manac in asian countries

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Management accounting practicesin selected Asian countries

A review of the literature

Maliah bt. Sulaiman, Nik Nazli Nik Ahmad and Norhayati AlwiDepartment of Accounting, Kulliyyah of Economics and Management Sciences,

International Islamic University Malaysia, Kuala Lumpur, Malaysia

Keywords Singapore, India, Malaysia, China, Accounting research, Accounting procedures

AbstractTraditional management accounting techniques such as standard costing and varianceanalysis, traditional budgeting and cost volume profit analysis are said to be less useful in the

present manufacturing environment. To succeed in the present dynamic business environment,tools or strategies such as JIT, ABC, TQM, process re-engineering, life cycle assessment and target

costing would greatly enhance the ability of corporations to meet global competition. Through aliterature review, this study examines the extent to which traditional and contemporarymanagement accounting tools are being used in four Asian countries: Singapore, Malaysia, Chinaand India. Overall, the evidence reviewed suggests that the use of contemporary managementaccounting tools is lacking in the four countries. The use of traditional management accountingtechniques remains strong. The paper concludes with various recommendations for futureresearch, the most important of which is the need for future studies to be grounded in theory.

1. IntroductionVarious authors have argued that traditional techniques such as standard costing andvariance analysis, traditional budgeting and cost volume profit (CVP) analysis are nolonger adequate to be used as planning and control tools in the present manufacturingenvironment (Bromwich and Bhimani, 1994; Kaplan, 1983; Lucas, 1997). Further, manyhave predicted that the shorter product life cycles, advanced manufacturingtechnologies, decreasing emphasis on labour in the production process and globalcompetition may lead to the demise of the above tools (Drury et al., 1993; Hilton, 2002).To succeed in the present dynamic business environment, companies should link theirstrategies to quality improvement, increased flexibility in meeting customersindividual requirements, reduced lead times, inventories and production cost (Lucas,1997). Thus, tools or strategies such as JIT, activity based costing (ABC), TQM, processre-engineering, life cycle assessment and target costing would greatly enhance theability of corporations to meet their objectives. Consequently, it is not unreasonable towant to examine the extent to which contemporary and traditional managementaccounting tools are being adopted by companies in emerging economies in Asia.

Through a literature review, this study attempts to investigate the management

accounting practices in four Asian countries: Singapore, Malaysia, China and India.The primary objective of this study is to identify and highlight the managementaccounting practices in these four countries. It is hoped that the results of this reviewwill help reveal whether or not we are teaching our students what the practitionersactually need. More specifically, is there a gap between the theory that we teach in ourclassrooms and management accounting practice (Scapens, 1988)? Should a gap exist,then academics have got to seriously think about restructuring the managementaccounting curriculum to better reflect the needs of the industry. Further, the focus of

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Managementaccounting

practices

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Managerial Auditing Journal

Vol. 19 No. 4, 2004

pp. 493-508

q Emerald Group Publishing Limited

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DOI 10.1108/02686900410530501


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earlier studies examining management accounting practices in these four countries hasbeen on individual countries. For example, Abdul Rahman et al. (1998) and Sulaimanet al. (2002) surveyed Malaysian companies, Ghosh and Chan (1996) and Ghosh et al.(1987) surveyed companies in Singapore, Firth (1996) in China and Joshi (2001) in India.

Thus, the second objective of this study is to provide a comparative analysis ofmanagement accounting techniques used in the four countries. It is hoped that thesynthesis of earlier studies will help provide an overview of management accountingpractices in the four countries under review, thus enhancing the literature in the area ofmanagement accounting practices in Asia. This would, in part, address Willett et al.s(1997) concern that studies on management accounting practices in this region lagbehind studies in financial accounting. Last but not least, the results of this study willshed some light on whether or not the national culture is an important variable inexplaining the management accounting practices across the four countries. This issueis pertinent primarily because it has often been cited that accounting is a product of itsenvironment (Choi and Mueller, 1992; Perera, 1989; Radebaugh and Gray, 1993). If,indeed, accounting is shaped by the environment, then one would expect there to bedifferences emerging in the adoption of the various management accounting tools bycompanies in these countries.

