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• Published: 27 November 2021

Strategic management accounting and performance implications: a literature review and research agenda

• Jafar Ojra 1 ,
• Abdullah Promise Opute   ORCID: orcid.org/0000-0001-6221-1856 2 , 3 &
• Mohammad Mobarak Alsolmi 4  

Future Business Journal volume  7 , Article number:  64 ( 2021 ) Cite this article

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The important role that management accounting plays in driving organisational performance has been reiterated in the literature. In line with that importance, the call for more effort to enhance knowledge on strategic management accounting has increased over the years. Responding to that call, this study utilised a qualitative approach that involved a systematic review to synthesise existing literature towards understanding the strategic management accounting foundation, contingency factors, and organisational performance impact. Based on the evidence in reviewed literature, we flag key directions for advancing this theoretical premise towards providing further insights that would enable practitioners strategically align their strategic management accounting practices for optimal organisational performance. The limitations of this study have been acknowledged.

Introduction

Successful managerial decisions enable organisational profitability and accounting aids effective managerial decisions [ 75 ]. Aimed at optimising the decision-enabling substance of accounting, management was criticised in 1980s as being too focused on internal operational issues that offer little to management from the point of strategy formulation and sustaining competitive advantage (CIMA Report Footnote 1 ). Recognising the importance for a broader impact of accounting on managerial decision-making, Simmonds [ 82 , p. 26] introduced and defined strategic management accounting (SMA) as “the provision and analysis of management accounting data about a business and its competitors, for use in developing and monitoring business strategy” .

Subsequently there has been increasing efforts that stress the importance for organisations to embrace strategic management accounting theory towards boosting strategic decision-making and organisational performance (e.g. [ 4 , 8 , 9 , 17 , 23 , 53 , 58 , 86 , 90 , 48 ], amongst others). As rightly noted by Turner et al. [ 86 ], organisations that aim to enhance their competitiveness and performance, must not only develop but also “implement internal policies and procedures such as strategic management accounting that are consistent with their business strategies and account for changing competitive demands” (p. 33). Doing that will enable the strategic management accounting tool to be effectively used to drive corporate success. This is the underlying argument in this study.

The task of profitably satisfying customers is becoming more challenging [ 61 , 65 , 67 ]. Meeting that challenge requires that organisations recognise the importance for effective decision-making. Accountants play a significant role in enabling effective decision-making in organisations (e.g. [ 21 , 23 , 27 ]). Accounting information enables the organisation determine the going concern [ 6 , 36 ]. Accounting provides the management with relevant information for ensuring and sustaining growth and profitability. The strategic management accounting foundation emphasises that in order to fully fulfil its management decision-making enabling function, accounting practices must not only focus on the internal but also on the external components relating to the organisation's operations. In other words, accounting should embrace a much broader and market-oriented approach and focus on costing (e.g. [ 8 , 17 , 58 , 78 ]); planning, control and performance measurement (e.g. [ 17 , 58 ]), strategic decision-making (e.g. [ 8 , 58 ]), customer accounting (e.g. [ 58 , 86 ]) and competitor accounting (e.g. [ 17 , 58 , 86 ]).

Given the importance of strategic management accounting to effective management decision-making and corporate success, there remains a growing interest in understanding the topic. Little wonder therefore that the advocacy for more research towards a better understanding of what strategic management accounting practices organisations adopt and what motivates their preference for one technique over the other (e.g. [ 4 , 53 , 58 , 86 , 90 ]) remains current. While embracing strategic management accounting is a critical path for enabling effective managerial decision-making and boosting organisational performance (e.g. [ 3 , 9 , 58 ]), the enablement outcome of strategic management accounting practice would hinge on the effectiveness of the organisation in tailoring its strategic management accounting practices to its strategy and environment [ 9 , 11 , 58 ].

Following that contingency logic, this research is a response to the aforementioned call and the aim in this study is to contribute to strategic management accounting discourse by critically analysing the body of knowledge towards enhancing the understanding of how knowledge has evolved in this theoretical domain and also to contribute to knowledge by flagging directions for further knowledge development. To achieve the aim of this study, the theoretical focus in this study is premised along three questions:

What strategic management accounting techniques can organisations use towards driving organisational performance?

What factors would influence strategic management accounting techniques usage and performance association? and

What future research gaps exist based on the explored literature?

Literature review

This study follows the theoretical foundation that strategic management accounting would aid effective management decision-making, and ultimately boost organisational performance. In line with the aim of this study, relevant literature is reviewed to explain the theoretical premise of this study. The literature review is organised along three core themes in strategic management accounting discourse, namely, strategic management accounting techniques, contingency factors of strategic management accounting usage, and the impact of strategic management accounting on organisational performance.

Strategic management accounting: definition and techniques

Management accounting is noted to involve the “generation, communication, and use of financial and non-financial information for managerial decision-making and control activities” ([ 28 ] p. 3). One major criticism of accounting in the 1980s relates to the fact that accountants have hardly taken a proactive role in the strategic management process [ 7 , 8 ]. According to Nixon and Burns [ 55 , p. 229], although strategic management has been variously defined, there is “broad consensus that the key activities are (1) development of a grand strategy, purpose or sense of direction, (2) formulation of strategic goals and plans to achieve them, (3) implementation of plans, and (4) monitoring, evaluation and corrective action”. The role of management accounting is to enable effective decision-making, and it involves typically information gathering and analysis, identifying options, implementation, monitoring and evaluation [ 16 ]. Thus, the focus in strategic management accounting, rephrased also as accounting for strategic positioning [ 73 , 74 ], is to embrace a broader approach that incorporates a strategic management focus into its dynamics towards effectively enabling management decision-making and organisational performance [ 8 , 80 ]).

