that this book is the product of a genuine team effort. Moreover, all the chapters underwent a three-stage review process in order to ensure their quality. We are happy to say that the authors’ participation in this elaborate process was marked by their diligence and quality consciousness. We also thank Dr. Prashanth Mahagoonkar of Springer Nature Switzerland AG. He demonstrated great interest in the project, facilitated the book’s inclusion in the publisher’s “Contributions to Management Science” series, and made numerous helpful suggestions. Mr. Michael Evers, research assistant in the Department of Public Business Administration and Public Management at the German Police University, supervised the various processes associated with technical editing and updating the manuscript. He accepted responsibility for these complex tasks, executing them with great care and reliability. We thank him warmly for his work. We also thank Mr. Martin ix

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Lederer for his linguistic review and proofreading, which further enhanced the quality of the manuscript. Finally, we thank the German Police University for its generous financial support in preparing the manuscript for publication. The publication of this volume officially ends the first APMAA joint research project. Through collegial collaboration with the investigators from the countries involved, we have deepened our knowledge of management accounting in the AsiaPacific Region. We hope that this book also will prove insightful for other interested readers. Although this project now has been completed, we hope that APMAA will continue such joint research projects in the future. After all, each ending can be the start of something new too.

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Robert C. Rickards, Rolf Ritsert, and Kanitsorn Terdpaopong

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Chinese Enterprises’ Use of Management Accounting Tools . . . . . . . . . . Robert C. Rickards and Rolf Ritsert

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Management Accounting Practices in Indonesia . . . . . . . . . . . . . . . . . . . Grahita Chandrarin and Diana Zuhroh

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Management Accounting Practices in Export-Oriented Manufacturing Small and Medium Enterprises in Malaysia . . . . . . . . . . . . . . . . . . . . . . Ibrahim Morshidi, Normah Omar, Jamaliah Said, Suzana Sulaiman, and Ibrahim Kamal Abdul Rahman

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The Stages of Management Accounting Evolution in Taiwan’s Hotel Industry: Evidence from Taipei City . . . . . . . . . . . . . . . . . . . . . . . 109 Hsuan-Lien Chu and She-Chih Chiu Management Accounting Practices in Thailand: Case Study of Manufacturing Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 Kanitsorn Terdpaopong, Nimnual Visedsun, and Kanibhatti Nitirojntanad Management Accounting Practices in Vietnamese Enterprises . . . . . . . . 161 Thi Phuong Dung Nguyen, Thi Hong Thuy Nguyen, Thi Huong Lien Nguyen, and Thi Hai Ha Nguyen

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About the Editors

Robert C. Rickards, PhD, is a Professor of Accounting and Finance as well as Research Professor and Director of the PhD Workshop Program at the German Police University in Münster, Germany. In addition, he teaches regularly at Universitá Roma Tre, Uniwersytet Lodzki, and Polytechnika Krakowska. He has directed numerous research projects for companies, foundations, and government agencies. He has authored a trilogy of textbooks on budget planning, cost controlling, and performance evaluation. He also serves on the Board of Directors of the Asian-Pacific Management Accounting Association and the editorial boards of several international journals. Rolf Ritsert Prof. is Professor and Head of the Department of Business Administration—Public Management at the German Police University in Münster, Germany. He has directed research projects for the European Union, various companies, and for the German federal and state governments. He has acted as an advisor to various National Security Authorities, the Federal Ministry of the Interior in particular. His research work has received awards from the German Institute for Urbanistic (Difu), the German Association for Quality (DGQ), the Deutsche Bank AG, and the Helmut Schmidt University, Hamburg. In addition, he has edited two book series. Kanitsorn Terdpaopong, PhD, serves as Program Director at Rangsit University, Thailand. Her research interests are in small and medium-sized enterprises; succession plans for SMEs; business valuation; and management accounting practices. She received grants from Thai public research organizations such as Thai Research Fund and the Office of Higher Education Commission and international grants such as Australian-ASEAN Council, Department of Foreign Affairs and Trade in 2017–2018; a grant from the Australian Government, Department of Education and Training as a 2018 Endeavour Executive Fellowship; and a grant from Ministry of Foreign Affairs of the Republic of China on Taiwan Fellowship Program 2018.

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Introduction Robert C. Rickards, Rolf Ritsert, and Kanitsorn Terdpaopong

Abstract This chapter describes the origins of Management Accounting in China and Southeast Asia as a collaborative project undertaken by members of the AsiaPacific Management Accounting Association. It places the project in the context of the region’s socioeconomic development, gives a brief overview of the subsequent country-specific studies, and highlights some of the studies’ main findings. The Asia-Pacific Management Accounting Association (APMAA) is a community of academic experts and professional practitioners. It is a forum that supports high-quality research, teaching, continuing education, and policy development with regard to management accounting in the Asia-Pacific region. To do so, APMAA brings together colleagues from all over the world. Accordingly, it creates ideal preconditions for collaborative endeavors. This volume is the product of one such joint effort. It offers deep insights into the current practice of management accounting in selected countries of East and Southeast Asia that the research team would like to disseminate among persons sharing its interests. Rather than final conclusions, though, the book represents just the beginning of comparative research in this area. Hopefully, it will stimulate discussion among other investigators and motivate them to undertake additional studies in the Asia-Pacific region.

Robert C. Rickards, Rolf Ritsert, and Kanitsorn Terdpaopong are also the volume editors for this book. R. C. Rickards (*) · R. Ritsert Department of Public Business Administration and Public Management, German Police University, Münster, Germany e-mail: [email protected] K. Terdpaopong Faculty of Accountancy, Rangsit University, Pathumthani, Thailand © Springer Nature Switzerland AG 2021 R. C. Rickards et al. (eds.), Management Accounting in China and Southeast Asia, Contributions to Management Science, https://doi.org/10.1007/978-3-030-66245-5_1

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Introduction Most scholars know that China is the country with the world’s largest population (approximately 1.4 billion persons) and second-largest economy. However, fewer of them are aware that the Association of Southeast Asian Nations (ASEAN) has a total population of nearly 650 million people or that, taken together, its 11 member countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Timor-Leste) comprise the world’s fifth-largest economy. In 2018, their total combined GDP was valued at US$ 3.0 trillion. Only the USA (US $ 20.5 trillion), China (US$ 13.4 trillion), Japan (US$ 5.0 trillion), and Germany (US $ 4.0 trillion) had a larger GDP than the region. Intra-ASEAN trade continuously accounts for the largest share of the region’s total imports and exports (in 2018, 24.1% of total merchandise exports and 21.8% of merchandise imports). Nevertheless, external trade markets are important too, with China (17.2%), the EU-27 (10.2%), and the USA (9.3%) being ASEAN’s top three trading partners. Also located in the region of East and Southeast Asia is Taiwan. Although its 2019 population was just 23.8 million, its GDP of US$ 538 billion placed Taiwan’s per capita income second in this area (after Singapore) and twenty-second in the world. Summed across a country’s enterprises, management’s business decisions have a major impact on the structure, effectiveness, and efficiency of the national economy. Management accounting plays an important role in supporting both a company’s short-run operational and long-run investment decisions. Accordingly, as the economic importance of China, the ASEAN countries, and Taiwan has grown, so too has the attention paid both to their diverse societies, which display fascinating cultural variation, and to their management accounting. Their populations encompass dozens (and in some cases, hundreds) of different ethnic groups, many with distinctive languages as well as their own characteristic creativity and technological prowess. Because they also are regarded as cultural artifacts (Ferguson et al. 2006), one also might expect management accounting systems in this part of the world to exhibit corresponding similarities and differences. The following chapters of this book compare and contrast current management accounting practices (MAPs) in China, four key ANSEAN countries (Indonesia, Malaysia, Thailand, and Vietnam), and Taiwan. The analyses rely on a model published by the International Federation of Accountants (IFAC 1998). As explained in greater detail in several of the individual country chapters, the model identifies four successive stages of increasingly sophisticated MAPs development. It suggests that, as economies develop, management accounting systems evolve and adopt more advanced techniques and tools. Given that developing economies characterize most of East and Southeast Asia, it is unsurprising that the more traditional instruments of the IFAC model’s early phases seem to enjoy the most widespread employment. Nevertheless, the country chapters show that more modern practices are present too and, in some cases, are finding growing acceptance. The chapter on China reports results from a study that used an online survey and personal interviews to explore several aspects of Chinese enterprises’ adoption of management accounting tools. There is great variation among the companies covered with regard to branch of industry, number of employees, annual sales revenue,

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and ownership form. Among its conclusions is the finding that, in keeping with the IFAC model, more traditional tools are in more widespread use than newer ones are. Furthermore, managers in joint ventures with foreign partners, state-owned enterprises, and privately-owned enterprises differ in their frequency of use of, satisfaction with, and importance assigned to selected management accounting tools. In the future, it may be helpful for Chinese policymakers, practitioners, and scholars to keep these insights in mind when developing and applying measures similar to the Basic Standard for Enterprise Internal Control and the “4 + 1” management accounting model. The chapter on Indonesia presents empirical evidence about traditional and strategic management accounting practices in companies in Indonesia. The data collection method used a questionnaire and content analysis of job vacancies published on the websites of Indonesian firms. The data analysis employs descriptive statistics based on the average intensity of the practices’ usage. The results show that strategic management accounting techniques for budgeting, costing, and performance evaluation still are utilized intensively. Meanwhile, for the implementation of a strategic management accounting system, the five most frequently used tools are Activity-Based Management, Analysis of Competition, Industry Analysis, and Long-Range Forecasting, and Value Chain Analysis. This study concludes that traditional management accounting system practices remain the ones most intensively used, but that intensive usage of a strategic management accounting system has begun to take hold. The chapter on Malaysia examines the adoption of management accounting practices among the export-oriented manufacturing small- and medium-size enterprises (SMEs) in selected Malaysian industrial hubs. The study’s objectives were to evaluate the level of perceived business uncertainty faced by these SMEs and to explore their level of adoption of management accounting practices. From a total 410 questionnaires distributed to the companies, seventy-eight (or 19%) returned the completed surveys, which then were analyzed. The results of the study show that, overall, the exporting firms mainly market their products within the ASEAN region, and therefore most respondents perceived their business environment as being “stable and predictable.” With regard to MAPs, they place greater reliance on traditional rather than more recently developed practices. The chapter on Taiwan investigates how management accounting in the hotel industry has evolved there. Taipei City, the capital of Taiwan, is where many medium- and large-size hotels are located. A survey questionnaire was used to collect management accounting information from them. The data gathered then underwent cluster and discriminant analyses. The study shows that the majority of sample hotels utilize cost determination and financial control practices, which mainly are in the IFAC model’s stage 1, relying more on traditional management accounting practices. Nevertheless, there also is significant movement toward provision of information for more sophisticated management planning and control practices. A possible explanation for these findings is that most of the sample hotels are family-owned, which hinders nonfamily operational managers in emphasizing planning and control as well as in reducing the waste of business resources.

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The chapter on Thailand analyzes management accounting practices in large Thai manufacturing companies. In this study, questionnaires first were sent to 1500 companies. Next, cluster analysis was used to assign the data gathered into four hierarchical agglomerative groups. Then, discriminant analysis was employed to ensure the accuracy of the clustering. The results show that large Thai firms rely more on the use of traditional MAPs. This finding is in keeping with previous research. Nevertheless, Thai firms also increasingly have adopted and implemented several modern management accounting techniques. Taken together, these findings are important for the companies themselves as well as for professional organizations and scholars. Because Thailand is an emerging-market country, advanced accounting tools definitely will influence its companies’ management and decision-making, thus supporting their growth and profitability. The chapter on Vietnam explores the extent to which various management accounting practices have been implemented in Vietnamese enterprises. The study used a questionnaire to survey 700 enterprises. The results indicate that the majority of the Vietnamese enterprises are in the first two stages of the IFAC model. Fewer enterprises have reached the higher stages 3 and 4. In addition, the respondents perceive the most important roles of management accounting to be evaluation of enterprise performance, planning and controlling, and support for production or investment decision-making. Yet, not many of them seem to appreciate the role modern management accounting can play in enhancing the efficiency of resource usage and reducing the cost of waste. This research thus provides empirical evidence on the current state of MAPs in Vietnamese enterprises relative to an internationally accepted model. In addition, it also identifies areas with great potential for evolutionary development in the future. In summary, the enterprises of the studied countries in the Asia-Pacific region generally recognize the importance of MAPs. Nevertheless, their current practices mostly involve the more traditional instruments associated with the lower stages 1 and 2 of the IFAC development model. The more modern tools covered by the model’s higher third and fourth stages are less widely employed. Because different instruments emerged with each stage of management accounting’s evolution in Western countries, it seems plausible that the more traditional instruments might be more ubiquitous in the enterprises of developing economies because they have had more time to gain acceptance there than newer ones have (Rufino 2014; Ahmad and Zabri 2016; Mohamad and Wahab 2017; Sadeghi 2018). Be that as it may, the less widespread acceptance of the more modern instruments suggests that companies in the Asia-Pacific region still have considerable room to improve their performance by adopting and utilizing these tools. On the other hand, the IFAC model itself is badly in need of an update. It needs to incorporate the demands and effects on management accounting that more recent developments have had and are continuing to have. Among those developments are advances in artificial intelligence, new concepts such as Industry 4.0, environmental and sustainability accounting, further regionalization, and possible reglobalization as well as strategic options to create value from the uncertainty surrounding everwidening swings in international economic cycles due to financial crises and serial

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pandemics. In this regard, there clearly is a wealth of topics for APMAA members to add to their research agendas.

References Ahmad K, Zabri SM (2016) Management accounting practices among small and medium enterprises. In: Proceedings of the 28th international business information management association conference. IBIMA, Seville, Spain, pp 3627–3637 Ferguson J, Collison D, Power D, Stevenson L (2006) Accounting textbooks: exploring the production of a cultural and political artifact. Acc Educ 15(3):243–260 International Federation of Accountants (IFAC) (1998) International management accounting practice statement: management accounting concepts. IFAC, New York Mohamad Z, Wahab KA (2017) The relationship between management accounting practices and performance of the small and medium enterprises in Libya: a proposed conceptual framework. Eur J Bus Manag 9(26):108–115 Rufino HD (2014) Management accounting practices (MAPs) of small and medium-sized manufacturing enterprises in the city of Tarlac. Rev Integr Bus Econ Res 4(1):55–74 Sadeghi M (2018) Management accounting practices in small and medium-sized enterprises regarding the impact of organizational DNA, commercial potential and operational technology. Int J Bus Quant Econ Appl Manag Res 4(8):22–31

Chinese Enterprises’ Use of Management Accounting Tools Robert C. Rickards and Rolf Ritsert

Abstract Purpose: To explore Chinese enterprises’ adoption of management accounting tools, the frequency of their use, managers’ satisfaction with them, and the tools’ perceived importance. Design/methodology/approach: Online survey, personal interviews, correlation, and t-test analyses. Findings: The management accounting instruments utilized by Chinese enterprises vary widely. Nevertheless, in keeping with the evolutionary theory of management accounting instrument development, more traditional tools enjoy more widespread use than newer ones do. The frequency of a tool’s employment, managers’ satisfaction with it, and their perception of its importance are highly correlated. Yet, a sample subgroup consisting only of tool-users does not differ significantly from all respondents regarding the instruments’ importance. Research limitations: There being no readily accessible source to ensure random selection of the units of analysis, the study relies on a convenience sample, management accounting tools employed in earlier research, and financial executives’ interview responses. Examination of a random sample, different management accounting instruments, and respondents in other managerial functions conceivably could yield divergent results.

1 Introduction to the Chinese Economy Over the last four decades, the Chinese economy has experienced astonishing growth, becoming the world’s second-largest economy. Following the introduction of its economic reform program in 1978, China became the world’s manufacturing hub, where the secondary sector (comprising industry and construction) represented

R. C. Rickards (*) · R. Ritsert Department of Public Business Administration and Public Management, German Police University Münster, Münster, Germany e-mail: [email protected] © Springer Nature Switzerland AG 2021 R. C. Rickards et al. (eds.), Management Accounting in China and Southeast Asia, Contributions to Management Science, https://doi.org/10.1007/978-3-030-66245-5_2

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the largest share of GDP. However, in recent years, China’s modernization has propelled the tertiary sector. In 2013, it became the largest category of GDP with a share of 46.1%, while the secondary sector still accounted for a sizeable 45.0% of the country’s total output. Meanwhile, the weight of the primary sector (agriculture and mining) in GDP has shrunken dramatically (N/A 2019). China weathered the global economic crisis better than most other countries. In November 2008, its State Council unveiled a CNY 4.0 trillion (USD 585 billion) stimulus package in an attempt to shield the country from the worst effects of the financial crisis. The massive stimulus program fueled economic growth mostly through massive investment projects, which triggered concerns that the country could have been building up asset bubbles, overinvestment, and excess capacity in some industries. However, given the solid fiscal position of the government, the stimulus measures did not derail China’s public finances. Still, the global downturn and the subsequent slowdown in demand did have a severe impact on the external sector and the current account surplus diminished accordingly. China nevertheless exited the financial crisis in good shape, with its GDP growing above 9%, low inflation, and a sound fiscal position. However, policies implemented during the crisis to foster economic growth exacerbated the country’s macroeconomic imbalances. Specifically, the stimulus program bolstered investment, but household consumption remained relatively low. In order to tackle these imbalances, beginning in 2012, the new administration of President Xi Jinping and Premier Li Keqiang introduced economic measures aimed at promoting a more balanced economic model at the expense of once-sacred rapid economic growth. China became the world’s largest exporter in 2010 and the largest trading nation in 2013. In 2014, its economy surpassed that of the USA for the first time in modern history. In 2016, China continued to stand as the world’s largest economy, measured on a purchasing power parity (PPP) basis that adjusts for price differences. Still, China’s per capita income is below the world average (CIA 2019).

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Brief Economic History

After Mao Zedong’s death in 1976, Deng Xiaoping—who headed the second generation of Chinese leadership—became China’s paramount leader and pushed ahead bold reforms that reshaped the country’s economy. At the Third Plenum of the 11th Central Committee of the Communist Party of China, held in December 1978, Deng announced the official launch of the Four Modernizations in the fields of agriculture, defense, industry, and science and technology. That marked the beginning of the economic reform and Open-Door policies. Economic reforms under Deng’s aegis increased the role of market mechanisms and reduced government control over the economy, while the Open-Door policy allowed foreign businesses to set up in China. The measures included, among others, breaking up collective farms, opening China to foreign investment, encouraging business entrepreneurship, establishing Special Economic Zones, and introducing state-owned companies to

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market incentives. In addition, China began participating in the global economy, and the country joined both the International Monetary Fund (IMF) and the World Bank in 1980. In the early 1990s, Jiang Zemin, who represented the third generation of Chinese leadership, became the country’s new top leader. His administration implemented substantial economic reforms. For example, it either privatized or liquidated most state-owned companies (except large monopolies). Doing so expanded the private sector’s role in the economy, but at the cost of leaving millions of workers unemployed. Exponential growth of small, private businesses eventually absorbed them. During the same period, President Jiang and Premier Zhu Rongji reduced trade barriers; ended state planning; introduced competition, deregulation, and new taxes; reformed and bailed out the banking system; and drove the military stratum out of the economy. In addition, Jiang guided China to join the World Trade Organization in December 2001, buttressing the country’s foreign trade. In 2002, Jiang Zemin stepped down as the General Secretary of the Communist Party, thereby initiating the transition to a fourth generation of leadership, led by President Hu Jintao and Premier Wen Jiabao. The Hu-Wen administration attempted to reduce the income gap between the coastal cities and the countryside because China’s skyrocketing growth mostly benefited just one part of the population. They increased subsidies, scrapped agricultural taxes, slowed privatization of state assets, and promoted social welfare. Despite governmental efforts to prevent overheating, by the mid-2000s, the economy experienced unprecedented economic growth mainly due to booming exports, resilient private consumption, soaring manufacturing output, and massive investment. However, the 2008 global financial crisis forced the Chinese authorities to reverse some policies and instead to launch an aggressive stimulus package together with a loose monetary policy. The fifth leadership generation came to power in 2012, when President Xi Jinping and Premier Li Keqiang took over the reins of the country. The new Xi-Li administration unveiled an ambitious reform agenda in an attempt to change the country’s fundamental economic policies and ensure a sustainable growth model. In this regard, authorities expressed their willingness to tolerate lower growth rates as a necessary condition to push forward economic reforms. Xi coined the term “Chinese dream” as his contribution to the guiding ideology of the Chinese Communist Party. Although vague, the “Chinese dream” emphasizes the idea of a strong China and the happiness of its people. This dream has endured some growing pains. Although still solid, economic growth has slowed. In 2015, the Chinese economy missed its 7.0% growth target for the year by 0.1 percentage points, marking the first time in two decades that growth came in below target. Additionally, investment in manufacturing and infrastructure has slowed as the nation shifts from an investment-driven growth model to one more focused on consumer demand. Nevertheless, the private economy has become the most energetic, promising, and creative force in the “socialist market economy with Chinese characteristics.” It is an important force for promoting China’s economic development.

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Since the start of reform and opening up, privately owned enterprises (POEs) have played an important role in creating employment, generating tax revenue, and promoting economic development. In recent years, POEs have become the economic bright spots. Among the newly released top 500 Chinese enterprises in 2018, private-sector enterprises comprised 237, an increase of 11 over the previous year. At present, the total assets of the top 500 private-sector enterprises exceed 28 trillion yuan ($4 trillion), and their total net profit after taxes has breached 1 trillion yuan ($144.5 billion) for the first time. A private-sector enterprise’s flexibility facilitates its fitting into the market, making it more effective in optimizing industrial structures as well as promoting technological innovation, transformation, and upgrading. About 65% of China’s patents, over 75% of its technological innovations, and more than 80% of new product development originate in the private sector. Furthermore, although it is a relatively new force in the national economy, the private sector is the main source of jobs. According to statistics from the National Federation of Industry and Commerce, the private economy provides more than 80% of jobs in urban employment, contributes more than 90% to new employment, and has absorbed more than 70% of labor transferred from rural areas. By the end of 2017, there were more than 27 million private-sector enterprises in China and more than 65 million individual industrial and commercial households, with registered capital exceeding 165 trillion yuan ($23.8 trillion). The private economy thus accounted for more than 60% of the GDP and more than 50% of total tax revenue (Zhang 2018).

1.2

China’s Balance of Payments and Trade Structure

China’s external position is extremely solid. The current account has recorded a surplus in every year since 1994. The capital account has followed suit and has recorded only two deficits in the last 20 years. These surpluses in both the current and the capital accounts have put pressure on the national currency and prompted the Central Bank to sterilize most of the foreign currency that entered the country. As a result, China’s foreign exchange reserves skyrocketed to almost USD 4.0 trillion in 2014. The current account surplus reached its peak in 2007, when it represented 10.1% of GDP. Since then, however, the surplus has narrowed somewhat as the currency strengthened and domestic demand increased. China’s capital account is subject to controls, which means that the country lacks the freedom to convert local financial assets into foreign ones at a market-determined exchange rate and vice versa. The new Xi-Li administration and the People’s Bank of China vowed to accelerate interest rate liberalization and capital account convertibility. In this regard, Chinese authorities have started to implement some measures, such as removing a cap on foreign-currency deposit rates in Shanghai and relaxing some controls on the currency.

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The capital account has benefited from strong inflows of Foreign Direct Investment (FDI). FDI has performed strongly in the last decade, with record inflows of USD 118 billion in 2013, thereby making China the second-largest recipient of foreign investment. Among the countries investing more in China are Hong Kong, Singapore, Japan, Taiwan, and the USA. Likewise, China’s outward investment has soared in recent years. According to some analysts, the country could become a net exporter of capital in the coming years. This possibility has arisen because China has experienced uninterrupted trade surpluses since 1993. Total trade multiplied by a factor of nearly 100 to USD 4.2 trillion in only three decades and, in 2013, China surpassed the USA as the world’s biggest trading nation. The opening of the country to foreign capital and the government’s massive investment programs have transformed China into a major manufacturing hub. This situation also has fostered trade growth. As an economy highly integrated into the global trade system, the country has benefited from a steady improvement in its terms of trade since 2000. However, the global economic downturn in 2008–2009 led the country to reduce its manufacturing output, which temporarily slowed China’s trading sector. Over the years, the country has engaged in several bilateral and multilateral trade agreements that have opened new markets for its products. In 2003, China signed the Closer Economic Partnership Arrangement with Hong Kong and Macau. A Free Trade Agreement (FTA) between China and the ASEAN nations came into effect in January 2010, which created the world’s third-largest free trade area in terms of nominal GDP. China also established FTAs with other countries including Australia, Chile, Costa Rica, Korea, Pakistan, Peru, New Zealand, and Singapore. In addition, there are currently more FTAs under negotiation with the Gulf Cooperation Council, Japan, Norway, and Sri Lanka.

1.3

China’s Fiscal, Monetary, and Exchange Rate Policies

Before 1978, China had a highly centralized fiscal system, which mainly reflected the country’s planned economy. The central government collected all revenues and allocated all the spending of the administration and public institutions. Then, in parallel with the reforms implemented in the country by Deng Xiaoping, the government began to decentralize the fiscal system. In 1994, the government launched a bold fiscal reform in order to offset a rapid decline in the tax/GDP ratio, which dampened the government’s ability to conduct macroeconomic and redistributive policies. The flagship of the reform was a new taxation system and the adoption of a tax-sharing scheme, where the most lucrative sources of tax revenues, such as the Value-Added Tax and the Enterprise Income Tax, were administered by the central government. The result of this reform was a steady increase in revenues, which jumped from 10.8% of GDP in 1994 to 22.7% of GDP in 2013. Expenditures followed suit and

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increased at a double-digit rate in the same period, while the fiscal deficit was kept in check. In the 1994–2013 period, the government’s fiscal deficit averaged 1.4% of GDP. The new system, however, left local governments with fewer sources of revenue. As a result, they had to rely on land sales and indirect borrowing (mostly so-called shadow banking) to finance their activities. In addition, local governments put in place off-budget local government financing vehicles to raise funds and pay for investment projects. Although debt was (and supposedly still is) at manageable levels, an increase in reliance on shadow banking and the rapid pace of debt accumulation is worrisome. In an effort to increase revenue sources for local governments, in August 2014, the National People’s Congress passed amendments to the budget law, allowing provincial governments to issue bonds directly. This move paved the way for local governments to raise debt in the bond market and increase the transparency of their finances. China’s governmental debt is denominated almost entirely in local currency and owned by domestic institutions. In addition, the government has cash savings equivalent to 6% of GDP in the People’s Bank of China. This situation shields the economy against government debt crises. In 2015, public debt amounted to only 15.6% of GDP. Under the guidance of the State Council, the People’s Bank of China (PBOC) formulates and implements monetary policy, prevents and resolves financial risks, and safeguards financial stability. The PBOC’s main objectives are to ensure domestic price stability, manage the exchange rate, and promote economic growth. At the beginning of each year, the State Council establishes guideline targets for GDP, the Consumer Price Index (CPI), the money supply (M2), and credit growth. The PBOC’s policy rate is the one-year lending rate. The Central Bank recently vowed to maintain a “prudent” monetary policy while conducting policy fine-tuning at an appropriate time during the National People’s Congress (NPC) in March 2016. The Central Bank manages the money supply through Open Market Operations (OMO), which are conducted with both domestic and foreign currencies and comprise repo and reverse repo, government securities, and PBOC bills. The Bank also uses the reserve requirement ratio to influence lending and liquidity. Other instruments that the Central Bank uses to manage and adjust liquidity in the banking system include short-term loans as well as short-term liquidity and standing lending facility operations. The current agenda of China’s top authorities includes bold reforms on interest rate and monetary policy management. Their aim is the adoption of a more marketdriven approach. The IMF describes China’s exchange rate regime as a crawl-like arrangement. The speed and direction of the crawling peg is decided by Chinese authorities according to domestic and international economic developments. The PBOC classifies its system as a managed floating exchange rate regime based on market supply and demand with reference to an undisclosed basket of currencies. The US dollar is likely to constitute a large proportion of that basket’s content. The yuan fluctuates in

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an intraday trading band around an official midpoint rate. On March 15, 2014, the PBOC widened the trading band from
1 to
2. From 1995 to 2005, China kept its currency fixed versus the US dollar at around 8.28 CNY per USD. That was the case until 2005, when it switched to a managed float of the currency to facilitate a controlled appreciation of the CNY. However, in the wake of the global financial crisis, China pegged its currency to the USD at 6.82 CNY per USD from June 2008 to June 2010. Since then, the PBOC has revalued the currency several times in order to align it more closely to its market value. From 2013 until early 2015, the renminbi (RMB) appreciated roughly 2% against the dollar, but the exchange rate fell 13% from mid-2015 until end-2016 amid strong capital outflows in part stemming from the August 2015 official devaluation; in 2017, the RMB resumed appreciating against the dollar—roughly 7% from the end of 2016 to the end of 2017. In 2015, the People’s Bank of China announced it would continue to push carefully for full convertibility of the renminbi, after the currency was accepted as part of the IMF’s special drawing rights basket. While the Chinese yuan is freely convertible under the current account, it remains strictly regulated in the capital account. Although Chinese officials have expressed their willingness to allow the yuan to become fully convertible sometime in the future, since late 2015 the government nonetheless has strengthened capital controls and oversight of overseas investments to better manage the exchange rate and maintain financial stability (CIA 2019). Chinese authorities are gradually enhancing the use of the currency in other parts of the world in order to promote the yuan as a global reserve currency. Although the process is far from being completed, China already has established trade settlements with selected countries and launched a series of currency swap agreements with more than 20 central banks. In addition, China is rapidly expanding the yuan’s offshore market. The opening up of the country’s capital market will be a crucial step in the yuan’s journey to becoming a major reserve currency.

1.4

Problems

As with all economic “miracles,” there also have been negative sides to China’s development. Its rapid growth has had undesirable effects upon many areas of society and the environment. A huge gap between the urban rich and the rural poor has arisen due to the massive incentive and investment programs targeted in the cities and the ideological prohibition on farmers’ owning the land they work. The result has been widespread stagnation. In 2018, urban incomes were nearly three times higher than rural residents’ earnings, roughly the same gap as in 1978! This gap is important both because rural China is where half of the country’s 1.4 billion people live and because its leaders often view the countryside as a much-needed engine for potential growth (Johnson 2019). Furthermore, because economic development has progressed further in coastal provinces than in the interior, by 2016 more

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than 169.3 million migrant workers and their dependents had relocated to urban areas to find work. Choking levels of pollution affect a great number of Chinese cities to such an extent that China can boast the unenviable accolade of being home to 7 of the world’s 10 most polluted cities. Other environmental concerns include the loss of substantial amounts of arable land, soil erosion, and a steady drop in the level of the water table, especially in the North. The Chinese government is seeking to add energy production capacity from sources other than coal and oil, focusing on natural gas, nuclear, and clean energy development. In 2016, China ratified the Paris Agreement, a multilateral measure to combat climate change, and committed to peaking its carbon dioxide emissions between 2025 and 2030. Unemployment has been difficult to contain with huge lay-offs in previously inefficient state-owned enterprises (SOEs). Additionally, a consequence of China’s former population control policy known as the “one-child policy”—which was relaxed in 2016 to permit all families to have two children—is that China is now one of the most rapidly aging countries in the world. These and other domestic problems show only minor signs of receding in the near future (N/A n.d.). With respect to the economy, the Chinese government faces numerous challenges that include (a) reducing its high domestic savings rate and correspondingly low domestic household consumption, (b) managing its high corporate debt burden to maintain financial stability, (c) controlling the off-balance sheet local government debt used to finance infrastructure stimulus, (d) facilitating higher-wage job opportunities for the aspiring middle class, including rural migrants and college graduates, while maintaining competitiveness, (e) dampening speculative investment in the real estate sector without sharply slowing the economy, (f) reducing industrial overcapacity, and (g) raising productivity growth rates through the more efficient allocation of capital and state support for innovation. The government’s 13th Five-Year Plan, unveiled in March 2016, emphasizes the need to increase innovation and boost domestic consumption to make the economy less dependent on government investment, exports, and heavy industry. However, China has made more progress in terms of subsidizing innovation than rebalancing the economy. Beijing has committed to giving the market a more decisive role in allocating resources, but the Chinese government’s policies continue to favor stateowned enterprises and emphasize stability. Chinese leaders in 2010 pledged to double China’s GDP by 2020. In recent years, China has renewed its support for state-owned enterprises in sectors considered important to “economic security,” explicitly looking to foster globally competitive industries. Chinese leaders also have undermined some market-oriented reforms by reaffirming the “dominant” role of the state in the economy, a stance that threatens to discourage private initiative and make the economy less efficient over time (CIA 2019). In addition, the current trade war with the USA continues to weigh on China’s economic growth. Together with weak domestic demand, it likely will be a main factor to watch for some time. Although Chinese authorities are using monetary and fiscal tools to support overall growth, the stimulus is nowhere near the scale adopted

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in the wake of the global financial crisis. Observers see the economy growing 6.2% in 2019, before further decelerating to 6.0% in 2020 (N/A 2019). Thus, China faces a struggle to balance its unrelenting modernization against domestic imbalances and global environmental concerns. Whether there is a desire and drive within its government to implement the appropriate policies is a subject of considerable debate.