This paper is organised as follows. Section 2 examines the extent to whichtraditional management accounting planning and control tools such as budgets,standard costing and CVP analysis are used by companies operating in India, China,Singapore and Malaysia. Section 3 examines the extent to which contemporarymanagement accounting tools such as ABC, target costing and the balanced scorecard(BSC) are used by such firms. Section 4 concludes with a discussion of the variouspossible reasons as to why traditional management accounting tools are still beingused by a large majority of firms in Asia, suggestions for future research and thelimitations of a comparative analysis of this nature.

2. Traditional management accounting tools2.1 BudgetsVarious authors have suggested that there are several advantages to preparingbudgets. Budgets aid planning and facilitate interdepartmental communication andcoordination. Budgets also provide a means for companies to allocate scarce resourcesmore efficiently. Additionally, budgets may also be used as a tool to evaluate thedivisional or managerial performance (Garrison and Noreen, 2003; Hansen and Mowen,2002; Hilton, 2002). More recently, however, there have been numerous criticismslevelled at traditional budgets. In particular, the Consortium for AdvancedManufacturing-International (CAM-I), an international research consortium of

companies, management consultants and academics, argue that the traditionalbudget acts as a barrier to effective management, particularly in the present dynamicbusiness environment. They claim that the budgeting process, as traditionallypractised, is simply an exercise in justifying the increase and decrease in the previousyears spending. As a result, companies are better off without budgets, especially sincebudgets can also create a climate of going by the book and contribute to a control byconstraint mechanism. This would, in turn, suppress an individuals creativity andinnovativeness (Clarke, 2001).

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Interestingly, despite the preceding criticisms, the use of budgets as a planning,control and performance evaluation tool (to enable managers to make more informeddecisions) is widespread in the selected Asian countries under review. In Singapore, forexample, about 95 per cent of the 174 companies surveyed by Ghosh in 1984 (Ghosh

et al., 1987) used budgets as a financial control tool (Table I). Another survey conductedin 1996 also revealed similar results. Out of 109 companies surveyed, 97 per centreported the use of budgets (Ghosh and Chan, 1996). Thus, the use of budgets, over theyears, has not diminished. Indeed, the 97 per cent indicates an increasing use ofbudgets by companies in Singapore. Further, all the 106 companies that said yes tobudgets reported that they used budgets to evaluate performance. However, overall,only 83 (76 per cent) companies prepared the cash budget. It is interesting to note thatthe cash budget is prevalent amongst companies in the retail, manufacturing and thehotel sectors. Ghosh and Yoongs (1988) study comparing the management accountingpractices of 64 multinationals and 110 local firms in Singapore also revealed consistentresults. Ninety-seven per cent (97 per cent) of the multinational firms and 93 per cent ofthe local firms reported that they used budgets.

Malaysian enterprises also report a high rate of use for budgets. Abdul Rahmanet al. (1998) in their survey reported that 98 per cent (out of 48 manufacturing firms)of the companies used budgets. In contrast with the Singapore surveys, only 40 percent (out of the 98 per cent who said they used budgets) actually used budgets as aperformance evaluation tool. Sulaiman et al. (2002) surveyed 61 companies in theindustrial and consumer products sectors of the Kuala Lumpur Stock Exchanges(KLSE) main board and found that 98 per cent of the survey respondents usedbudgets. With regard to final budget authorisation (of a particular department orbudget holder), for the Sulaiman survey, 97 per cent of the respondents reported thatsenior management has the greatest influence and supervisors the least at 29 percent. Abdul Rahman et al. (1998), on the other hand, found only 32 per cent of the

respondents reported that senior management provides the most important influencein authorising the final budget. Table II (Panel A) provides the details. When asked toindicate the extent to which they agreed with participative budgeting, 58 per cent inthe Sulaiman survey and 60 per cent in Abdul Rahmans survey said that budgetholders should not have too much influence in determining their own budgets. Theseresults contrast with Drury et al.s (1993) survey of companies in the UK. There, amere 23 per cent felt that budget holders should not have too much influence in theirown budgets. On whether or not budgets should be used as a performance evaluationtool, 63 per cent of the respondents in both Malaysian surveys agreed that topmanagement should judge a managers performance primarily on his/her ability tomeet the budget. Interestingly, 46 per cent of the respondents in Drury et al.s (1993)survey thought so. Although the percentage from the UK survey is lower than that of

the two Malaysian surveys, the figure is relatively high. Accordingly, it must beemphasised that using budgets to evaluate a managers performance may lead todysfunctional consequences (Hopwood, 1977). According to Bart (1988), the potentialfor budget games[1] may be high if budget holders are evaluated primarily on theirability to meet their budgets.