Since the first attempt by Simmonds [ 82 , p. 26] who defined strategic management accounting as “the provision and analysis of management accounting data about a business and its competitors, for use in developing and monitoring business strategy” , there have been numerous attempts to enhance that definition and identify core techniques of strategic management accounting. For example, CIMA [ 16 ] describes strategic management accounting as a management accounting form that emphasises focusing on information relating to external factor of the entity and also on non-financial information as well as information that is generated internally. In a much earlier contribution, Bromwich [ 7 , p. 28] offers a description of strategic management accounting as involving “the provision and analysis of financial information on the organisation’s product markets and competitors’ costs and cost structures and the monitoring of the organisation’s strategies and those of its competitors in the market over a number of periods” (Cited in [ 56 , p. 14]).

In their 2008 study, Cadez and Guilding asked the question “what is strategic management accounting?” (p. 838). In that same study, they conclude, based on evidence from reviewed literature, that there are two perspectives of strategic management accounting. While one perspective focuses on strategically oriented accounting techniques, the other focuses on the actual involvement of accountants in the strategic decision-making process. Following the former perspective (e.g. [ 8 , 9 , 17 , 58 ]), existing literature distils sixteen (16) strategic management accounting techniques that are categorised under five SMA themes (e.g. [ 9 , 11 , 58 ]):

Strategic costing;

Strategic planning, control and performance measurement;

Strategic decision-making;

Competitor accounting; and

Customer accounting.

Strategic costing

According to literature (e.g. [ 8 , 11 , 23 ]), strategic and marketing information-based cost data can be leveraged by organisations to ensure effective strategies for achieving sustainable competitive advantage. Thus, organisations must recognise the importance of integrating cost strategies and undertake multiple strategic cost analyses. Literature distils five key costing techniques: attribute costing (e.g. Roslender and Hart 2003), life-cycle costing (e.g. [ 8 , 17 ]), quality costing (e.g. [ 17 ]), target costing (e.g. [ 8 , 17 ]) and value chain costing (e.g. [ 8 ]).

Strategic planning, control and performance measurement

Literature has also underlined the need for organisations to give due attention to planning, control and performance measurement features of the strategic management accounting, as doing that is important in the pro-active market orientation approach for competing effectively in the marketplace (e.g. [ 8 , 58 ], Chenhall 2005). Core components under the strategic planning, control and performance measurement tool includes benchmarking (e.g. [ 8 , 17 ]) and integrated performance management (Balanced Scorecard) (e.g. [ 8 , 17 ]).

Strategic decision-making

As a strategic management accounting tool, strategic decision-making is a critical tool for supporting strategic choice [ 11 ]. Core strategic decision-making options include strategic costing (e.g. [ 58 ]), strategic pricing (e.g. [ 11 , 58 ]) and brand valuation (e.g. [ 11 , 58 ]).

The importance of addressing strategic costing as a key strategic decision-making element has been emphasised in the literature (e.g. [ 58 , 78 , 79 ]). In this discourse, it is underlined that effectively driving competitive advantage requires cost analysis that explicitly considers strategic issues. In line with that viewpoint, Cadez and Guilding [ 8 ] note that strategic costing involves “the use of cost data based on strategic and marketing information to develop and identify superior strategies that will produce a sustainable competitive advantage” (p. 27).

In the literature too, strategic pricing is underlined as another core element the strategic decision-making typology of strategic management accounting (e.g. [ 8 , 58 ], Simmonds 1982). According to scholars, understanding market competition level, which as noted by Guilding et al. [ 29 , p. 120] entails the appraisal of the following factors: “competitor price reaction, price elasticity; projected market growth; and economies of scale and experience”, is important (e.g. [ 8 , 11 , 58 ]).

Within the strategic management accounting literature, brand valuation is the third element of the strategic decision-making technique. The brand valuation component “involves combining projected brand earnings (an accounting-orientated measure) with a multiple derived from the brand’s strength on strategic factors such as the nature of the brand’s market, its position in that market and its level of marketing support” [ 29 , p. 118]. In the view of Cescon et al. [ 11 ], brand valuation enables organisations to understand market reputation trends over time and potential implications for marketing executives and strategic accounting. Cescon et al. [ 11 ] contend that organisations would achieve a variable brand valuation that would provide a potential measure of marketing achievement when perceived quality and branded products are considered, while Guilding et al. [ 29 ] remind that achievable impact of brand valuation would hinge, amongst others, on the valuation method used.

Competitor accounting

According to Porter [ 72 ], strategy involves developing appropriate tools that enable a firm to analyse and determine its position in a competitive market. Thus, a firm selects suitable strategies that enables it compete more effectively over its rivals. To effectively do that, a firm needs to collect competitor accounting information. The importance of giving due attention to competitor accounting has been underlined in the literature (e.g. [ 11 , 17 , 58 ]). Three forms of competitor accounting tools are described in the literature, namely, competitor cost assessment (e.g. [ 11 , 17 , 58 ]), competitor position monitoring (e.g. [ 11 , 58 ]) and competitor performance appraisal (e.g. [ 11 , 17 , 58 ]).

Customer accounting

The fifth cluster of strategic management accounting techniques described in the literature relates to customer accounting (e.g. [ 49 , 58 ]). Customer accounting concerns practices aimed at appraising profit, sales or costs related to customers or customer segments [ 58 ]. Core customer accounting techniques include customer profitability analysis (e.g. [ 30 , 58 ]), lifetime customer profitability analysis (e.g. [ 58 ]) and valuation of customers as assets (e.g. [ 30 , 58 ]).