2 Overview of Management Accounting in China 2.1

The Chinese Accountancy Profession

As China experienced dramatic changes over the past four decades, so, too, did the Chinese accountancy profession. It originally was established in China in 1918. Along with China’s historical economic reform and opening policies, the accountancy profession was revitalized and reconstructed in 1980. Subsequently, it has grown steadily. With almost 40 years of development and growth, the accountancy profession in China now is widely recognized and respected. Also, accountants have gained an important role in building China’s vigorous economy, where they are entrusted with safeguarding the public interest. Milestones in revitalization of the Chinese accounting profession include the following: 1980—Restoration of CPA system by the Ministry of Finance, approved by the State Council 1986—Promulgation of CPA Regulations by the State Council 1988—Establishment of the Chinese Institute of Certified Public Accountants (CICPA), the national organization of the accountancy profession 1993—Enactment of the Law of the PRC on CPAs, making the Chinese accountancy profession the first intermediary profession to have special legislation 2002—The CICPA made integrity building its main focus in developing the profession 2004—The CICPA’s fourth National Assembly of Delegates further affirmed the focus of building professional integrity and internationalization as the guiding principle for growth. Subsequently, the CICPA launched several development strategies, including training prospective talent, international convergence of standards, and promoting more competitive and bigger Chinese accounting firms. In October 2009, the State Council endorsed the Policy Statements of the Ministry of Finance on Accelerating the Development of the Chinese Accountancy Profession (No. 56 State Council), a guiding document for the long-term development of the accountancy profession in its new phase in the new era. In November 2010, the CICPA’s fifth National Assembly of Delegates re-affirmed three strategies and added two new ones: training prospective talent,

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international convergence of standards, promoting more competitive and bigger accounting firms, developing nonaudit services, and IT-system construction. In September 2011, the CICPA issued its Development Plan of the Chinese Accountancy Profession (2011–2015). In April 2012, Mr. Xi Jinping instructed the accountancy profession to take a firm hold of the mission of serving national construction and to focus on the priority of building professional integrity. He raised new expectations and requirements on the profession to achieve a leap forward in its scientific development. As of December 31, 2014, the CICPA had 8295 accounting firms as group members (accounting firms), of which 40 are qualified to conduct security and future-related business and 11 are authorized to conduct H-share audits. At that time, the CICPA had over 200,000 individual members: 99,045 were practicing members and 103,566 were nonpracticing members. The CPAs furnished professional services to over 4.2 million entities and provided audit and assurance services to over 2500 public companies. The revenue of the Chinese accountancy profession in 2013 reached RMB 56.32 billion. Over the past few years, the growth rate of the profession consistently has surpassed its global counterparts (CICPA 2015).

2.2

Development of Chinese Management Accounting

In recent years, top Chinese Communist Party officials and many enterprise managers have grown aware that the exponential growth rates they enjoyed for three decades are coming to an end. Hence, they have begun to feel a growing need to integrate best management and accounting practices into their own everyday procedures (Ku 2012; Hout and Michael 2014; Huang 2018; Bradsher and Tang 2018). Already in 2008, for example, China issued its Basic Standard for Enterprise Internal Control. This directive details comprehensive requirements companies must meet. The Chinese Ministry of Finance, the National Audit Office, and all three major industry regulators (the China Securities Regulatory Commission, the China Banking Regulatory Commission, and the China Insurance Regulatory Commission) have participated in implementing the directive. Its purpose is to increase the effectiveness of internal controls in exchange-traded Chinese companies, thus reducing risks for both the companies themselves and their stakeholders. The directive became effective on July 1, 2009. Although initially only exchange-listed enterprises had to comply, the government has been encouraging adoption by medium- and large-size unlisted companies too (Ku 2012). In fact, China has a considerable history of adopting foreign accounting practices. It borrowed work team cost centers and standard costing from the Soviet Union’s centralized state planning model, although Chinese state-owned enterprises typically did not use them for control and performance measurement purposes. Then, in the late 1970s, in connection with the policy of opening itself to the outside world and the establishment of four Special Economic Zones (SEZs), China also successfully introduced the Western concept of profit centers. However, success with other

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modern instruments has proven to be more elusive due partly to the low skill level of accounting personnel (Skousen and Yang 1988). Nevertheless, China subsequently sought to improve and update its management accounting (Merchant et al. 1995; Xiang 1998; Chan and Rotenberg 1999). One can divide its experience over the last 40 years into four periods. The first period, from the late 1970s to the early 1980s, simply involved the introduction of Western management accounting theories and practices via textbooks, magazines, and academic papers. The second period, which lasted about 10 years after the first one, was a time of initially experiencing Western techniques in the country’s SOEs. Policies during this period aimed at transforming the SOEs from quasi-governmental agencies into profit-seeking corporations. At the time, Chinese officials pointed to this restructuring as their most important development task. Their efforts also sought to convert financial statements from Soviet-style, cash-based accounting to accrualbased financial accounting as well as building new ownership and corporate governance structures (Lee 2001). Such policies should have proven useful in increasing efficiency and effectiveness, improving manager decision-making, enhancing learning (Burns and Stalker 1961; Lawrence and Lorsch 1967; Shields and Shields 1998), and reducing corruption (Perrow 1986). The third period, from the late of 1980s to the middle of 1990s, covered the time during which these techniques met with a rather chilly reception. During the current fourth stage, the country is re-evaluating its prior experience and trying to find management accounting practices that are most suitable within a Chinese context (Wu and Drury 2007). By joining the World Trade Organization (WTO) in 2001, China opened itself further to foreign investors and their management and accounting concepts, at the same time creating opportunities for global expansion of its own enterprises. As a consequence, Chinese firms have relied heavily on foreign direct investment (FDI) and foreign-partnered joint ventures (FPJVs) to speed their modernization (Hong and Sun 2006). Despite the importance of POEs, most accounting research pertaining to China therefore has focused on its large SOEs and FPJVs. Consequently, the management accounting practices (MAPs) of the country’s unlisted companies generally, and its small enterprises in particular, have remained something of an enigma, both to scholars and to government authorities. Given the great emphasis Beijing has placed on accounting reforms both historically and quite recently, this mysterious area represents an important gap in the management accounting literature. Before reviewing the relevant literature and developing testable hypotheses, two terminological matters still require clarification. In writing about “MAPs,” many previous investigators also have lumped concepts and methodologies (e.g., just-intime production, responsibility accounting, and total quality management) together with specific management accounting tools or “MATs” (e.g., process benchmarks, budgets, and forecasts). Accordingly, the extent to which their findings pertain to individual concepts, methodologies, and/or tools is unclear. Their equation of “Western” with “modern” MAPs heightens the confusion, especially when the MAPs include such MATs as budgets, standard costs, and variance analyses. After all, these instruments have been widespread in China since it implemented Sovietstyle central planning in the 1950s. For the sake of clarity, the present research

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therefore focuses exclusively on a group of MATs consisting of both more traditional and more modern ones.

3 Literature Review and Hypotheses A review of professional and scholarly literature yields four sets of ideas having great utility for developing testable hypotheses about MAT usage in Chinese enterprises. They pertain to the evolution of management accounting, institutional theory, employee motivation, and information science. Taken together, these theories explain the development and diffusion of MAPs, and an individual’s motivation to adopt and use them, respectively.

3.1

Management Accounting Evolution

To begin with, the International Federation of Accountants identified four stages of MAPs development (IFAC 1998). Stage one covered the years prior to 1950, when cost determination and financial control were the principal focus of accounting. These activities relied heavily on budgeting and other cost accounting instruments. Stage two lasted until 1965, covering the period during which the focus shifted to the provision of information for planning and control. Among other tools, standard costing was in widespread use by that time. Stage three covered the next two decades through 1985. As the reduction of waste in business processes became more important during those years, techniques such as lifecycle product accounting began winning adherents. Stage four extended until 1995. During this stage, management accountants concentrated on drivers of customer and shareholder value through the effective use of resources. To do so, they relied on such instruments as balanced scorecards and shareholder value analysis. Because different instruments emerged with each stage of the evolution of management accounting in Western countries, it seems plausible that the more traditional instruments might be more ubiquitous in the enterprises of developing economies because they have had more time to gain acceptance than newer ones have. (Rufino 2014; Ahmad and Zabri 2016; Mohamad and Wahab 2017; Sadeghi 2018). However, to date, no empirical research has investigated MAP evolution in the Chinese context.

3.2

Institutional Theory

A review of professional and scholarly literature published in English or Mandarin between 1985 and 2019 turns up 23 empirically based articles about the adoption of management accounting innovations in Chinese enterprises. Whether or not guided

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by theory, these investigators collectively have examined a wide range of variables potentially useful in explaining the observed behavior. One can group those explanatory variables as follows (Wu and Boateng 2010; Zheng 2012): culture-related factors encompassing traditional management norms and practices (Hoon-Halbauer and Keow 1999; O’Connor et al. 2004; Chow et al. 2007; Chanegrih 2008); firmrelated variables, such as the form of ownership, size, computer support, availability of on-the-job training, and the age of FPJVs (Firth 1996; Nanjing University International Accounting Department 2001a, b; Lin and Wu 1998; O’Connor et al. 2004; Wu and Drury 2007; Xiong and Su 2008; Rickards et al. 2014, 2015; Ritsert et al. 2015; Rickards and Ritsert 2018; Xie 2018); industrial branch, partner-related factors, including an allied foreign company’s influence (Firth 1996; Du et al. 2008, 2009); host country-related features, such as government policies, legislation, and administrative regulation (Meng et al. 1997; O’Connor et al. 2004; Wu and Boateng 2010); and economy-related characteristics, for example, the level of market competition (Granlund and Lukka 1998; O’Connor et al. 2011; Du et al. 2009). Although these previous studies have examined several types of convenience samples, taken together, they have identified several organizational characteristics as variables associated with the adoption of various modern MAPs. Those characteristics include the provision of appropriate training, company size, ownership form, and partnerships with Western businesses. In contrast, prior research has produced either no support or diverging evidence for hypotheses suggesting the Chinese government has had a significant influence on changes in management accounting behavior. In keeping with various theories and the research undertaken in other national settings (e.g., Al-Omiri and Drury 2007; Ansari et al. 2010), about half of these investigations have identified both coercive and voluntary institutional pressures as well as the economic environment as generic factors theoretically influencing an organization’s accounting behavior, change in the design of its management accounting system, and the diffusion of different accounting conventions. Diffusion supposedly transpires through three types of mechanisms: coercive isomorphism (exogenous pressures); mimetic isomorphism (imitation); and normative isomorphism (professional group standards). Scholars increasingly have couched their discourse on the diffusion of managerial innovations in general, and management accounting practice in particular, in terms of this theoretical framework (Scapens 1994; Burns 2000; Burns and Scapens 2000; Yi and Tayles 2009). Because institutions seek conformity with societal norms, some researchers furthermore have recognized a global, evolutionary tendency toward convergence of management accounting ideas, system designs, and practices (Granlund and Lukka 1998; Kamal 2015). However, isomorphism with the institutional environment also can generate conflicts between externally legitimated ceremonial rules and internal technical activities requiring efficiency (DiMaggio and Powell 1983, 1991; Carruthers 1995; Greenwood and Hinings 1996; De la luz Fernandez-Alles and Valle-Cabrera 2006; Lounsbury 2008). Moreover, an organization’s outward appearance of accepting an innovation (ceremonial adherence) may be decoupled from its internal practice due

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to a lack of linkages between formal structures and actual processes. Insufficient time or resources necessary to implement programs involving experimental change and complex instruments may be additional important factors inhibiting the spread of innovations. Correspondingly, some studies have found that managers regard simpler, more traditional accounting instruments as more beneficial than more complex and newer ones (Joshi 2001; Joshi et al. 2011). While institutional theory addresses the question of the adoption of MAPs, it is silent about other key questions in management accounting research. It says nothing about the order in which enterprises accept various accounting innovations, the frequency of a given instrument’s usage, managers’ satisfaction with the information it provides, their perception of its importance, or differences in these respects between tool-users and company decision-makers across-the-board—all major gaps in the literature.

3.3

Employee Motivation Theory

After development and adoption by an organization, it therefore is crucial that employees actually want to use a given instrument in practice. Employee motivation theory assumes that individuals in both governmental and nongovernmental organizations (NGOs) want to serve the public and link their personal actions with the overall public interest. In the private sector, leaders try to motivate employee behavior to align with attainment of a company’s goals. In either case, performance information tools may help them to do so. The individuals involved may be intrinsically or extrinsically motivated to utilize the information obtained (Lawrence and Nohria 2002; Nohria et al. 2008; Moynihan and Pandey 2010; Lee and Raschke 2016). The intrinsic approach recognizes that the use of performance information tools entails costs for employees by increasing the complexity of decision-making processes. Although the use of performance data may generate organizational benefits, individual benefits are either unlikely or uncertain. Employees driven by pro-social or altruistic motives nevertheless are likely to accept the costs involved in order to help their organization achieve its goals (Brewer 2008). In contrast to the intrinsic approach, the extrinsic approach assumes some selfinterest. From this perspective, external motivators and incentives may foster employees’ use of performance information tools and data. While organizations may not reward performance information use directly, they nevertheless may reward an individual’s work to varying degrees. If individuals perceive that their organization links pay and promotion to goal achievement, employees then may have an extrinsic incentive to utilize performance information (Jennings and Haist 2006). Whether intrinsically or extrinsically motivated, case study findings support the theory of performance information usage (Franklin 2000; Broadnax and Conway 2001). Furthermore, organizational support for performance measurement correlates directly with perceptions that it is effective (Yang and Hsieh 2007). There also is

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evidence that goal or mission orientation is associated positively with the use of performance information (De Lancer Julnes and Holzer 2002; Moynihan and Landuyt 2009).

3.4

Information Science Theory

An information system success model (DeLone and McLean 1992, 2002, 2003) that has received much attention and attracted many adherents (Petter and McLean 2009) potentially can fill some more of the gaps in the literature identified earlier. In the model, high-quality data and decision instruments are crucially important concerns, with user satisfaction and frequency of system use constituting key links between information and tool quality on one hand and sustained competitive advantage vis-à-vis rivals on the other hand. The model’s implications for the utilization of MATs are obvious: motivated managers should employ more frequently those instruments they perceive to be more important and that give them greater satisfaction. Moreover, as is the case with business information systems, one well might expect large variation in management accounting tool usage across enterprises. Lastly, research confirms a positive association between frequent information system use and both the quality and speed of decisions (Cox 2010). Relying on theories of management accounting evolution, information science, and public service motivation as well as institutional theory for guidance, it therefore seems reasonable to infer that traditional management accounting tools should be more widespread than newer ones. These more widespread instruments also should be used more frequently, satisfy needs related decision support better, and be perceived by managers as more important. Furthermore, tool-users should view their instruments as more important than nonusers do.

3.5

Hypotheses

Thus, after identifying and describing some of the more traditional and more modern MATs in the toolkits of Chinese enterprises, the following five null hypotheses are tested in this study: H01: Chinese enterprises are as likely to use newer management accounting tools as they are to use more traditional ones. H02: There are no differences in the frequency with which Chinese companies use management accounting tools. H03: Satisfaction with management accounting tools and the frequency of their employment in Chinese businesses are uncorrelated. H04: The perceived importance of management accounting tools and the frequency of their utilization in Chinese firms are uncorrelated.

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H05: Tool-users do not differ significantly from Chinese business decision-makers across-the-board in their perceptions of the importance of management accounting instruments.

4 Research Methodology 4.1

Survey and Interview Questionnaires

To gain the necessary data, the authors of this study first decided to focus on key actors having a direct view of the management accounting techniques and practices in use. Next, they prepared and pretested a Mandarin-language online survey with closed-ended questions. Whereas there is no readily accessible registry that includes all Chinese enterprises, previous empirical investigations have relied on convenience samples. That also was the case here. The contact persons, who identified potential survey respondents in their respective companies, came from a population of the authors’ former Chinese MBA students, together with their friends and acquaintances. The authors then made the survey available to the potential participants to answer anonymously on a voluntary basis. Data based on such key informants may be biased and thus may not be reliable (Mezias and Starbuck 2003). To mitigate this problem, the study only collected data from informants with adequate competency. In addition, the data collected pertained solely to observable behavior or clearly defined objectives, as opposed to theoretical constructs. Nevertheless, a residual possibility of bias remained. To limit singlemethod bias and to compensate for the weaknesses inherent in online surveys, the authors subsequently conducted 10 in-depth personal interviews with a subset of the respondents. These interviews also helped to corroborate and extend the study’s findings.

4.2

Data Collection

The target populations comprised • the internal management control departments of Chinese enterprises for the online survey • company CFOs for the interviews The survey went online in mid-March 2013. The authors emailed a reminder message 2 weeks later. Although survey data collection formally ended in mid-April 2013, seven surveys were received a bit later and also were included in the analyzed data. In total, 124 of the 313 companies making up the panel responded. Relative to the response rates associated with most survey research, the 39.6% participation rate

Chinese Enterprises’ Use of Management Accounting Tools

23

attained here appears to be quite respectable. Additionally, four personal interviews with Chinese CFOs took place during June and another six in September 2013.

4.3

Descriptive Characteristics of the Surveyed Enterprises

The composition of Chinese GDP by sector in 2013 was agriculture 10.1%; industry 45.3%; and services 44.6% (CIA 2013). Excluding agriculture, industry and services, therefore, stood in the ratio of 50.3%:49.7% to one another. For the 88 enterprises in the sample studied, whose sector could be identified unambiguously, the ratio was industry (automobile, construction, chemical, other manufacturing, consumer goods, food processing, machine building, pharmaceuticals and medical equipment, raw materials, and software) 47.7%: services (retail, financial services, IT, logistics, telecommunications, insurance, and public utilities) 52.3%. Despite relying on a sample chosen for its convenience, the resulting distribution of firms by sector approximated the structure of the Chinese economy outside agriculture and mining rather closely. Most businesses (70) participating in the study were small- and medium-size enterprises (SMEs), with fewer than 250 employees. Nevertheless, the range of the study population on this measure was wide, extending to 11 companies with more than 50,000 workers each. Classified according to sales revenue in 2012, the distribution was more even, with 35 companies reporting less than ¥ 250 million and 15 enterprises recording more than ¥ 50 billion in sales. The firms also displayed an interesting mix of ownership forms. Wholly private ownership was the dominant form (76 companies), followed by wholly state-owned enterprises (31). However, there also were state-owned businesses with minority private participants (7) and privately owned businesses with minority participation by the state (8). Furthermore, 17 of the enterprises were Chinese joint ventures with a foreign partner.

4.4

Descriptive Characteristics of the Survey Respondents

The first section of the online survey also solicited some demographic information about the respondents. The sample comprised 57 males and 65 females. They ranged in age from 20 to 52 years old, with a mean age of 32.8 years. All 124 respondents answered a query about their position. With 17 mentions or 14.5%, by far the most frequent answer given was ‘licensed accountant’. When asked how many years they had held their current position, 118 participants responded. Their answers ranged from as briefly as 2 months to as long as 30 years, with the average being a little under 6 years. In addition, 87 (70.7%) of the respondents said they had received specialized, onthe-job training for their current position. Of these persons, more than half

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R. C. Rickards and R. Ritsert

(53) received their training on a voluntary basis from an external provider, while a somewhat smaller number (47) had taken part in mandatory, full-time trainee programs within their company. Another 38 individuals had participated in a company trainee program, but on a voluntary basis. With a total of 138 answers, some sizable portion of the 87 respondents must have had training from two or all three sources. To summarize, then, a respondent to the online survey most likely was a female, in her early 30s, who was a licensed accountant and had held her current position for about 6 years. She had participated in training for internal management control on a voluntary basis with an external provider, but had received some internal training too, either in a mandatory or a voluntary trainee program. Her company was a wholly privately owned Chinese SME.

4.5

Descriptive Characteristics of Interview Respondents

Ten individuals participated in the personal interviews, each lasting between 1 h and 2 h. Eight of them were either the CFO or the finance department director, one was the company’s owner, and one was the senior accountant. Five were men and five were women. They ranged in age from 27 to 49 years old. All had received additional training for their current position. They had between 5 and 20 years of employment experience. Four of the companies employing them were POEs and four were SOEs. Two other firms were FPJVs: one involving private Chinese ownership and a German company, the other joining a Chinese SOE with an American partner. Six of the firms were from the manufacturing sector, and the other four were from service industries. The enterprises had between 30 and 15,000 employees. Company sales revenue in 2012 varied between ¥ 30 million and ¥ 10 billion. Accordingly, the individuals selected for personal interviews and the businesses employing them appear to be broadly representative of the survey respondents and their companies.

5 Findings 5.1

H01: More Traditional Versus Newer MATs

The survey asked respondents about their adoption and use of 15 specific management accounting tools, each of which appeared in at least one earlier study of an emerging economy (Firth 1996; Joshi 2001; Wu and Drury 2007). Figure 1 ranks these instruments in keeping with the percentage of surveyed firms employing them. The different shading of the chart’s bars also distinguishes the more traditional MATs (extensively used in more developed economies before 1965) from the newer ones (which subsequently have gained prominence there). Obviously, the adoption pattern is uneven, with Chinese enterprises much more likely to have

MANAGEMENT ACCOUNTING TOOL

Chinese Enterprises’ Use of Management Accounting Tools

25

B

86 84

PC 75

F 70

CCA 64

TC PPA

61 55

SC 51

PCA 47

CPA 44

SA 35

BM 30

SVA

30

LCPA

29

BSC 21

VA

0

10

20

30

40

50

60

70

80

90

% OF ENTERPRISES USING TOOL Traditional MATs

Newer MATs

Fig. 1 MAT employment by Chinese enterprises

traditional than newer instruments in their management accounting toolkits. The two most popular tools by far are budgeting (B) and project costing (PC). Forecasting (F) and cost center accounting (CCA) also enjoy widespread, but not universal, employment. Controllers in Chinese businesses are less inclined to have target costing (TC), product profitability analysis (PPA), and standard costing (SC), in their toolkits. Half or fewer of them engage in profit center analysis (PCA), customer profitability analysis (CPA), or scenario analysis (SA). Adoption of shareholder value assessment (SVA), lifecycle product accounting (LCPA), process benchmarking (BM), and balanced scorecards (BSC) is still less frequent, while employment of variance analysis is relatively rare (VA). The evidence shows that there is no common Chinese management accounting toolkit containing any combination of the 15 various instruments in general use and their employment is not equally widespread. Moreover, although the older tool VA has the least usage, the t-test results in Table 1 shows that, overall, the traditional MATs enjoy wider usage than the newer ones. Thus, H01 is rejected.

5.2

H02, H03, and H04: MATs’ Usage Frequency, Satisfaction, and Perceived Importance

Table 2 reports the frequency of use, satisfaction with, and perceived importance of the 15 management accounting tools covered by the survey. For each instrument, the respondents answered in keeping with a five-point scale ranging from (1) “never” to

26 Table 1 t-Test of two samples assuming unequal variances

Table 2 Dimensions of MATs employment by Chinese enterprises (all respondents)

R. C. Rickards and R. Ritsert

Mean Variance Observations Hypothesized mean difference df t Stat P(T  t) one-tail t Critical one-tail P(T  t) two-tail t Critical two-tail

MAT B PC F CCA TC PPA SC PCA CPA SA BM LCPA BSC SVA VA Mean

Frequency 3.2258 2.9839 2.8387 2.7339 2.2097 2.1219 1.9919 1.9355 1.4677 1.3790 1.1452 1.0242 0.9194 0.9156 0.6694 1.8398

Traditional 65 494 7 0 9 2.57411795 0.01499228 1.83311293 0.02998455 2.26215716

Satisfaction 2.7984 2.8306 2.4032 2.3629 2.1129 2.0242 1.8629 1.7661 1.4677 1.3306 1.2016 1.0323 0.9597 1.0000 0.7339 1.7258

Newer 40.875 138.125 8

Importance 3.4516 3.4677 3.4113 3.2177 3.2097 3.2500 3.0484 3.1129 3.2177 2.8952 2.5242 2.9839 2.4677 2.6290 2.5565 2.8816

(5) “very often” for its frequency of use, (1) “very dissatisfied” to (5) “very satisfied” for satisfaction with the tool, and (1) “unimportant” to (5) “crucially important” for its perceived importance. The table lists the average value for each tool on each usage dimension. Looking down the first two columns, it is evident that all but one of the mean values lie somewhere along the lower half of their respective scales. This result no doubt stems in part from the fact that nonusers of a tool never employ it and therefore cannot be satisfied with it. An instrument’s perceived importance, though, is another matter because nonusers nevertheless may have an opinion about it. The t-test results in Table 3 reveal that across the entire sample, respondents gave significantly higher scores to the importance of MATs than to the satisfaction associated with their usage. Indeed, nine of the fifteen instruments have mean values above the midpoint of the importance scale. It also is noteworthy that six of these nine tools are more traditional MATs.

Chinese Enterprises’ Use of Management Accounting Tools Table 3 t-Test of paired sample means (all respondents)

Mean Variance Observations Pearson correlation Hypothesized mean difference df t Stat P(T  t) one-tail t Critical one-tail P(T  t) two-tail t Critical two-tail

27 Satisfaction 1.7258 0.46937267 15 0.90282872 0 14 13.022207 1.6265E09 1.76131014 3.253E09 2.14478669

Importance 3.04623333 0.12877106 15

Figure 2 displays a scatterplot of the mean satisfaction with a tool against its mean frequency of use. Figure 3 does likewise for an instrument’s mean perceived importance against its mean frequency of use. Taken together, these scatterplots show great variation in terms of the frequency of use, satisfaction with, and perceived importance of each tool. Yet, in both figures, a high degree of correlation is readily apparent. Among all respondents, satisfaction with usage of a tool correlates almost perfectly with the frequency of its use (r ¼ 0.9939), while the association between a MAT’s perceived importance and the frequency of its use is nearly as high (r ¼ 0.9063). Accordingly, H02, H03, and H04 are rejected. Chinese enterprises most frequently use the management accounting tools with which they are most satisfied and believe to be the most important. Although guided more by logic than by any of the theories discussed earlier, the correlation calculated between satisfaction with usage of a tool and its perceived importance (illustrated in Fig. 4) also is quite high (r ¼ 0.9028). Generally, respondents appear to be more satisfied with the instruments they believe to be more important. A comparison of Table 4 with Table 2 reveals several interesting results. First, the range of the reported numbers for actual MAT users is narrower than for all respondents. Second, all of the reported values fall somewhere above the midpoint of the respective scale. Third, while the order of individual MAT mean scores is different, traditional tools still tend to be more frequently used and to be perceived as more important (r ¼ 0.5464). Fourth, that is not at all the case for managerial satisfaction with a given instrument, where, for example, newer tools like profit center accounting (PCA) and the balanced scorecard (BSC) yield the second and third highest levels of user satisfaction, while more traditional MATs such as forecasting (F) and project costing (PC) place eleventh and fifteenth, respectively. In this regard, it is also notable that variance analysis (VA), the tool used least by the all-respondents sample, receives the highest satisfaction score from the few managers employing it. Apparently, among actual users, satisfaction with a given instrument relates only weakly to the frequency of its employment (r ¼ 0.1502). Their satisfaction, too, relates weakly and (negatively!) to a MAT’s perceived importance (r ¼ .1724). Furthermore, the t-test results in Table 5 show a statistically significant difference between paired sample means for the actual-user subgroup.

Fig. 2 Satisfaction with tool usage vs. frequency of tool usage

28 R. C. Rickards and R. Ritsert

Fig. 3 Importance of tool usage vs. frequency of tool usage

Chinese Enterprises’ Use of Management Accounting Tools 29

Fig. 4 Satisfaction with tool usage vs. importance of tool usage

30 R. C. Rickards and R. Ritsert

Chinese Enterprises’ Use of Management Accounting Tools Table 4 Dimensions of MATs employment by Chinese enterprises (only users)

Table 5 t-Test of paired sample means (only users)

5.3

MAT SC CCA B PCA PC TC PPA F LCPA CPA BSC VA SA BM SVA Mean

Frequency 4.4478 4.0843 3.9700 3.7458 3.6939 3.6849 3.6056 3.5402 3.5143 3.4423 3.4242 3.3750 3.3673 3.2093 3.1563 3.6174

Mean Variance Observations Pearson correlation Hypothesized mean difference df t Stat P(T  t) one-tail t Critical one-tail P(T  t) two-tail t Critical two-tail

31 Satisfaction 3.4328 3.5301 3.4400 3.5712 3.2165 3.4795 3.4366 3.3908 3.5143 3.4231 3.5455 3.7083 3.2449 3.3256 3.3438 3.4402

Satisfaction 3.4402 0.01633246 15 0.1723642 0 14 2.6880416 0.0088327 1.76131014 0.0176654 2.14478669

Importance 3.6567 3.9398 3.8119 3.4792 3.9167 3.6164 3.6479 3.8506 3.5143 3.7692 3.6970 3.3333 3.5102 3.4651 3.1875 3.6264

Importance 3.62638667 0.04616581 15

H05: Tool Users’ Versus All Respondents’ Perceptions of MATs’ Importance

Interestingly, and in agreement with the evidence in Table 2, the perceived importance of MATs by managers in Table 4 is greater than their satisfaction with the instruments. Yet, the difference between the pair of scores in the latter table is less than one-sixth that in the former one (2.8816  1.7258 ¼ 1.1558 vs. 3.6264  3.4402 ¼ 0.1862). Moreover, the only-users subgroup rates the 15 studied instruments considerably higher in importance. Table 6 posts the outcome of a t-test for the means of the all-respondents sample and the only-users subgroup with respect to managers’ perceived importance of the MATs studied. The difference between them is statistically significant. Hence, H05 is rejected.