In India, Joshi (2001), who examined the adoption rate of 44 management accountingtechniques, sought the managers perceptions on the benefits of such tools and theirimportance in the future by surveying 60 large and medium size firms. All (100 per


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India

Sing

apore

Malay

sia

China

Joshi

Ghoshet

al.

Ghoshand

AbdulRahman

Sulaimanet

al.

Firth(199

6)

(2001)

(1987)

Chan(1996)

et

al.(1998)

(2002)

Privatea

SOEs

%

%

%

%

%

%

%

Traditionaltools

60

165

109

48

61

432

3

70

Standardcosting

68

47

56

49

70

94

72

CVP

65

55

66

ROI

100

63

56

17

Budgets

100

95

98

97

98

b

b

Contemporarytools

TQM

48

52

ABC

20

13

4

28

2

1

Targetcosting

35

BSC

40

16

Notes:aChinesepartner

ofJV;

bseeTableIII(PanelA)fordetails

Table I.Broad areas ofmanagement accountingpractices in India,Singapore, Malaysia andChina

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cent) respondents indicated that they used budgets for planning day-to-day operationsand cash flows. A lower percentage (93 per cent) said that they used budgets forcontrolling costs and 91 per cent reported that they used budgets for planning financialposition. His study also revealed that Indian firms perceived budgeting to be one of the

more important management accounting tools in the future. When asked to rate itsbenefits and future emphasis (and subsequently, ranking the means), the operationalbudget was ranked 22 in terms of its perceived benefits and 8 in terms of its future

emphasis. Similarly, the cash budget had a rank of 5 (perceived benefits) and 1 (future

Drury et al.(1993)

Sulaiman et al.(2002)

AbdulRahman et al.

(1998)

Panel A: (above average and vitally importantresponses); Final budget authorisation of adepartment/budget centres; Influence of:Supervisors 8 29 5Departmental managers 53 82 17Budget holders 64 70 21Accounts budget staff 46 56 26Senior management 92 97 32

Panel B: (agree and strongly agree responses);Budgetary control philosophy; Extent respondentsagree with the following statements:Budget holders should not have too muchinfluence in determining their own budgets

because there is a danger that they will seek toobtain easy budgets 23 58 60Top management should judge a managersperformance mainly on his/her ability to attain thebudget 46 63 63

Panel C: Does your company prepare flexiblebudgets?Yes 42 66 40No 58 44 60Total 100 110 100

Panel D: (often and always responses);Non-financial performance measurements:

Customer satisfaction/product quality 79 79 76Customer delivery efficiency 73 76 26Supplier quality and delivery reliability 72 76 70

Panel E: (above average and vitally importantresponses); Purpose of standard costing:Cost control and performance evaluation 72 82 72Costing inventories 80 68 60Computing product costs for decision making (e.g.setting selling prices) 82 77 74As an aid to budgeting 69 68 74Data processing economies 43 57 50

Table II.Malaysia (all figures

in per cent)


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emphasis), respectively. Anderson and Lanen (1999) examined the use of budgetingprocedures, firms budgeting philosophy and involvement of various levels ofmanagers of 14 firms (seven internationally oriented firms and seven domestic orientedfirms) in India. They found that economic reforms and greater self-determination on

the part of Indian managers had led to an increased use of standard budgeting andplanning procedures since 1991. Second, firms set more accurate budgets in 1996 ascompared to 1991. They suggest that this may be due to the managers increasedinvolvement in and understanding of the firms strategy as well as decreasedgovernment intervention since the liberalisation of the Indian economy in 1991. Third,plant managers in their survey tend to be more involved in budgeting than in strategyformulation. The reverse holds true for divisional managers; they appear to be moreinvolved with strategy formulation than budgeting. Additionally, the only discernibledifference between the domestic and internationally oriented firms is the extent towhich they used cost data to develop budgets. Internationally oriented firms seem toput less emphasis on cost data to prepare budgets.

While the use of budgets in India, Malaysia, and Singapore remains high, there isvery limited use of budgets in China. An interesting study quoted in Bromwich andWang (1991) on a survey of 81 accountants in China (on the perceived practical valueof various management accounting techniques) found a mere 4 per cent perceivingoperational budgets to be useful. The low percentage may be due to the fact thatmany Chinese accountants (before the economic reforms in the late 1970s) did notregard sales or production planning as their responsibility. This is primarily becauseChinese state enterprises were essentially production units under the purview of anindustrial ministry or an administrative corporation (Bromwich and Wang, 1991).