The contingency factors of strategic management accounting

According to management accounting discourse, when organisations carefully embrace appropriate strategic management accounting practices, they would ensure successful managerial decisions that would ultimately lead to optimising organisational performance (e.g. [ 48 , 53 , 56 , 58 ]). Thus, the extent of improved performance that an organisation would achieve would depend on its careful utilisation of appropriate strategic management techniques. As noted by Roslender and Hart (2003), p. 4 and further supported by subsequent literature (e.g. [ 34 , 58 ]), “the adoption of strategically oriented management accounting techniques and accountants’ participation in strategic management processes”, is a core research premise. In line with the carefulness notion mentioned above, the contingency perspective has been widely utilised in the effort to understand strategic management accounting practices and performance impact (e.g. [ 8 , 12 , 30 , 34 , 58 ]). The underlying foundation in the contingency perspective is based on the notion “that an organisation maximises its efficiency by matching between structure and environment” [ 22 , p. 49]. According to Otley [ 68 ]:

The contingency approach to management is based on the premise that there is no universally appropriate accounting system that applies equally to all organisations in all circumstances. Rather, it is suggested that particular features of an appropriate accounting system will depend on the specific circumstances in which an organisation finds itself. Thus, a contingency theory must identify specific aspects of an accounting system which are associated with certain defined circumstances and demonstrate an appropriate matching (p. 413).

Thus, the central foundation in the contingency perspective is that no one single accounting system is universally fit for all organisation in all circumstances (e.g. [ 41 ]). No one accounting control system can be seen as “best” for all situations; rather, the appropriateness of any control system would depend on the organisation's ability to adapt effectively to the environment surrounding its operations [ 41 , 58 , 86 ].

From reviewed literature, numerous researchers have flagged key contingency factors that should be considered in relation to strategic management accounting practice. Four factors were identified as critical contingency factors in the strategic management accounting systems design in Cadez and Guilding's [ 8 ] study, namely: business strategy, strategy formulation pattern, market orientation and firm size. On their part, Islam and Hu [ 41 ] identify core organisational effectiveness factors to include technology, environmental volatility, organisational structure, information system and size of the organisation.

Analysed together, the conceptualisation in the aforementioned studies [ 8 , 41 ] reflect perspectives that have been recognised in the 1980s. For example, Merchant [ 50 ] describe contingency factors to include firm size, product diversity, extent of decentralisation and budgetary information use. In their study of accounting information systems, Gordon and Narayanan [ 26 ] classify three core contingency factors to include perceived environmental uncertainty, information characteristics and organisational structure. Based on a study that examined the extent to which accountants were involved in the strategic management process, CIMA Footnote 2 reports three key contingency factors: “organisational influences, accountant led influences and practicalities” (p. 12). Exploring strategic management accounting practices in the Palestinian context, Ojra [ 58 ] conceptualised a comprehensive contingency perspective that considered (1) organisational structure (involving formalisation and decentralisation), (2) organisational size, (3) technology and (4) organisational strategy. In more recent literature, Pavlatos [ 70 ] suggests seven factors that affect strategic management accounting usage in the hospitality industry (hotels) in Greece, namely, “perceived environmental uncertainty, structure, quality of information systems, organisational life cycle stage, historical performance, strategy and size” (p. 756).

The contingency framing in this study draws from the theoretical guideline which suggests that both the internal and external environments of organisations should be considered in the effort to advance strategic management accounting literature (e.g. [ 58 , 70 ]). The conceptual framing in this study includes two external (perceived environmental uncertainty—competitive intensity, and market turbulence) and three internal (organisational structure—formalisation, and decentralisation, and organisational strategy) factors.

Perceived environmental uncertainty and strategic management accounting usage

From the perceptual lens, the environment could be viewed as certain or uncertain only to the extent that decision makers perceive it to be (e.g. [ 1 , 11 ]). Perceived environmental uncertainty is described as the absence of information relating to organisations, activities and happenings in the environment [ 20 ]. According to Cescon et al. [ 11 ], organisations must give due attention to their operational environment because engaging with environmental uncertainty factors would enable them identify key change drivers.

Prior literature has documented that perceived uncertainty significantly influences the extent to which firms would embrace strategic management accounting practices (e.g. [ 49 , 58 , 70 ]). According to that foundation, how firms respond from the point of strategic management accounting practices that they would endorse would depend on the nature of environmental uncertainties that surround their operational activities.

Studying the hotel property setting, Pavlatos [ 70 ] documents a positive correlation between the degree of environmental uncertainty and the use of strategic management accounting tools. In other words, the higher the perceived environmental uncertainty, the higher the need for use of strategic management accounting tools. Intensified use of strategic management accounting tools is essential because that will enable the hotels to manage the uncertainties, and be more effective in managerial decision-making, and ultimately improves organisational performance [ 70 ]. The notion of a significant influence of environmental uncertainty on strategic management accounting practices is supported by prior literature (e.g. [ 15 ]). According to them, managers who operate in highly uncertain environments would require information that is timely, current and frequent. Other scholars have also argued that environmental uncertainty would be associated with more pro-active and externally focused accounting systems (e.g. [ 32 , 38 ]).

In their study of Italian manufacturing companies, Cescon et al. [ 11 ] found a positive association of perceived environmental uncertainty and strategic pricing usage as a feature of the strategic decision-making SMA technique. In other words, the more the perceived environmental uncertainty, the higher the usage of the strategic pricing feature of the strategic decision-making SMA component.

In the perceived environmental uncertainty literature, two core dimensions have been distilled, namely competitive intensity and market turbulence (e.g. [ 30 , 58 ]). Market turbulence—a subset of environmental turbulence [ 47 ], is defined by Calantone et al. [ 10 ] as characterised by continuous changes in customers’ preference/demands, in price/cost structures and in the composition of competitors. In settings where there is high market turbulence, organizations would need to modify their products and approaches to the market more frequently [ 44 ]. On the other hand, the notion of competitive intensity relates to the logic that organisations compete for numerous resources, such as raw materials, selling and distribution channels, as well as quality, variety and price of products [ 26 , 46 ]. Achieving organisation-environment alignment in highly competitive environments requires that organisations have the capacity to effectively detect environmental signals and timely communicate environmental information (e.g. [ 88 ]).