32 Table 6 t-Test of two sample means assuming equal variances

R. C. Rickards and R. Ritsert

Mean Variance Observations Hypothesized mean difference df t Stat P(T  t) one-tail t Critical one-tail P(T  t) two-tail t Critical two-tail

All respondents 3.04623333 0.12877106 15 0 23 5.3721454 9.3099E06 1.71387153 1.862E05 2.06865761

Only users 3.62638667 0.04616581 15

6 Discussion Despite the sample’s relatively small size and the nonrandom method of its selection, the study’s results pertaining to MATs usage in Chinese SEs are striking. They are so strong and unambiguous that it is extremely unlikely they could be mere artifacts of the procedures followed to choose the units of analysis. They not only agree with the theory and empirical findings regarding use of automated systems in information science and employee motivation, but also align both with the outcomes of investigations into MAT evolution in other developing economies and with institutional theory. For example, more traditional budgeting tools seem to enjoy more widespread use than newer ones (Sulaiman et al. 2004) in Singapore (Ghosh and Chan 1997), India (Joshi 2001), Bahrain (Joshi et al. 2003), Thailand (Phadoongsitthi 2003; Nimtrakoon 2009), South Africa (Waweru et al. 2004), Brazil (Frezatti 2007), Turkey (Yalcin 2012), Gulf Cooperation Council countries (Joshi et al. 2011), Pakistan (Ashfaq et al. 2014), Malaysia (Ahmad 2014), Albania (Üç and Kasa 2016), and Jordan (Jaradat et al. 2018). The relatively greater usage of more traditional MATs by Chinese enterprises suggests that their accounting activities still concentrate largely on the evolutionary theory’s stage one and stage two functions, namely cost determination and financial control as well as the provision of planning information. At the same time, though, there is considerable employment of stage three and stage four instruments, indicating a certain emphasis on waste reduction, customer and shareholder value, and the more effective use of resources. The major exception to the traditional vs. new explanation of Chinese enterprises’ management accounting behavior is variance analysis. Notwithstanding its long history as an established instrument in more developed economies, it is unpopular in China. A plausible reason for this difference seems to be rooted in Chinese culture. Several interviewees said that many Chinese managers do not take budgetary constraints too seriously. Additionally, their reluctance to employ variance analysis also may stem at least partly from inhibitions associated with 关系, “personal obligations,” or 人際关系, “interpersonal relationships,” and 面子, “saving face.” Being personally obligated to someone or having interpersonal relationships

Chinese Enterprises’ Use of Management Accounting Tools

33

may be more decisive in, say, placing an order than any information about efficiency or effectiveness. Such an instance constitutes an example of institutional isomorphism generating conflict between externally legitimated ceremonial rules and internal technical activities requiring efficiency. Likewise, attributing favorable variances to someone can cause embarrassment in a society that values the appearance of modesty, while unfavorable variances can lead to a manager’s loss of his colleagues’ esteem. Change in this regard depends much on the attitude of top management. Where senior managers embrace management accounting, junior staff members appear eager to learn and to share their knowledge about the tools they use and how best to employ them. As competition stiffens and decision-makers come to appreciate what MATs can contribute to an organization, more Chinese businesses may engage in variance analyses more willingly and may more frequently trace unfavorable developments to their sources than they are inclined to do today. As the evidence in Sect. 5.2 shows, those management accountants actually employing variance analysis give it the highest rating of all 15 instruments under investigation. Besides studies on the adoption of different instruments, there also has been some research on user satisfaction with management accounting information systems (MAIS) and various MATs. Groundwork on MAIS in Brazil showed that satisfaction increases if a system’s attributes allow users to obtain worthwhile information (Frezatti et al. 2006). In a survey in Bangladesh, respondents gave none of the 16 MATs investigated a satisfactory rating, placed a few in a neutral position, but scored most of them at levels indicating dissatisfaction (Fowzia 2016). That outcome also could be congruent with observations about institutional isomorphism sometimes leading to a clash between external ceremonial rules and internal, efficiencymaximizing activities. At any rate, it appears that the specific MATs studied did not prove helpful to Bangladeshi managers in their economic and cultural context. For their part, the Chinese all-respondents group likewise gave every one of the 15 MATs a grade in the unsatisfactory range. In contrast, respondents in the onlyusers subgroup assigned all 15 tools at least a somewhat satisfactory score. These results demonstrate that in China, as opposed to Bangladesh, there is no decoupling of satisfaction with an instrument from its frequency of use. Instead, managers in Chinese companies employ the tools that satisfy their information needs. The study’s findings concerning the frequency of individual management accounting tools’ usage (as opposed to their adoption) and their perceived importance are noteworthy too. On one hand, the all-respondents group employed the surveyed MATs just rarely or occasionally even though they ranked nine tools above average in terms of importance. In comparison, the only-users subgroup works with all 15 MATs more than occasionally and regards them as above average in importance. These contrasting results might originate in variations across industries as seems to be the case with strategic planning tools and techniques (Rigby and Bilodeau 2015). Be that as it may, interviewees attributed nonuse of MATs in Chinese firms to such causes as: unfamiliarity with the instruments, their application, and interpretation of their results; daily operations leaving little time for planning and analysis; a lack of skilled staff and IT support; and the owners or top managers making most of the decisions themselves, while viewing MATs largely as a waste of time and

34

R. C. Rickards and R. Ritsert

thereby demotivating the company’s accountant(s). These reasons also may explain why all respondents and only-users differ significantly with respect to the perceived importance of MATs. It could be that the leaders of the formers’ businesses are less open to their employment than are the latters’ top managers. Such anecdotal and empirical evidence, together with the importance of smalland medium-sized enterprises to the economy, should move Chinese policy-makers to consider expanding their 4 + 1 model’s coverage to include them. In 2014, the Chinese Ministry of Finance issued guidelines for the comprehensive development of management accounting. The ministry’s goal for the model is to create a uniquely Chinese management accounting system within the next 5–10 years. The model foresees (1) creation of a Chinese theoretical framework for management accounting, (2) development of Chinese management accounting guidelines for use by enterprises, (3) major improvements in the education and training of Chinese management accounting personnel, and (4) better IT support for management accounting. The “+1”, in turn, refers to making management accounting consulting services more widely available (MF PRC 2014). Yet, the Chinese government has aimed measures such as the Basic Standard for Enterprise Internal Control (Ku 2012) and the 4 + 1 model primarily at its SOEs and large, exchange-listed POEs. Any improvements in the management accounting practices of Chinese SMEs, therefore, would occur primarily as spillover effects. However, were the government’s measures instead to target SMEs too, they likely would produce larger benefits overall. Additionally, attractive tax incentives could motivate even some recalcitrant owner-managers to participate. Of course, helping small- and medium-sized, mostly privately owned businesses, would require a certain amount of ideological flexibility. However, slowing economic growth, increasing competition in international marketplaces, and the current trade war with the USA could lead government officials and party cadres to re-think how best to deal with China’s SMEs.

7 Case Studies: Convergence and Form of Ownership Two central ideas underpin the institutional isomorphism discussed earlier. First, environments are collective and interconnected. Second, organizations must be responsive to external demands and expectations in order to survive (Granlund and Lukka 1998). The economic pressures associated with increased competition resulting from globalization and integration of world markets have created the need for Chinese companies to become more efficient. Recognizing this need, the Chinese government has exerted coercive pressure through such measures as the Basic Standard for Enterprise Internal Control and the 4 + 1 model to mandate homogenization of management accounting across its state-owned and largest exchangelisted businesses. At the same time, Chinese use of textbooks and case studies that also are employed by university instructors in many other countries generates normative pressure, which, when combined with international networking, molds common expectations about management accountants’ professional norms and

Chinese Enterprises’ Use of Management Accounting Tools

35

skills. In addition, Chinese firms have become quite adept at copying the operating models of successful companies that have a good reputation. Consequently, it seems reasonable to look for evidence of such convergence in the management accounting toolkits of Chinese enterprises. A previous study found that Chinese enterprises participating in foreign-partnered joint ventures (FPJVs) changed their management accounting systems more than did similar companies without such collaborative operations. Because these changes involved moves toward the accounting techniques employed by the joint venture, and the foreign partner invariably had designed the joint venture’s accounting system, the investigation concluded that FPJVs are one avenue for the dissemination of modern management accounting practices. It also predicted that this channel would have a significant influence on the development and content of the Chinese partner’s management accounting (Firth 1996). That study had several shortcomings, among them two referred to earlier: (1) it investigated the transfer of MAPs rather than MATs; and (2) it concentrated on large, mostly SOEs. Whether such transfers also have benefitted or spilled over to privately owned SMEs thus remains an unanswered question. Additionally, the research employed some secondary data gathered either from official Chinese sources or with the authorities’ permission and/or support, which may have tainted the findings. The present analysis seeks to remedy such weaknesses by (1) focusing exclusively on MATs, (2) including both SOEs and POEs as well as FPJVs, and (3) using only information collected directly from primary sources, namely the survey respondents and interviewees. Thus, the null hypotheses for testing are as follows: H06: There are no differences between foreign-partnered JVs pertaining to the number, frequency of use, satisfaction importance of the MATs they employ. H07: There are no differences between foreign-partnered JVs pertaining to the number, frequency of use, satisfaction importance of the MATs they employ.

and Chinese SOEs with, or perceived and Chinese POEs with, or perceived

Finally, in recognition of the Chinese Communist Party’s ideological preference for SOEs and the coercive pressure it has exerted on them through such measures as the Basic Standard for Enterprise Internal Control and the 4 + 1 model, SOEs ought to outperform POEs with respect to the number, frequency of use, satisfaction with, and perceived importance of the MATs they employ. Hence, the last null hypothesis is proposed as follows: H08: There are no differences between Chinese SOEs and POEs pertaining to the number, frequency of use, satisfaction with, or perceived importance of the MATs they employ. Among the 124 companies participating in the survey, there were 17 FPJVs, 31 SOEs, and 76 POEs. Of the 17 FPJVs, the Chinese partner was an SOE in eight cases and a POE in the nine other instances. Table 7 reports the percentage of enterprises employing each of this study’s management accounting tools. Several of the findings are noteworthy. First,

36 Table 7 % MAT usage according to ownership form (all respondents)

Table 8 t-Test for two samples assuming unequal variances (all respondents)

R. C. Rickards and R. Ritsert MAT B PC F CCA PCA PPA SC TC BM SA CPA LCPA VA SVA BSC Mean

FJPVs 94.1 88.2 82.4 76.5 76.5 70.6 70.6 58.8 58.8 52.9 52.9 47.1 41.2 41.2 35.3 63.1

Mean Variance Observations Hypothesized mean difference df t Stat P(T  t) one-tail t Critical one-tail P(T  t) two-tail t Critical two-tail

SOEs 100.0 87.1 83.9 64.5 51.6 61.3 58.1 71.0 51.6 45.2 38.7 32.3 25.8 19.4 29.0 54.6

FPJVs 63.14 333.444 15 0 26 1.09609801 0.14154259 1.70561792 0.28308518 2.05552944

POEs 72.4 75.0 61.8 65.8 43.4 51.3 51.3 53.9 23.7 36.8 43.4 23.7 15.8 25.0 23.7 44.5

SOEs 54.6333333 570.020952 15

budgeting is the most widespread tool among FPJVs and SOEs, but not among POEs, where project costing is the most common tool in use. Second, SOEs have the highest adoption rates for four tools, namely budgeting, project costing, forecasting, and target costing—all of which are more traditional instruments. Third, FJPVs are more likely to have the other 11 instruments, eight of which are newer MATs, in their toolkits than are either SOEs or POEs. Fourth, variance analysis remains the least widespread traditional tool. Yet, 41.2% of FJPVs and 25.8% of SOEs use it. Lastly, the mean percentage of tool adoption overall is highest for FJPVs (63.1%), followed by SOEs (54.6%) and POEs (44.5%). The t-test results in Tables 8 and 9 show that the sizable differences in mean percentages both between FPJVs and SOEs and between SOEs and POEs, respectively, nevertheless are not statistically significant. However, the results in Table 10 indicate that the differences in mean percentages between FPJVs and POEs are significantly large.

Chinese Enterprises’ Use of Management Accounting Tools Table 9 t-Test for two samples assuming unequal variances (all respondents)

Table 10 t-Test for two samples assuming unequal variances (all respondents)

37

Mean Variance Observations Hypothesized mean difference Df t Stat P(T  t) one-tail t Critical one-tail P(T  t) two-tail t Critical two-tail

SOEs 54.6333333 570.020952 15 0 27 1.282999 0.1051984 1.70328845 0.21039679 2.05183052

POEs 44.4666667 371.859524 15

Mean Variance Observations Hypothesized mean difference df t Stat P(T  t) one-tail t Critical one-tail P(T  t) two-tail t Critical two-tail

FPJVs 63.14 333.444 15 0 28 2.72319946 0.00550223 1.70113093 0.01100445 2.04840714

POEs 44.4666667 371.859524 15

Tables 11 and 12 report the scores assigned by all respondents and the only-users subgroup, respectively, for the frequency of use, satisfaction with, and perceived importance of the MATs studied. Again, a number of points in each of these tables are remarkable. To begin with, in Table 11, both the FPJVs and SOEs tend to employ traditional tools most frequently and are most satisfied with budgeting. Unlike the FPJVs, which perceive project costing to be the most important instrument, the SOEs hold budgeting and cost center accounting in the highest regard. For their part, the POEs utilize four traditional tools (project costing, budgeting, cost center accounting, and forecasting) most frequently. Three of these instruments (project costing, budgeting, and forecasting), together with another traditional tool, target costing, give them the greatest satisfaction. They rank the newer instrument customer profitability analysis fifth in importance after the more traditional instruments project costing, cost center accounting, forecasting, and budgeting. Overall, the means for perceived importance scores are higher than the ones for frequency of use, which in turn exceed the points assigned for satisfaction. Furthermore, the mean results for FJPVs are above the ones for SOEs on all three dimensions, while SOEs similarly outscore POEs in these respects. The findings for the only-user subgroup in Table 12 are somewhat different. For starters, all the mean scores in that table are larger than their respective counterparts

Tool B F PC CCA SC PCA PPA TC CPA SA LCPA BM SVA VA BSC Mean

FPJVs Frequency 4.1765 3.9412 3.7059 3.2941 3.2353 3.2353 2.8235 2.5294 2.4118 2.1765 1.9412 1.8235 1.6471 1.5294 1.4118 2.6588

Satisfaction 3.4118 2.9412 3.1765 2.8235 2.6471 2.8235 2.6471 2.2353 2.1176 1.8235 1.7647 1.8235 1.5294 1.7059 1.5294 2.3333

Importance 4.0000 4.0588 4.4375 4.1176 3.8824 3.7647 4.1176 3.6471 4.0000 3.3529 3.7059 3.1765 3.3529 3.4118 1.5294 3.6370

SOEs Frequency 4.4194 3.6774 3.5806 2.9032 2.2581 2.2903 2.3226 2.6774 1.8065 1.2258 1.3226 1.6452 0.7419 0.8065 1.1613 2.1893 Satisfaction 3.6452 2.8387 3.2903 2.7742 1.9677 1.9677 2.0645 2.5484 1.1935 1.3226 1.2258 1.6452 0.7742 0.8710 1.0323 1.9941

Importance 4.2258 3.8065 3.8387 4.0000 3.1935 3.5161 3.7097 3.6452 3.4516 2.9355 3.3226 2.7097 2.8710 2.6452 2.4839 3.3570

POEs Frequency 2.5789 2.2237 2.7500 2.4868 1.6316 1.7895 1.9079 1.9868 1.3816 1.3158 0.8553 0.9868 0.8421 0.5658 0.7638 1.6044 Satisfaction 2.3552 2.0658 2.6842 2.1711 1.7895 1.7105 1.8289 1.9079 1.4868 1.2763 0.9211 0.8684 0.9868 0.6184 0.8026 1.5649

Table 11 MAT frequency of use, satisfaction, and importance scores according to enterprise ownership form for all respondents Importance 3.0789 3.1316 3.1974 3.1579 2.9342 2.8947 2.9868 2.9737 3.0263 2.7237 2.8158 2.2763 2.4079 2.3421 2.2632 2.8140

38 R. C. Rickards and R. Ritsert

Tool F SC CPA B CCA TC PCA LCPA PC SA PPA SVA VA BM BSC Mean

FPJVs Frequency 4.7857 4.5833 4.5556 4.5000 4.3077 4.3000 4.2308 4.1250 4.2000 4.1111 4.0000 4.0000 3.7143 3.1000 2.5714 4.0723

Satisfaction 3.5714 3.5833 4.0000 3.6250 3.6923 3.8000 3.6923 3.7500 3.6000 3.4444 3.7500 3.7143 4.1429 3.1000 3.7143 3.6787

Importance 4.3125 4.1250 4.2500 4.2500 4.3750 3.8750 4.0000 3.9375 4.7333 3.5625 4.3750 3.5625 3.6250 3.3750 3.3125 3.9781

SOEs Frequency 4.3846 3.8889 4.3077 4.4194 4.5000 3.7727 3.9444 3.7273 4.1111 2.7143 3.7895 3.2857 3.1250 3.1875 4.0000 3.8105 Satisfaction 3.3846 3.8889 2.8462 3.7667 4.3000 3.5909 3.3889 3.4545 3.7778 2.9286 3.3684 3.4286 3.3750 3.1875 3.5556 3.4828

Importance 3.8065 3.3000 3.4516 4.2258 4.0000 3.6452 3.6333 3.4333 3.9667 3.0333 3.7097 2.9667 2.7333 3.3600 2.5667 3.4555

POEs Frequency 3.5208 3.1794 3.1818 3.5636 3.8571 3.5952 3.6757 3.2500 3.5424 3.2258 3.4254 2.6667 3.0714 3.7500 2.9474 3.3635 Satisfaction 3.3404 3.4000 3.4242 3.1964 3.3673 3.4524 3.5135 3.5000 3.5172 3.1290 3.3902 3.1250 3.3571 3.1429 3.2105 3.3374

Table 12 MAT frequency of use, satisfaction, and importance scores according to enterprise ownership form for only-users subgroup Importance 3.4493 3.2319 3.3333 3.3429 3.4783 3.2286 3.1884 3.1014 3.5217 3.0000 3.2899 2.6522 2.5797 2.5441 2.4928 3.0956

Chinese Enterprises’ Use of Management Accounting Tools 39

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Table 13 Summary of t-test results for all respondents FPJVs vs. SOEs SOEs vs. POEs FPJVs vs. POEs

Frequency Not significant Significant, one-tail Significant, two-tail

Satisfaction Not significant Not significant Significant, two-tail

Importance Not significant Significant, one-tail Significant, two-tail

Table 14 Summary of t-test results for only-users subgroup FPJVs vs. SOEs SOEs vs. POEs FPJVs vs. POEs

Frequency Not significant Significant, two-tail Significant, two-tail

Satisfaction Significant, one-tail Not significant Significant, two-tail

Importance Significant, two-tail Significant, two-tail Significant, two-tail

in Table 11. Furthermore, for all three ownership groups, the mean points assigned for frequency of use are larger than the ones for satisfaction and importance. Among the FJPVs and SOEs, the more traditional tools tend to have the higher rankings in terms of frequency of use. However, SOEs employing the newer balanced scorecard instrument do so much more frequently than FJPVs do. FJPVs are most satisfied with variance analysis and customer profitability analysis, while SOEs are most content with cost center accounting. In the case of SOEs, budgeting and cost center accounting are the most important instruments, but both FJPVs and POEs rank project costing as the most important tool. POEs use cost center accounting, profit center accounting, and process benchmarking most frequently. They also are most satisfied with profit center accounting, followed by life cycle accounting and project costing. Tables 13 and 14 summarize the t-test results for the mean differences between FPJVs, SOEs, and POEs along the three usage dimensions for all respondents and the only-users subgroup, respectively. (Appendices 1 and 2 contain the individual t-test outcomes with statistically significant results.) Table 13 shows that none of the tests show statistically significant differences between the means of the FPJVs and SOEs for all respondents. There are significant differences between the SOEs and the POEs in the predicted direction for the weaker, one-tailed t-tests regarding frequency of use and perceived importance, but not with respect to satisfaction. In contrast, the stronger, two-tailed t-tests reveal the mean differences between FPJVs and POEs to be statistically significant for all three aspects of MAT utilization. Only two of the comparisons exhibited in Table 14 are not statistically significant, namely FPJVs vs. SOEs concerning the frequency of MATs usage and SOEs vs. POEs regarding satisfaction with the MATs under consideration. The weaker, one-tailed t-test shows that the differences between FPJVs and SOEs with respect to satisfaction with the MATs are statistically significant and in the predicted direction. In addition, all six remaining comparisons prove to be statistically significant in two-tailed tests. The evidence presented earlier shows that the differences in MATs adoption rates between FJPVs and SOEs are not sufficiently large to be statistically significant.

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There also are no significant differences among all respondents related to frequency of use, satisfaction with, or perceived importance of the MATs they employ. The sole exceptions are in the only-users subgroup, where FPJVs score higher than SOEs on satisfaction with MATs and their importance. Thus, H06 remains largely supported. On the other hand, FJPVs are significantly more likely than POEs to adopt the 15 MATs studied, to use them more frequently, to be more satisfied with them, and to assign them greater importance. These findings hold both for all respondents generally and for the only-users subgroup in particular. Hence, H07 is rejected. The test results comparing SOEs with POEs are more mixed. There are no significant differences among all respondents regarding their rates of tool adoption or their satisfaction with MATs. However, on the basis of the relatively weak one-tailed t-test, the differences with regard to frequency of use and perceived importance are statistically significant and in the predicted direction of higher scores for the SOEs. The stronger two-tailed t-test produces the same outcomes for the only-users subgroup. Therefore, H08 is largely rejected. Clearly, FJPVs tend to adopt the most MATs, use them more frequently, be more satisfied with them, and perceive them as more important than do enterprises of the other two ownership forms. Moreover, although FJPVs absolutely are more likely to employ traditional instruments, they also generally adopt more modern instruments at noticeably higher rates than either SOEs or POEs. The major exception here is the high rate of BSC adoption reported by SOEs. The fact that many of the differences between FJPVs and SOEs are not statistically significant could mean that the transfer of knowledge and know-how between FJPVs and SOEs is at least partly responsible for largely having closed whatever gap previously had existed between them. It, too, could be the product of successfully applying coercive pressure through the government’s regulatory efforts or a combination of these two influences and possibly other variables. In any event, the similar results for FJPVs and SOEs in key areas lend support both to the evolutionary theory of management accounting development and to institutional theory’s implications for convergence. They also align with the predictions made almost 25 years ago (Firth 1996). Yet, as shown here, the gap between FJPVs and POEs remains very wide indeed. While there may be thousands of SOEs and their subsidiaries, there are literally tens of millions of POEs. It therefore is unlikely that FJPVs could affect the management accounting behavior of POEs to the same extent they have that of SOEs. Additionally, as the Chinese Communist Party’s ideologically unloved and unwanted stepchildren, most POEs have not been primary targets of the government’s accounting reform and regulatory measures. In view of the importance of POEs, especially privately owned SMEs, to the Chinese economy, the government ought not to remain passive, relying on the spillover effects of FJPVs’ interactions with SOEs as well as normative (university education and professional networks) and mimetic (copying successful companies’ processes) isomorphism to modernize POEs’ management accounting systems. Instead, it should take a more active role by extending such measures as its Basic Standard for Enterprise Internal Control and 4 + 1 model to cover all POEs.

42 Table 15 t-Test of MAT frequency of use for two samples assuming unequal variances

R. C. Rickards and R. Ritsert

Mean Variance Observations Hypothesized mean difference df t Stat P(T  t) one-tail t Critical one-tail P(T  t) two-tail t Critical two-tail

SOEs 2.18925333 1.22071927 15 0 24 1.72172692 0.04899275 1.71088208 0.0979855 2.06389856

POEs 1.60442667 0.50996183 15

8 Limitations, Research Suggestions, and Conclusions This research has three shortcomings, all of which stem from its methodology. First, the study population is not a random sample of the universe of Chinese companies. Second, a different set of management accounting tools might have led to different results. Consequently, the results apply solely to the enterprises and MATs investigated. Third, the survey and interviews relied heavily on the responses of CAOs, CFOs, and CEOs, so that a residual key informant bias is a distinct possibility. Future research therefore should aim at remedying these weaknesses. With a larger random sample, it also should be possible to explore the question of whether different industries favor particular MATs over other instruments and why that might be the case. Meanwhile, an investigation using the current data set is underway seeking linkages between the MATs employed by Chinese companies and the kinds of planning they do. Given that business planning and control decisions rely heavily on MATs, it seems reasonable that some systematic linkages may exist. Be that as it may, this study is the first investigation to demonstrate convincingly that, in keeping with the evolutionary theory of MATs’ development, Chinese firms use traditional tools more readily than newer instruments, just as businesses do in many other developing economies. Over and above the differentiated adoption of instruments, it also is the first inquiry to show empirically how closely MATs’ employment frequency, user satisfaction, and perceived importance are related. It thus extends the research underway in this area and contributes further to understanding management accounting practices generally and in Chinese enterprises in particular.

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Appendices Section 7 t-Tests (All Respondents) Table 16 t-Test of importance of MAT usage for two samples assuming unequal variances

Table 17 t-Test of MAT frequency of use for two samples assuming unequal variances

Table 18 t-Test of satisfaction with MAT usage for two samples assuming unequal variances

Mean Variance Observations Hypothesized mean difference df t Stat P(T  t) one-tail t Critical one-tail P(T  t) two-tail t Critical two-tail

SOEs 3.357 0.28384286 15 0 23 3.34905643 0.0013905 1.71387153 0.002781 2.06865761

POEs 2.81403333 0.11042617 15

Mean Variance Observations Hypothesized mean difference df t Stat P(T  t) one-tail t Critical one-tail P(T  t) two-tail t Critical two-tail

FPJVs 2.65883333 0.82263935 15 0 27 3.53755887 0.00074146 1.70328845 0.00148292 2.05183052

POEs 1.60442667 0.50996183 15

Mean Variance Observations Hypothesized mean difference df t Stat P(T  t) one-tail t Critical one-tail P(T  t) two-tail t Critical two-tail

FPJVs 2.33333333 0.39332811 15 0 28 3.34817839 0.00116695 1.70113093 0.00233389 2.04840714

POEs 1.5649 0.39677991 15

44 Table 19 t-Test of importance of MAT usage for two samples assuming unequal variances

R. C. Rickards and R. Ritsert FPJVs 3.63700667 0.46369732 15 0 20 4.20657594 0.000217 1.72471824 0.00043399 2.08596345

POEs 2.81403333 0.11042617 15

Mean Variance Observations Hypothesized mean difference df t Stat P(T  t) one-tail t Critical one-tail P(T  t) two-tail t Critical two-tail

FPJVs 3.67868 0.05471307 15 0 24 1.75027447 0.0464234 1.71088208 0.0928468 2.06389856

SOEs 3.48281333 0.13313208 15

Mean Variance Observations Hypothesized mean difference df t Stat P(T  t) one-tail t Critical one-tail P(T  t) two-tail t Critical two-tail

FPJVs 3.97805333 0.17544895 15 0 28 3.19290423 0.0017334 1.70113093 0.0034668 2.04840714

SOEs 3.45547333 0.22636503 15

Mean Variance Observations Hypothesized mean difference df t Stat P(T  t) one-tail t Critical one-tail P(T  t) two-tail t Critical two-tail

Section 7 t-Tests (Only Users)

Table 20 t-Test of satisfaction with MAT usage for two samples assuming unequal variances

Table 21 t-Test of importance of MAT usage for two samples assuming unequal variances

Chinese Enterprises’ Use of Management Accounting Tools Table 22 t-Test of MAT frequency of use for two samples assuming unequal variances

Table 23 t-Test of importance of MAT usage for two samples assuming unequal variances

Table 24 t-Test of MAT frequency of use for two samples assuming unequal variances

45

Mean Variance Observations Hypothesized mean difference df t Stat P(T  t) one-tail t Critical one-tail P(T  t) two-tail t Critical two-tail

SOEs 3.81054 0.27980109 15 0 23 2.78647438 0.00524539 1.71387153 0.01049078 2.06865761

POEs 3.36351333 0.10625287 15

Mean Variance Observations Hypothesized mean difference df t Stat P(T  t) one-tail t Critical one-tail P(T  t) two-tail t Critical two-tail

SOEs 3.45547333 0.22636503 15 0 26 2.34094849 0.01358862 1.70561792 0.02717724 2.05552944

POEs 3.09563333 0.12806166 15

Mean Variance Observations Hypothesized mean difference df t Stat P(T  t) one-tail t Critical one-tail P(T  t) two-tail t Critical two-tail

FPJVs 4.07232667 0.33401615 15 0 22 4.13731363 0.00021572 1.71714437 0.00043145 2.07387307

POEs 3.36351333 0.10625287 15

46 Table 25 t-Test of satisfaction with MAT usage for two samples assuming unequal variances

Table 26 t-Test of importance of MAT usage for two samples assuming unequal variances

R. C. Rickards and R. Ritsert

Mean Variance Observations Hypothesized mean difference df t Stat P(T  t) one-tail t Critical one-tail P(T  t) two-tail t Critical two-tail

FPJVs 3.67868 0.05471307 15 0 23 4.82880979 3.5675E05 1.71387153 7.135E05 2.06865761

POEs 3.33774 0.02006374 15

Mean Variance Observations Hypothesized mean difference df t Stat P(T  t) one-tail t Critical one-tail P(T  t) two-tail t Critical two-tail

FPJVs 3.97805333 0.17544895 15 0 27 6.20346068 6.1993E07 1.70328845 1.2399E06 2.05183052

POEs 3.09563333 0.12806166 15

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Prof. Robert C. Rickards, PhD, is a Professor of Accounting and Finance as well as Research Professor and Director of the PhD Workshop Program at the German Police University in Münster, Germany. In addition, he teaches regularly at Universitá Roma Tre, Uniwersytet Lodzki, and Polytechnika Krakowska. He has directed numerous research projects for companies, foundations, and government agencies. He has authored a trilogy of textbooks on budget planning, cost controlling, and performance evaluation. He also serves on the Board of Directors of the AsianPacific Management Accounting Association and the editorial boards of several international journals. Prof. Dr. Rolf Ritsert is Professor and Head of the Department of Business Administration— Public Management at the German Police University in Münster, Germany. He has directed research projects for the European Union, various companies, and for the German federal and state governments. He has acted as an advisor to various National Security Authorities, the Federal Ministry of the Interior in particular. His research work has received awards from the German Institute for Urbanistic (Difu), the German Association for Quality (DGQ), the Deutsche Bank AG, and the Helmut Schmidt University, Hamburg. In addition, he has edited two book series.

Management Accounting Practices in Indonesia Grahita Chandrarin and Diana Zuhroh

Abstract This study obtains empirical evidence about traditional and strategic management accounting practices (MAPs) in companies in Indonesia. Traditional MAPs include management accounting systems for costing, budgeting, performance measurement, and decision-making. Strategic management accounting practices encompass activity-based management, analysis of competition, industry analysis, long-range forecasting, value chain analysis, long-range forecasting, target costing, and total quality management. Data collection uses both a questionnaire and content analysis of job vacancies published on the websites of Indonesian firms. Data analysis uses descriptive statistics based on the average intensity of use. The results show that strategic management accounting techniques for budgeting, costing, and performance evaluation are still intensively used. Meanwhile, regarding strategic management accounting systems, the five most frequently used are activity-based management, analysis of competition, industry analysis, long-range forecasting, and value chain analysis. The results show that while traditional MAPs still are used intensively, strategic management accounting systems also are starting to be employed more frequently.