However, this may not be the case at present[2]. Another study by Firth (1996),examining the diffusion of management accounting practices in foreign partnered

joint venture (JV) firms, also looked at the budget use of various types of enterprisesin China. He surveyed 535 foreign firms, 456 foreign partnered JV firms, 432 Chinesepartner firms and 370 state owned enterprises (SOE). While the production budgetappears to be important to all four types of firms (Table III), the cash/working capitalbudget, the sales and profits budgets have moderate use amongst the SOEs and theChinese partner firms. (Table III, Panel A gives the details.) Middle managementsparticipation in the preparation of budgets, across the four types of firms, is ratherlimited. Only 45 and 49 per cent of the foreign partnered firms and foreign partnered

JV firms, respectively, reported some kind of participation. The percentages forChinese partner firms and SOEs remain low (at 20 and 11 per cent, respectively).There is also less attention given to capital budgeting in China amongst Chinesepartner firms and SOEs. This is primarily because in a command economy like

China, the government is the primary provider of capital. Consequently, managers ofSOEs have few discretionary decision-making responsibilities. Only about 30 percent of the 81 accountants in Bromwich and Wangs (1991) survey felt that the capitalbudget was useful. If capital budgeting is undertaken, the method most often used isthe payback period (Bromwich and Wang, 1991). However, as China moves toward amore competitive market economy, there will be a heightened interest to evaluate the

usefulness of capitalist style management accounting methods and procedures(Firth, 1996).

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2.2 Standard costing and variance analysis

As a result of changes in the manufacturing environment, the usefulness of

standard costing and variance analysis is diminishing (Drury et al., 1993; Lucas,

1997). In the past, standard costing has been regarded as a tool that enhances

planning and control and also improves performance evaluation. Further, standard

costing also aids in product costing. However, in the present advanced

manufacturing environment, the benefits of operational control are said to be lessevident as standard costing may result in dysfunctional behaviour. For example, a

material price variance may encourage the purchasing manager to buy in bulk (to

take advantage of discounts) which would subsequently result in high inventory

holding costs. This action is inconsistent with the JIT philosophy (Drury, 1999;

Hansen and Mowen, 2002). Further, standard cost variance reports prepared

monthly are deemed less useful as the information provided is stale and out of date

for managers to act upon, particularly in the current competitive environment.

Accountants Foreign firms JV Chinese PFa SOEs

Sample size81%

535%

456%

432%

370%

Panel ATypes of budgets:

Operations budgets 4 Cash/working capital 97 98 42 12Sales 87 95 41 15Profits 97 92 33 17Production 94 89 94 90Budget compared with actual 94 93 31 16

Panel BParticipation in budget preparation:

Middle management 45 49 20 11Lower management 35 8 9 7Workers 7 1 6 2

Capital budgeting 30 98 93 30 14Payback method 87 91 32 10

Panel CStandard costing 38 87 83 94 92Used for budgeting 86 76 87 85As a control tool 85 69 27 13Variances calculated 82 70 36 16

Panel DProduct costing:

Variable costing 36 32 57 57Absorption costing 64 68 43 24

Panel E

CVP 79 Responsibility accounting 54

Note: aChinese partner firmsTable III.

China


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Added to that is the notion that current production processes are no longer labourintensive. As such, the calculation of labour variances may not be as useful today asit was in the past.

On the basis of the above criticisms, one would not expect the widespread use

of standard costing for planning and co ntrol purposes. However, empirical resultsshow otherwise. Despite the criticisms levelled at standard costing, manycompanies still find standard costing useful for planning and control purposes. InIndia, for example, 68 per cent of the 60 firms surveyed still use standard costing(Joshi, 2001). Ghosh et al. (1987) found that 47 per cent of the Singapore companiessurveyed still use standard costing. A later survey by Ghosh and Chan (1996)found the percentage to be higher at 56 per cent. In Malaysia, the percentage ismoderately high at 49 per cent in Abdul Rahman et al.s (1998) survey and 70 percent in Sulaiman et al.s (2002) study. Most of the companies used standardcosting to compute product cost (74 per cent), as an aid to budgeting (74 per cent)and for cost control and performance evaluation (Abdul Rahman et al., 1998). The

results appear to be consistent with Sulaiman et al.s (2002) survey. Tho et al.(1998), in their survey of 214 manufacturing companies, reported that 69 per centof the companies used standard costing. If this is a reflection of the trend inMalaysia, then the demise of standard costing, as suggested by various authors,may not hold true. Similarly, in the UK, it was reported that 76 per cent of thecompanies that responded to Drury et al.s (1993) survey said that they usedstandard costing.

