International Management Accounting

International Management Accounting

Introduction

Companies in developing economies experience immense challenges that adversely impact their management accounting. The typical results of the primary problems entail systems that are difficult to audit, inaccurate and incomplete records, lack of management accounting systems, weak internal control and late account closings. These challenges are common to the poorer nations leading to the management troubles. Conventional control theories developed in Anglo-American countries do not resolve the problems managers in companies in poorer countries encounter every day due to the differences that exist in the economies. The management accounting problems experienced in the poorer countries should be addressed using approaches that are suitable for the conditions within these economies.

Discussion

Evaluation of the Application of Conventional control theories developed in Anglo-American countries to Poorer Economies

Accounting models refer to a set of procedures, assumptions, concepts and principles that define the approaches used in reporting, recording and measuring financial transactions. Various economies subscribe to the strategies that are best suited for their social and economic environment. Countries have their distinctive accounting models that consider environmental factors that have shaped the development of an economy. However, disparities existing between nations have been blurred to come up with conventional approaches (Eromonsele, 2017). The classification of accounting models can be based on various distinguishing factors, including the extent of economic development, the political system, the accounting norms origin and accounting education. It can be found that economies that share common characteristics subscribe to one model.

The full disclosure or fair presentation model is known as the Anglo-American, Anglo-Saxon or the British American approach. It refers to the framework that is applied in the United Kingdom and the United States, where accounting is focused on making decisions involving a high number of creditors and investors. The system paves the way for the investors to predict the future performance of businesses and their profitability. The approach may not be suitable for managers in poorer countries whose organizations are influenced by a high level of uncertainty stemming from environmental, political and economic factors. The traditional Anglo America system is considered to be a framework that is heavily influenced by professional accounting bodies, and it works effectively in developed economies. The model may be ineffective in poorer countries where companies’ operations are highly dependent on government influence. The role of capital markets is emphasized on, and this may not be the case for the less developed countries.

The Anglo-American model is commonly used in English-speaking countries that are profoundly influenced by the United Kingdom and the United States. Poorer economies are impacted by a wide range of factors, and this means that the conventional control theories cannot be used to address the management problems in businesses. Anglo-America countries apply a standard law system that is based on court rulings. Governments and managers in less developed countries may lack an understanding of the common law legal method making the application of the common law legal mechanism difficult. The primary source of funding, according to the Anglo-American theories is that the stock exchange is the primary source of funding. This does not apply to poorer economies that rely on various sources of financing, including donor aid. The financial markets allow for the exchange of bonds and shares, and this promotes the exchange of capital.

Anglo-American countries have a higher number of multinational companies while compared to poorer countries. As a result, managers in these countries adhere to advanced management accounting systems that are appropriate for their economies. Further, the level of education of financial information users is higher, and this goes in line with their understanding of the conventional Anglo-American approaches. On the other hand, most of the companies in less developed countries are locally based and adhere to the systems that are effective in their countries. Managers in poorer economies experience different accounting problems that cannot be resolved using the control models Anglo-American economies.

Emerging countries face a high level of poverty, leading to uncertainty and risk in business. Conversely, Anglo-American companies operate in a relatively stable environment and face fewer risks and uncertainties. Managers in developing countries face a lack of resources and pose distinctive challenges to their work. Poverty limits information access, the establishment of new markets, product development and the management of uncertainty. Managers cannot rely on the government to address these problems through the establishment of effective macroeconomic policies and infrastructure owing to poor governance and inadequate planning. Business pressures in these economies are higher couples with natural disasters, currency fluctuations and volatile commodity prices. Managers in these countries should apply the business approaches that are suitable for their economies.

Cultural and ethnicity issues play a pivotal role in business in less developed nations. Conventional control theories are a reflection of modernity in business which contravenes the ethnicity and cultural values that are upheld in poor economies. The Anglo-American control approach reflects and reproduces capitalism and its values. However, poorer economies are on their way to transforming into capitalism and modernity. The process varies across different economies due to ethnic and cultural influence. This means that the control models that are applied in Anglo-American economies cannot address the management problems experienced in less developed economies.