Exploring Australian hospitality industry, McManus [ 49 ] examined the association of competition intensity and perceived environmental uncertainty on customer accounting techniques usage. The study suggests that competition intensity positively associates with customer accounting practices but also found that higher perceived environmental uncertainty would not lead to greater usage of customer accounting techniques in the explored hotels. In a much similar conceptualisation, Cescon et al. [ 11 ] examined the association of environmental uncertainty and competitive forces on strategic management accounting techniques usage in large Italian manufacturing firms. Empirically, that study found that external factors (environmental uncertainty and competitive forces) positively associate with SMA usage (strategic pricing, balanced scorecard, risk analysis, target costing, life-cycle costing). Based on the two-dimensional conceptualisation, Ojra [ 58 ] examined the relationship between perceived environmental uncertainty and SMA usage in Palestinian firms. Ojra [ 58 ] hypothesised a positive correlation of perceived environmental uncertainty (conceptualised to include competition intensity and market turbulence) but found no support. To the contrary, Ojra [ 58 ] documents a potential for negative influence of perceived environmental uncertainty on strategic management accounting techniques usage, however only significant for the market turbulence dimension. In other words, Ojra [ 58 ] suggests that market turbulence associates negatively with strategic management accounting techniques usage in medium Palestine firms.

Organisational structure (formalisation) and strategic management accounting usage

Across the various streams of management, formalisation has been mentioned as a key contingency factor in understanding the operational dynamics of organisations (e.g. [ 58 , 63 , 64 ]). With regard to strategic management accounting discourse, this notion has been numerously supported (e.g. [ 26 , 58 , 85 ]).

Studying the influence of formalisation in the functional relationship between the accounting and marketing departments, Opute et al. [ 64 ] suggest a positive association. In other words, they argue that the more formalised the processes in the firm, the higher the achieved integration between both functional areas. However, Opute et al. [ 64 ] note that whether this positive association is achieved would depend on the integration component (information sharing, unified effort and involvement) considered.

In the strategic management accounting domain, there is mixed evidence of the association of organisational structure on strategic management accounting usage. For example, Ojra [ 58 ] hypothesised that less formalised organisational structure would lead to higher use of strategic management accounting techniques in Palestinian firms but found no support for that hypothesis. In that study, no support was found for the notion that less formalised structures would lead to higher use of strategic management accounting techniques, both for total SMA as well as for all the dimensions of SMA. Thus, that study concludes that formalisation has no significant influence on strategic management accounting techniques usage in Palestinian firms. That conclusion supports the findings in Gordon and Narayanan [ 26 ], but contrast the view in Tuan Mat’s [ 85 ] exploration of management accounting practices.

Organisational structure (decentralisation) and strategic management accounting usage

Similar to formalisation, management scholars have noted decentralisation as a core organisational structure factor that should be given due attention in the drive to enhance the understanding of contingency theory (e.g. [ 58 , 62 , 63 ]). Organisational structure has been noted to influence the strategic management accounting practices of a firm (e.g. [ 58 , 70 ]). Within that foundation, decentralisation (or its opposite) has been flagged as a major factor. A contention that has been underlined numerously in the discourse is that strategic management accounting usage would be higher in organisations that embrace decentralised structure. Following that foundation, Pavlatos [ 70 ] hypothesised that SMA usage is higher in decentralised hotels than in centralised hotels in Greece. The results support the hypothesis: there is higher need for strategic management accounting practices in decentralised firms, as lower-level managers require more information to aid decision-making.

The above conclusion supports as well as contrasts prior literature, namely Chenhall [ 14 ] and Verbeeten [ 87 ], respectively. According to Chenhall [ 14 , p. 525], “strategic management accounting has characteristics related to aspects of horizontal organisation as they aim to connect strategy to the value chain and link activities across the organisation…”. Chenhall [ 14 ] adds that a typical approach in horizontal organisation is identifying customer-oriented strategic priorities and then exploiting process efficiency, continuous improvements, flattened structures and team empowerment, to initiate change, a conclusion that suggests that higher use of strategic management accounting practices would seem ideal in such decentralised organisational structure. The reason for that outcome is that in decentralised structure, lower-level managers can adapt their MACS as necessary to meet requirements [ 52 ], a logic that finds support in McManus [ 49 ] who found that customer accounting usage is higher in Australian hotels that are decentralised than those that are centralised. In contrast to that logic, Verbeeten [ 87 ] found decentralisation to associate negatively with major changes in the decision-influencing components of MACS.

Insight about the less developed context, namely about Palestinian firms lend support to, as well as contrast past literature. According to Ojra [ 58 ], decentralisation has a tendency to associate negatively with strategic management accounting usage. Therefore, although statistically insignificant, the results indicate that explored Palestinian firms that endorse decentralised decision-making process would seemingly have lesser need for strategic management accounting practices. On the evidence that decentralisation may have a negative influence on strategic management accounting usage, Ojra [ 58 ] supports Verbeeten [ 87 ] but contrasts Pavlatos [ 70 ].

Organisational strategy and strategic management accounting usage

An internal organisational factor that has been considered important in the understanding of contingency perspective of management accounting relates to organisational strategy (e.g. [ 8 , 17 , 58 ]). Hambrick [ 33 ] defined strategy as:

A pattern of important decisions that guides the organisation in its relationship with its environment; affects the internal structure and processes of the organisation; and centrally affects the organisation’s performance (p.567).