1 General Portrayal of Indonesia and Its Economy Indonesia is an archipelago comprising 17,508 islands located in Southeast Asia. Its total area is 1,904,569 km2. Indonesia adheres to the presidential system of government with the head of government held by a president. The President and Vice President of the Republic of Indonesia are directly elected by the Indonesian people through general elections held every 5 years. The Indonesian economic system is influenced by the developing political system. From Indonesia’s independence in 1945 through the mid-1960s, its economic

G. Chandrarin · D. Zuhroh (*) Faculty of Economic and Bussiness, University of Merdeka Malang, Malang, Indonesia e-mail: [email protected] © Springer Nature Switzerland AG 2021 R. C. Rickards et al. (eds.), Management Accounting in China and Southeast Asia, Contributions to Management Science, https://doi.org/10.1007/978-3-030-66245-5_3

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system was based on economic independence to avoid dependence on foreign countries: an approach in which the role of government is more dominant. Later, in the early 1970s, the Indonesian economic system was directed toward capitalism. This is indicated by, for example, the issuance of Law on Foreign Investment, which provided extensive facilities to both domestic and foreign entrepreneurs. Furthermore, Indonesia entered a reformation period, during which the Indonesian economic system used a populist economic system (Ekonomi Kerakyatan) based on Pancasila, foundational philosophical theory of Indonesia. Even so, the Pancasila economic system also leans toward capitalism because of the influence of the global economy. Over time, various revisions to the Law on Foreign Investment continued until the 2000s, moving Indonesia toward an economic system based on kinship (kekeluargaan) and mutual cooperation (gotong royong). Based on data from the Indonesian Central Statistics Agency, the Indonesian economy in 2018, measured by Gross Domestic Product (GDP) at current prices, reached IDR 14,837.4 trillion and GDP per capita reached IDR 56.0 Million or US$ 3927.0. From a regional perspective, in 2018, Indonesia’s economy was dominated by income from provinces on Java and Sumatra Islands. Java Island made the largest contribution to Gross Domestic Product, at 58.48%, followed by Sumatra Island at 21.58% and Kalimantan Island at 8.20% (Badan Pusat Statistik (Statistics Central Bureau) 2018). Meanwhile, based on sector, the Indonesian economy was still dominated by the manufacturing industry (19.86%), followed by wholesale and retail trade, car-motorcycle repair (13.02%), agriculture, forestry, and fisheries (12.81%), and construction (10.53%). Manufacturing made up the largest proportion of GDP, growing by 4.5% (YoY). This performance was influenced by the performance of several key industries, such as the food and beverage industries, the transport equipment industries, the textile and apparel industries, the coal and oil and gas refinery industries, and agriculture, forestry, and fisheries. Significant growth was also achieved by other sectors, including trade, communication, mining, construction, pharmaceuticals, and other sectors. Data indicate that the Indonesian Creative Economy Agency contributes significantly to GDP (Bekraf 2019). The gross domestic product (GDP) based on creative ideas reached IDR 1009 trillion in 2017, an increase from IDR 922.59 trillion in 2016. Digital economic potentials, such as e-commerce, online game services, food delivery services, and digital video services, can drive the growth of the creative economy. The government wants the value of Indonesia’s digital economy to reach US$ 130 billion, equivalent to IDR 1888 trillion, in 2020. This value is equivalent to 11% of the national gross domestic product (GDP). The number of workers involved in the creative economy reached 16.91 million workers in 2016, increasing to 17.43 million workers in 2019. The contribution of the creative economy to national GDP is estimated to reach IDR 1105 trillion in 2018 and is expected to reach IDR 1211 trillion in 2019 (BI 2016). The role of Micro, Small, and Medium Enterprises (MSMEs) in the Indonesian economy is quite high, contributing to GDP by 60.34%. The three biggest are food, apparel, and handicraft products. The small industrial sector can absorb a growing

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workforce from year to year. Meanwhile, for large manufacturing industries, the sectors that experienced the highest development are the food, chemical, and apparel sectors. In terms of employment, the construction sector is the sector capable of absorbing the largest workforce. In terms of expenditures, household consumption is the main source of economic growth, where expenditures on food, beverage, and restaurants are the largest component of household consumption expenditures, followed by the transportation and communication sector, and household equipment and supplies. In the next source of economic growth, spending occurs in the gross fixed capital formation sector, which is driven by investments in the form of machinery and equipment, other equipment, vehicles, intellectual property products, and investment in buildings. The next expenditure is the consumption of nonprofit institutions serving households (PK-LNPRT), government consumption expenditures (PK-P), and exports of goods and services.

2 Accounting System, Accounting Standards, and Accounting Profession in Indonesia For many years, the accounting system in Indonesia was influenced strongly by the Dutch accounting system; since gaining its independence in 1945, it began orientating to the USA (Radebaugh et al. 2006, p. 87) for its financial reporting. As of 2020, there is no existing data explaining management accounting practices in Indonesia. Based on practitioners’ experience, the application of management accounting in medium- to large-scale companies, especially those that have gone public, is designed to provide information on the cost of production in the context of presenting inventory accounts on the balance sheet and the cost of goods sold on the income statement. No data available explains the use of MAPs for decisionmaking, even in companies that use computers in their accounting systems (Diga and Yunus 1997, p. 284). In their exploratory research on management accounting practices in Indonesia, Jermias and Armitage (2000) conclude that management accounting plays a role primarily in the interests of achieving efficiency and decision-making. However, this research also finds that the use of a management accounting system is positively correlated with performance. Meanwhile, as of 2002, management accounting in Indonesia had not yet reached an advanced or integrated level. In connection with an increased business competition, Indonesia must improve the principles and techniques in management accounting used in corporate management (Nishimura 2005). Accounting standards oriented to US GAAP have been used since 1973. Since 1994, accounting standards were oriented toward the International Accounting Standards; between 2012 and 2020, convergence with IFRS is underway. In connection with the existence of various business sectors in Indonesia, so far, the accounting standards in Indonesia include:

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1. Financial Accounting Standards (IFRS) 2. Entity Financial Accounting Standards without Significant Public Accountability (SAK-ETAP) 3. Small and Medium Entity Accounting Standards (SAK EMKM) 4. Sharia Accounting Standards (SAK Syariah) 5. Government Accounting Standards (SAP PP 71 of 2010) 6. Village Financial Accounting Standards The development of the accounting profession in Indonesia began with the issuance of Law No.34 of 1954, which governs accounting education in Indonesia. Along with the increasingly rapid business development in Indonesia, the accounting profession has become one of the important and strategic professions. Hence, a professional accountant organization that not only accommodates membership but also facilitates improving professional quality is needed. The professional organization for accountants in Indonesia is named the Institute of Indonesia Chartered Accountants, which, as of 2020, comprises several compartments, including the following: 1. Tax Accountant Compartment: a forum for tax sector accountants 2. Academic Compartment: a forum for education sector accountants 3. Public Sector Accountant Compartment: a forum for government sector accountants 4. Sharia Accountant Compartment: a forum for sharia accountants 5. Accounting Services Sector Compartment: a forum for accountants who practice by providing accounting services Additionally, there are two other accounting organizations: the IAPI (Indonesian Institute of Certified Public Accountants) and IAMI (Indonesian Institute of Management Accountants). Based on 2016 data, there are approximately 12,000 accountants in Indonesia (IAI 2017). This number is inadequate compared to the increasing number of business sectors that are growing and developing.

3 The Need for Professional Accountants in Indonesia Entering the 4th industrial revolution, the demand for accountants is growing along with the development of the business world, which is marked by the development of online (digital) business. With the development of the business world, more and more professional accountants are needed. In addition, the government (public) sector needs accountants too. The future need for accountants in Indonesia will be triggered by developing business and government. In general, there are two main sectors driving the demand for accountants in Indonesia: the private sector and the government sector.

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Private Sector 1. The increasingly high demands for company management to submit transparent and accountable finance reports that meet accounting standards underlie the greater involvement of the accounting profession as a considered competent party in the field of accounting, especially management accountants. These demands will increase the need for the accounting profession. 2. With the expected enactment of a law concerning Financial Reporting, the financial statements of companies or business entities without public accountability and Micro, Small, and Medium Enterprises (MSMEs) must be prepared by accountants. 3. Various laws and government regulations require companies with assets above 50 billion IDR or companies that go public to prepare financial reports following Financial Accounting Standards that meet the requirements to be audited by a Public Accountant. Doing so certainly requires the accounting profession, specifically management accountants. Further, audits can only be carried out by Public Accountants. 4. At present, the government is encouraging companies in Indonesia to start trading their shares on the Indonesian stock exchange. Through a variety of policy packages, the government is encouraging companies in Indonesia to become publicly listed companies, which will enable increased public participation to become domestic investors. In the future, if the policy runs effectively, there will be more companies going public by issuing its shares on the stock exchange, and thus, it will increase the demand for accountants. Government Sector 1. The law on regional autonomy obliges the financial statements of government agencies or government-owned business entities to be transparent and accountable; these must be directly audited by public accountants. 2. Audit of funds for campaign in the election of the president, heads of local government, and members of the parliament. 3. State-owned enterprises, regionally owned enterprises, and regional enterprises can be audited by public accountants. 4. The banking sector requires audits for customers who obtain a certain amount of credit facilities. 5. In accordance with the Presidential Regulation of the Republic of Indonesia Number 54 of 2010 concerning Procurement of Government Goods/Services, the procurement of goods and services requires a procurement of government goods/services audit. In line with the provisions, the audit is carried out by an independent party, such as an auditor who has an accounting education background. 6. According to Government Regulation No. 22 of 2014 article 30 regarding village funds, the allocation of village funds originating from the APBN will continue to increase. With the increasing flow of funds to villages, Alimarwan Hanan, Indonesia’s former Minister of Cooperatives, Small, and Medium Enterprises, outlined that the accounting profession, which understands various matters

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Table 1 The stages of management accounting implementation (Source: Nishimura 2005) No 1 2 3 4

Management accounting Drafting management accounting Traditional management accounting Mathematical management accounting Integrated management accounting

Method Ratio analysis; actual costing Standard costing and budgetary control Profit forecast variance and opportunity costing. ABC; balanced scorecards; activity-based costing, and target costing.

related to the preparation of financial statements, is needed to assist the reporting and accountability process. The implementation of various laws and government regulations does not just require the involvement of a public accountant as an auditor, but also the government accountant as the party responsible for preparing various reports. Thus, the need for accountants for both the private and public sectors continues to grow. The challenge confronting institutions teaching accounting is to produce quality graduates. Although the accounting system in Indonesia was influenced strongly by the Dutch accounting system, since independence, it is increasingly modeled upon that of the USA (Radebaugh et al. 2006, p. 87). Until at least the 1970s, based on practitioners’ experience, the application of management accounting in medium to large companies was designed to provide information on production costs in the context of presenting inventory accounts on the balance sheet and the cost of goods sold on the income statement. Not many practices relate to using accounting data for decision-making, even in companies that use computers in their accounting systems (Diga and Yunus 1997, p. 284). Nishimura (2005) divides the development of management accounting into four stages as presented in Table 1. According to Nishimura (2005), based on the feature and fundamental aspects of management accounting, Asian countries are divided into four regions, with Indonesia included in the ASEAN group of countries. In most ASEAN nations, management accounting practices have shifted from “management through financial accounting” to classic management accounting, such as budget control and standard costing. This shift has occurred because many local firms are small- and mediumsized; in them, although personal relationships in business management prevail, the MAPs employed by multinational companies are influential too. Thus, a dual structure exists. Advanced management accounting systems are practiced in multinationals, while less advanced management accounting is practiced in local firms. In a study in Yogyakarta, it was concluded that the most vitally important management accounting practices are profit improvement for medium-sized businesses and budgeting for large businesses (Sunarni 2013). Thus, MAPs in Yogyakarta’s manufacturing companies are dominated by traditional management accounting techniques. It is important to promote the use of contemporary or

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Table 2 The stages of management accounting implementation in Indonesia (Source: Jermias 2018) Stage First stage (prior to 1950) Second stage (1951–1965) Third stage (1966–1985) Fourth stage (1985– present)

The role of management accounting Planning (budgeting), product cost determination, and cost control Shifted to the provision of information to assist managers in planning and allocating resources and the introduction of responsibility accounting Reduce waste through the use of process analyses and cost management Create value for important stakeholders such as customers, shareholders, creditors, and employees

advanced management accounting tools in order to enhance the quality of management accounting information. Meanwhile, according to Jermias (2018), management accounting in Indonesia has evolved though the stages described by the International Federation of Accountants (IFAC), the details of which are presented in Table 2. Jermias argues that studies on management accounting practices in Indonesia suggest that Indonesian companies are now using management accounting systems to generate information that is used by managers to create value for important stakeholders, like customers, shareholders, creditors, and employees. Many companies also use contemporary management accounting techniques, including balanced scorecards, activity-based costing, total quality management, target costing, employee productivity, and value-based management (Jermias 2018). As explained in the previous section, Zuhroh (2015) obtains empirical evidence that companies located in East Java have has implemented strategic management accounting, which consists of balanced scorecard, lifecycle costing, quality cost, target costing, and ABC system (Zuhroh 2015). However, traditional management accounting systems, including break even analysis, budget, economic order quantity, analysis of variants, and ratio analysis, are still intensively used. That means both traditional and strategic management accounting practices are employed frequently. Krisnadewi and Erawati (2018), who study the practice of management accounting by hotels in Bali, conclude that the most commonly implemented management accounting technique is a flexible operating budget. Meanwhile, the assessment of financial performance as a benchmark of budget conformity is practiced widely too. More contemporary techniques—like quality costs, product profitability analysis, and customer profitability analysis—are rarely applied due to a lack of knowledge and the limited IT skills of human resources. Chandrarin et al. (2019) research companies that had implemented target costing, particularly automotive, electronics, household, and consumer products industries. The study concludes that improved company performance results stemmed not just from a low dysfunctional behavior level but also by the resulting strong dynamic capabilities originating the target costing system. Additionally, this study finds that success factor as being an insignificant aspect for determining the successful implementation of the target costing system.

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Prihastiwi and Sholihin also conduct a study regarding the application of management accounting systems by SMEs located in the city of Yogyakarta, Indonesia. It concludes that the use of MAPs by SMEs in Indonesia is still dominated by traditional MAPs. The use of contemporary MAPs is limited to only those that affect customer service performance (Prihastiwi and Sholihin 2018). From these explanations, it can be concluded that management accounting practices in Indonesia have shifted from a traditional to a strategic mode. The next question is what factors influence the shift? Rasyid et al. (2017) conclude that five variables significantly affect the adoption of new accounting tools: cost system changing, technology changes, organization climate, consumer demand, and size. Another interesting result from the study is that intense competition does not affect the adoption of new accounting tools. In contrast, Prihastiwi and Sholihin’s research concludes that the qualification of internal accounting staff, participation of the owner/managers, and firm size significantly affect the use of MAPs in SMEs (Rasyid et al. 2017).

4 Research Method Instrument and Its Distribution A uniform model of the questionnaire was prepared for use in the seven countries covered by the survey. Then the questionnaire was created in an online format using Google Docs, both in English and Bahasa Indonesia (respondents could choose either language option). In distributing the questionnaire, the target respondent was contacted first by telephone or WhatsApp to elicit permission for their participation and at the same time to deliver a “thank you” for participating in the study. However, if the respondent asked to fill it in hardcopy form, the researcher sent a copy directly by post. Prior to distributing the survey, the researchers filled in basic information about each company in order to save participants time in responding. Data about the companies were obtained from the Indonesian Chamber of Commerce (KADIN) and the Indonesian Institute of Management Accountants (IAMI). There were 500 respondents from the manufacturing, trade, and services sectors, covering small-, medium-, and large-scale enterprises, including some listed on the stock exchange. Source of Alternative Data Based on the experience of previous studies with low response rates for returning questionnaires, the present study uses an alternative procedure to collect data, namely, using content analysis from job vacancies. For example, a company needs human resources with capabilities in the field of budgeting, meaning that the company implements budgeting. Data Analysis Data analysis was performed using descriptive statistics based on the average percentage of the application of management accounting systems. Content analysis of job vacancy announcements assumes that if a company needs

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human resources with competencies related to MAPs, then the company applies management accounting with a level of often to always.

5 Empirical Findings This study used a questionnaire to collect the data. Respondents were managers or business owners from various sectors, including services, trade, and manufacturing. Approximately, 500 questionnaires were distributed to companies throughout Indonesia, with 96 returned and were eligible for inclusion in the analysis. Thus, the response rate for the questionnaires was approximately 20%. Here, we present the results of the descriptive analysis. Types of Industry Figure 1 shows the results of the data processing: Figure 1 shows that respondents who returned the questionnaires are mostly from service companies (non-banks), followed by banks, manufacturing, and other types of companies, including cooperatives. Company Size Figure 2 shows the results of the data processing: Figure 2 indicates that the highest number of respondents are from large-scale companies (48%), followed by medium-scale companies and small-scale companies. Age of the Company Figure 3 explains the results of the data processing in terms of company age or the length of the company operation: Figure 3 shows that the respondents are mostly from companies aged 1–10 years. These are followed by companies with an age of more than 50 years, those aged of 11–20 years, and those that are 21–30 years. Companies between 41 and 50 years old make up the smallest group of respondents. Business Strategy Implementation Respondents were asked to identify the implementation of competitive strategies, these included, among others, the strategy of cost leadership, differentiation, and focus. Figure 4 presents the results: Fig. 1 Types of industry

Types of Industry

Other 17% Trading 12%

Banking 21%

Cooperative 2%

Manufact 17%

Services 29% Property 2%

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Fig. 2 Company size

Company Size Criteria

Other 8%

Small 21%

Large 48%

Medium 23%

Business Age

Fig. 3 Age of the company

1-10 years

23%

27%

11-20 years 21-30 years

6%

31-40 years

10%

17%

41-50 years > 50 years

17%

Main Business Strategy

Fig. 4 Business strategy implementation

8% 31%

Cost leadership Differentiation Focus strategy

40%

Others 21%

From Fig. 4, it appears that the majority of respondents (40%) implement the focus strategy, which means the target market is consumers in certain segments. The second largest proportion of respondents are the ones implementing a cost leadership strategy. Respondents applying a differentiation strategy constitute the third largest proportion. There were 85 nonrespondents to the question.

Management Accounting Practices in Indonesia Fig. 5 The role of management accounting

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The role of management accounting in business 4%

To determine product cost and de financial reporting

8%

To use for planning and controlling

17%

71%

To usage value creation by imptoving efficiency of resouces usage Others

The Role of Management Accounting in Company Management Regarding the questions about the role of management accounting system for company management, respondents’ answers are summarized in Fig. 5: From Fig. 5 it is evident that, according to responding managers of the companies surveyed, most of the companies (71%) apply management accounting systems for preparing financial statements. About 17% implement it for planning and controlling, while 8% implement it for other purposes. Last, but not least, 4% of the respondents implement a management accounting system to contribute to value creation through the efficient management of resources. The Use of a Management Accounting System for Costing In Fig. 6, the results of data processing related to the role of management accounting for costing are presented. Almost 62% (always and often) of the respondents use management accounting techniques for costing. Including the ones who apply this management accounting technique “occasionally,” the percentage is 79%. Based on these results, it can be concluded that costing is an important management accounting technique that is widely implemented by management. More detailed analysis shows that management accounting techniques that are always used by most respondents related to costing are standard costing and variance analysis. These results relate to the previously discussed business strategy implementation, where 40% of respondents apply the focus strategy and 31% apply the cost leadership strategy. Kaplan and Atkinson (1989, p. 349) state that for companies implementing a comprehensive cost advantage strategy (low-cost), analysis of variance is important to ensure that the expected profit achieved efficiently. Moreover, it is useful to ensure increased productivity. Figure 6 shows the use of standard costing and variance analysis, where the answers obtained were “always” and “often” for the entire samples. Thus, it can be concluded that almost all respondents apply the standard costing and variance analysis. However, 11.6% of respondents answered “others,” which means they do not use the costing techniques identified in the questionnaire. The answers to the further question in the questionnaire show that most respondents did not mention the

12.5%

12.5%

2.1% 2.1%

14.6%

27.0%

41.7%

12.5%

4.2% 4.2%

10.4%

29.1%

39.6%

16.7%

35.4% 35.4%

2.1%

10.4%

4.2%

12.5%

27.1%

8.3%

Always

Often

Ocassionally

Fairly

Never

Others

Job-process or Job- Product cost: variable Activity based costing Use of Plant Wide and Standard costing and order Techniques cost, incremental costs the Departmental Rate cost variance analysis & fixed costs

4.2% 2.1%

20.8% 18.7%

41.7%

47.9%

8.3%

Quality cost analysis

2.1% 2.1%

25.0% 22.9%

39.6%

Management Accounting Techniques Used and Frequency of the Usage

Fig. 6 Management accounting systems for costing

0%

10%

20%

30%

40%

50%

60%

8.3% 6.2%

16.7%

Learning curve technique

18.8% 18.8%

31.2%

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method or approach used for their costing techniques. For those respondents who provided a response, the approaches used include, among others, based on competitors, based on business segmentation, and a combination of cost and fulfillment of the best service. Some respondents use a method or approach that tends to be “subjective” because it is based on certain considerations under the policies of the owner or management. The next most widely used management accounting technique is variable costing/ full costing, followed by the use of Job order/Process Costing with the same percentage with the use of Activity-Based Costing. Regarding the use of ABC, this study found that ABC (which categorized as a strategic management accounting system) also is applied widely by companies in Indonesia. The Use of Management Accounting Systems for Budgeting The results of data processing on budgeting are as follows: Based on Fig. 7, the budgeting used by respondents when detailed from the use of “occasionally” to “always” is 74.4%. Further, 10.4% of respondents use “other” methods or approaches as a substitute for the budgeting method. The results of the further analysis of those respondents who answered “other” shows that the majority answered “none,” which means there is a possibility that respondents were not willing to answer the question or respondents did not use the budgeting method. However, some respondents gave answers: capital budgeting, business-and-riskbased budgeting, customer-order-based budgeting, external parameter analysis, macroeconomics-and-politics-based budgeting, and segmentation of business. A more detailed analysis of the figure reveals that the budget is used mostly in connection with professional financial statements and followed by the use of budget for cash planning. Additionally, from the figure, it appears that almost all respondents use a budget with a frequency from the level of “often” to “always”; only a very small number of respondents do not use it and, most likely, they are from small and medium businesses. This research shows that budgeting is a traditional management accounting technique that still is used, a finding consistent with the results of Zuhroh (2015). In that study, budgeting is used by almost all respondents, with usage ranging from “medium” to “very intensive.” The Use of Management Accounting Systems for Performance Evaluation Figure 8 displays results related to the use of management accounting techniques for performance evaluation. From Fig. 8, it can be inferred that 35.2% of the sampled companies report using management accounting information for conducting performance evaluation at the “often” level. Next are companies using it “always” at 25.3% and “sometimes” at 21%. A more detailed analysis of the use of financial performance measurements revealed that none of the respondents chose the answer “never.” With these results, it is clear that measuring financial performance is important for all respondents in this study. If an analysis is carried out on the use of each management accounting technique, the largest use (65%) is related to the use of management accounting for measuring financial performance with a level of “always” to “often.” Meanwhile, 11.7%

8.3%

6.2%

20.9%

62.5%

10.4%

Budgeting for product Budgeting for cash flow cost controlling planning

2.1%

31.2%

58.4%

12.5%

Always

Often

Activity- based budgeting

2.1% 2.1%

14.6%

25.0%

43.7%

Fig. 7 Management accounting systems for budgeting

0%

10%

20%

30%

40%

50%

60%

70%

8.3%

Ocassionally

Fairly

Performa Financial Statement

12.5%

18.8%

60.4%

2.1% 2.1%

12.5%

Never

Others

Flexible budgeting

14.6%

25.0%

43.7%

2.1%

8.3%

Sensitivity analysis of cost

25.0%

33.4% 31.2%

Management Accounting Techniques Used and Frequency of the Usage

6.3%

12.5% 12.5%

Zero-based budgeting

10.4%

22.9%

35.4%

64 G. Chandrarin and D. Zuhroh

Balanced scorecard

6.2% 4.2%

12.5% 12.5%

27.1%

37.5%

12.5%

Financial measurements

6.2%

29.2%

52.1%

12.5%

16.7%

10.3%

4.2% 2.1%

25.0%

41.7%

Always

Often

Ocassionally

Non-financial Non-financial measurements measurements related to customers related to operation satisfaction and innovation.

4.2%

18.7%

25.0%

39.6%

2.1% 2.1%

14.6%

Fairly

Never

Non- financial measurements related to employees.

18.8%

27.1%

35.3%

Others

Benchmarking

8.3% 8.3%

29.2% 27.1% 27.1%

12.5%

Residual income

6.2% 6.2%

25.1%

37.5%

12.5%

Management Accounting Techniques Used and Frequency of the Usage

Fig. 8 Management accounting systems for performance evaluation

0%

10%

20%

30%

40%

50%

60%

10.4%

Economic value added

4.2% 4.2%

25.0% 22.9%

33.3%

Management Accounting Practices in Indonesia 65

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answered “others.” Looking closely at these result shows that the majority (77%) of respondents did not provide answers about the method or approach used for performance measurement. However, 17% of respondents use the segmentation index approach and 4% use the guest satisfaction index. Figure 8 also shows that companies are beginning to use nonfinancial performance measurements intensely, as demonstrated by the “often” response applied to customer satisfaction, operation and innovation, and employee satisfaction. Furthermore, companies are starting to utilize the residual income and economic valueadded approaches for performance measurement more frequently. The Use of a Management Accounting System for Decision-Making Figure 9 shows the results related to the use of a management accounting system for decisionmaking. Based on Fig. 9, about 71% report using management accounting techniques for decision-making as “occasionally” to “always.” About 12% of respondents responded “other.” Looking at responses in detail shows that, of that number, almost none identified the techniques or approaches used. Thus, the answer can be considered as “not implementing.” The analysis of each management accounting technique applied by the respondents shows that profitability analysis is “always” used by 45.8%, following it by profit-analysis of product at 43.8%, break-even point (BEP) analysis at 39.6%, and customer profitability analysis at 35.4%. With these results, it can be seen that the analysis of capital evaluation is often used by respondents with a percentage of 45.8%. In addition, BEP analysis is one of the management accounting techniques that are still widely used today with the percentage of answers “always” at 38.6% and “often” is about 33.3%. Meanwhile, sensitivity analysis also is “often” used with a percentage reaching 41.7%. Next, the management accounting technique that is “often” used is the evaluation of capital, with a frequency of 45.8%, sensitivity analysis of cost, at 45.8%, followed by the use of incremental analysis at 37.5%. Further, management accounting techniques that are “occasionally” used include profitability analysis, profit analysis of a product, and customer protection analysis. Thus, it can be concluded that management accounting techniques that are “always” used are techniques or analyses related to profits. Furthermore, management accounting techniques that are “often” used are techniques or analyses related to cost. Presumably, the use of management accounting techniques is sequential, first for profit analyses, then for cost analyses. The Use of Strategic Management Accounting Systems The results related to the use of strategic management accounting are shown in Fig. 10. Figure 10 shows results related to strategic management accounting techniques with respect to external parties, including shareholders, competition, suppliers/ customers, and industry. It also presents results relating to the implementation of strategic management accounting for the company’s internal interests, including value chain analysis, activity-based management, total quality management, justin-time, target costing, lean management, and long-range forecasting. In general, the

Break Even Point Analysis

2.1% 2.1%

10.4%

12.5%

33.3%

39.6%

16.7%

Stock control models

6.2% 6.2%

14.7%

20.8%

35.4%

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Fig. 9 Management accounting systems for decision making

0%

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2.1%

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Suppliers Analysis of Activity Total quality Just-in-time: Target Lean Long-range and/or competitors based managemen JIT Costing Management forecasting customers management Management value chains

4.2%

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Analysis of Product life competitive cycle analysis

25.0%

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Transfer Shareholder Prices value Technique analysis

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Fig. 10 The use of strategic management accounting systems

0%

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68 G. Chandrarin and D. Zuhroh

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average use of strategic management accounting techniques with a range of “occasionally” to “always” is 78.7%. Respondents choosing to answer “other” make up 12.8% of the sample. A deeper analysis of these answers shows that another management accounting technique that is widely used is market segment analysis. Further analysis on the use of each management accounting technique shows that activity-based management is “always” used by 31.2% of the sample, followed by analysis of competition, industry analysis, and long-range forecasting. Meanwhile, at the “often” level, the use of management accounting techniques with the highest percentage is value chain analysis, followed by long-range forecasting, target costing, total quality management, and activity-based management. These results indicate that value chain analysis is an important and widely used management accounting technique. Comparing with Zuhroh (2015), regarding traditional MAPs, this study obtained empirical evidence that traditional management accounting systems are still being used, especially with respect to budgeting. As for strategic management accounting practices, Zuhroh (2015) finds evidence that manufacturing companies have implemented a strategic management accounting system and that the most intensively used MAP is lifecycle costing. Here, the most widely used MAP is value chain analysis. The difference is likely caused by differences in the research subjects. Respondents in the present study came from all types of companies, while respondents to Zuhroh (2015) came only from manufacturing firms.

6 The Results of Content Analysis Realizing the low response rate, the researchers took the initiative to obtain additional data. The alternative chosen was to conduct content analysis of job vacancies that offer positions related to management accounting. The rationale for this alternative is that if a company opens positions related to accounting practices, it can be concluded that such techniques are used in the company, even at “often” to “always” level. Job vacancy information was obtained from https://www.jobstreet.co.id/jobs/ unmer.htm, the site for job vacancies in collaboration between Universitas Merdeka Malang and Jobstreet.com. Figure 11 shows an example of a job vacancy announcement from a company. From the example in Fig. 11, a published job vacancy, the company needs a human resource who has the competence to prepare a budget (underscored in red) as a tool for planning, performance evaluation, and cash flow control. If the company requires HR with these criteria, it can be concluded that the company uses a budget for cost control and cash flow planning. Thus, it can be assumed that the company implements budgeting with an “often” to “always” intensity. In this way, an analysis was carried out of 101 companies in West Java, Central Java, and East Java that posted job vacancies on the website (https://www.jobstreet.co.id/jobs/unmer.htm). The analysis shows that, of the 101 companies, 60% are manufacturing companies (including agriculture and property), 25% services companies, and 15% trading

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FINANCE ACCOUNTING TAX MANAGER Company Confidential

Qualifications • Candidate must possess at least a Bachelor’s Degree • Finance/Accounting/Banking or equivalent with GPA Min 3 from reputable university. • At least 7 years working experience in the related field, pref. in retail Distribution Manufacture Industries. • Min. 35 yo. Max. 45 yo. • Good communication skill, required language: English • Required Skill(s) accounting, finance, tax, compliance, analyst, report, control. Job Descriptions and responsibilities • To do Financial analyst & control the cash flow system • To do all Tax. Journal, GL, etc. • Update to the government’s regulations to keep the company stay on the track. • Direct and coordinate financial planning & budget management functions. • Monitor and analyze monthly operating result against budget. • Oversee daily operations of the finance & accounting department. • Manage the preparation of all financial reports (preparing budgets, interpreting reports, accounts, & financial statement, variable contribution & result company actual performance). • Ensure compliance with local state and reporting requirements. • Assist in establishing short-and-long-departmental goals, objectives, policies, & operating procedure. • Responsible for operational.