Management accounting in poorer countries varies while compared to Anglo-American economies. Managers in weaker economies cannot use the traditional control theories developed in Anglo-America countries because of the evident disparities that exist among them. It is erroneous to perceive the less developed countries to be a homogenous group whose accounting problems can be resolved by applying a set of theories. While poverty is common to these countries, its distribution and level differ. Poorer economies face unique setbacks such as ethnic tensions and traditional cultural practices that affect business. Consequently, businesses in poorer economies require different management accounting approaches. Companies in poorer economies lack the resources necessary to establish the management accounting systems that are in line with the conventional control approaches that are practised in Anglo-American nations. Further, they do not have the necessary resources to hire qualified accounting staff, specifically in African countries that face expertise shortages. Leading companies in the developing economies have been found to practice sound management accounting approaches that are frequently ignored.

The conventional control theories that are used in Anglo-American economies do not apply to less developed countries, specifically in Africa. This is because they depend on diverse economic activities. Most of the poorer countries depend on agricultural and primary production, and this makes them highly vulnerable to forces of nature and economic cycles. On the other hand, Anglo-American economies rely on manufacturing, business and technology. This means the traditional control theories that are established in Anglo-America countries do not address the challenges faced by managers in developing nations. The economic uncertainties experienced in these economies and a volatile political environment hinder the application of the Anglo-American systems. The management accounting methods that are applied in poorer countries cannot be detached from the socio-economic environment. The economies face a wide range of setbacks including culture and ethnicity, traditional state institutions, poverty and weak markets. The conventional control models that are established in Anglo-American economies are impractical in addressing the challenges that managers in weak economies face.

Recommendations for resolving management accounting problems that occur within companies in less developed economies.

The management accounting challenges in poorer countries can be resolved by employing various strategies. To start with, companies in less developed economies should adhere to the set accounting rules and regulations. Managers should ensure reliable and timely reporting of accounting information that is utilized to make state decisions, for national planning and to make investment choices. Financial statements prepared by companies in less developed economies should be used for trace transactions and assess the success of operations. Management accounting should be done in line with the set standards to attain growth and economic efficiency in less developed economies.

Less developed economies should work towards introducing reforms in accounting policies. It has been observed that significant improvements have been neglected by the relevant bodies, including the IMF (International Monetary Fund) and the World Bank. Stakeholders have assumed accounting was a technical matter that would go in line with market reforms. This has stalled the pace of management accounting reforms in poorer economies. Owing to the emphasis on foreign investments, privatization, regulation of indigenous banks, company law reforms are necessary. Accounting reforms are required in the public and private sectors to address the problems affecting the management of firms in poorer economies, including corruption, lack of resources and proper systems. Political intervention and privatization can be used to improve the application of management accounting policies in the business.

Policy shifts have been recommended as one of the best approaches that can be utilized to address management accounting problems by employing good governance. Poor governance has been identified to be one of the significant setbacks influencing management accounting in less developed economies. States should seek to increase funding to businesses that should be managed efficiently. Managers are also encouraged to improve the management of the funds that are available in companies through increased accountability and accurate reporting. It is expected that the application of these recommendations will improve management accounting in firms in less developed economies.

Conclusion

Managers in poorer economies face immense management accounting problems that should be solved effectively to enhance effective operations. The discussion makes it clear that the conventional models that have been developed in the Anglo-American states cannot be applied in solving these problems. This is because there are apparent disparities between the economies in terms of poverty levels, the extent of cultural and ethnic influence on business, the political and economic status and political influence. Judging from these disparities, various strategies should be applied in addressing the management accounting setbacks to improve compliance with international standards, accurate and transparent reporting. It can be concluded that the management accounting challenges faced in poorer economies should be resolved using a multi-faceted approach.

References