In the strategic management accounting discourse, organisational strategy has been mentioned as one of the key factors that would condition strategic management accounting practices of a firm (e.g. [ 9 , 58 , 70 , 86 ]). For example, Turner et al. [ 86 ] note that in hotel property setting, strategic management accounting use would hinge on the market orientation business strategy of the firm. Given the notion that strategic management accounting would aid management decision-making and lead ultimately to improved organisational performance, there is some legitimacy in expecting that organisations that align their strategic management accounting practices to the strategic orientation of the firm would achieve a higher organisational performance.

Following Miles and Snow’s [ 51 ] strategy typology (prospector, defender, analyser, and reactor), efforts to understand the association of strategy to strategic management accounting tools usage have also tried to understand how the various strategy typologies play out in this association. For example, Cadez and Guilding [ 9 ] considered the prospector, defender and analyser typologies in the Slovenian context, while Ojra [ 58 ] considered the prospector and defender typologies in the Palestinian contexts.

Cadez and Guilding [ 9 ] report that companies that endorse the analyser strategy, which is a deliberate strategy formulation approach, are not highly market oriented, but tend to show high usage of SMA techniques, except for competitor accounting technique. Further, they report that prospector strategy-oriented companies also pursue a deliberate strategy formulation approach, but are highly market oriented, and SMA techniques usage is fairly high (for competitor accounting) and averagely high (for strategic costing). For very high prospector-oriented companies, they are highly market oriented, have a strong strategy drive and a very high SMA techniques usage. For the defender strategy-type companies, they suggest that such companies are not only average in their market orientation, but also in their usage of SMA techniques.

In the study of Palestinian companies, Ojra [ 58 ] offers insights that resonate relatively with the findings in Cadez and Guilding [ 9 ]. Ojra [ 58 ] suggests that prospector companies have a higher usage of SMA techniques than defender-type companies. So, SMA technique usage is positively associated to prospector strategy (see also [ 8 ]. Elaborating the findings, Ojra [ 58 ] reports that prospector-type companies focused more on four SMA techniques (mean values reported), namely SMAU-Planning, Control and Performance Measurement (4.601), SMAU-Strategic Decision Making (4.712), SMAU-Competitor Accounting (4.689) and SMAU-Customer Accounting (4.734), statistical results that are significantly higher than the results for 'defender'-type companies. Cinquini and Tenucci [ 17 ] lend support to Ojra [ 58 ]: 'defender'-type companies give more attention to the Costing dimension of SMA.

Without emphasising the strategy typologies, Pavlakos (2015) comments that organisational strategy affects SMA usage in the Greek hotel industry.

Strategic management accounting and organisational performance

A central tenet in the strategic management accounting foundation is that management accounting would significantly aid organisations to achieve sustained competitiveness [ 7 , 82 ]. Implicitly, these scholars argue that in order to stay competitive in the marketplace, organisations should not only focus on cost-volume-profit issues, but rather embrace a broad externally focused management accounting approach that is strategically driven and provides financial information that enables management to effectively formulate and monitor the organisation's strategy. Thus, management accounting should also focus on competitor information as that will enable management effectively organise the firm's strategic structure.

Over the years, there is growing recognition of the importance of strategic management accounting to organisations, leading therefore to increasing research attention. One area that has received attention in the strategic management accounting discourse relates to the organisational performance enhancement notion (e.g. [ 23 , 56 , 58 , 77 , 86 ]).

Insights from Malaysia also add to the discourse on the impact of strategic management accounting usage on organisational performance. In their study of Malaysian electrical and electronic firms, Noordin et al. [ 56 ] examined the extent of usage of strategic management accounting and influence on the performance of the participating firms. The study found that in explored Malaysian companies, the extent of strategic management accounting usage was significantly related to organisation’s performance. That conclusion supports Cadez and Guilding [ 8 ] who contend that there is a positive association between strategic management accounting usage and organisational performance.

In a performance perspective that considers the ISO 9000 Quality Management System (QMS) aspect, Sedevich-Fons [ 77 ] examined the connection between strategic management accounting and quality management systems performance. The findings show that strategic management accounting and quality management are complementary and their effective implementation would enhance overall performance. Sedevich-Fons [ 77 ] notes further that when both are used in conjunction that would spread SMA techniques and enable full exploitation of Quality Management Systems.

Insights from the less developed economy context also associate organisational performance to the implementation of strategic management accounting practices (e.g. [ 3 , 57 , 58 ]). In a conceptual approach that aimed to address one major gap in previous literature, Ojra [ 58 ] examined both the financial and non-financial dimensions of organisational performance. According to Ojra [ 58 ], strategic management accounting usage does not impact the financial dimension of organisational performance but exerts significant positive impact on non-financial performance. That finding resonates with Perera et al. [ 71 ] conclusion that various forms of management accounting associate positively with the use of non-financial measures.

On their part, Oboh and Ajibolade [ 57 ], in their investigation of the association between strategic management accounting practices and strategic decision-making in Nigerian banks, found that explored Nigerian banks “practice SMA not as a concept, but as a principle of operation, and that SMA contributes significantly to strategic decision-making in the area of competitive advantage and increased market share” (p.119).

Alabdullah [ 3 ] offers evidence that adds support to the insights in the aforementioned studies [ 57 , 58 ]. In a study that explored the Jordanian service sector, Alabdullah [ 3 ] found that strategic management accounting enables performance in the service sector in Jordan. If strategic management accounting is effectively implemented, that will enable optimal strategic decision-making and ultimately improve organisational performance.

Research methodology

Research design.