Fig. 11 Job vacancy

companies (retail, dealers, distributors, and wholesalers). Approximately 70% implement the low cost strategy, 25% differentiation, and the remainder are unclear. Based on size, which is determined based on the company profile, 35% are large companies, 40% medium, and 20% small companies; the remaining 5% cannot be identified. According to an analysis of all companies whose job vacancies are observed, it can be concluded that the most needed HR are those who have the following competencies:

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1. Prepare financial statements to prepare tax reporting. 2. Conduct a cost analysis. 3. Handle technical and clerical work including compiling bank reconciliation, managing receivables administration, managing cash records, and so on. 4. Develop a budget, control performance using the budget, including the use of the budget to manage cash flow. Based on these HR needs, it can be assumed that: 1. Traditional management accounting practices are still very intensively used, especially budgeting and costing. 2. In terms of preparing financial statements, in general, the focus of the company is for tax reporting purposes. This possibility is a specific condition in Indonesia, especially for companies owned by individuals, or in situations where the dominance of the owner is still significant. Content analysis also is carried out on the needs of human resources in the field of information technology systems. Most companies need human resources who can operate information technology systems with the characteristics of “automation,” in this case, information technology systems that play a role in automating clerical work using computer software. This condition can be seen in the need for HR capable of operating software such as MYOB, Accurate, Zahir, and Microsoft Excel. The software is used to assist or replace human labor in recording transactions and preparing financial statements. Following the concepts of Jogiyanto (2005) and Venkatraman (1994), software that helps prepare financial statements is usually used to support traditional management accounting systems (for example, budgeting and costing using job orders and process costing). From the analysis of the use of information technology systems, about 10% of companies use enterprise resource planning (ERP), which is included in the information technology system as an “enabler.” The information technology system is used to handle jobs that require the involvement of strategic management accounting (Jogiyanto 2005). More detailed analysis shows that companies that require HR with qualifications to be able to operate ERP are companies that are foreign-owned and large companies listed on the Indonesia Stock Exchange. Accordingly, it can be concluded that the MAPs in companies in Indonesia have developed rapidly. The management accounting techniques implemented are a combination of traditional and strategic management accounting techniques. Thus, businesses demand information that goes beyond what traditional management accounting systems can provide. However, to better understand how the forms of implementation of each management accounting technique (both strategic and traditional), qualitative research is needed.

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7 Conclusion The Indonesian economy is driven by small- and medium-sized businesses. However, along with the increasingly dynamic economy of the country, a result of globalization, large companies, including multinational companies and government-owned companies, are growing and developing rapidly too. These all operate in harmony, supporting one another to strengthen the Indonesian economy. The accounting system adopted by companies in Indonesia also has developed in response to changes in the country’s economy and the ability of each sector to respond to these changes. Small- and medium-sized companies still use traditional management accounting systems intensively. Conversely, large-sized companies generally have implemented a strategic management accounting system in response to increasingly fierce competition. In fact, this study finds empirical evidence that traditional and strategic management accounting systems are used jointly by individual companies. In industrial era 4.0, Indonesia’s economy is influenced strongly by the development of information technology systems. The creative industry is growing rapidly, coupled with increasingly intense e-commerce. The emergence of start-ups has changed the business environment, bringing about a completely new competition model. That means practitioners of MAPs in Indonesia additionally are challenged to find new models, techniques, and systems that can respond to these changes. In the future, management accounting research should be directed to be able to find results and conclusions that can answer these challenges.

References Badan Pusat Statistik (Statistics Central Bureau) (2018). https://www.bps.go.id/pressrelease/2019/ 02/06/1619/ekonomi-indonesia-2018-tumbuh-5-17-persen.html. Accessed September 2019 Bank Indonesia (Indonesian Central Bank) (2016). https://www.bi.go.id/id/umkm/penelitian/ nasional/k... Accessed in September 2019 Bekraf (2019) Laporan Kinerja Badan Ekonomi Kreatif Tahun 2019. https://www.kemenparekraf. go.id/asset_admin/assets/uploads/media/pdf/media_1598879701_BUKU_BEKRAF_28-82020.pdf. Accessed August 2019 Chandrarin G, N Omar B, Lisetyati E, Yuniawan D (2019) Implementation of target costing in Indonesia: the influence of dynamic capabilities, dysfunctional behaviour, and success factors in manufacturing companies. Asia Pacific Manag Account J 14(2):23–49 Diga J, Yunus H (1997) Accounting in Indonesia. In: Nabil B, Nishimura A, Willet R (eds) Accounting in the Asia region. Wiley, Singapore, pp 282–302. https://www.jobstreet.co.id/ jobs/unmer.htm Indonesian Institute of Accountants (IAI) (2017). http://www.iaiglobal.or.id/v03/materi-publikasi/ materi-106. Accessed September 2019 Jermias J (2018) Development of management accounting practices in Indonesia. In: Lin Z (ed) The Routledge handbook. Routledge, New York, pp 102–113 Jermias J, Armitage (2000) Management accounting in Indonesia: analysis of current systems, potential for change and forces behind innovation. Int J Account Bus Soc 8(1):16–57

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Jogiyanto HM (2005) Sistem Informasi Strategik Untuk Keunggulan Kompetitif (Strategic information system for competitive advantage). Penerbit Andi, Bandung Kaplan RS, Atkinson AA (1989) Advanced management accounting, 2nd edn. Englewood Cliffs, New York Krisnadewi KA, Erawati NM (2018) The application of management accounting techniques at star hotels in Denpasar City. Akrual Jurnal Akuntansi 10:27–46 Nishimura A (2005) The development of management accounting and the Asian position, pp 20–36. www.ntu.edu.sg/lib/acc. Accessed November 2009 Prihastiwi DA, Sholihin M (2018) Factors affecting the use of management accounting practices in small and medium enterprises: evidence from Indonesia. Jurnal Dinamika Akuntansi 10 (1):158–176 Radebaugh LH, Grey SJ, Black EL (2006) International accounting and multinational enterprises, 6th edn. Wiley, New York Rasyid A, Elizabeth Sugiarto D, Wilson K (2017) Management accounting techniques and corporate performance of manufacturing industries. Risk Govern Control Financ Markets Inst 7 (2):116–134 Sunarni CW (2013) Management accounting practices and the role of management accountant: evidence from manufacturing companies throughout Yogyakarta, Indonesia. Soc Interdiscip Bus Res 2(2):616–626 Venkatraman N (1994) It-enabled business transformation: from automation to business scope redefinition. Sloan Manag Rev 45(2):73–87 Zuhroh D (2015) The fit of competitive strategies, management accounting systems, and information technology systems and its effect on business unit performances. Asia Pacific Manag Account J 10(2):21–55

Prof. Grahita Chandrarin currently is the Director of Graduate Program, University of Merdeka Malang, Indonesia. She has published a couple of books and scientific articles in Thomson Reuters and Scopus indexed journals as well. She was the former member of Indonesian Financial Accounting Standards Board and National Reviewer of Research. Besides, in the last 10 years she has involved herself in the Asia-Pacific Management Accounting Association; in 2016, she was the President of the Association and has actively served as Senior Director for years. She is also an assessor at the National Accreditation Agency for Higher Education, Indonesia’s Ministry of Education and Culture. Ass. Professor Dr. Diana Zuhroh, CA, is a lecturer at the Faculty of Economics and Business, University of Merdeka Malang, and currently is the Chair of the Accounting Master Program, Graduate School. With interest in management accounting, Dr. Diana Zuhroh has received several research grants from the Government of Indonesia and the Central Bank of Indonesia, Malang Office. Several articles of her research have been published in international journals and presented at the annual APMAA Conferences.

Management Accounting Practices in Export-Oriented Manufacturing Small and Medium Enterprises in Malaysia Ibrahim Morshidi, Normah Omar, Jamaliah Said, Suzana Sulaiman, and Ibrahim Kamal Abdul Rahman

Abstract Most studies of management accounting practices (MAPs) globally, and specifically of Malaysia, mainly focus on large manufacturing companies. This study examines the adoption of MAPs among small and medium enterprises (SMEs) engaging in export-oriented manufacturing in selected industrial hubs in Malaysia. In the digital era, these firms are expected to adopt some relatively sophisticated management accounting techniques in their manufacturing processes and marketing strategies. Based on 2019 statistics, SMEs constitute about 98.5% of all Malaysian business establishments. Most export-oriented SMEs are very structured in nature as they must adhere to stringent international market requirements. The objectives of the present study are to evaluate the level of perceived business uncertainty facing these SMEs and to explore their level of MAPs-adoption. Questionnaires were used to collect data from the export-oriented SME respondents: of the 410 distributed questionnaires, 78 (19%) were completed, returned, and used for analysis. The results show that, overall, export-oriented firms mainly market their products within the ASEAN region and, as such, most respondents perceived their business environment as “stable and predictable.” In relation to MAPs, it is evident that the export-oriented manufacturing SMEs rely more on traditional tools and techniques, like operating budget, standard costing, capital budgeting, variable costing, cost variance analysis, full costing, CVP analysis, and ratio analysis, for the purpose of product cost information.

I. Morshidi (*) · N. Omar · J. Said · S. Sulaiman Universiti Teknologi MARA, Shah Alam, Malaysia I. K. Abdul Rahman Universiti Kuala Lumpur, Kuala Lumpur, Malaysia © Springer Nature Switzerland AG 2021 R. C. Rickards et al. (eds.), Management Accounting in China and Southeast Asia, Contributions to Management Science, https://doi.org/10.1007/978-3-030-66245-5_4

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1 Introduction This study examines the adoption of MAPs among export-oriented small and medium enterprises (SMEs) in the manufacturing sector in their quest for competitiveness in the marketplace. The investigation was undertaken in selected industrial hubs in Malaysia with the main focus being the Klang Valley, which is the most advanced industrial region in Malaysia. The motivation to study export-oriented manufacturing SMEs is due to their significant contribution to the economic development of Malaysia. SMEs are the core of Malaysia’s economic structure, with almost 99% of business establishment in comprising SMEs. In terms of employment, SMEs contribute nearly 50% of Malaysia’s job opportunities and nearly 18% of its exports. Manufacturing SMEs are increasingly subject to pressures from the external market environment. Export-oriented manufacturing firms, especially in developing countries, are subject to intense international competition due to the opening up of domestic markets under international trade agreements. The growing uncertainties and competition facing these firms also are attributed to both the slowing of economic growth and the rapid pace of technological progress. The widespread application of computer-based control technology in manufacturing along with the shortening of product life cycles due to the availability of technologies that enable manufacturers to cater for changing customer preferences also are enhancing the competitive environment. The global fuel price hike and the looming world economic recession in the 2010s further compounded the problems facing these manufacturing firms. Consequently, not only was firm profitability eroded but many manufacturing firms were forced to curtail their operations, if not completely shut down. The slowing global demands for manufactured goods led to widespread layoffs around the world.

2 Background of Malaysia Malaysia is a federal state with a monarchy system of governance. It comprises 13 states and three federal territories. The Malaysian land is divided by the South China Sea separating Peninsular Malaysia and the states of Sabah and Sarawak on Borneo Island. Malaysia is a multi-racial country with a diversity of cultures, food, and ways of life. The Malaysian population stood at 32.1 million in 2017, composed of a variety of ethnic groups, including Malays, Indians, Chinese, Ibans, Kadazans, Melanau, and many more. In 2019, Malaysia was ranked the 42nd most populous country (UN World Population Prospects 2019 Revision). Its citizens enjoy an affluent lifestyle due to its robust economy and relatively low cost of living compared to those in middle-income countries like Brazil, Mexico, and Turkey. With a per capita income of USD29041, Malaysia is the third wealthiest nation in Southeast Asia after Singapore and Brunei. In 2017, the inflation rate was 3.8%, while the

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unemployment rate was 3.4%. The country’s foreign direct investment (FDI) in 2017 stood at USD9.5 billion (Miller et al. 2020). With a high density of knowledge-based industries and its adoption of cutting-edge technology in manufacturing and the digital economy, the Malaysian economy continues to grow at impressive rates, surpassing other countries in the region. The Malaysian economy is the third largest in Southeast Asia and the 35th largest economy in the world. Malaysia is the second largest exporter of palm oil products and the country’s exports of high-tech products stood at USD57.258 billion in 2015. With total exports of USD230.7 billion and imports of USD192.9 billion in 2013, Malaysia is the 21st largest exporter and the 25th largest importer in the world. Malaysia’s largest trading partner is the Republic of China, with a total two-way trade volume of around USD106 billion annually. The country’s second largest trading partner is Singapore, with bilateral trade totaling roughly USD91 in 2012. Malaysia’s third largest trading partner is Japan, with total trade amounting to USD42 billion in 2014. Malaysia is an important trading partner of the USA too.

3 Introduction to Malaysia’s Political and Economic Landscapes Malaysian politics are based on the framework of a federal representative democratic constitutional monarchy. The country is headed by His Majesty, the Yang Di Pertuan Agong, and the government is headed by the Prime Minister. The Malaysian constitution and the system of government is based on the British Westminster system. The Malaysian government is composed of three branches: Executive, Judicial, and Legislative. The parliament consists of an Upper House/Senate and a Lower House/House of Representatives. Since going independent from Britain in 1957, Malaysia has been a multi-party system. The Alliance Party and the National Front Coalition, the successor to the Alliance Party, remained in power for 61 years. Initially, the Alliance Party comprised the United Malays National Organization, Malaysian Chinese Association, and the Malaysian Indian Congress. In 1973, that coalition was replaced with the National Front Coalition in order to facilitate wider participation from other communal political parties. After 61 years, which made them the world’s longest serving government, they lost power in the 14th general election held on May 9, 2018. The 14th general election witnessed a peaceful transition of power from the National Front Coalition to the Alliance of Hope (Pakatan Harapan) and the appointment of Tun Mahathir Mohamed as the seventh Prime Minister of Malaysia. At the time, he was the oldest democratically elected leader in the world. In light of this peaceful transfer of power following the 14th general election, Malaysia was the runner-up in the Economist’s 2018 “Country of the Year” contest (The Economist 2018). Malaysia has not just an abundance of natural resources but fertile land for agriculture too. However, the contribution of the agricultural sector to the country’s

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economy has shrunk drastically since 1960, when the sector comprised 37% of Malaysia’s GDP. The sector contributed 7.6% of Malaysia’s GDP in 2018. However, despite the decline in the contribution of the agricultural sector toward the country’s GDP, Malaysia is the second largest exporter of palm oil in the world after Indonesia, with a total export value of RM80 billion in 2018 (Ying 2018). Beyond agriculture, the main contributors to Malaysian GDP are services (54.8%), manufacturing (22.8%), construction (4.8%), and mining and quarrying (8.5%) (Department of Statistics Malaysia 2018). Manufacturing performance continues to grow, with reported sales revenues of RM73.7 billion in August 2019; an increase of 4.7% from the corresponding period in 2018. The increase in manufacturing sales performances was driven by the increase in non-metallic mineral products, basic metal and fabricated metal products (6.6%), petroleum, chemical, rubber and plastic products (4.1%), and electrical and electronics products (3.6%). The electric and electronic industry remains the main contributor to the Malaysian economy and it was the country’s largest export earner with a total export value of RM343 billion in 2017. Moreover, Malaysia is a major hub for the manufacturing of electronic components with the presence of international companies like Intel, AMD, and Texas Instruments setting up their factories in the country. As of 2019, there are more than 50 multinational corporations (MNC) producing semiconductor devices in Malaysia.

4 The Accounting Profession in Malaysia A crucial requirement for export-oriented SMEs is the need to establish a proper strategic management and accounting unit. As such, the appointment of a professional accountant and a financial controller is required before a “license of export approval” is given by the Ministry of Trade. In Malaysia, the accounting profession is governed by the Malaysian Institute of Accountants (MIA), which is empowered by provision of the Accounting Act, 1967. Any person intending to practice accountancy in Malaysia is required by the statute to register as a member of the MIA. MIA membership incorporates both legal and market recognition for accountants in Malaysia. The Malaysian Institute of Accountants furthermore is responsible for education, quality assurance, and enforcement in order to maintain the quality and credibility of the accounting profession in Malaysia. Other accounting bodies in Malaysia include the Malaysian Institute of Certified Public Accountants (MICPA) and the Institute of Commercial and Industrial Accountants, Malaysia (ICIA). MICPA was established in 1958 with its main objective to train and develop accountants in Malaysia. Members of the MICPA at Certified and Fellow levels are entitled to use the designation of Certified Accountant. With regard to accounting education, accounting courses are offered by both public and private higher learning institutions in Malaysia, with some offering programs that lead to the attainment of professional accountancy qualifications like ACCA and CIMA. In relation to accounting standards, the power to issue such standards is vested upon the

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Malaysian Accounting Standard Board (MASB). The MASB was established under the Financial Reporting Act, 1997, and the subsequent establishment of the Financial Reporting Foundation, a body set up by the Act to oversee the performance of the MASB and financial arrangements. It is the aspiration of the MASB to ensure that Malaysia is in full convergence with the International Financial Reporting Standard (IFRA), starting from the year 2012.

5 Other Related Issues From being dependent on agriculture and commodities trading in the 1950s, the Malaysian economy has evolved to become a leading exporter of electrical appliances, electronic parts, and components (World Bank 2019). In 2017, more than 80% of Malaysian exports were manufactured goods. Hence, the manufacturing sector is an important contributor to the country’s gross domestic product (GDP) and the projected contribution of this sector continues to be significant. However, the export growth of the Malaysian manufacturing sector in 2019 was expected to slow to 3.4%, compared to 6.8% in 2018 (Ying and Lim 2019). The projected slowdown in the export sector is due, among others, to the looming trade tensions between the USA and China that have affected the demand for manufactured goods from the affected countries. Moreover, lower mineral prices and crude oil production further resulted in reductions in commodities exports. Malaysia’s continued economic performance also will depend on measures undertaken by the government to sustain private sector activities due to a challenging external environment that could reduce potential growth in the export sector (World Bank 2019). The Malaysian economy is expected to remain vibrant with sustainable exports of manufactured goods as well as strong domestic demands that enliven the positive contributions of the manufacturing sector. The importance of the manufacturing sector to Malaysian exports cannot be understated. In line with Malaysia’s aspiration to become a high-income and developed country by 2024, the manufacturing sector has undergone structural changes, evolving into high-value manufacturing. For example, Malaysia is now a regional leader in several high-impact industries, like aerospace and solar energy. The continued rigorous efforts by the government to transform the manufacturing sector is evidenced by the availability of incentive packages, including the acquisition of robotics for production, factory automation equipment, modernization, and the upgrading of plants. With the imminent arrival of the new industry model in the form of Industry 4.0, the focus is more on the creation of manufacturing systems that are both viable and sustainable. The new industry model creates a new level of organization and control over the value chain of the product life cycle. It involves the integration of humans in the production processes in order to continuously improve the processes and avoid wastage. Among others, the Fourth Industrial Revolution integrates the concept of smart manufacturing, cyber-physical systems, the internet of things, cloud-based manufacturing, big data, and autonomous robots (Vaidya

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et al. 2018). Malaysia is one of the few countries in the world that proactively acknowledges the importance of embracing the emerging new industry model in order to remain globally competitive. A policy statement in the form of the Eleventh Malaysia Plan was released by the Malaysian Economic Planning Unit in 2015; it highlights that the manufacturing sector is one of seven focus areas. The main objective is to help the manufacturing subsectors to transform, to produce highvalue, diverse and complex electrical and electronics, chemicals, machinery and equipment, and other related products. The focus is on a concerted effort to support innovation and technology (Liao et al. 2018).

6 Study Objectives The manufacturing SMEs in this study export their products to other countries. In such a business environment, it is expected that they face some form of business uncertainty in their decision-making processes. This may include challenges in reaching out to new clients or risk and uncertainty when releasing a new product. It is important to explore the level of MAPs-adoption among export-oriented manufacturing SMEs in light of the various external pressures they face. It is also important to examine if these SMEs adopt management accounting techniques as a strategic tool for their business. Therefore, the objectives of the study are to evaluate the level of perceived business uncertainty faced and to explore the level of adoption of management accounting practices among export-oriented manufacturing SMEs in selected industrial hubs in Malaysia.

7 Small and Medium Enterprises (SMEs) in Malaysia Small and medium enterprises (SMEs) continued to record higher economic growth and higher exports in 2018. SMEs registered an economic growth of 7.2%, compared to 5.2% in 2017. This growth was driven by strong domestic demands, led by both consumption and investment activities, higher exports, as well as continued growth in employment and income. SMEs represent the largest percentage of establishments in Malaysia with 907,065 establishments, or 98.5% of the business establishments. Figure 1 depicts the official statistics published by the SME Corporation in 2018. In 2018, SMEs provided 5.7 million jobs to 70% of Malaysia’s workforce. The contribution of SMEs GDP to Malaysia’s GDP rose to 38.3% in 2018 (RM551.7 billion) from 37.8% (RM519.1 billion) in 2017. The real Gross Domestic Product (GDP) growth of the SMEs has always outperformed the overall economy, with the annual average growth rate of 6.6% for the 2016–2017 period. In terms of its economic contribution, SMEs contributed 37.1% to GDP 2017, 56.4% to total workforce, and 19% to total exports. The major concentrations of the SMEs are in

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Fig. 1 SME statistics in Malaysia

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the Klang Valley, making up 34.5% of all establishments in Malaysia. In terms of sectors, 89.2% of SMEs are in the service sector, followed by manufacturing (5.3%), construction (4.3%), agriculture (1.1%), and mining and quarrying (0.1%). In terms of size, 76.5%, or 693,670 SMEs, are classified as microenterprises, 21.2%, or 192,783 SMEs, as small-sized and 2.3%, or 20,612 SMEs, are categorized as medium-sized (SMEcorp 2017). An enterprise is considered as an SME in Malaysia based on its annual sales turnover or the number of full-time employees. For manufacturing, manufacturingrelated services, and agro-based industries, SMEs are enterprises with an annual sales turnover not exceeding RM25 million or with full-time employees not exceeding 50 (SMEcorp 2012). Malaysia adopted this common definition of SMEs in order to facilitate identification of SMEs in the various sectors and subsectors. Doing so helps the government formulate effective development policies, support programs, as well as provide technical and financial assistance. Developing a group of diverse and competitive SMEs also are crucial for achieving sustainable economic growth. SMEs are also crucial for the economic growth process and play an important role in the country’s overall production network. That is evidenced by the example of advanced economies, which succeed because SMEs form a fundamental part of the economy. Although less numerous in Malaysia, SMEs have the potential to contribute substantially to its economy, potentially providing a strong foundation for the growth of new industries and the strengthening of existing ones.

8 Perceived Environmental Uncertainties Most studies on management accounting practices involving manufacturing firms often take into consideration the highly uncertain business environment they face. For local manufacturing firms, perceived environmental uncertainties include global competition, continuous innovations, and advancements in manufacturing technologies. Shortened product lifecycles and the impact of technology across all aspects of modern business have changed consumer tastes and preferences; with these exerting additional competitive pressures on the firms. Similarly, market demand, relationships with customers and suppliers, distribution channels, and deregulation also increase the competitiveness of the marketplace that the SMEs are expected to compete. Waterhouse and Tiessen (1978) argue that the ability of management to predict environmental uncertainty affects the design of a management accounting system. An unpredictable environment requires a high degree of decentralization. A more stable environment needs a more centralized organizational structure, which leads to the need for less participatory planning and a more budget-based performance evaluation system. Studies on environmental uncertainty tend to focus on the impact of the external environment, as an uncontrollable factor, on firm performance. It significantly affects not just the design of a management accounting system, but also the importance of research and development, technology and innovation, environmental

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change, competitors’ behavior, and price competition (Löfsten and Lindelöf 2005). They conceptualize the external environment in terms of: (1) Hostility—hostility of key competitor’s market activities, number of areas in which there is competition, the unpredictability of competitor market activities, as well as legal, political, and economic constraints; (2) Dynamism—growth opportunities, change in production/ service technology, rate of innovation in industry products, services, and processes; and (3) Heterogeneity—needed diversity in production and marketing methods to cater to different customers. Other environmental variables that are studied include business costs, availability of labor, competitive hostility, environmental dynamism, firm size, and degree of foreign ownership (Amoako-Gyampah 2003). In his study, Hoque (2004) uses eight items from the survey instruments developed by Gordon and Narayanan (1984) and Govindarajan (1984) to assess environmental uncertainties. The eight items are (1) suppliers’ actions; (2) customer demands, tastes, and preferences; (3) market activities of competitors; (4) deregulation and globalization; (5) government regulation and policies; (6) economic environment; (7) industrial relation; and (8) production and information technologies. Most studies in the area of environmental uncertainties rely on the level of perceived uncertainties as judged by managers, CEOs, and management accountants. This reliance is consistent with the notion developed by Swamidass and Newell (1987) that managers’ perception is more important than the actual environment in the sense that the decisions made by these individuals are based on the perceived level of environmental uncertainties.

9 Traditional Management Accounting Practices Traditional management accounting practices were developed in the early part of the twentieth century when standard products were mostly mass-produced (Brown 1999). It was mainly employed in the areas of product cost measurement and pricing decisions for the purpose of achieving competitive advantage. The main area of focus was on the retention and/or increase of market share and maintaining as well as improving overall profit. Similarly, the retention and increase of the market share also would involve consideration of price as one of a number of influences. Traditional management accounting practice is defined as the provision of information required by management for the formulation of policies, planning, and controlling the activities of their corporation, and for selecting the appropriate course of action from the available opportunities. Traditional management accounting works well in stable environments within national boundaries, emphasizing tangibles and quantity. It has a short-term perspective and focuses more on financial accounting, efficiency, and cost-effectiveness. Existing studies indicate that traditional management accounting techniques are no longer an effective tool for capturing the complexities of the modern manufacturing environment and are ineffective for use in making strategic business decisions. Foong and Minai (1999) list three major criticisms of these traditional MAPs. First,

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the fact that management accounting information is subservient to the function of financial reporting. The cost accumulation procedures for product costing are said to “start too late and end too early”; thus, managers are often misled regarding the actual profitability of individual products. Second, firms invest heavily in new production technologies, including computer-aided design, computer-aided manufacturing, and flexible manufacturing processes. As a result of such investments, the production cost structure of manufacturing companies is altered, with an increasing number of costs becoming fixed. Third, standard costing is no longer an effective control device under changing manufacturing environments. In a highly turbulent and competitive environment, firms produce a diversified range of products with shorter lifecycles. Hence, standard costs are difficult to revise quickly enough to reflect changes in the market and in technology. A case study of change processes toward lean production, conducted by Åhlström and Karlsson (1996), concludes that traditional management accounting systems are likely to affect the adoption process negatively, since it is ill-equipped to interpret the changes made when implementing a complex production strategy. However, other studies indicate that a possible trade-off is being made between the simplicity of traditional management accounting practices and the accuracy and reliability of product cost information as well as the competitiveness of the pricing decision. Consequently, any overreliance can be attributed to conventional methods. Such methods are simple and do not distort product cost significantly (Chun et al. 1996). Furthermore, studies show that firms pursuing a generic strategy of cost domination will rely on traditional MAPs that are based mainly on cost determinations and controls (Ayadi and Affes 2014). This reliance explains why traditional management accounting practices still are relevant and popular despite tremendous achievements in the field of advanced manufacturing technologies and growing uncertainties in the marketplace. Current practices by manufacturing companies in Malaysia and the Asia Pacific region show that traditional MAPs still are used widely. According to Alicia (2020) and Theriou and Floropoulos (2010), the most common method used to assign costs to products is “absorption costing,” which assumes that as a product is produced, it absorbs the costs involved to manufacture it, direct materials to make it, costs of labor to produce it, and the overhead costs to maintain the overall production capacity. Similarly, studies also find that Malaysian manufacturers still rely on traditional costing methods, mainly standard costing and full costing, for their product cost measurement (Abdul Rahman et al. 2003; Tho et al. 1998). The standard costing system was developed to cater for the costing needed in a manufacturing environment, when mass production was quite common and production methods were labor-intensive. In fact, standard costing is appropriate for organizations in which activities consist of a series of repetitive operations, like a manufacturing environment. Empirical evidence indicates that standard costing is still widely used and remains a popular choice for product costing. The findings of Tho et al. (1998) reveal that standard costing is the most prevalent costing method used by almost 69% of Malaysian manufacturers. In a study conducted by Chun et al. (1996), 67% of manufacturing firms use standard costing. Across industries,

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the standard costing system is widely used by firms in fabricated metal and electric and electronic industries. Similarly, Adler et al. (2000), in their study of manufacturing firms in New Zealand, find that traditional management accounting practices are still the most prevalent and preferred methods for product cost measurement purposes. A comparative study on the diffusion of management accounting innovations and organizational satisfaction in Australia, conducted by Askarany (2009) in 2003 and 2007, evaluates the take-up of, and organizational satisfaction with, management accounting innovations introduced during that period. The first survey, conducted in 2003, reached 501 Certified Practicing Accountants (CPA) in building and construction, energy, engineering, healthcare, metal, mining and extraction, paper and packaging, retail, distribution, and transport. The subsequent survey, conducted in 2007, reached 1175 registered CIMA members in the managerial accounting sections of Australian organizations. The results of these cross-sectional mailed surveys indicate that the introduced management accounting innovations, including balance scorecard techniques, value-added concepts, activity-based costing, and total quality management, were not widely implemented in the Australian context, at least in 2007. In the first survey, a majority of the Australian establishments indicate dissatisfaction with the newly adopted cost and management accounting innovations as well as believing that their system needs improvement. However, it was found that during the second survey 5 years later, satisfaction had positively shifted toward the new management accounting innovations from 2% in 2003 to 11.7% in 2007, with the exception of target costing, which suffered a significant drop of
37.9% during that period.