In China, standard costing is predominantly used for joint product costing andbudgeting. About 94 per cent of the Chinese partner firms and 92 per cent of the

SOEs use standard costing for joint product costing. The high adoption rates forstandard costing by both private and SOEs in China may be due, in part, to thesimilarities between the standard and normative costings. The latter costing systemwas adopted from the former USSR in the 1950s (Bromwich and Wang, 1991).Similarly, foreign firms and foreign partnered JV firms also indicate high adoptionrates (at 87 and 83 per cent, respectively) (Table III). While traditionally, standardcosting has been used to aid budgeting, standard costing is increasingly becoming acontrol tool, especially amongst the foreign and foreign partnered JV firms in China(Firth, 1996). The calculation of standard cost variances is also prevalent in bothtypes of firms. On the contrary, Chinese partner firms and SOEs reported verylimited use of standard costing as a control mechanism. Further, only 36 per cent ofChinese partner firms and 16 per cent of SOEs said that they computed variances ascompared to 82 and 70 per cent in foreign firms and foreign partnered JV firms,respectively.

In India, 68 per cent of the 60 companies that participated in Joshis (2001) surveyreported that they used standard costing. When asked to indicate the perceivedbenefits of standard costing on a Likert scale of 1 (no benefit) to 7 (high benefits),the mean obtained was 4.37. Ranking the means puts standard costing as 23rd out ofthe 44 management accounting tools investigated in the survey. On the futureemphasis of standard costing, the managers again ranked it 23rd (out of 44) with a

mean of 4.69. This may, perhaps, signal the fact that companies in India are not aboutto discard standard costing, not just yet!

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2.3 CVP analysisCVP is claimed to be one of the most powerful tools that help managers in planningand decision making (Garrisson and Noreen, 2003; Hansen and Mowen, 2002). CVPhelps managers understand the interrelationship between the quantity sold, cost,

selling price and profit. However, because of its limiting assumptions, some managersare of the opinion that the tool may have very little use in practice. For example, theassumptions that selling price and costs remain constant over the relevant range maynot be practical in this ever changing business world. Further, the assumption thatthere are no opening and closing inventories of finished goods may also not be realistic.As such, the CVP technique may slowly lose its importance.

However, empirical results of the four countries reviewed reveal otherwise.Seventy-two (66 per cent) companies in the Singapore survey used CVP (Ghosh andChan, 1996). The earlier study by Ghosh et al. (1987) reported only a 55 per centadoption rate, thus showing an increase of 11 per cent. In Malaysia, Tho et al. (1998)reported that 53 per cent of the 214 manufacturing companies in their survey haveoften or always used the CVP technique. Joshi (2001) reported a 65 per cent

adoption rate amongst medium and large companies in their survey.In China, it was reported that the CVP was of special interest to both academics and

practitioners because of its ability to link target profit with operational planning.Because, the concept of contribution margin enabled new perspectives on manyoperational problems, this technique was adopted in almost all large and medium sizedenterprises (Bromwich and Wang, 1991). A survey investigating the perceptions of 81accountants on the practical value of CVP found that 79 per cent of the respondentsperceived CVP to be useful (Table III, Panel E). Bromwich and Wang (1991) argue thatthe ready acceptance of CVP is due, partly, to the economic environment in China in theearly 1980s (where fixed costs increased and they had problems with regard tooperating capacity) that was similar to that which prevailed in the West when CVPwas introduced (in the 1950s and 1960s). CVP continued to be a favoured technique atthe time the survey was conducted primarily because many of the environmentalconditions which have challenged the use of CVP techniques in the West such asuncertainty and rapid changes of production techniques had not yet arisen at that time.Further, there is also reason to believe that, initially at least, most Chinese practitionerswere too busy learning the technique to critically evaluate it (Bromwich and Wang,1991). However, the survey quoted in Bromwich and Wang (1991) merely examined theperceptions of accountants, not the adoption rate of the CVP technique by Chinesecompanies. Additionally, Firth (1996) did not examine the use of CVP. Thus, it wouldbe interesting to examine whether or not companies in China do use CVP in planningand decision making.