Qualitative research method [ 18 , 76 ] is used in this study to achieve the objectives of this research. Following the methodological approach, as well as responding to the research call, in a past study on the contingency perspective of strategic management accounting [ 41 ], a study which was literature review-based, literature review-based qualitative research approach was deemed fit in this study.

A systematic review approach (e.g. [ 5 , 39 , 81 ]) is used in this research on the topic of strategic management accounting. Using the systematic review approach in this study is appropriate because it enables a systematic and transparent approach in identifying, selecting, and evaluating relevant published literature on a specific topic or question [ 42 , 83 ]. Furthermore, systematic review approach was deemed appropriate for this study as it has been documented to aid core research gaps identification and steering future research (e.g. [ 40 , 59 , 66 ]).

Alves et al. [ 5 ] forward a two-stage guideline for systematic review of literature: planning the review and conducting the review and analysis. As they noted, researchers should describe how the systematic approach was planned (in the former) and also describe the phases of the review and selection of literature (in the latter). In this research, effort was made to combine the best evidence: careful planning was used to determine literatures for inclusion or exclusion (e.g. [ 5 , 65 , 67 ]). The planning was focused at identifying relevant publications in various academic journals on the topic of strategic management accounting. First, the theoretical themes to be considered in the conceptual premise of this study were confirmed and academic resource for tracking relevant publications determined [ 5 , 66 , 83 ].

In the preliminary stage of the literature review, electronic search was carried out to identify relevant literature relating to strategic management accounting. Three steps were taken in the systematic review: we searched the literature, analysed and synthesised the literature, and wrote the review. Several databases were scanned using key search terms to capture relevant literature [ 81 ]. Core search terms were used, such as strategic management accounting, historical aspects of strategic management accounting, contingencies of strategic management accounting practices, strategic management accounting and organisational strategy, strategic management accounting and organisational performance, amongst others. Relevant publications were also found using data extraction tools such as Google Scholar, Emerald Insight and Research Gate.

Using the aforementioned methodological approach, a collection of relevant articles published in academic journals was identified. Identifying the relevant literature in this study followed methodological guideline [ 69 ]: criteria of language, relevance and type of research to identify relevant studies were embraced, and articles that contained non-English contents and also articles that did not fit closely to the thematic premise of this study were excluded. It is important to emphasise here that this study recognises that not all publications relating to the topic of strategic management accounting may have been considered in this research. However, for the scope of this piece of research, the body of literature covered in this study was deemed adequate for the conceptual framing.

Table 1 shows a sample of selected literature covered in this piece of research, pinpointing clearly the focus, context of the studies and findings from the studies.

The analysis

The interpretive approach of analysis was followed in processing the qualitative data to achieve reliable meaning in this study (e.g. [ 59 , 65 , 67 , 84 ]). Following that precedence, an iterative approach that involved reading reviewed literature back and forth, was used in this study. Using that approach, a synthesis of literature was undertaken to capture the core threads, debates and themes in the literature (e.g. [ 65 , 67 ]). Guided also by that methodological approach, relevant directions for future research have been flagged towards enhancing the knowledge about strategic management accounting and performance association.

Subjectivity is a major concern in qualitative researches (e.g. [ 18 , 76 ]). To address that concern, steps taken in this research to validate the articles incorporated into this research include rigor of conduct and strength of evidence by cross-referencing, as well as undertaking a duplicate check (e.g. [ 76 , 81 ]).

The findings

Prompted by the central threads that emerged from the analysis of the selected literature, the findings from this study are organised along three core themes: strategic management accounting techniques, contingencies of strategic management accounting techniques usage and the organisational performance implications of strategic management accounting usage.

The importance of management accounting, and in particular the strategic management accounting element as a tool for enabling top management to make effective decisions that enable organisation compete effectively in the marketplace, is gaining increasing mention in management discourse. In that discourse, five core categorisations of SMA techniques: strategic costing; strategic planning, control and performance measurement; strategic decision-making; competitor accounting; and customer accounting. While literature distils numerous forms of strategic management accounting techniques that organisations may embrace towards enabling effective management decision-making and organisational performance, evidence was found in reviewed literature that in some organisations, practitioners do not believe that strategic management accounting as a separate concept is a notion they subscribe to (e.g. CIMA Footnote 3 ; [ 48 , 55 ]). For example, CIMA Footnote 4 documents that participants unanimously do not subscribe to the notion, a conclusion which lends support to prior literature [ 48 , 55 ] that notes that strategic management accounting as a term, did not exist in the lexicon of accounting practitioners.

Grounded on the substance that effective use of the SMA techniques would improve organisational performance, immense research effort has focused on how organisations can effectively align the SMA usage towards achieving desired performance improvement. Premised in that theoretical domain, this study examined existing literature on the contingency factors of competitive intensity, market turbulence, formalisation, decentralisation and organisational strategy and SMA usage. Cumulative evidence obtained from the review of literature reinforces the need for organisations to pay particular attention to their operational environment in their use of SMA techniques. Reinforcing the fit principle, the cummulative evidence underlines that optimising the benefits of the strategic management accounting techniques in enabling effective customer orientation and boosting organisational performance is dependent on the organisation's ability to effectively align strategic management accounting practices to its operational environment. In other words, what works for an organisation would depend on the organisational dynamics, internal, as well as external. For example, formalisation may work for some but not for some, as decentralisation could work for some but not for some. Similarly, the utility of SMA techniques would hinge on the competitive intensity and market turbulence features of an organisation. Thus, aligning SMA practices to the internal and external features of an organisation is essential to enable them adapt effectively to their circumstances, make rational decisions and optimise their performance. So, alignment is critical because there is no one-size fits all approach for achieving customer orientation and organisational performance goals.