10

Contemporary Management Accounting Practices

Changing manufacturing environments, increased automation, intensified competition, and computerization demand new management accounting techniques and procedures. New management accounting practices may involve better product costing techniques, accurate cost information, and improved costing information for decision making. Such a development would require better techniques to accumulate, record, and disseminate cost information accurately and timely. Moreover, it is urged that management accounting systems should adopt a more strategic perspective by reporting the information related to the firm’s market and competitors that could be used to formulate strategies to better position the firm in the market. Several non-traditional and innovative management accounting techniques that improve the accuracy of product costs, provide better mechanism for managing costs, and support manufacturing strategies have been developed. Among the most important and relevant non-traditional management accounting techniques with a significant bearing on the way manufacturing and non-production overhead costs are accumulated to products, is the Activity-Based Costing (ABC) system. ABC emerged out of the need for accurate product costing under highly capital-intensive

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manufacturing environments and shortened product lifecycles. It also is designed to provide a better and clearer picture of product cost structure and cost behavior. The key role in the ABC system is played by activities, not departments (Weygandt et al. 2008). The breakdown by cost categories according to activity is finer than the breakdown by departments. This more detailed classification could assist in the planning of new product designs and cost control since detailed specification of activities could be made, thus facilitating the identification of activities that do not add value to production. The ABC system also is commended for its accuracy in product costing information because costs are closely associated with activities that trigger cost incurrence in the organization. Empirical evidence from a survey of ABC in the largest British companies suggests that the use of ABC directly affected decisions on price increases; reductions to output levels and product lines; as well as resource elimination facilitating significant cost reductions (Innes and Mitchell 1995). Another contemporary method developed from Japanese approaches is the determination of product costs based on the prevailing selling price in the market. Called target costing, it simply denotes the manner in which the cost of a product is arrived at, by referring to the price it could sell for on the market. Thus, it inverts the traditional full-costing method, whereby selling prices are determined solely on the costs of the product that is manufactured, plus the desired amount of profit. Target costing is integrated with the continuous improvement philosophy. Improvement ideas are usually generated from the production floors, whereby manufacturing workers are encouraged to evaluate the production process and to identify the nonvalue-added processes by eliminating unnecessary processes and components. Advocates of this method argue that controlling costs at the design and development stage of the product lifecycle would yield the greatest cost reductions (Tho et al. 1998). In its most basic form, target costing could be used to improve product design, ensuring high quality and reliability as well as the incorporation of customer’s requirements in the products. It furthermore is a management tool that uses value engineering analysis to focus on the innovative and cost-effective features of a product or service based on customer needs (Tho et al. 1998). Empirical evidence shows that these new management accounting practices are widely used by Japanese manufacturing firms, with Lee and Monden (1996) documenting the experience of the Japanese Daihatsu Motor manufacturer in the implementation of target costing and kaizen (continuous improvement) costing. They conclude that the use of target costing enables the firm to focus on profit and product in an integrated strategy. Although Malaysia is ranked lowest in terms of the use of target costing compared to Japan and Thailand, Omar et al. in 2015 conclude that the multidimensional effect of target costing variables is found in both financial and non-financial dimensions of Malaysian manufacturing firm performance. In addition, the results of their study indicate that cost reduction is not the only focus of the target costing technique. Instead, quality and functionality features are perceived and linked to relevant dynamic capabilities factors. Strategic cost and management accounting is another contemporary management accounting practice that was developed to cater for the need to be strategically

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competitive in the marketplace. Strategic management accounting (SMA) is defined as “the provision of past and future information, financial and non-financial information, internal and external information facilitate management accountant to make more accurate strategic decision making the provision and analysis of information relating to a firm’s internal activities, those of its competitors and current and future market trends, in order to assist in the strategy evaluation process” (Dixon and Smith 1993). SMA is a management accounting system that is externally focused on the final market of the products, and is concerned with products, customers, and competitors. Management accounting is traditionally used to deal with past data and existing activities. Instead, SMA, concerned with products, customers, and competitors/markets, shows close links with marketing, which is a critical area of business strategy in a modern competitive environment. Strategic decisions are basically long term in nature, complex, match activities with the environment and capacity, and have a significant effect on the organization. SMA emphasizes information about rivals, strategic positioning, and gaining competitive advantage. The requisite information system for doing so therefore cannot be internally focused, neither in content nor in emphasis. A survey by Abdel-Maksoud (2004) of 2000 UK manufacturing firms reveals that the rates of partial and systematic application of advanced management accounting techniques are: (1) benchmarking 71.9%, (2) customer profitability 63.6%, (3) strategic management accounting 61.0%, (4) activity-based costing 49.8%, (5) throughput accounting 43.5%, (6) balanced scorecard 41.2%, and (7) economic value added 38.0%. Baines and Langfield-Smith (2003), on the other hand, use several advanced management accounting practices to examine the relationship between the changing competitive environment and the increased use of advanced MAPs. They include quality improvement programs, product profitability analysis, benchmarking, customer profitability analysis, and shareholder value analysis. Other advanced management accounting practices also are used by Baines and Langfield-Smith (2003), which include target costing, activity-based costing, activity-based management, value chain analysis, and product life-cycle analysis.

11

The Emergence of Digital Technology

The manufacturing world is going through unprecedented changes that are disruptive in nature and that will change the fundamentals underlying existing manufacturing. Razali (2018) highlights the disastrous results of this new industry to people involved in industries facing phase out under Industry 4.0. The new industrial revolution, hyped as Industry 4.0, relates to the rise of digital industrial technology that is powered by the nine foundational technologic advances (Rüßmann et al. 2015). Although Industry 4.0 is the future, the traits of the new industry model are taking shape around the world and will reshape the global economic and business landscapes. It is about the integration of cyber-physical systems in production and

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logistics, as well as the applications of internet of things and internet of services in production (Schröder 2017). The first industrial revolution originated in Britain, in the eighteenth century, with the mechanization of textile industries. As a result, the concept of a factory was born, where tasks were then performed in central cotton mills. Previously, tasks in the textile industry were performed laboriously by hundreds of workers in separate cottage industries. Driven by steam engines, the mechanization of fabric production resulted in greater productivity. The second industrial revolution occurred between the 1900s and 1960s, with the introduction of electrification that enabled mass production of consumer goods, like cars, televisions, as well as many other electrical machineries and appliances. The introduction of the first programmable logic controller, the Modicon 048, in 1968, enabled the digital programming of automated systems (Drath and Horch 2014). With the arrival of personal computers in the 1970s, the internet in the 1990s, and digital ICT throughout, the digitalization of economy took shape, paving the way for the third industrial revolution. The fourth industrial revolution comprises advanced technologies that are integrated into production systems, including cyber-physical systems, big data, cloud technology, internet of things, internet of services, and 3D printing. Hence, Industry 4.0 is referred to as the digitization transformation of manufacturing-based industries in the form of a smart factory that is driven by connected technologies. In such an environment, machines are able to make independent decisions and the physical progress of the factory is monitored by cyber-physical systems on real-time basis. The new industry model predicts that the whole production system and manufacturing landscape will be transformed, potentially disrupting almost every industry in Britain. This new industry will create a new production paradigm that combines advanced digitization of factories with internet technologies and future-oriented technologies in the form of smart machines and products (Lele 2014). The nine technologies that will transform industrial production under the new industry model include big data and analytics, autonomous robots, simulation, horizontal and vertical system integration, the industrial internet of things, cybersecurity, additive manufacturing, cloud storage, and augmented reality (Rüßmann et al. 2015). Although some of these technologies are currently in use in manufacturing, under the new industry model, the production process will be transformed, becoming integrated and automated. The isolated and optimized production cells will be integrated, automated, and optimized, leading to greater efficiency and productivity. What makes the new industry model a reality is the application of the internet of things in manufacturing. The internet of things includes any device with an on–off switch that is connected to the internet, including computers, smartphones, and other things, like parts of machinery (Hart 2017). The internet of things and communication between devices is the foundation of Industry 4.0. They enable the existence of “the factory of the future” that will integrate fully information, communication technology, and automation technology. For instance, using artificial intelligence, machine learning, and advanced analytics, among others, will enable manufacturing firms to build products in the digital world using more advanced techniques, smarter designs, and reduced design costs. Hence, the evolving global manufacturing

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landscape calls for manufacturing firms to re-evaluate their existing manufacturing approaches and strategies in order to remain relevant and competitive in the new industry era. The new industry model, the digitization of manufacturing, and the imminent roll-out of faster 5G internet technologies will open up unlimited possibilities to increase innovation, productivity, and efficiency. Industry 4.0 will incorporate smarter, faster, better, and efficient technologies that will help manufacturing firms to grow and remain resilient in the global economy. The lower cost of digital devices and availability of affordable equipment will allow easy and economical ways to modernize existing manufacturing equipment to be Industry 4.0 compliant. The availability of equipment, including sensors, actuator systems, and control logic, will enable existing manufacturing equipment to perform cyber-physical systems at a fraction of the cost. This low-cost method of modernizing the existing equipment is particularly suitable for SMEs (Carvalho et al. 2018). That is because the acquisition of totally new manufacturing equipment tends to result in expensive capital outlays that are unaffordable for smaller firms. Furthermore, in terms of new technology, SMEs are known to be late adopters, compared to larger firms, because they tend to delay investment decisions until the capability of such technologies is proven. With the availability of low-cost equipment, micro firms will be able to compete with larger firms to supply a diverse range of goods directly to customers using the internet. Malaysia is ranked high in the region in terms of Industry 4.0 readiness and among the first countries to issue a public policy statement in the form of the Eleventh Malaysia Plan. Under the plan, issued by the Economic Planning Unit of the Prime Minister’s Department in 2015, the manufacturing sector is identified as one of seven focus areas that will transform the sector to produce high-value, diverse, and complex products. In fact, the Malaysian Ministry of International Trade and Industry (MITI) is confident that Malaysia is well positioned to be a primary destination for smart manufacturing and high technology activities due to its strong manufacturing foundation (NST Business 2019). Subsequently, a national policy on Industry 4.0, named Industry4WRD, was launched on October 31, 2018. It is a tailor-made policy that focuses on preparing manufacturing SMEs for the inevitable arrival of the new industry model. Speaking at the press conference after the launch of Industry4WRD in Kuala Lumpur, the Prime Minister of Malaysia stressed that the limitless growth potentials of Industry 4.0 “boils down to knowledge in application” (Aziz 2018). The Prime Minister also envisions Malaysia as a primary destination for high-tech industries, a strategic partner for smart manufacturing, and the region’s provider of total solutions for manufacturing and other related services.

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Data Collection Process

This study examines the types of management accounting practices that are used in export-oriented manufacturing SMEs in Malaysia. It evaluates current MAPs-usage among these manufacturing firms and determines whether their practices are in line with the ones adopted by more established and competitive manufacturing firms around the world. To become competitive in global markets, export-oriented manufacturing SMEs are expected to rely on contemporary management accounting practices that provide accurate product costings and information for strategic decision making. Management accounting systems have evolved to become a provider of relevant information that mitigates the effects of economic uncertainties, sustains competitive advantages, and facilitates business strategy. The adoption of latest manufacturing technologies enables greater flexibility in manufacturing processes and, subsequently, alters production cost structures. Direct labor, which used to dominate the cost component, is now relatively fixed in the short-term, making up a small portion of the total costs. Nowadays, manufacturing costs are relatively fixed in the short-term, with the only varying component being direct material costs. Subsequently, over-reliance on outdated MAPs, which are meant for mass production of standard products, not only results in inaccurate product costing for competitive purposes but can negatively affect overall firm performance. In addition, the choice of export-oriented manufacturing SMEs as the focus of the present study is in recognition of the sector’s contribution to the Malaysian economy. Malaysia has evolved from a country that was primarily dependent on commodities trading to become among the top 20 trading nations in the world. Malaysia now manufactures high value-added products that are traded with more than 200 countries around the world (MATRADE 2007). For instance, almost half of all computer microchips manufactured globally in 2017 were made in Malaysia. Malaysia has moved up the value chain and is producing a wide range of valueadded products that are well accepted in the international market due to its high quality, compliance with international standards, and reliability (MATRADE 2007). The Malaysian economy, the third largest in Southeast Asia, is the 35th largest in the world. This achievement is a result of increasing labor productivity as well as a high density of knowledge-based industries and the adoption of cutting-edge technology for manufacturing and the digital economy. Deloitte’s Global Manufacturing Countries and Regions Competitiveness 2016 report ranked Malaysia 17th in terms of manufacturing in the world and projected the country’s position as 13th in 2020 (Giffi et al. 2016). The 2017–2018 Global Competitiveness Report ranks the Malaysian economy as the 23rd most competitive country in the world. However, the world industrial landscape is changing, especially with the emergence of Industry 4.0, which provides various opportunities for, and threats to, existing manufacturing firms. Hence, Malaysian export-oriented firms, especially SMEs, must be proactive and adaptable to these changing landscapes in order to remain globally competitive. The present investigation therefore highlights the level of business uncertainties facing these businesses as well as the type of management accounting practices

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Table 1 Summary of the study’s response rate

Number of questionnaires distributed Completed of questionnaires returned Questionnaires returned by the Malaysian postal authority

Number of questionnaires 410 copies 78 copies 10 copies

Percentage 100 19 2.4

currently in use, thus helping to identify the gap between the current situation and the level of competitiveness that the firms should effectively operate under. The study involved 78 export-oriented manufacturing SMEs that responded to self-administered questionnaires. The responding firms comprised export-oriented manufacturing SMEs in selected industrial hubs in Malaysia. They are involved in manufacturing activities ranging from electrical and electronics, industrial and engineering products to building materials and machinery. The firms are mainly concentrated in industrial hubs in the Klang Valley, Perak, Johor, Sarawak, Penang, and Negeri Sembilan. The sampling frame of the study comprises 410 SMEs that were selected from the list of the Federation of Malaysia Manufacturers (FMM) Directory, MATRADE MALAYSIA EXPORTS Directory of Malaysian Products and Services, and the Sarawak Manufacturers Association. The firms were chosen on the basis of their manufacturing activities, number of employees, and annual sales turnover. Self-administered questionnaires with a cover letter and self-addressed envelopes were posted to the selected firms. They were chosen based on the judgmental sampling method, which is based on the opinions of experts in the relevant areas as well as meeting the required inclusion criteria of the type of firm, manufacturing activities, number of employees, location, export status, firm’s website, and the quality standards achieved. A total of 78 useable questionnaires were returned and duly analyzed for a response rate of 19%. That is comparable to the 19.6% rate of response reported by Smith et al. (2008) in their study of the diffusion of technological and management accounting innovation among Malaysian manufacturing firms in the Klang Valley. Table 1 summarizes information about the study’s response rate.

13

Research Findings

Empirical data collected from the questionnaires are analyzed using the Statistical Package for Social Sciences (SPSS) Statistics version 20, which generates frequency tables, relevant statistics, and mean scores. The details of the demographic statistics and ranking of variables based on the mean scores are discussed below. Demographic Statistics Of the 78 respondents, more than three-quarters have been in the business for more than 10 years. The accumulated percentage of firms that

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120 100.0

100

84.6

80

70.5

59.0

60 41.0

40 20

5 6.4

2 2.6 2.6

9.0

14.1 4 5.1

20.5

20.5 16

17.9 14

13 - 15 years

16 - 18 years

5 6.4

9

14.1 11

11.5

15.4 12

0 3 or less 4 - 6 years 7 - 9 years years Frequency

10 - 12 years

Valid Percent

19 - 21 years

22 - 25 years

More than 25 years

Cumulative Percent

Fig. 2 Duration of the firms in business Separate Management Accounting Departments 120 100.0

100 80 56.4

60

56.4

56.4

44

43.6

43.6

34

40 20 0 No

Frequency

Yes

Percent

Valid Percent

Cumulative Percent

Fig. 3 Separate management accounting departments

have been in business for more than 10 years is 20.5%; indicating that the responding companies have accumulated sufficient experiences to provide reasonable quality in terms of responses on the items investigated in the study. Figure 2 depicts the distribution of the percentage on the duration the firms have been in the business. Figure 3 depicts the percentage of the firms that have a separate accounting department that deals with management accounting functions. A total of 43.6% of the firms report having a separate management accounting department or one with similar functions. It is reasonable to assume that almost half of the responses to the questions in the questionnaires were derived by respondents with a management accounting background or those with working experience in the management

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Location of the Firms 50 45 40 35 30 25 20 15 10 5 0

46.2 37.2

36

29

3

Selangor

3.8

Kuala Lumpur

3

3.8

Perak

3

3.8

Johor Frequency

3

Sarawak

3.8

Penang

1

1.3

Negeri Sembilan

Percent

Fig. 4 Location of the firms

accounting department, even though their discipline might not be fully related to management accounting per se. In terms of firm location, 41% are located in the Klang Valley region (Selangor and Kuala Lumpur), the most industrialized and advanced region in Malaysia. Another 12.7% of the respondent firms are from other states in Peninsular Malaysia (Perak, Johor, Penang, and Negeri Sembilan). The remaining 46.2% represents firms mostly located in Kuching, in the state of Sarawak. Hence, the distribution of the firms is almost equal and represents the specific characteristic of the localized firms that are based on the regions in Peninsular Malaysia and Sarawak. Figure 4 presents the distribution of the firms based on location. With regard to the type of manufacturing activities, sectors represented in this study include food and beverages (17.9%), followed by plastic products and resins (14.1%), furniture and wood-related products (14.1%), chemical and adhesive (12.8%), iron and steel products (10.3%), and electric and electronic (10.3%). The types of products listed under “Others” (7.7%) include consumer-related products like ceramic tiles, pottery, sanitary ware, papers, textiles, and apparel. The distribution of firms based on manufacturing activities provides the required heterogeneity in terms of the responses from the respondents. The distribution of firms in terms of manufacturing activities is presented in Fig. 5. The percentage of exports of the total outputs of the SMEs ranged from 1 to 25% (69.2%), between 26 to 50% (11.5%), between 51 to 75% (6.4%), between 76 to 99% (9.0%), and 100% exporting (3.8%). This response rate indicates that the domestic market still dominates and is the primary source of revenue for 80% of the firms participating in the study. The percentages of the firms’ products that are exported are presented in Fig. 6. The ranking of the export destinations in order of importance based on Ringgit Malaysia export values are presented in Table 2. In terms of the importance of the export destinations, based on Ringgit Malaysia (RM) export values, the ASEAN region and other Asian countries represent the most important export destinations for the SMEs. Cumulatively, around 80% of total

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20

17.9

18 16

14.1

14 12 10 8

14.1

14

12.8 10.3 9.0

8

11

10

11

10.3 8

7

7.7 6

6 4 0

2.6

2

2 Electric and Electronics

1 1.3

Industrial Chemical Automotive, Furniture and Rubber Plastic Iron and and and parts and Wood related Products products and Steel Engineering Adhesive Components Products Resins Products Products

Frequency

Food and Beverages

Others

Percent

Fig. 5 Type of manufacturing activities Percentages of Export 80 69.2

70 60

54

50 40 30 20 10

9

11.5 5

6.4

7

9.0 3

3.8

0 Between 1 to 25% Between 26 to 50% Between 51 to 75% Between 76 to 99% Frequency

100%

Percent

Fig. 6 Percentages of export

exports are shipped to these two destinations. Thus, one might conclude that Malaysian manufacturing export destinations are less stringent in terms of export requirements than if they were to export to developed countries like the USA, the UK, or the EU. In terms of full-time employees, the cumulative percentage of firms with full-time employees of 50 or fewer persons is 50.0% while the other half are firms with 51 to 150 full-time employees. Figure 7 shows the number of employees in the responding firms. With regard to average annual sales turnover, almost half of the responding firms (44.9%) report sales between RM250,000 and RM10 million. Another 30.8% report

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Table 2 Ranking of the export destinations based on RM export values Destination ASEAN countries China/Japan/Korea/Taiwan/Hong Kong European Union Middle Eastern countries/Turkey USA/Canada India/Pakistan/Sri Lanka Australia/New Zealand Vietnam Africa Russia South Pacific countries South America a

1st percent 71.8 (1)a 9.0 (2)

2nd percent 71.8 (1) 5.1 (2)

3rd percent 70.5 (1) 9.0 (2)

4th percent 76.9 (1) 6.4 (2)

5th percent 74.4 (1) 3.8 (2)

5.1 (3) 3.8 (4) 2.6 (5) 2.6 (6) 2.6 (6) 2.6 (6) – – – –

5.1 (2) 5.1 (2) 2.6 (4) 3.8 (3) 2.6 (4) 1.3 (5) 2.6 (4) – – –

1.3 (5) 3.8 (3) 2.6 (4) – 3.8 (3) 3.8 (3) – 1.3 (5) 2.6 (4) 1.3 (5)

– 3.8 (3) 2.6 (4) 1.3 (5) 3.8 (3) 3.8 (3) – – 1.3 (5) –

– 1.3 (3) 1.3 (3) 1.3 (3) 1.3 (3) 2.6 (3) – – – 1.3 (3)

Figures in parantheses represent ranking in term of percentage of export

Number of Employees 120 100.0

100 79

80 60

48.7 39.7

38

40

31

20

8 1

10.3

1.3

0 Less than 5 employees

Between 5 to 50 employees

Between 51 to 100 Between 101 to 150 employees employees Frequency

Total

Percent

Fig. 7 Number of employees

sales between RM10 million and RM25 million. Finally, 12.8% of the firms report average annual sales exceeding RM50 million. Based on the definition of SMEs in Malaysia in 2009/2010, there is equal representation of small and micro-sized and the medium-sized firms. Figure 8 depicts the average annual sales of the responding firms. Overall, the number of employees and the average annual sales of the responding firms are consistent with the definition of SMEs as specified by the Malaysian SME Corporation.

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50

44.9

45 40

35

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30.8

30

24

25 20 15

12.8

10

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5.1

4

5

5

6.4

0 Less than RM250,000

Between RM250,00 Between RM10 Between RM25 and less than RM10 million and less than million and less than million RM25 million RM50 million Frequency

More than RM50 million

Percent

Fig. 8 Average annual sales

Respondents’ Position 60

53.8

50

42

40 30 17.9

20 10

14 6

7.7

4

5.1

5

6.4

7

9.0

0 CEO

Managing Director

Director Frequency

Accountant

Financial Controller

Others

Percent

Fig. 9 Respondents’ position

In terms of position, more than half (53.8%) of the respondents hold the position of Managing Director, 17.9% are Directors, and 7.7% are Chief Executive Officers. However, none reported being the owner or proprietor of the firms. Details on the respondents’ position are presented in Fig. 9. With respect to respondent age, more than one-third are between 40 and 49, with nearly half possessing a university first degree. Details on respondent ages and education levels are presented in Figs. 10 and 11. Therefore, based on respondent profiles, it is reasonable to assume that they possess the required experience, position, and education to render quality and valid responses on the items under investigation in the study.

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Age of Respondents 50 43.6

45 40

34

35 30

26.9

25

21.8

21

20

17

15 10

6

7.7

5 0 20 - 29 years

30 to 39 years Frequency

40 to 49 years

50 years and above

Percent

Fig. 10 Age of respondents Respondents' Education Level 60 48.7

50 38

40 30

24.4

20 10

19.2

19 15 6

7.7

0 Master Degree and higher

Degree Frequency

Diploma

SPM/STPM

Percent

Fig. 11 Respondents’ educational level

Rankings of Variables Based on Mean Score Values The variables of perceived business uncertainty are measured by 9 items adapted from a literature review (Gordon and Narayanan 1984; Govindarajan 1984). The respondent firms are asked to indicate the relative predictability of their business environment using a 7-point Likert scale. A higher score indicates greater predictability of their business environment uncertainty, thus indicating a stable firm environment. Measurement of perceived business uncertainty includes the followings items: suppliers’ actions, customer demands, tastes and preferences, market activities of competitors, deregulation and globalization, government regulation and policies, economic environment, industrial relation, production and information technologies, and industrial relations. The level of adoption of the management accounting practices in exportoriented manufacturing SMEs is measured by the application of the 25 tools listed in the questionnaire. They represent contemporary and traditional MAPs. A 7-point

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Table 3 The rankings of mean score values Indicators Mean values Business uncertainty Customer demand 4.55 Supplier action 4.41 Competitor activities 4.40 Level of competition 4.40 Government regulations 4.33 Production technologies 4.32 Industrial relation 4.19 Economic environment 3.97 Globalization 3.94 Management accounting practices Operating budget 4.81 Budget 4.79 Capital budget 4.62

Indicators Management accounting practices Budget variance analysis CVP analysis Benchmarking Strategic management accounting Target costing Re-engineering Product life costing Activity-based costing Kaizen costing Just-in-time costing Economic value added Balanced scorecard Back-flush costing

Mean values 4.54 4.36 3.99 3.60 3.50 3.32 3.31 3.24 3.19 3.04 2.94 2.90 2.63

Likert scale is employed to measure the extent that they are used by the sampled SMEs. The 25 listed management accounting practices are standard costing, cost variance analysis, product life cycle costing, batch costing, variable/marginal/direct costing, target costing, kaizen costing (continuous improvement), re-engineering, responsibility accounting, incremental cost analysis, contribution margin analysis, benchmarking, full/absorption costing, ratio analysis, just-in-time costing, backflush costing, balanced scorecard, cost-volume profit analysis, strategic management accounting, activity-based costing, budget, capital budget, operating budget, budget variance analysis, and economic value added. Rankings are the indicators based on the mean score values to give insights into the relative importance of the indicators in terms of usage by the firms. The use of the mean score value to rank the indicators is consistent with the method used by Segev (1987). Details of the indicators’ mean score values are provided in Table 3. With respect to business uncertainty items, the mean score values show that customer demand and supplier action are ranked first and second, respectively. Environmental factors related to competition are ranked third and fourth. However, the globalization factor is ranked lowest in terms of uncertainty. The findings show that, overall, contemporary practices are ranked the lowest, out of the 25 items on management accounting practices, in terms of their application. The top ten techniques used by Malaysian SMEs are all related to traditional management accounting practices and are ranked according to score as follows: (1) operating budget, (2) budget, (3) standard costing, (4) capital budgeting, (5) variable costing, (6) budget variance analysis, (7) cost variance analysis, (8) full costing, (9) CVP analysis, and (10) ratio analysis. The ten lowest rankings, in descending order, are (1) strategic management accounting, (2) target costing, (3) re-engineering, (4) product life

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costing, (5) activity-based costing, (6) kaizen costing, (7) just-in-time costing, (8) economic value added, (9) balanced scorecard, and (10) back-flush costing.

14

Conclusion

The demographic summary of responding firms reveals that more than 80% of firms export between 1 and 50% of their products from Malaysia. Consequently, for most of the participating firms, domestic markets remain the main source of sales and revenue. Moreover, most SME exports are destined for the ASEAN region and other Asian countries, which are perceived as less stringent in terms of export requirements compared to developed countries. That explains why a majority of participating firms perceived the business environment uncertainty to be relatively stable, as shown by a mean score of 4.2792 on the predictability of business environmental factors. The type of manufacturing activities also reinforced the notion that the responding firms are engaged in less complex manufacturing undertakings. More than half of the respondents are engaged in what appeared to be less capital-intensive industries, producing products ranging from furniture and wood-related products, rubber products, plastics and resins, food and beverage, to other type of products. Firms in these industries comprise 55.1% of this study’s participants. As a result, not less than half of the responding firms meet the main criteria of the study’s targeted firms in terms of manufacturing process complexity. The intended industries are those involved in manufacturing activities that are considered advanced, sophisticated, and capital-intensive. These firms produce products, ranging from electrical and electronic products, industrial and engineering products, chemical and adhesive, automobile, parts and component to iron and steel products. Firms in these industries make up 44.9% of the sample. As such, generalizing these findings should be done with caution because the targeted industries are under-representation. As with all non-responses, it is not possible to ascertain why the firms did not participate. With regard to firms’ perceived business uncertainty, the study finds that the respondents rank customer demands as the most predictable factor (4.55), followed by supplier actions (4.41), competitor activities (4.40), and level of completion (4.40). Globalization is perceived by the respondents as the lowest ranked environmental factor (3.94) in terms of predictability. The focus on customers and suppliers is not surprising due to the fact that the export-oriented manufacturing SMEs participating mostly sell their products in local markets as well export markets that are deemed as less stringent or competitive. The lower rank, in terms of predictability, accorded to globalization is consistent with the findings that Malaysian SMEs place a lower emphasis on the importance of innovation and global orientation for the purpose of enhancing firm competitive strength (Rosli 2012). Based on a mean score of 4.2792 of the overall business uncertainty variables, it can be concluded that perceived business uncertainty among the export-oriented manufacturing SMEs surveyed is relatively predictable and stable. This finding could be explained by

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the fact that most of the responding firms are involved in less capital-intensive industries, exporting to destinations that are relatively stable and less prone to volatile international competition. With regard to the type of management accounting practices adopted by the firms, the use of traditional tools is evident. The top ten practices used by the surveyed export-oriented manufacturing SMEs all relate to traditional management accounting practices. The top ten rankings, out of the 25 items, based on mean scores, are (1) operating budget, (2) budget, (3) standard costing, (4) capital budgeting, (5) variable costing, (6) budget variance analysis, (7) cost variance analysis, (8) full costing, (9) CVP analysis, and (10) ratio analysis. The higher usage rate of traditional MAPs is consistent with the findings of other studies on Malaysian SMEs (Tuanmat and Smith 2011; Ahmad 2012, 2014, 2017; Ong and Ismail 2012; Rosli 2012; Ismail and King 2014; Ahmad and Mohamed Zabri 2015, 2016; Omar et al. 2015). The adoption of certain contemporary practices alongside traditional ones is attributable to the fact that Malaysian SMEs compete across a variety of strategic dimensions. Thus, it is no surprise that traditional and contemporary MAPs co-exist in those firms participating in the study. In addition, the results suggest that Malaysian firms selectively use contemporary techniques to adapt their practices to the operating environment they currently face or to leverage their competitive position in the market. The findings show that, in terms of application, contemporary practices are the lowest ranked out of the 25 surveyed MAPs. The ten lowest ranks, in descending order, are (1) strategic management accounting, (2) target costing, (3) re-engineering, (4) product life costing, (5) activity-based costing, (6) kaizen costing, (7) just-in-time costing, (8) economic value added, (9) balanced scorecard, and (10) back-flush costing. Overall, management accounting practices currently prevalent among Malaysian manufacturing firms appear to be techniques and tools associated with Stages 1 and 2 of the IFAC’s management accounting evolution framework. Stage 1 of the management accounting evolution describes management accounting functions that existed before 1950, with a focus on determining product costs. The prevailing production processes are relatively simple, with products going through a distinctive process. Stage 2, on the other hand, evolved in the 1950s and 1960s, shifting the focus of management accounting functions toward the provision of information for planning and control purposes (Abdel-Kader and Luther 2006). It appears that reliance on outdated MAPs and simple technology might be effective on a stand-alone basis in a stable market environment but would not be a solution in an integrated manufacturing environment, as envisaged by the Industry 4.0 model. It will be a considerable challenge for local manufacturing SMEs to comply with Industry 4.0 requirements, an undertaking necessary if they are to remain resilient and relevant in the international markets.

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Limitations and Suggested Future Study

While the present study sheds light on the role of management accounting practices in building sustainable competitive advantages among Malaysian SMEs, there are some limitations. First, the sample size and the usage of the judgmental sampling method might result in findings that face questionable generalization. The low response rate furthermore renders the generalization of the findings questionable and doubtful. Second, only 11.5% of the questionnaires were completed by individuals with an accounting and finance-related background. Hence, 88.5% of the questionnaires were completed by individuals who might possess little or insignificant knowledge about accounting, which could jeopardize seriously the quality of responses. This fact also could help to explain discrepancies and inconsistencies in the study’s findings compared to findings from other studies in similar areas of management accounting applications for business competitive purposes. Another possible limitation of the study is the use of the Likert scales, with respondents having different interpretations when evaluating the scale values. The usage of the 7-point Likert scale also raises issues. Respondents may have different interpretations of the scale values or whether the intervals between those values are equidistant. Similarly, respondents might avoid choosing an extreme option on the scale because of the negative implication associated with such a choice, even if the extreme choice is the most accurate. The study results raise several issues that warrant future research, addressing its limitations. First, similar research using longitudinal and qualitative approaches in the area of management accounting practices among SMEs should be undertaken. It could provide a clearer understanding of those factors that influence MAPs-usage in SMEs. Next, a replication based on a larger sample would reinforce further or challenge the above findings. A comprehensive study involving SMEs in all industrial hubs in Malaysia should be considered too. That would facilitate the identification of strategic profiles and MAPs-usage patterns along with the relevant localized key performance indicators. Lastly, the data collected for this analysis here came from firms that manufacture physical products. For comparison purposes, it would be interesting to examine not-for-profit organizations as well as service organizations. Such a study additionally might reveal differences in management accounting system designs and usage across different types of organizations.