2.4 Performance measurementPerformance evaluation is an important function of management accounting,

particularly in companies that have a divisionalised organisational structure. The

most often cited methods used to measure the divisional performance indicated in our

management accounting textbooks are the return on investment (ROI), the residual

income (RI) and the economic value added (EVA). More recently, however, there have

been suggestions that relying on accounting related measures is not enough.

Proponents of the BSC have argued that non-financial measures should also be


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measured. Subsequently, many companies are currently focusing on both accounting

and non-accounting related measures.

In India, for example, Joshis (2001) study revealed that although 100 per cent of thecompanies that responded to his survey evaluated performance on the basis of ROI, a

sizeable percentage (about 53 per cent) also focused on non-financial measures. Eightyper cent of the companies reported that they evaluated performance based on customersatisfaction (Table IV, Panel B). However, financial-based performance measures werestill the favoured techniques as far as Indian companies are concerned. Varianceanalysis and divisional profit were used to evaluate performance by all the respondentsin the survey. Interestingly, 37 per cent reported that they also used qualitativemeasures to evaluate their plant management, senior corporate managers and chiefexecutive officers (Joshi, 2001). Business enterprises are increasingly focusing oncustomer satisfaction. About 80 per cent of the firms surveyed used customersatisfaction to evaluate the performance.

Adoption rate% Benefits rank Future emphasis rank

Panel ATypes of budgets:

Operations 100 22 8Cash budget 95 5 1

Budgets used to:Coordinate activities 95 16 22Control costs 93 1 7

Panel BPerformance evaluation:

ROI 100 26 5Variance analysis 100 20 8Divisional profit 100 12 6Non-financial measures 53 10 18Qualitative measures 37 10Residual income 43 Customer satisfaction 80 3 18

Panel CProduct costing:

Variable costing 52 19 4Absorption costing 50 11 24

Panel D

Standard costing 68 23 23CVP 68 2 11Product profitability analysis 82 8 3

Panel ENew techniques:

ABC 20 14 17Target costing 35 4 1BSC 40 35 19

Table IV.India

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The same is evident in Malaysia. About 76 per cent of the companies in Addul Rahmanet al.s (1998) survey reported that they measured customer satisfaction/product qualityas part of performance evaluation. Of the 61 companies in Sulaiman et al.s (2002) study,59 per cent of the respondents said they measured customer satisfaction/product quality.

As for ROI, its use as a performance evaluation tool in Malaysia is rather limited. Only 17per cent reported that they used ROI to evaluate managers (Abdul Rahman et al., 1998).In Singapore, 56 per cent (61) of the companies said they used ROI as a managementcontrol technique. Out of these, 13 used gross investment, 32 used net assets, 26 usedshare capital and reserves while six companies did not specify the basis used.Additionally, 29 companies (48 per cent) reported that ROI was computed for eachdivision/department (Ghosh and Chan, 1996). The earlier study by Ghosh et al. (1987)reported a higher percentage (63 per cent) of the companies adopting ROI and 45 per centof those companies computed divisional/departmental ROI. Then, the two most commonbases used were gross investment (45 per cent) and net investment (44 per cent).

In China, there appears to be some kind of traditional responsibility accountingcomprising international business accounting (IBA) and normative costing. As stated

elsewhere in the paper, the latter is a type of standard costing borrowed from the USSRin the 1950s. According to Bromwich and Wang (1991), various features of the IBAbear considerable similarity to Western responsibility accounting. An interestingfeature of the IBA on performance measures and incentive devices within Chineseenterprises is the belief that no individual can perform well without the efforts of hissubordinates and colleagues. Thus, the emphasis is more on the group as a unit ratherthan the individual orientation of accounting controls of the West (Bromwich andWang, 1991). This, in itself, may not have significant implications on the techniquesused to evaluate managers. Rather, how the technique is used may differ. In otherwords, instead of evaluating the individual using ROI, the performance of the wholedepartment will be evaluated. The extent to which Chinese firms use responsibilityaccounting can only be discerned from the survey of accountants cited in Bromwichand Wang (1991). In that survey, 54 per cent of the accountants perceivedresponsibility accounting to have practical value.