The third focal point of this study relates to the association of SMA techniques usage to organisational performance. Reviewed literature shows that organisations are achieving higher performance through the use of SMA techniques. In other words, effective use of SMA techniques would improve organisational performance. The plausibility in that performance outcome lies in the fact that organisations are able to utilise appropriate SMA measures to ensure effective, customer, competitor, strategic decision-making, costing, and planning and control orientation in their operational activities. Further on the performance point, literature also suggests that management control systems (MCS)–performance relationship is mediated by business strategy (e.g. [ 2 ]). Also, that study documents that the impacts (both indirect and total) of MCS on performance are stronger for family businesses than non-family businesses.

Conclusions

Conclusions and implications.

One of the major challenges that organisations are facing in today's dynamic marketplace is to steer their organisations in a way that they can stay competitive. In the contemporary world, where globalisation and technological evolution have expanded the options that customers have (e.g. [ 31 , 61 , 65 , 67 ]), organisations must strive hard to win the loyalty of customers. For organisations wishing to achieve that, strategic management accounting practices offer a strategic pathway. Organisations must embrace strategic management accounting practices that would enable them understand the market, their competitors, and the customers and leverage the intelligence from that knowledge to organise their operations towards profitably satisfying the customer. To effectively do that, organisations must avoid the mistake of focusing only on the internal issues; rather, their effort must be tailored towards embracing strategic management accounting practices that would enable them to be fully informed of the market trends, customer dynamics and competitor trends. Thus, organisations must ensure that good costing, planning, control and performance measurement; strategic decision-making, customer accounting and competitor accounting measures are embraced to enable them compete effectively.

Furthermore, in that drive to compete effectively in the market and profitably satisfy customers, organisations would not only need to embrace appropriate strategic management accounting techniques but also do that bearing in mind the environments that surround the operational activities. In other words, organisations must give due attention to the contingencies of their operational setting. Organisations must ensure a good blend of critical factors that would enable their optimal operation. Due attention must be given to organisational structure (centralisation or decentralisation of decision-making process), external environment (dynamism and turbulence), technological development, strategic approach, size of the organisation, amongst others. Doing that is critical for corporate success because there is no one size fits all approach—the outcome achieved would depend significantly on the dynamics surrounding the operational activities of the firm.

Thirty-three months on after Covid 19 was documented, Footnote 5 the pandemic is still ever present and has remained a daunting global challenge. Competing effectively in the dynamic marketplace is a major challenge for organisations, and with the Corona pandemic exerting unprecedent effects on organisations globally, most organisations are facing a more daunting challenge to survive (e.g. [ 65 , 67 ]). Organisations must strive to strategically orientate their management accounting practices to enable them find ways to effectively navigate the daunting challenges they face in this Corona era.

Implications of this study

The implications of this study are organised along managerial and theoretical implications.

Managerial Implications —Managers are reminded that optimal use of strategic management accounting techniques would boost organisational performance. Achieving high levels of organisational performance would however hinge on an organisation's ability to effectively align its SMA techniques usage to its internal and external dynamics. In other words, managers must bear in mind that there is no one-size fits all approach; therefore, they should endorse SMA techniques usage that fits their operational dynamics.

Theoretical Implications —In line with the central objective of this paper to sensitise the need for enhancing the understanding of the contingency perspective of strategic management accounting, the theoretical implications of this study are tailored towards specifying core gaps in the reviewed literature.

Overall, evidence from reviewed literature underlines the criticality of SMA techniques usage to organisational performance. Thus, if organisations strategically align SMA techniques usage to their operational setting, this would positively impact organisational performance. Within the goal of enhancing the literature on how to optimise the performance impact, much gaps still exist from the point off illuminating how differences in marketing and national culture differentiate SMA acceptance, usage, contingencies and performance impact.

Finally, on the point of performance, reviewed literature documents an obvious gap in the literature from the point of illuminating SMA techniques usage impact along the performance dimensions. As noted by Ojra [ 58 ], for some societies (especially ones that are Islamic cultured), non-financial performance is of central importance. Theoretical development from the point of SMA techniques usage, contingencies and non-financial performance impact is scanty.

Limitations of the study

Based on systematic review approach, this study aimed to drive further knowledge development on the contingency perspective of strategic management accounting, drawing on the evidence from reviewed literature to understand the core debates in the literature and pinpoint directions for future research. Two core limitations of this research relate to the conceptual framework and volume of literature reviewed.

The conceptual framing of this study embraced only three themes in the SMA discourse, namely perceived environmental uncertainty, organisational structure and organisational strategy. Elaborated, the contingency premise considered in this study relates to perceived environmental uncertainty (competitive intensity, and market turbulence), organisational structure (formalisation and decentralisation), and organisational strategy. This study recognises that there are other contingencies of strategic management accounting practices that have not been included in the conceptual framing of this study.

To capture the central debates in the SMA discourse, extant literature was reviewed. It is however important to acknowledge that this study may have ignored some literature relevant to the conceptual premise of this study. Finally, although efforts were made by the researchers to ensure validity in this research by adopting an analytical approach that involved thorough reading of literature to ensure valid meaning in the interpretation, it must be reminded that subjectivity is a concern in every qualitative research.

Future research directions

In explaining the theoretical implications of this study, core gaps in the literature were underlined (Section “ Implications of this study ”), while the limitations of this study were acknowledged in Section “ Limitations of the study ”. Building on these, this Section “ Future research directions ” extends the contribution of this study by specifying core directions for further knowledge development on the contingency perspective of strategic management accounting.