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Ibrahim Morshidi is a professional accountant and an associate member of the Accounting Research Institute of Universiti Teknologi MARA, Malaysia. He completed his PhD in management accounting with a doctoral research focusing on management accounting and business strategic focus of exporting SMEs. His previous research projects have included management accounting practices of businesses from various sectors in Malaysia and in other ASEAN regions. Prof. Dr. Normah Omar is the director of Accounting Research Institute, Univerisiti Teknologi MARA, Malaysia. Her research interests are in financial criminology, forensic accounting, and corporate integrity. Her current research is on anti-money laundering and counter-financing of terrorism: roles and functions of designated non-financial businesses and professions. Her community and industry engagement are very strong as an operational review panel member, Malaysian Anti-Corruption Commission; Vice Chairman Asia-Pacific Management Accounting Association; Head of Corporate Integrity Research Group with Malaysian Institute of Integrity; and member of various research and grants-related committee at the Ministry of Higher Education, Malaysia. Prof. Dr. Jamaliah Said currently is the Deputy Director of Accounting Research Institute, Universiti Teknologi MARA. She has published 100+ journal articles. She is the managing editor of an esteemed journal Asia-Pacific Management Accounting Journal. Her main research interests are fraud investigation, governance, accountability, and strategic management. Recently, Prof, Jamaliah clinched two awards “Highly Commended Paper Award 2019” by Emerald Publishing and “MIA articles of Merit Award 2018” by Malaysian Institute of Accountant. Prof. Dr. Suzana Sulaiman (FCMA, CGMA, CA) is a Senior Professor of Management Accounting at the Department of Professional Accounting Studies (DPAS), Faculty of Accountancy, and Head of Accounting Research Institute (ARI), Universiti Teknologi MARA (UiTM), Malaysia. Suzana has about 30 years of teaching experience. Besides teaching Suzana also is involved actively in research and consultancies. Her research interests and publications are in the areas of evolution of management accounting, value management, and strategic performance. Consultancy works include as guest speaker and trainer to Malaysian Productivity Corporation (MPC), CPA Australia trainer at National Accounting Institute, National Accounting Department, and CIMA Malaysia.

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Prof. Dr. Ibrahim Kamal Abdul Rahman, CPA (Aust), CA (Malaysia) is a Professor of Accounting at Unikl Business School Universiti, Kuala Lumpur. He has about 40 years of teaching and academic administration experiences formerly at UiTM for about 35 years and now at Universiti Kuala Lumpur. He was one of the founder members of APMAA Association and at present an assessor for the research grants committee with the Ministry of Higher Education of Malaysia. Prior to joining UNIKL, Prof. Ibrahim was the Dean of the Faculty of Accountancy, UiTM.

The Stages of Management Accounting Evolution in Taiwan’s Hotel Industry: Evidence from Taipei City Hsuan-Lien Chu and She-Chih Chiu

Abstract This study investigates how management accounting in the hotel industry has evolved in Taiwan. We use hotels in Taipei City as the sample because, as capital of Taiwan, Taipei City is where most medium- and large-sized hotels are located. The focus on Taipei City provides a valuable opportunity to reduce any potential size effect. Based on the evolution model proposed by the International Federation of Accountants (IFAC), the study shows that the majority of sampled hotels are moving from cost determination and financial control tools toward provision of information for management planning and control practices. However, 23.3% of the sample hotels have moved toward a more sophisticated role, creating value through an effective resource usage.

1 Introduction to Taiwan Economy and Hotel Industry Taiwan is an important economic entity in the Asia-Pacific region (e.g., Wang 2003). According to the World Trade Organization, Taiwan ranks 20th globally as a leading trader of goods and services in 2018 (World Trade Organization 2019). The 2018 gross domestic product (GDP) per capita is approximately US$25,792 (National Statistics, R.O.C. 2020). According to the United Nations Conference on Trade and Development, US$6998 million of foreign direct investment flowed into Taiwan in 2018 (United Nations Conference on Trade and Development 2019). The major industry in Taiwan is manufacturing, which accounts for 35.21% of the GDP. In addition to the vigorous development of the manufacturing industry, the hotel industry has gained importance in Taiwan. Taiwan’s government began prioritizing the tourism and hotel industries for national development, adopting a series of friendly policies (Ministry of Education, Taiwan 2008). For example, the Taiwanese government has provided visa exemptions for the member states of the Association

H.-L. Chu · S.-C. Chiu (*) Department of Accountancy, National Taipei University, Taipei, Taiwan e-mail: [email protected] © Springer Nature Switzerland AG 2021 R. C. Rickards et al. (eds.), Management Accounting in China and Southeast Asia, Contributions to Management Science, https://doi.org/10.1007/978-3-030-66245-5_5

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of Southeast Asian Nations (ASEAN) since September 1, 2016. It allows passport holders from ASEAN member states (Cambodia, Indonesia, Laos, Myanmar, the Philippines, and Vietnam) and India to enjoy a 30-day visa-free stay in Taiwan if, during the past decade, they have obtained visas from any of a number of designated countries, including Australia, Canada, Japan, Korea, the UK, and the USA. This friendly policy resulted in a remarkable growth in visitor arrivals and in the number of hotels (Tourism Bureau, M.O.T.C. R.O.C. 2020). In 2018, visitor arrivals from ASEAN member states increased by 13.7%, while the number of hotels increased by 4.3% in 2018. Overall, the hotel industry has maintained slow growth despite drastically declining numbers of Chinese travelers and tour groups in 2018 and 2019.

2 The Accounting Profession in Taiwan In Taiwan, the Taiwan Company Act requires all companies to prepare financial statements in accordance with the Republic of China Generally Accepted Accounting Principles (ROC GAAP), which converge with the International Financial Reporting Standards (IFRS) (IFAC 2020). In addition, the Act requires all companies to have their annual financial statements audited following the Republic of China Generally Accepted Auditing Standards (ROC GAAS), which mirror the International Standards on Auditing (ISA). The Security and Exchange Act sets additional requirements for listed companies, which are regulated by the Securities and Futures Bureau (SFB) of the Financial Supervisory Commission (FSC, the statutory audit regulator). For listed companies, the ROC GAAP requirements are supplemented by the Guidelines Governing the Preparation of Financial Reports by Securities Issuers adopted by the SFB. Listed companies also must comply with the Regulations Governing Approval of Certified Public Accountants to Audit and Attest to the Financial Reports of Public Companies issued by the SFB. Both ROC GAAP and ROC GAAS were developed by the Accounting Research and Development Foundation (ARDF) under the authority of the SFB. Founded in December 1946, the Federation of Certified Public Accountants (CPAs) Associations of Chinese Taiwan (FCPAACT) is the only professional accountancy organization in Taiwan. The FCPAACT is a national federation representing four provincial member associations: the Taiwan Provincial CPA Association, the Taipei City CPA Association, the Taichung City CPA Association, and the Kaohsiung CPA Association. The role and responsibilities of the FCPAACT are governed under the Certified Public Accountant Act of 2009. The Act establishes the roles and responsibilities of CPAs and CPA firms. Under the Act, individuals who choose to become CPAs must have a university degree, must pass the CPA exam administered by the Ministry of Education, must have 2 years of practical experience, and must become members of the FCPAACT before applying for a license to practice with the Financial Supervisory Commission (FSC). All CPAs and

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CPA firms must be members of FCPAACT and licensed with the FSC before being permitted to practice in the profession.

3 IFAC Evolution Model and Literature Review 3.1

IFAC Evolution Model

The IFAC Evolution Model outlines four evolutionary stages of management accounting evolution: Stage 1: cost determination and financial control (CDFC); Stage 2: information for management planning and control (IPC); Stage 3: reduction in waste of business resources (RWR); and Stage 4 creation of value through effective use of resources (VC). As the process of change from one stage to the next is evolutionary, each stage is a combination of both the old and the new, with the old reshaped to fit with the new in terms of addressing a new set of conditions in the management environment (IFAC 1998).

3.2

Literature Review on Management Accounting Evolution and Practices

The earliest complete study of management accounting evolution can be traced in the work of Kaplan (1984), who chronologically reviews the development of management and cost accounting in the USA between 1850 and 1915. The managerial accounting evolution in the USA is similar to Stage 1 of the IFAC Evolution Model. For example, although the development of cost reporting and estimation schemes in the USA focused on direct labor and materials by the 1880s, cost accounting techniques did not include the allocation of fixed costs to products or to periods. By 1925, more sophisticated accounting theories and practices, such as breakeven charts, standard costing, capital budgeting, opportunity cost, and return on investment, had been developed. There are two streams of subsequent studies. One stream reviews the development of academic management accounting research in a specific country (Anderson and Lanen 1999; Maher 2001; Islam and Kantor 2005; Ahrens and Chapman 2007; Hopwood 2008), a specific area (Shields 1998; Guilding et al. 2000; Wagenhofer 2006; Hopper et al. 2009), or a specific community (Perren and Grant 2000). The other stream investigates management accounting practice by applying case studies (Wijewardena and Zoysa 1999; Abdel-Kader and Luther 2006; Pavlatos and Paggios 2008). Several studies address the IFAC Evolution Model. Abdel-Kader and Luther (2008) investigate those factors that may explain management accounting sophistication in the manufacturing industry in the UK under the framework of the IFAC Evolution Model. They find that the differences in the degree of management

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accounting sophistication in UK firms can be explained by environmental uncertainty, customer power, decentralization, size, advanced manufacturing technology (AMT), TQM, and JIT. Waweru (2010) investigates the evolution of management control systems in the USA and UK. Based on his review of previous studies, Waweru (2010) suggests that increasing competition in a globalized market creates the need for timely information and also suggests that management accountants must meet the demand from the market.

3.3

Management Accounting Environment in Taiwan

Summarized in Appendix, management accounting research in Taiwan can be addressed from three perspectives (Chang and Wei 2009; Duh et al. 2014; Wu et al. 2016): (1) the cost perspective; (2) the managerial behavior perspective; and (3) the information perspective. Topics from the cost perspective includes total quality management (TQM) (e.g., Wang et al. 2006; Cho et al. 2012; Chou 2013), management accounting system (MAS) (e.g., Chiou 2005; Hsu and Yang 2008), Activity-Based Costing (ABC) and Activity-Based Management (ABM) (e.g., Jiang et al. 1996; Lee and Liu 2001; Shieh and Shieh 2001; Lin and Duh 2003; Yu 2005; Chu et al. 2010), efficiency management (e.g., Hsiao and Chang 1997; Chen 2012; Huang and Wang 2012; Lee and Huang 2014; Hwang et al. 1997; Ou et al. 2012), business and product life cycle (e.g., Chen 2004; Li and Peng 2004), economic value added (e.g., Lin et al. 2006), balanced scorecard (BSC) (Tseng et al. 2011; Tu and Wang 2011; Lee 2014), value chain (e.g., Chang et al. 2008, 2014; Yang and Chen 2013), inventory systems (Wee et al. 2005), production postponement (Wu 2007), and cost stickiness (Lin et al. 2011). Topics from the managerial behavior perspective includes managerial leadership and employee perceptions (Chang et al. 2001; Liaw et al. 2004), compensation packages (Hung and Wang 2005), budgeting (e.g., Chiou and Lin 2005; Uang and Liang 2012; Cheng et al. 2013; Cheng et al. 2014), management control system (e.g., Chow et al. 1998; Li and Peng 2004; Huang and Hung 2011; Lee et al. 2012), performance evaluation (Chen 2012; Lu et al. 2014), managerial turnover (Lin and Lee 2008; Lin et al. 2011), management incentives (e.g., Chang et al. 2011; Hsueh and Hsu 2012; Hung and Wang 2013; Wang et al. 2014), intellectual capital (Tsai and Wang 2012; Wang et al. 2012), and transfer pricing (Lin 1998; Chang 2007; Chen and Tsai 2010). Topics from the information perspective includes enterprise resource planning (Chen and Wang 2005; Huang and Kuo 2006), customer relationship management (Lin and Liu 2005), and managerial knowledge (Liang et al. 2005; Shih and Huang 2005). According to Wu et al. (2016), 54.34% of the managerial accounting research sheds light on budgeting, performance measurement and evaluation, organization and management control systems, and managerial incentives and rewards. In the early 1990s, management accounting studies focused on efficiency management. Research on ABC, ABM, and TQM became popular after 1996. In the late 1990s, management accounting studies shifted focus to managerial behavior, including

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performance evaluation, organization and management control system, and transfer pricing. Research on the BSC, incentives and rewards, and budgeting became popular after 2000. After 2004, management accounting studies focused more on value chain, intellectual capital, and strategy management. Collectively, the trend in management accounting research in Taiwan is consistent the IFAC Evolution Model.

4 Research Background There have been significant changes in management accounting practices (MAPs) since the 1960s. From its traditional emphasis on cost determination and financial control, management accounting has evolved to emphasize value creation through effective use of resources (International Federation of Accountants 1998). A similar evolution has occurred in management accounting research (Abdel-Kader and Luther 2006; Okano and Suzuki 2007; Gliaubicas 2012). Although management accounting research has been fruitful in the global community (e.g., Guilding et al. 2000; Mendoza and Saulpic 2002; Ajibolade 2013), evidence on the development of MAPs is scattered at the global level. Furthermore, there is no research investigating the evolution of management accounting and techniques in Taiwan. We attempt to fill this gap by providing a systematic and complete survey of such tools. In Taiwan, the hotel industry is increasingly important. Although there are many studies investigating the management accounting practices of Taiwanese manufacturing companies, little attention is paid to how MAPs have evolved in the hotel industry. Additionally, focusing on one industry makes it possible to remove irrelevant distractions arising out of variations between industry sectors, (Moores and Yuen 2001; Abdel-Kader and Luther 2008). The purpose of the present study is to investigate management accounting evolution in the hotel industry in Taipei City, Taiwan. We focus on hotels in Taipei City because it is the capital of Taiwan and where most medium- and large-sized hotels are located. Doing so provides a valuable opportunity to reduce any potential size effect. In Taiwan, hotels with less than 300 rooms are classified as small. Hotels ranging between 300 and 600 rooms are classified as medium-size, and hotels with more than 600 rooms are labeled as large hotels. We focus on the four stages of management accounting evolution under the conceptual framework in Statement No. 1 of the International Federation of Accountants (IFAC). The conceptual framework (hereafter, the IFAC Evolution Model) includes four evolutionary stages: CDFC, IPC, RWR, and VC. We administer a survey to hotel employees in Taipei City, Taiwan, randomly selected from the model-based sampling developed by Cochran (1977). The survey design is modeled on previous studies (Wijewardena and Zoysa 1999). To retrieve more detailed information about management accounting practices, we also conduct in-depth interviews with accounting managers and financial executives of the sample firms.

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The next section introduces the research design in detail. Section 6 shows the empirical results. Conclusions are made in Sect. 7.

5 Methodology 5.1

Methods

We used a survey instrument to collect the empirical data, which includes factors that affect management accounting practices. Paper copies of the questionnaire were initially prepared for the survey and test piloted on a group of four hotel Chief Financial Officers (CFOs) on May 16, 2018, before being finalized on the basis of the responses. Additionally, we scheduled interviews to pilot and amend the questionnaire as well as to check the reliability of the survey results before we finalize the questionnaire. The finalized questionnaire was then sent via email to the sampled hotels. The questionnaire asks respondents to rate both the frequency of use and the importance of MAPs based on a 5-point Likert-type scale. The low end of the measure indicates that the item is not used or is not important at all, while the high end indicates that the item is always used or is very important. The usage points rated by the respondents for each related question are then attached to each IFAC stage following Abdel-Kader and Luther (2008). For each hotel, an average usage score is calculated for the set of MAPs related to each IFAC stage. Then, the average usage scores for the MAPs attached to each IFAC stage are used to classify individual hotels into groups using a hierarchical cluster analysis. We assume that greater usage means greater importance for that item. To validate the cluster analysis, we perform a Fisher’s linear discriminant analysis. The nonparametric Kruskal
Wallis H test is used to test the statistical differences among the four groups of sample firms, CDFC, IPC, RWR, and VC. Following Abdel-Kader and Luther (2008), we then match the clusters to a related level of sophistication in terms of the four stages of the IFAC for management accounting evolution. Hotels in Level 1 are assumed to place more emphasis on CDFC practices, while Level 2 Hotels are supposed to emphasize MAPs related to CDFC and IPC techniques. In the case of Level 3 Hotels more weight is presumed to be placed on CDFC, IPC, and RWR tools, and Hotels in Level 4 are assumed to stress CDFC, IPC, RWR, and VC practices.

5.2

The Instrument

The questionnaire includes eight constructs: general information, costing systems, budgeting, performance evaluation, decision information, strategic management accounting, nonfinancial performance, and factors related to implementing

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management accounting systems. Table 1 reports the topics for the questions attached to the corresponding IFAC stages following Abdel-Kader and Luther (2008). Table 1 highlights the questions that fit each of the four stages. As suggested by the four hotel CFOs in the pilot test, there are 8, 10, 8, and 17 topics for the CDFC, IPC, RWR, and VC stages respectively.

5.3

Sample Firms

The finalized questionnaires were to CFOs of the Taipei Hotel Association member hotels attending their annual meeting on May 22, 2018. The member hotels are required to return the questionnaires by May 28, 2018. We require the sample hotels to satisfy the following criteria: (1) at least 30 employees, (2) active, independent companies, and (3) having a registered office address in Taiwan. Initially, 36 copies of finalized questionnaire are sent, for which a final sample of 30 hotels located in Taipei, Taiwan were received. We conduct t-tests to compare firm size between the responding hotels and the member hotels. The difference in firm size between the responding hotels and the member hotels is not statistically significant. There are no follow-up telephone calls to the respondents. Accordingly, the responses are less likely to be driven by nonresponse bias (Tarrant et al. 1993; Rylander et al. 1995). Table 2 reports the descriptive statistics. Panel A of Table 2 summarizes each construct of the questionnaire. The costing systems, budgeting, performance evaluation, decision information, strategic management accounting, nonfinancial performance, and factors related to implementing the management accounting system constructs include 7, 6, 8, 7, 14, 6, and 18 questions respectively. The highest mean value of the constructs is Budgeting (3.627) and the lowest one is Performance Evaluation (2.937). The reliability of the multiple items scales is estimated using a standardized Cronbach’s alpha to determine the internal consistency of the seven constructs. The lowest value of the standardized Cronbach’s alphas is 0.787, as shown in Panel A, which is above the minimum acceptable level of 0.5 (Nunnally 1978). This test result confirms that the items can be considered to be reliable measures. Panel B of Table 2 summarizes the statistical descriptions of the constructs classified according to MAP. The highest mean value of the constructs is Stage 1 (CDFC ¼ 3.546) and the lowest is Stage 3 (RWR ¼ 2.996). In Panel B, the lowest value of standardized Cronbach’s alphas (0.785) is above the minimum acceptable level, which confirms that the items can be considered to be reliable measures.

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Table 1 Classification of management accounting practices Topics Description Stage 1. Cost determination and financial control (CDFC) 01. Standard costing and job costing 02. Cost variance analysis 03. Cost of quality analysis 04. Budgeting for controlling costs 05. Flexible budgeting 06. Performance evaluation based on financial measures 07. Break-even analysis 08. Evaluation of major capital investments based on payback period and/or accounting rate of return Stage 2. Provision of information for management planning and control (IPC) 01. Using departmental overhead rates 02. Cost-volume-profit analysis of major products 03. Using regression and/or learning curve techniques 04. Cash flow budgeting for planning 05. Budgeting with “what if analysis” 06. Performance evaluation based on nonfinancial measures related to operations 07. Stock control models 08. Evaluation of major capital investments based on discounted cash flow method(s) 09. Product profitability analysis 10. Long-range forecasting Stage 3. Reduction of waste in business resources (RWR) 01. Activity-based costing 02. Activity-based budgeting 1. 03. Performing sensitivity “what if” analysis when evaluating major capital investment projects 04. Revenue budgeting 05. Balanced scorecard 06. Performance evaluation based on nonfinancial measure(s) related to employees 07. Transfer pricings 08. Just-in-time Stage 4. Creation of value creation through effective use of resources (CV) 01. Performance evaluation based on non-financial measure(s) related to customers 02. Benchmarking 03. Performance evaluation based on residual income or economic value added 04. Performance evaluation based on residual income or economic value added 05. Calculation and use of cost of capital in discounting cash flow for major capital investment evaluation 06. Customer profitability analysis 07. Value chain analysis 08. Shareholder value analysis 09. Industry analysis 10. Analysis of competitive position (continued)

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Table 1 (continued) Topics Description 11. Product life cycle analysis 12. The possibilities related to integration with suppliers’ and/or customers’ value chains 13. Analysis of competitors’ strengths and weaknesses 14. Activity-based management 15. Total quality management 16. Target costing 17. Lean management Table 2 Statistical description Constructs

Obs.

Number of items

Mean

STD

Standardized Cronbach’s alpha

Panel A: Statistical description of the questionnaire constructs 01. Costing systems 210 7 3.209 1.355 0.933 02. Budgeting 180 6 3.627 1.114 0.787 03. Performance evaluation 240 8 2.937 1.262 0.909 04. Decision information 210 7 3.319 1.434 0.947 05. Strategic management 420 14 3.098 1.489 0.977 accounting 06. Non-financial 180 6 3.133 1.446 0.971 performance 07. Factors related to 540 18 3.620 0.935 0.967 implementing Management accounting systems Panel B: Statistic description for the constructs classified according to MAP Stage 1. CDFC 240 8 3.546 1.278 0.842 Stage 2. IPC 300 10 3.180 3.311 0.867 Stage 3. RWR 240 8 2.996 1.298 0.785 Stage 4. CV 510 17 3.122 1.458 0.974

6 Empirical Findings Table 3 reports the mean scores of the variables within each cluster from the hierarchical cluster analysis. The clustering procedures categorize 7 hotels in Cluster A, 5 in Cluster B, 16 in Cluster C, and 2 in Cluster D. The chi-squares and p-values from the Kruskal
Wallis H test indicate that the differences between the medians of each clustering variable are statistically significant. In addition, the untabulated results from Fisher’s linear discriminant analysis indicate that CDFC, IPC, RWR, and VC play significant roles in correctly classifying 100% of the hotels into their respective groups. Thus, the cluster solution is considered valid.

RWR: Reductions in waste of business resources CV: Creation of value through effective use of resources Labels attributed:

CDFC: Cost determination & financial control IPC: Management planning & control

Clusters A (n ¼ 7) 4.687 (STD ¼ 0.072) 3.743 (STD ¼ 0.519) 2.775 (STD ¼ 0.543) 1.312 (STD ¼ 0.237) Level 4 B (n ¼ 5) 4.550 (STD ¼ 0.298) 3.321 (STD ¼ 0.334) 2.340 (STD ¼ 0.366) 1.200 (STD ¼ 0.657) Level 3

Table 3 Classification of responding hotels using a hierarchical cluster analysis C (n ¼ 16) 4.093 (STD ¼ 0.503) 3.190 (STD ¼ 0.364) 2.125 (STD ¼ 0.265) 1.125 (STD ¼ 0.315) Level 1

D (n ¼ 2) 4.794 (STD ¼ 0.441) 3.430 (STD ¼ 0.282) 1.458 (STD ¼ 0.176) 1.000 (STD ¼ 0.000) Level 2

P < 0.01 P < 0.01 19.991

P < 0.01 21.281 20.892

P-value P < 0.01

Chi-Square from Kruskal– Wallis test 20.729

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The sum of the mean scores of the hotels in Cluster C are the lowest for all stages, which indicates that Cluster C represents MAP sophistication Level 1. The sum of the mean scores of hotels in Cluster D are the second lowest for all stages, which indicates that Cluster D represents MAP sophistication Level 2. The sum of the mean scores of hotels in Cluster B are the second highest for all stages, which indicates that Cluster B represents MAP sophistication Level 3. The sum of mean scores of hotels in Cluster A are the highest for all stages, which indicates that Cluster A represents MAP sophistication Level 4. As shown in Table 3, with respect to management accounting sophistication, Level 1 comprises 16 hotels (53.3%), Level 2, comprises 2 hotels (6.7%), Level 3 comprises 5 firms (16.7%), and Level 4 comprises 7 hotels (23.3%). Approximately 60% of the hotels are in either Level 1 or Level 2, which suggests that the management accounting systems in most Taipei City hotels mainly focus on cost determination and financial control (Stage 1) as well as provision of information for management planning and control (Stage 2). Although the majority of sample hotels are in Stages 1 and 2, approximately 23.3% of the sample hotels are moving toward a more sophisticated role in the creation of value through effective use of resources.

7 Conclusion In this study, we investigate how management accounting in the hotel industry has evolved in Taiwan. We sample hotels in Taipei City because it is the capital of Taiwan and where most of the medium-sized and large hotels in Taiwan are located. Doing so provides a valuable opportunity to reduce any potential size effect. We follow the four stages of the IFAC Evolution Model. The findings from the survey show that most of the sample hotels are in Stage 1, but some of the sample hotels have moved toward the stage in which the creation of value through effective use of resources is emphasized. By contrast, there are only a few hotels in Stages 2 and 3. A possible explanation for this small case numbers in those stages is that most of the sample hotels are family-owned, which makes it difficult for hotel managers to emphasize management planning and control as well as reductions in the waste of business resources. We contribute to the literature and the management accounting profession in two ways. First, we add to the management accounting literature by providing preliminary evidence related to management accounting evolution and practices in Taiwan’s hotel industry. Second, we contribute to the IFAC by demonstrating that it provides an appropriate framework for describing the evolution of MAPs.

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8 Limitations and Suggested Future Study As with all empirical research, our study has a number of limitations. First, some of the data used for the analysis is derived from a questionnaire sent to CFOs of Taipei Hotel Association member hotels; hence, the reliability of our results depends on the quality of the responses to the questionnaire. To mitigate concerns over data reliability, we spoke with every respondent in order to clarify any potential ambiguities in the data. Second, we only examine data from 30 hotels located in Taipei, Taiwan. More research is required to determine to what extent our results can be generalized to other hotels in Taiwan or to other industries that have different operating environments. Acknowledgments We thank Hui-Fen Kuan and Wan-Ju Wu for their assistance in data collection.

Appendix Table 4 Management accounting research topics in Taiwan Topics The cost perspective: Total quality management (TQM)

Management accounting system (MAS)

Activity-based costing (ABC) and activity-based management (ABM)

Case study on efficiency management

Business and product life cycle Economic value added Balanced scorecard (BSC)

Literature Strategies for TQM in the software industry (Wang et al. 2006) Effect of TQM on firm performance (Cho et al. 2012; Chou 2013) The effect of business strategy on MAS (Chiou 2005) The effect of MAS on corporate financial performance (Hsu and Yang 2008) Cost assignment (Shieh and Shieh 2001) Application (Lin and Duh 2003) Corporate performance (Yu 2005; Chu et al. 2010) Manufacturability (Jiang et al. 1996) Manufacturing decisions (Lee and Liu 2001) Manufacturing companies (Chen 2012; Lee and Huang 2014) Banks (Hwang et al. 1997) Medical funds (Ou et al. 2012) Hospitals (Hsiao and Chang 1997) Not-for-profit organizations (Huang and Wang 2012) Chen (2004), Li and Peng (2004) Lin et al. (2006) Benefits and risks from the adoption of the BSC (Tseng et al. 2011; Tu and Wang 2011; Lee 2014) (continued)

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Table 4 (continued) Topics Value chain

Inventory systems Production postponement Cost stickiness The managerial behavior perspective: Managerial leadership and employee perceptions Compensation packages Budgeting

Management control system

Performance evaluation Managerial turnover Management incentives

Intellectual capital Transfer pricing

The information perspective Enterprise resource planning Customer relationship management Managerial knowledge

Literature The effect of value chain on financial performance (Yang and Chen 2013) The effect of value chain on non-financial performance (Chang et al. 2008; Chang et al. 2014) Wee et al. (2005) Wu (2007) Lin et al. (2011) Chang et al. (2001), Liaw et al. (2004) Hung and Wang (2005) Organizational budget (Chiou and Lin 2005) Budgeting participation (Cheng et al. 2014) Budget management (Uang and Liang 2012; Cheng et al. 2013) Managerial dysfunctional behavior (Chow et al. 1998) Government-owned hospitals (Li and Peng 2004) Cross-border management control systems (Huang and Hung 2011) managerial collaboration (Lee et al. 2012) Chen (2012), Lu et al. 2014) Lin and Lee (2008), Lin et al. (2011) Compensation systems (Hsueh and Hsu 2012; Hung and Wang 2013) Managerial behavior (Chang et al. 2011; Wang et al. 2014). Formulation of and benefits (Tsai and Wang 2012; Wang et al. 2012) International transfer pricing (Lin 1998) Decision making and performance evaluation (Chang 2007) Earnings management (Chen and Tsai 2010) Chen and Wang (2005), Huang and Kuo (2006) Lin and Liu (2005) Liang et al. (2005), Shih and Huang (2005)

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Prof. Hsuan-Lien Chu is a professor of Accounting at National Taipei University (NTPU) and serves as the Director of Continuing and Extension Education of NTPU, and Vice President of AsiaPacific Management Accounting Association. Dr. Chu was the Head of the Accounting Department at NTPU and a Visiting Researcher at UCI. Dr. Chu’s research interests include performance evaluation, management accounting practices, not-for profit organization, and corporate social responsibility. She has published her papers in journals including Journal of Management Accounting Research, Asia-Pacific Journal of Accounting and Economics, Health Care Management Review, and Taiwan Accounting Review. Dr. She-Chih Chiu is Assistant Professor of Accounting at National Taipei University (NTPU). Dr. Chiu’s research interests mainly include management accounting, compensation, corporate governance, and corporate social responsibility. He has published his papers in several journals including Review of Quantitative Finance and Accounting, Korean Accounting Review, Journal of Business Research, R&D Management, Corporate Social Responsibility, and Environmental Management.

Management Accounting Practices in Thailand: Case Study of Manufacturing Companies Kanitsorn Terdpaopong, Nimnual Visedsun, and Kanibhatti Nitirojntanad

Abstract This chapter provides basic facts concerning Thailand’s economy, including GDP by key sectors and foreign direct investment (FDI). It also explores the management accounting practices (MAPs) used in Thailand. This chapter focuses on MAPs implemented by large Thai manufacturing companies. In 1998, IFAC released a report describing the management account evolution. Although the report has enjoyed wide readership in scholarly circles, MAPs have received relatively little attention from businesses. In the present study, a survey questionnaire is used to collect information. Of the questionnaires sent to 1500 companies, 205 were usable, for a 13.67% response rate. The questionnaires sought information about management accounting practices of the companies. The practices were based on the stages of management accounting according to the IFAC evolution model. Here, cluster analysis is used to as-sign data into four clusters using hierarchical agglomerative methods. Then discriminant analysis is employed to ensure the accuracy of the cluster analysis. We find that respondents rely more on traditional tools and techniques, namely budgeting and controlling for product cost. In addition, we discover that the new advanced MAPs are increasingly being used by many large Thai companies. Although MAPs are used to create value for large Thai companies, they are not being used at the highest stage. Considering that advanced technologies are available and that there are advances in the way business is conducted, the implementation of modern management accounting procedures appears to be far behind.