3. Contemporary management accounting toolsOften, we have heard criticisms that traditional management control tools areproduced too late and at too aggregate a level to be relevant for todays planning andcontrol decisions (Kaplan and Johnson, 1987). To better meet the challenges of thepresent dynamic business environment, techniques such as ABC and target costing aresaid to be more appropriate. Additionally, the use of accounting measures to evaluatethe performance is no more sufficient. Companies need to focus on non-financialaccounting measures too. The introduction of the BSC helps enterprises to concentrate

on both the financial and non-financial aspects of a firms activities. The followingsubsections provide detailed discussions on ABC, target costing and the BSC.

3.1 Target costingTarget costing is said to provide companies with a competitive edge as it providescontinuous improvement both at the design and production stages. Subsequently, thiswill help companies, particularly Japanese companies, to maintain theircompetitiveness (Sakurai, 1989). In India, amongst the contemporary management


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accounting tools, target costing looks promising. Although only 35 per cent of the firmsreported that they have adopted target costing, in terms of its benefits, surveyrespondents ranked it fourth. In terms of its future emphasis, target costing wasranked number 1, thus indicating a possible increase in its use in the future. In

Malaysia, about 41 per cent of the 214 companies that responded in Tho et al.s (1998)study reported that they had implemented target costing and another 4 per cent saidthat they would implement target costing in the next five years. Surveys conducted inSingapore and China did not examine the use of target costing.

3.2 ABCABC has gained increasing attention amongst practitioners as a tool to help allocateoverheads with a greater degree of accuracy. The issue of more accurate overheadsallocation is pertinent because, often when pricing relies on flawed cost data, theproblems/errors will be perpetuated. It is also said that ABC corrects for thelimitations of traditional costing by identifying all the work activities and the costs

that go into manufacturing the product. The traditional accounting approach wherecost allocation is based on labour hours or machine hours rarely reflects the truecause and effect relationship between indirect costs and individual products. Recentsurveys have reported the increasing use of ABC, particularly amongst Westernenterprises (Scapens, 1991). It has been suggested that the decreasing cost ofcomputing power (Filman, 2000) and the ABC software that complements thesoftware on enterprise resource planning may have contributed to this phenomenon.Studies in the West have reported an adoption rate in the range of 6 to slightly morethan 50 per cent. In Singapore, 14 of the 106 companies surveyed said that they usedABC. This represents 13 per cent of the sample. Their primary reason for using ABCwas that it helped them to identify activities that drive costs. More importantly, ABCenabled them to understand their activities better (Ghosh and Chan, 1996). In

Malaysia, while Abdul Rahman et al. (1998) found a mere 4 per cent in their sampleusing ABC, Sulaiman et al. (2002) had 28 per cent of the respondents indicating thatthey used ABC to allocate overheads. In India, only 20 per cent of the 60 companiessurveyed said they had adopted ABC. Chinas percentage is even lower. For Chinesepartner firms and SOEs, the percentage was 2 and 1 per cent, respectively. Amongstforeign firms and foreign partnered JV firms, ABC usage was much higher. Theformer reported 15 per cent and the latter 10 per cent. It would seem that the use ofABC has not caught on in the four countries surveyed. Consequently, an interestingarea to address in the future research is the obstacles to ABC implementation inAsian firms.

3.3 BSC

The BSC has gained increasing popularity since its introduction by Kaplan andNorton. Scholars and practitioners alike have argued that relying solely on accountingmetrics to evaluate performance may not be adequate. With this in mind, theintroducers (inventors) of the BSC have focused on four perspectives of a business: theinternal business process, learning and growth, customers and financial aspects.Atkinson et al. (1997) argue that the BSC may be regarded as one of the mostsignificant developments in management accounting. Hoque and James (2000) are ofthe opinion that using a BSC:

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

Thus, to achieve a balance, firms need to focus on all the four perspectives. As to beexpected, Hoque and James (2000) found that there is a positive relationship betweenthe size and BSC usage. Thus, the bigger the company, the more practical it is to useBSC to support their strategic decision making. Joshis (2001) survey, to some extent,supported this contention. He found that large companies tend to use newly developedmanagement accounting techniques to a greater extent than medium sized enterprises.In Malaysia, Sulaiman et al. (2002) found very little usage of the BSC in the 61companies that they surveyed. Only 13 per cent (eight companies) of the companiessurveyed actually used a BSC. In India, the percentage was 40 per cent. Surveys inSingapore and Chinese did not examine the BSC.

