Relevance Regained

Flamholtz, E. G. 1992. Relevance regained: Management accounting - Past, present and future. Advances in Management Accounting (1): 21-34.Summary by Zuwena De Freitas

Master of Accountancy Program

University of South Florida, Summer 2002 |

In this article Flamholtz examines the past, present and future of managerial accounting with two main objectives. One objective is to identify certain aspects of the progress made in managerial accounting in the last 20 years, while simultaneously pointing out the direction in which the field must grow if it is to continue to be relevant and useful. The second objective is to examine progress in two areas of managerial accounting that emerged during the last 20 years: behavioral accounting and human resource accounting.

There are two basic notions that underlie this article. The first one is that managerial accounting is and must always be inextricably tied to the actual organizational environment that it is intended to serve. If managerial accounting fails at this, it risks being irrelevant. The second notion is that managerial accounting has lost touch with reality and therefore has in fact lost its relevance. Flamholtz blames primarily the academic accountants for this lost relevance. According to him maintaining legitimacy inside of the universities has been the dominant force driving academic research as oppose to being relevant to the environment that academic research is ultimately intended to serve. The research methods that have been used have not necessarily been relevant to the types of problems faced by real managers and actual organizations.

The Past

The need for cost accounting came about as a result of the industrial production in the nineteenth century and throughout the middle of the twentieth century as corporations made great investments in factories, natural resources and equipment. Throughout this period, managerial accounting was essentially cost accounting. The growth of the service industry and the...