K. Terdpaopong (*) · N. Visedsun Faculty of Accountancy, Rangsit University, Pathumthani, Thailand e-mail: [email protected] K. Nitirojntanad Faculty of Commerce and Accountancy, Chulalongkorn University, Bangkok, Thailand © Springer Nature Switzerland AG 2021 R. C. Rickards et al. (eds.), Management Accounting in China and Southeast Asia, Contributions to Management Science, https://doi.org/10.1007/978-3-030-66245-5_6

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1 Introduction to Thailand’s Industry Thailand’s economy is heavily export-dependent, with exports accounting for more than two-thirds of its gross domestic product (GDP). According to the World Bank, in 2018, Thailand had a GDP of 16.316 trillion baht (US$504.9 billion), making it the eighth largest economy in Asia (International Monetary Fund 2018). The average inflation rate in Thailand as of 2018 was 1.06% (Bank of Thailand 2013) and an account surplus of 7.5% of the country’s GDP (Office of the Economic and Social Development Board 2014). Based on a World Bank forecast, Thailand’s economy is expected to post 3.8% growth in 2019 (World Bank 2018). Thailand’s industrial and service sectors are its key sectors. These account for 39.2% of GDP, while the agricultural sector produces 8.4% of GDP less than the trade and logistics or communication sectors. These sectors account for 13.4% and 9.8% of GDP, respectively. The construction and mining sector adds 4.3% to the country’s gross domestic product. Other service sectors (including the financial, education, and hotel and restaurant sectors) account for 24.9% of the country’s GDP (Bank of Thailand 2013). Telecommunications and trade in services are emerging as centers of industrial expansion and economic competitiveness (World Bank 2008). In Southeast Asia, Thailand is the second-largest economy after Indonesia. Its per capita GDP in 2018 was US$7273.56 (International Monetary Fund 2018); however, it ranks in the middle of Southeast Asian per capita GDP, after Singapore, Brunei, and Malaysia. The nation was recognized by the World Bank as one of the great development success stories in social and development indicators (World Bank 2012). The main factor, the services sector, contributed 41.0% of Thailand’s GDP in 2018, followed by manufacturing (26.8%) and wholesale and retail (15.9%). These three sectors contribute 83.7% to Thailand’s GDP (World Bank 2018). See Fig. 1 below. Thailand’s manufacturing sector was responsible for a production value of 4,367,997 bt mn for the year 2018. Some 1,586,736 bt mn, or 36.3% of that amount, came from SMEs. For 2018, the wholesale & retail sector was responsible for 2,601,869 bt mn in overall production. SMEs contributed some 2,202,868 bt mn, or 84.7%, to this sectors GDP. Thailand’s domestic production in the private services sector in 2018 amounted to 5,738,548 bt million. That includes an SME-derived portion of 2,744,469 bt mn, or 47.8% of the total. See Figs. 2, 3, and 4. Regarding the size classes, Table 1 shows the differences in annual income and number of employees in small, medium, and large enterprises in Thailand. Small Enterprises In the manufacture of goods, there are no more than 50 employees or the annual income is no more than 100 million baht. For wholesale or retail businesses, there are no more than 30 employees or annual income of no more than 50 million baht. Medium Enterprises In the manufacture of goods, there are between 50 and 199 employees, inclusive, or annual income is more than 100 million baht, but

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Fig. 1 Key sectors as percentages to national GDP

Fig. 2 GDP of manufacturing sector

less than 500 million baht. For wholesale or retail businesses, there are between 30 and 99 employees, inclusive, or annual income is more than 50 million baht, but less than 300 million baht. Large Enterprises These businesses exceed the classifications of medium size. In the event that the business has fewer employees but income of another size class, then the income base is considered as a criterion for consideration.

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Fig. 3 GDP of wholesale and retail sector

Fig. 4 GDP of private service sector

Table 1 Size class definitions for small, medium, and large enterprises in Thailand (Source: The Office of Small and Medium Enterprises Promotion 2020)

Business type Manufacturing Service/retail/ wholesale

Small enterprise Annual income Number of (MB) employees
100
50
50
30

Medium enterprise Annual income Number of (MB) employees >100–500 >50–200 >50–300 >30–100

Large enterprise Annual income Number of (MB) employees >500 >200 >300 >100

Table 2 indicates the number of Thai enterprises categorized by size: small, medium, and large. The largest concentration, with 1,270,773 enterprises, is found in the trade sector in 2017, which rises to 1,282,050 in 2018. The majority are in the small trades and services sectors. They accounted for 81.20% in 2017 and 81.33% in 2018. Some 528,220 enterprises are found in the manufacturing sector in 2017 and

Business sector Trades Services Manufacturing Agri-business Total

Small enterprise 2017 1,263,566 1,199,170 520,176 45,580 3,028,492

2018 1,275,470 1,219,347 522,886 45,948 3,064,651

Table 2 Number of enterprises by sectors in 2017 and 2018 Medium enterprise 2017 2018 4635 4087 7592 5216 5798 4599 273 269 18,298 14,171

Large enterprise 2017 2018 2572 2493 1791 1756 2246 2152 53 54 6662 6455

Total 2017 1,270,773 1,208,553 528,220 45,906 3,053,452

2018 1,282,050 1,226,319 529,637 46,271 3,084,277

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Table 3 Percentage of enterprises by sector in 2017 and 2018 Business sector Trades Services Manufacturing Agri-business Total

Small enterprise 2017 2018 41.38 41.35 39.27 39.53 17.04 16.95 1.49 1.49 99.18 99.33

Medium enterprise 2017 2018 0.15 0.13 0.25 0.17 0.19 0.15 0.01 0.01 0.60 0.46

Large enterprise 2017 2018 0.08 0.08 0.06 0.06 0.07 0.07 0.00 0.00 0.22 0.21

Total 2017 41.62 39.58 17.30 1.50 100.00

2018 41.57 39.76 17.17 1.50 100.00

529,637 in 2018. The agri-business sector remains relatively small, having only 45,906 and 46,270 operators, in 2017 and 2018, respectively, or about 1.50% in both years (The Office of Small and Medium Enterprises Promotion 2018). Table 3 shows these data using percentages. Thailand’s Foreign Direct Investment (FDI) increased by 5.2 USD billion in September 2019, compared with an increase of 2.0 USD billion in June 2019. Thailand reports Foreign Direct Investment in USD mn net flows data; these statistics are updated quarterly and available from March 1993 to September 2019. Foreign Direct Investments reached an all-time high of 6.6 USD billion in December 2013, a marked turnaround from its record low of 6.9 USD billion in December 2011. In the latest report (Oct 2019), the FDI Current Account recorded a surplus of 2.9 USD billion. Thailand’s Direct Investment Abroad expanded by 3.7 USD billion in September 2019. However, its Foreign Portfolio Investment fell by 3.2 USD billion in September 2019. The country’s Nominal GDP was reported at 137.1 USD billion in September 2019 and expected to reach 540 USD billion by the end of 2020, according to Trading Economics global macro models and the expectations of analysts. When considered FDI by countries or economic territories, it was found that, in 2018, Japan had the highest volume of FDI of USD 5250.9 million, followed by ASEAN, ranked second, with the FDI of USD1,671.2 million. (Singapore had the highest FDI within the ASEAN), with the EU investing USD1,539 million. Total FDI in 2018 was estimated to be USD13, 205.1 million. According to the Bank of Thailand (2019), manufacturing was the top sector for foreign investors (36.56% of all FDI in 2018).

2 The Accounting Profession in Thailand The Accountant Association of Thailand originally was established in 1948, then renamed the Institute of Certified Accountants and Auditors of Thailand in 1975 before assuming its current name, the Federation of Accounting Professions Under The Royal Patronage of His Majesty The King (TFAC) in 2004. Under the Accounting Professions Act B.E. 2547 of 2004, the TFAC is the only professional

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accountancy organization in Thailand and is responsible for regulating the accountancy profession with oversight from the Accounting Professions Regulatory Commission. The TFAC aims to unite all professional accountants for the benefit of professional development and livelihood. Its responsibilities include (i) establishing initial professional development and continuing professional development requirements for the accounting profession; (ii) supporting the unity and honor of members including providing for the welfare and benefits of its members; (iii) setting accounting and auditing standards; (iv) establishing ethical requirements for professional accountants, along with monitoring the behavior and operation of registered members in accordance with professional ethics, including the establishment of investigative and disciplinary mechanisms; (v) issuing, suspending, and revoking professional accountants registration and license; (vi) certifying accounting degrees or certificates to benefit member’s application; (vii) certifying the training curriculum for professional accountants; (viii) assisting, recommending, and disseminating knowledge about the accounting profession to the public; (ix) providing advice and recommendations to the government regarding policies and issues related to the accounting profession; (x) issuing the regulations of the TFAC; and (xi) acting as the representative of the accounting profession. The TFAC also is responsible for establishing a quality assurance review system for its members. The TFAC has been under the Royal Patronage of His Majesty the King since September 6, 2005. The TFAC awards the Certified Public Accountant designation. Membership is mandatory for all auditors and bookkeepers. The TFAC is a member of both the IFAC and the ASEAN Federation of Accountants (ASEANFA). (Further information on the organization is available at: https://www.ifac.org/about-ifac/ membership/members/federation-accounting-professions). TFAC considers 2018 to be a year of significant change because digital streaming became possible in Thailand. This digital transformation affected the business sector, among others. It attracted the attention of government too. It was inevitable that the professionals responsible for accounting management would be affected directly and would have to implement changes in their management tools and techniques. Currently, the Thailand Federation of Accounting Professions is attempting to accelerate the needed changes driven by the accounting professions 4.0. The Federation accepts responsibility for developing programs for educating and extending the capabilities of its members. New tools and guidelines are needed to help facilitate the changes implicit for accounting practices in the new era. Thus, the Federation of Accounting Professions continues with its main mission, creating and developing accounting professional standards that meet the changing needs. Doing so is urgent: As International Financial Reporting Standards have been enforced in Thailand, Thai Financial Reporting Standards (TFRS) are then issued by the TFAC with respect to their application in Thailand and must be endorsed by the International Accounting Standards Board (Board). Several TFRS are expected to be endorsed in 2020, including TFRS 17—Insurance Contract, Framework for Financial Reports which take effect on January 1, 2023, and January 1, 2021, respectively. Additionally, the Thai government already announced in the Royal Gazette that

134 Table 4 Number of members of the Thailand Federation of Accounting Professions (Source: TFAC Annual Report 2018, p. 20)

K. Terdpaopong et al. Year 2018 2017 2016 2015 2014 2013 2012

Members 82,650 82,062 76,078 72,094 65,853 55,310 51,488

Growth (%) 0.72 7.87 5.53 9.48 19.06 7.42 n.a.

reporting using the revised financial instruments will be effective from 2020 onwards. In the same announcement, businesses are allowed to implement the new standards before the effective date; that is, for financial statements from the year 2019 onwards. Financial reporting standards for businesses with no public interests (TFRS for NPAEs) may continue using the current version for an unspecified period of time. (Source: annual Report 2018, Thailand Federation of Accounting Profession). As of 2018, TFAC has 82,650 members, an increase of less than 1 per cent from 2017. However, the number of accounting members increased dramatically from 2013 to 2014 (19.06%). The number of members still is too small when one considers the need for accountants in Thailand. See Table 4. Smart Accountants 4.0, a strategic effort to encourage accounting professionals to adopt new digital technologies, thus increasing the value added of the profession, is an important role for the TFAC. Its urgent mission is to establish and develop standards for accounting professionals to be at an acceptable level both domestically and internationally. To develop and promote accounting science among accounting professionals is an essential adjunct to advancing the country’s economy. The TFAC must establish itself as a center of knowledge for accounting professionals, complete with the capacity to provide advice to their members and to the users of financial statements. It must serve as a representative of accounting professionals in Thailand in various dealings with various agencies both domestically and internationally. Additionally, TFAC must not neglect promoting and supervising accounting professionals on all matters related to professional ethics in the practice of modern and professional management systems. Accounting professionals, in both public and private organizations in Thailand, are alert to these new technological developments. Several key people have commented on aspects of this new Artificial Intelligence (AI) era. The Chairman of the Accounting Professions Committee Accounting, Mr. Prasert Wangratanapranee, notes that although AI works based on the structure platform (allowing the use of algorithm), it cannot handle things that do not follow the specified format or unstructured platforms (data that are not easily searchable, analyzable, and have no specific formats or structures). In addition, AI cannot fix previously undiagnosed problems. Rather, accountants must have all of these skills (TFAC Annual Report 2018, p. 36).

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A similar opinion is given by the Chairman of the Accounting Professions Auditing Committee, Mr. Supot Singsanei: Although Artificial Intelligence (AI) will enter and has a role to help account management almost the whole process, but the professional accountants still need discretion and caution operation. Technology is just a tool that only facilitates but analytical thinking, troubleshooting and decision making, however . . . must still be a person. (TFAC Annual Report 2018, p. 38).

How does the new technology benefit Thai accountants? As Worawit Janethanakul, Chairman of the Accounting Professions Managerial Accounting Committee notes, “Technology is considered an opportunity because accountants can use fast process technology, automation or automated intelligence systems to help reduce the burden of works which [are] normally time consuming. Technology will help accountants to have more time and be able to create value to organization” (TFAC Annual Report 2018, p. 50). Thai Financial Reporting Standards, which are to be adopted by practitioners in order to prepare the annual financial reports, consist of 3 parts. These are (i) Thai Financial Reporting Standards (revised version), in line with the international financial reporting standard announced by IFRS; (ii) Thai Accounting Standards, which are accounting standards that have been solely adopted by Thailand. Its principles are based on international generally accepted accounting principles, and (iii) Thai Accounting Guidelines, which have been prepared solely for use in Thailand, since there are no previous principles or guidelines that meet international financial and accounting reporting standards. Thailand has had Thai Financial Reporting Standards (TFRSs). However, it is the only set that refers to International Financial Reporting Standards. In order to be accepted internationally, financial reporting standards also must apply to juristic persons who have duty to keep accounts under the Accounting Act B.E. 2000, whether it is for a listed company whose shares are traded in the securities market or general juristic persons outside the market. There is a so-called Roadmap of Thai Financial Reporting Standards: Thai Financial Reporting Standards (TFRS). These have been translated and adopted. The roadmap shows the stages for implementation of the International Financial Reporting Standards (IFRS). These are first described in the IFRS latest bound volume. The roadmap shows that there is a one-year delay from the IFRS’s effective date. See Fig. 5. It should be noted that the International Financial Reporting Standards are for businesses that have a public interest and for complex businesses. The financial reporting standards derive from the concept of fair value, which is the basis for the preparation of financial reports. However, these standards are burdensome and increase the cost of preparation of financial reports for most non-public businesses (small and medium-sized enterprises). Being aware of the importance of non-public institutions (Non-Publicly Accountable Entities—NPAEs), which are the driving force of the national economy of Thailand, TFAC has expressed concern that a business that does not have a public

Fig. 5 Roadmap of Thai Financial Report Standard (Source: TFAC 2017)

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interest should be treated differently from a business that has a public interest (Publicly Accountable Entities—PAEs). Thus, TFAC has established an accounting practice guideline for businesses that do not have a public interest called Thai Financial Reporting Standards for Non-Publicly Accountable Entities: TFRS for NPAEs). TFAC set out Thai Standard on Quality Control (TSQC) 1. This quality control is for firms that perform audits and reviews of financial statements, and other assurances and related services, with effective date of January 1, 2014. The TFAC addresses a firm’s responsibilities for its system of quality control, which are designed to provide reasonable assurances that (i) the firm and its personnel comply with professional standards as well as applicable legal and regulatory requirements, and (ii) reports issued by the firm or engagement partners are appropriate in the particular circumstances. It also aims to enhance the audit quality, promote public trust in both financial reporting and in the auditing profession, as well as reduce the risks of auditing failures which will negatively affect the capital market and overall economy. IFAC set out the International Standard on Quality Control 1, of which TSQC1 is based on, initially in 2005, with amendments in 2009. In Thailand, draft TSQC1 was disseminated in 2010 and promulgated at the beginning of 2011. The effective date was January 1, 2014, but earlier adoption was encouraged. Thus, Thai audit firms and auditors should be well prepared in advance to establish or improve their existing quality systems so as to comply with it. Elements of that Quality Control System include: (i) leadership responsibility for quality within the firm; (ii) relevant ethical requirements; (iii) acceptance and continuance of client relationships and specific engagements; (iv) human resources; (v) engagement performance; and (vi) monitoring (TFAC 2018).

3 Management Accounting: A Literature Review There are various definitions of the term “Management Accounting.” The Chartered Institute of Management Accounting (CIMA), an international professional body based in the UK, defines management accounting as the provision of information required by management for such purposes as the formulation of policies, planning and controlling activities of an enterprise, decision-making on alternative courses of action, disclosure to those external to the entity (shareholders and others), disclosure to employees, and safeguarding assets (CIMA 1987, p. 10). The International Federation of Accountants (IFAC), defines management accounting as the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of information (both financial and operating) used by management to plan, evaluate, and control within an organization and to assure the use of and accountability for its resources. (IFAC 1998, p. 99).

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In summary, the definitions emphasize top quality accounting information that can assist senior management in making informed decisions. Given that the nature of accounting information is becoming increasingly complex, modern information technology, such as ERPs, can make such information easier to access and use (Davis 1989; Sandhu and Corbitt, 2008; Bazhair and Sandhu, 2015; Alshareef and Sandhu, 2015). The definitions of management accounting have, over time, moved away from a narrow and traditional accounting perspective to include an emphasis on assisting senior management with various activities, including value creation. In the 1980s, management accounting was criticized for being too focused on internal operational issues and providing little help to managers in making strategic decisions. There was little, if any, focus on strategic management accounting (Hoque 2001; Gregoriou and Finch 2012). In 1981, Simmonds (1981) introduced the term “strategic management accounting,” defining it as “the provision and analysis of management accounting data about a business and its competitors, for use in developing and monitoring business strategy” (CIMA 2015, p. 2). Despite these various definitions, MAPs broadly comprise management accounting techniques and/or information systems that have remained relatively unchanged for more than half a century, as noted by various writers including Johnson and Kaplan (1987, 1991), Johansson (1990), Kaplan (1983, 1984, 1990), and Howell et al. (1987). In 1989, the International Federation of Accounts, a global organization for the accountancy professions, issued a statement summarizing its understanding of the scope and purposes of management accounting and the concepts that underpin it. This statement then was revised and released in 1998 as Management Accounting Concepts–Number 1 in the series of International Management Accounting Practice Statements. In the introduction to the paper, IFAC’s Conception of the Evolution of Management Accounting, Abdel-Kader and Luther (2006), wrote: Statement 1 does not explicitly identify a central purpose but comprises an introduction in the following sections: Evolution and Change in Management Accounting (paras. 7–20); Management Accounting and the Management Process (paras. 21–36); The Conceptual Framework (paras. 37–72), and Using the Conceptual Framework (paras. 73–77). The Conclusion (paras. 78–79) contends that the statement can be used by managers “for understanding, evaluating, and developing,” by professional accountants in management for “focusing, benchmarking, and developing,” by educators “in refocusing and consolidating their efforts” and by professional associations “in reformulating and consolidating the work technologies to be associated with management accounting now and in the future.”

Here, the focus is on investigating the state of MAPs used in large Thai manufacturing companies. Such MAPs are benchmarked against IFAC (1998) to clarify their stage of adoption and implementation. Management accounting has evolved in four main stages. The trends of management accounting from before 1950 to 1995 are grouped as follows.

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Stage 1: Cost Determination and Financial Control (CDFC): Before 1950 During this stage, management accounting focused on cost determination and financial control, using budgeting and cost accounting techniques. Production technologies were relatively simple. It was not complicated to collect information about the costs of inputs, such as material and labor, since the manufacturing process was governed by the speed of manual operations, with direct labor costs or hours used to allocate overhead costs. Budgets and financial controls were used to monitor and manage product costs. During this stage, cost estimation techniques, such as LIFO and FIFO, ratio analysis, and financial statement analysis, were developed. Management was primarily concerned with internal matters, especially with respect to production capacity. As the study by Ashton et al. (1995) points out, at that time, cost information was not disseminated widely and the use of management accounting for decision-making still was limited. Stage 2: Information Provision for Management Planning and Control (IP): By 1965 By this time, the focus shifted to providing information for management planning and control through using technologies such as decision analysis and responsibility accounting. The IFAC describes the prevision as “a management activity but in a staff role” (IFAC, para. 19). Staff-level employees support the operations’ technological elements in a manufacturing setting, whereas management seeks to manage and control those operations. The emphasis was on manufacturing and internal administration rather than strategic and environmental considerations (Ashton et al. 1995). Stage 3: Waste Reduction (WR): By 1985 In this phase, the focus was on reducing manufacturing waste through process analysis and cost management techniques. There were a number of economic recessions during the 1970s–1980s and oil prices were extremely volatile. Global competition increased during the early 1980s, leading to focus more on tools that would increase global competitive advantages. Technological development was extremely high during this period. To respond to the impact of greater global competition, new management and production techniques were introduced. Management needed more information from management accountants regarding cost management techniques such as the just-in-time (JIT) inventory method and activity-based costing (ABC) for their decision-making.

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Stage 4: Creation of Value (CV): By 1995 During this period, attention shifted to generating or creating value through the effective use of resources via increased use of techniques to examine drivers of customer value, shareholder value, and organizational innovation. The 1990s included the development of the Internet and associated technologies, leading to online businesses and e-commerce. The focus of management accounting at this stage was on receiving real-time information. IFAC (para 19) describes the retrieve of such information as “an integral part of the management process, as real-time information becomes available to management directly and as the distinction between staff and line management becomes blurred.” New model techniques, such as total quality management (TQM), activity-based management (ABM), benchmarking, and reengineering methods, were launched to eliminate activities that did not create value. The use of real-time information to create value became an integral part of the management process. The shift from Stage 1 to Stage 2 was driven by management’s need for more accounting information, while the critical differences between Stages 2, 3, and 4 were changes in focus. Kamal (2015) summarizes the characteristics of MAPs in the four stages of evolution. He compares the four stages by stating the period in which each stage emerged, along with the role and main focus of MAP in organizations at each stage. In his comparison, the main focus of MAP in Stage 1 is cost determination and controlling expenditures, while in Stage 2, MAP is used for management planning and control. In Stages 3 and 4, MAP is an integral part of management. However, in Stage 3, MAP focuses on waste reduction, while in Stage 4, the focus is on value creation through a more effective use of resources to drive customer value, shareholder value, and innovation. Research on the evolution of management accounting is receiving a great deal of attention in the academic literature. Examples include Solomons (1954), Chatfield (1977), Chandler (1977), Parker (1980), Johnson and Kaplan (1987), Hopwood (1987), Hockin and Macve (1988), Kamal (2015), Loft (1995), Ashton et al. (1995), Abdel-Kader and Luther (2006), Okano and Suzuki (2007), and Gliaubicas (2016). There is substantial research on the relationship between MAPs and corporate performance. Several results find empirical evidence for a positive relationship between effective management accounting systems and corporate performance (e.g., Hiromoto 1988; Monden 1989; Epstein 2002; Mendoza and Saulpic 2002; Nishimura 2004; Ajibolade 2013). Although the literature on MAPs is substantial, the topic continues to attract attention. Several studies explore the changes in MAPs. For example, Kamal (2015) studied the evolution of cost and management accounting innovations around the world, examining whether management accounting has had a significant impact in organizations. He concludes that MAPs are changing, not because of the type of management accounting techniques in use, but as a result of the manner in which management accounting information is being used.

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However, much of the existing research focuses on these developments in specific countries, rather than providing a wider picture of the development of MAPs in general. The key factors influencing MAPs in a given country may be driven by a firm’s need to adapt to changes in that country’s economic environment. These changes may result from one or more of the following: the establishment of foreign-owned companies in a country, joint ventures between local and foreign companies, or even the growth of private and/or state-owned companies that reflect, in part, the changes in MAPs. Furthermore, rapid changes in technology, the use of the Internet, and the use of automated machines (including robots) partially have driven management accounting practice changes, increasing the competitive advantages of those companies adopting them. In large, developed economies, many of these things would not be unusual. All of these factors can probably be ascribed to a country’s competitive environment. Burns and Scapens (2000) argue that the most frequently cited driver of change in MAPs is probably the competitive economic situation of the 1990s, especially with respect to global competition. When organizations faced considerable change in their competitive environment, the traditional role of management accounting, comprising formal controls and reporting procedures, was simply not adequate to meet new management demands. Therefore, managerial accounting systems needed to be updated and modified to accommodate management’s new and different informational needs (Allot 2000). Contingency theories suggest that an accounting information system should be designed in a flexible manner, taking into consideration the competitive environment and organizational structure confronting a business. Several significant empirical research studies examine MAPs. For example, Chow et al. (1988) study cost accounting system design, decision-making, planning, control, and using quantitative methods in American companies; Scarbrough et al. (1991) study product costing and inventory valuation, cost analysis and planning, and control and performance evaluation; Drury et al. (1993) study product costing; budgetary control; capital investment; AMT environment; divisional control; and changes in practices in the UK; Yoshikawa et al. (1994) study the costing systems, cost management activity, budgeting systems, and long-term decision-making of Japanese companies; Drury and Tayles (1994) study costing, performance measurement, control and investment appraisal of British companies; Chenhall and Langfield-Smith (1998a, b) study long-term planning, detailed budgeting systems, product costing, performance evaluation, and decision support systems of Australian companies; Phadoongsitthi (2003) studies long-term planning, detailed budgeting systems, product costing, performance evaluation, and decision support systems of Thai companies; Abdel-Kader and Luther (2006) study costing system, budgeting, performance evaluation information for decision-making, and the strategic analysis of British companies; Wu et al. (2007) study product cost systems, budgeting systems, detailed budgeting systems, performance evaluation and rewards, decision support systems, planning and control, and responsibility accounting of Chinese companies; Hopper et al. (1999) study costing systems and cost management of

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Japanese companies. These studies, and many others, report on various MAPs in different countries. It generally is accepted that developing and using an appropriate set of performance measures is crucial in modern times. These measurements can help management better understand their current position and make better decisions, in addition to strengthening accountability. As stated by Gama (2017), measuring performance is much more than filling tables with numbers and writing reports; it is not merely about numbers, it is about understanding and insights that lead to better decisions and results. Accounting information systems need to be adapted to the specific decisions being considered. In other words, accounting information systems need to be designed within an adaptive framework. Furthermore, management tends to seek additional external, non-financial, and ex ante information in addition to internal, financial, and ex post information (Gordon and Miller 1976). Lobo et al. (2004) identify the role played by both environmental and organizational factors in initiating management accounting changes. First, with respect to environmental factors, market globalization leads to increased competition, which can affect product and service costs and prices, target markets, technological adaptation, response time, and rapid production, for example. Secondly, advancements in techniques for producing information now allow management to receive the information they want, exactly when and how they want it (in terms of information delivery). That, in turn, leads to increased competition. There are now more highly skilled and professional competitors in the market than before. Moreover, there are organizational factors that contribute to changes in MAPs, such as companies focusing more on their core competencies, customer and supplier relationships, as well as the downsizing of companies, outsourcing, and flatter organizational structures. These changes in both internal and external factors contribute, some more than others, to changes in the way management perceives and uses MAPs in their organizations. Regarding traditional management accounting, Terdpaopong et al. (2017) write: Management accounting practices of Thai companies are dominated by traditional ones, such as standard costing (Rodpetch 2002; Nishimura 2004; Komaratat and Boonyanet 2008; Sumkaew et al. 2012; Wajeetongratana, 2016), direct costing (Komaratat and Boonyanet 2008; Nishimura 2004; Phadoongsitthi 2003), uniform cost accounting (Komaratat and Boonyanet 2008; Nimtrakoon and Tayles 2015; Nishimura 2004; Wajeetongratana 2016), absorption costing (Phadoongsitthi 2003; Phadoongsitthi 2005; Sumkaew et al. 2012), and variance analysis (Komaratat and Boonyanet 2008; Sumkaew et al. 2012). The technique most used by management is ‘budgeting’ as illustrated by the findings of several researchers such as Komaratat and Boonyanet (2008), Phadoongsitthi (2003), Phadoongsitthi (2005), Rodpetch (2002), Shoommuangpak (2014), Sumkaew et al. (2012), Wajeetongratana (2016). Management practices at this stage are concerned primarily with internal matters, especially on production capacity, and are not fully or widely used for management decision-making.—(Terdpaopong et al. 2017, p. 197)

This literature review focuses on why MAPs have been adopted by a number of countries and the extent of said adoption. It provides the background for the questions that follow. First, which MAPs tools are currently used by large

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manufacturing companies in Thailand? Second, what stage of MAPs have large Thai manufacturing companies reached? Specifically, the paper reports on MAP advances by large companies using Stages 1 through 4 as described in IFAC Statement 1. Several existing studies conclude that modern MAPs have not received much attention or successful adoption and implementation by Thai industry. Rodpetch (2002) and Wajeetongratana (2016) find that contemporary or new management accounting tools are not widely used in Thailand. Only a few companies report using advanced or contemporary techniques like JIT and ABC. Interestingly, although JIT and ABC are not new to Thailand, neither appear to be popular among Thai companies. Some companies actually abandoned them due to difficulties in data collection (Chongruksut 2009; Intakhan 2014). It is found that some higher profile companies had adopted contemporary MAPs, such as TQM, ABM, target costing (TC), and other creative value methods (Nimtrakoon and Tayles 2015; Shutibhinyo 2014; Terdpaopong and Visedsun 2014; Yongvanich and Guthrie 2009). The advanced stages (2 and 3, for example) have significantly lower adoption rates in Thailand. These findings provide the basis for a 2019 research project directed by the authors of this chapter. Their hypothesis was that the majority of Thailand’s manufacturing companies have not moved beyond IFAC Stage 1.

4 Management Accounting Practices in Thailand The 2019 study categorized MAPs into one of the four IFAC-defined stages. Each practice was classified using IFAC statements and other expert sources. In the few instances where researchers classified them differently, the approximate timeline with which each stage is principally associated was used for classification purposes. In all, there were 45 MAPs that were classified into four IFAC stages. It was a challenging process requiring some compromises because each stage encompassed the tools and techniques of the previous stage.

4.1

Samples

The population studied here was drawn from the business data warehouse of the Department of Business Development, Ministry of Commerce, Thailand. The study used purposive and quota sampling. Using the warehouse data, companies located in Thailand’s central industrial cluster were selected. Fifteen provinces were included in the industrial cluster and were located in the central part of the country were chosen for the study: Ang Thong, Ayutthaya, Bangkok, Chachoengsao, Kanchanaburi, Nakhon Pathom, Nakhon Nayok, Pathumthani, Ratchaburi, Rayong, Samut Prakan, Samut Sakhon, Samut Songkhram, Saraburi.

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These 15 provinces are bases for manufacturing production and have a relatively high economic impact on the country’s economy. Only large companies with assets totaling more than THB 500 million (USD 15.625 million) as of December 31, 2016, were included in the study. Some 2848 companies met the selection criteria. The study used a quota sampling method by taking a proportion of the total number of companies. Doing so resulted in a sample size of 1500 companies. The research sample was limited to the manufacturing sector so as not to confound the results. The manufacturing sector was selected because it plays a very significant role in the Thai economy. Data were gathered by means of a postal questionnaire. It is a well-known and respected method in management accounting research (See for example, Drury et al. 1993; Firth 1996; Chenhall and Langfield-Smith 1998a, b; Haldma and Laats 2002; Al-Omiri and Drury 2007; Phadoongsitthi 2003; O’Connor et al. 2004; Sulaiman et al. 2008). Questionnaires were sent to each of the 1500 companies in September 2017. Some 220 responses were received, of which 205 were usable, for a 13.67% response rate, representing 7.19% of the population.

4.2

Data Analysis

The data were analyzed using quantitative methods appropriate for descriptive purposes. Empirical statistics, including means, standard deviation, coefficient of variation, and percentages were used. Assigning companies to the different stages was done by means of cluster analysis that used a hierarchical agglomerative method. A discriminant analysis then was used to ensure the accuracy of the cluster classification method. This approach was employed in prior studies, including Abdel-Kader and Luther (2008), Boer et al. (2001), Buysse and Verbeke (2002), Gray (1988), and Terdpaopong et al. (2019).

4.3

Characteristics of the Participating Manufacturing Companies

The questionnaire’s first section asked about the companies’ characteristics, such as the length of time doing business in Thailand. Business Age Table 5 reveals that the manufacturing businesses averaged 54 years since establishment, ranging between 1 and 80 years. A majority of the companies (56.1%) had been in business for at least 20 years. Ownership Structure The sampled companies’ ownership structures (see Table 6) reveal some important information. Most of the large factories are family-owned

Management Accounting Practices in Thailand: Case Study of Manufacturing. . . Table 5 Business age

Business age