Contemporary Issues in Business and Management. Globalisation

Evaluation of Contemporary Issues in Management Accounting

For many decades, empirical research has documented extensive use of budgeting systems. Hence, budgeting had been considered, in the past, as an integral element of the management control system (Ahmad et al. 2003).

Budgets help to allocate resources and coordinate operations. Different departments will make different decisions, believing that they are working in the best interest of the organisation. Consequently, budgets help to align and reconcile these different needs for the benefit of the entire organisation. Nonetheless, budgets encourage ‘defend own turf’ attitude. Departments are not willing to share their expertise, skills and information with others (Hope and Fraser 2001). Hence, the company should adopt an organic structure with an emphasis on learning and innovation (Marginson and Ogden 2005).     

Budgets are a form of workforce motivation tool (Ahmad et al. 2003). It can influence managerial behaviour so that they would perform in-line with the corporate objective and not make sub-optimal decisions. Alternatively, if the budget does not serve this purpose, then it will impose a threat rather than a challenge (Drury 2000; Hope and Fraser 2001). Maintenance schedules may be postponed in order to meet the annual targeted expenses. This would encourage in an early asset replacement program (Hilton 2005).

Budgets help managers plan ahead. Without any budgets, managers who are often overloaded with work will not be tempted to plan for the future (Drury 2000). However, managers may become more short-term oriented because most budgets are conducted annually. Moreover, a research conducted in Ireland proved that companies which emphasized most on budgets actually had the shortest time horizons (Prendergast 2000). To overcome this obstacle, a top level review associated with rewards and pain should be conducted to remunerate those who have worked in the best interest of the...