4. ConclusionOverall, the evidence reviewed suggests that the use of contemporary managementaccounting tools is lacking in the four countries studied. For example, the futureemphasis in India is on traditional management accounting techniques. It wasperceived by the survey respondents that the benefits accruing to traditionalmanagement accounting practices were high (Joshi, 2001). Perhaps, this is becauseIndian managers generally avoid risks, and are quite conservative and tend to be lessinnovative. Thus, it is taking Indians a longer time to adopt new managementaccounting tools. Another factor may be the high costs involved in implementingcontemporary management accounting techniques. Indian companies perceived that itis rather expensive to implement new management accounting tools (Joshi, 2001). Asobserved in Table IV (Panel B), the respondents envisaged traditional tools such as

ROI and variance analysis to be further emphasised in the future, ranking the lattereighth and the former fifth amongst the 44 techniques investigated. Similarly, inSingapore, there is an increasing use of CVP, standard costing and traditionalbudgeting over the period from 1987 to 1996. Tho et al. (1998) provide various reasonsas to why traditional management accounting practices are still widely used indeveloping countries: the lack of awareness of new techniques, the lack of expertiseand, perhaps, more importantly, the lack of top management support. Additionalfactors include the high cost of implementation and the fact that there simply was noreason to change from the traditional technique to the new tool.

One primary limitation of this study is the fact that there is limited overlap. This isdue to different survey instruments being used in each country. Further, the size ofcompanies surveyed, sampling procedures and types of measures may have major

implications on the reported findings. These issues may pose a significant threat to thevalidity of the results (Guilding et al., 1998). Consequently, future research oncross-country comparisons should address the matters just discussed. One way tocircumvent these shortcomings is, perhaps, to conduct each countrys survey using thesame instrument and to ensure that the sampling procedures and the sample chosenare consistent[3] across countries. Second, all the studies reviewed here are largelyexploratory in nature and the results are generally descriptive. Ultimately, there is aneed for such studies to be grounded in theory. It is time that the exploratory phase of


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research in this area was minimised. To this end, detailed case studies on managementaccounting in practice may have to be undertaken. Case studies, according to Scapens(1988), will enable researchers to:

. . .

describe management accounting systems, explore how those systems are used, attemptto identify best practices and explain the determinants of existing practices (p. 28).

Additionally, a rigorous statistical analysis of the results of earlier studies is lacking.Results are limited to percentages and frequency. Finally, future studies shouldattempt to examine specific factors as to why firms in Asia (with the exception of

Japan) are not adopting newly developed management accounting tools such as ABCand target costing. What are the obstacles to implement such techniques? Is culture apredominant factor? As far as this review is concerned, firms across the four countriesare consistently taking on board traditional management accounting practices despitethe fact that their national cultural values differ (to some extent). Thus, are currentmanagement accounting practices being strongly driven by factors at the macro levelwhere considerable global pressures lead to similar practices across countries

(Grandlund and Lukka, 1998)? Consequently, the global similarities perspective ofmanagement accounting practices is certainly an area that is worth examining.

Notes

1. The deliberate and premeditated manipulation of current year sales, cost and profit forecastsby managers to project an overly conservative image into their budgets (Bart, 1988).

2. Lai (1985) provides a full discussion on the impact of the changing social and businessenvironment on management accounting practices in China, at present.

3. A consistent sample may be possible across countries, to some extent, if researchers controlthe size of the companies and the sectors to be studied.

References

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Scapens, R.W. (1988), Research into management accounting practice, Management Accounting,December, pp. 26-8.

Scapens, R.W. (1991), Management Accounting: A Review of Contemporary Developments,Macmillan Education Ltd, London.

Sulaiman, M., Nik Ahmad, N.N., Alwi, N. (2002), Management accounting practices in Malaysia:a survey of the industrial and consumer products sectors, unpublished research report,International Islamic University, Kuala Lumpur, Malaysia.

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Further reading

Wijewardena, H. and Zoysa, D.A. (1999), A comparative analysis of management accountingpractices in Australia and Japan: an empirical investigation, The International Journal ofAccounting, Vol. 34 No. 1, pp. 49-70.

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