No doubt, this study has limitations, amongst which are the conceptual framework and the literature review scope. In their study, Naranjo-Gil et al. [ 54 , p. 688] note that “future research is needed to examine other factors to add a more comprehensive view of management accounting”. Given the conceptual limitation of this study, this study reinforces the research call by Naranjo-Gil et al. [ 54 ]. Future research could expand the work done in this research and knowledge development by incorporating contingency factors that have not been considered in the conceptual framing of this study. More research is required in that regard, both from the point of a systematic literature review approach, as well as from the point of empirical investigations that seek to illuminate the contextual (industrial sectors and geographical settings) differentiators to the contingency impacts on the use of strategic management accounting techniques.

Furthermore, more research effort is required from the point of gaining deeper understanding of the various strategic management accounting techniques. Marketing dynamics (e.g. [ 62 ]) and national culture [ 35 , 60 ] differ from one setting to another, therefore exploring the nature of strategic management accounting techniques that organisations endorse and why are core premises for research.

As flagged in the findings, there is a growing support of the notion that accounting practitioners do not subscribe to the use of the term strategic management accounting (e.g. CIMA Footnote 6 ; [ 48 , 55 ]). Further research could help to shed more light not only on why practitioners may not subscribe to the use of the term strategic management accounting, but also on the understanding of how practitioners would prefer to describe the management accounting practices that they embrace, and also why the specific practices are prioritised.

Furthermore, on the point of the content of strategic management accounting, researchers have also noted that not much effort is given to highlighting clearly the accounting information that organisations should give much attention to towards boosting organisational performance (e.g. [ 53 , 89 ]). Future research should aim to fill this gap. Doing that is critical to fully optimising the performance benefits of strategic management accounting [ 56 ].

Reviewed literature has documented that the extent to which strategic management accounting practices would aid management decision-making and organisational performance would depend on the contingency dynamics of the organisation (e.g. [ 11 , 58 ]). Understanding the contingency premise of strategic management accounting utility in driving effective management decision-making and organisational performance is a critical research premise, and future research should aim to shed more light on that. No one size fits all approach that works for all organisations in all contexts. Therefore, future research should seek to enhance the 'fit' foundation of strategic management accounting relevance and performance outcome. In that regard, future research should seek to illuminate further how perceived environmental uncertainty, decentralisation, formalisation, strategy and other contingency factors not considered in this study, would influence strategic management accounting techniques usage and organisational performance impact. In the particular case of perceived environmental uncertainty, more research is not only required from the point of understanding the influence of the construct, but also clarifying the competitive intensity and market turbulence associations.

An insight that emerged from the reviewed literature relates to the fact that majority of efforts to improve strategic management accounting discourse have considered mainly financial aspects of organisational performance (e.g. [ 58 , 86 ]). Focusing only on financial performance is inadequate as the customer perspective of performance is neglected [ 45 , 58 ]. The importance of focusing on customer performance has been re-echoed in further literature: organisational-level customer satisfaction associates positively to financial performance (e.g. [ 24 , 86 ]), and customer performance enables business strategy and an organisation's ability to deliver value to its shareholders as well as customers [ 25 ]. Supporting prior research (e.g. [ 49 , 58 , 86 ]), this study underlines the need for more studies that illuminate non-financial performance aspects and strategic management accounting association.

Finally, the Corona pandemic, which remains a global crisis, has exerted unprecedent global economic damage. Organisations are facing daunting challenges as a result of the Corona pandemic and are still seeking ways to successfully navigate these challenges. Future research should illuminate what strategic management accounting practices organisations are endorsing in the effort to effectively navigate the Corona-crisis-induced challenges.

Availability of data and materials

This study is based on the review of literature.

Management Accounting in support of the strategic management process. https://www.cimaglobal.com/Documents/Thought_leadership_docs/Management%20and%20financial%20accounting/Academic-Research-Report-Strategic-Management-Process.pdf .

January 9—WHO Announces Mysterious Coronavirus-Related Pneumonia in Wuhan, China.

Abbreviations

• Strategic management accounting

Strategic management accounting usage

Chartered Institute of Management Accountants

Management accounting and control system

Management control systems

Quality management system

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Ojra, J., Opute, A.P. & Alsolmi, M.M. Strategic management accounting and performance implications: a literature review and research agenda. Futur Bus J 7 , 64 (2021). https://doi.org/10.1186/s43093-021-00109-1

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1.2: Distinguish between Financial and Managerial Accounting

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Now that you have a basic understanding of managerial accounting, consider how it is similar to and different from financial accounting. After completing a financial accounting class, many students do not look forward to another semester of debits, credits, and journal entries. Thankfully, managerial accounting is much different from financial accounting. Also known as management accounting or cost accounting , managerial accounting provides information to managers and other users within the company in order to make more informed decisions. The overriding roles of managers (planning, controlling, and evaluating) lead to the distinction between financial and managerial accounting. The main objective of management accounting is to provide useful information to managers to assist them in the planning, controlling, and evaluating roles.

Unlike managerial accounting, financial accounting is governed by rules set out by the Financial Accounting Standards Board (FASB) , an independent board made up of accounting professionals who determine and publicize the standards of financial accounting and reporting in the United States. Larger, publicly traded companies are also governed by the US Securities and Exchange Commission (SEC), in the form of the generally accepted accounting principles (GAAP) , the common set of rules, standards, and procedures that publicly traded companies must follow when they are composing their financial statements.

Financial accounting provides information to enable stockholders, creditors, and other stakeholders to make informed decisions. This information can be used to evaluate and make decisions for an individual company or to compare two or more companies. However, the information provided by financial accounting is primarily historical and therefore is not sufficient and is often synthesized too late to be overly useful to management. Managerial accounting has a more specific focus, and the information is more detailed and timelier. Managerial accounting is not governed by GAAP, so there is unending flexibility in the types of reports and information gathered. Managerial accountants regularly calculate and manage “what-if” scenarios to help managers make decisions and plan for future business needs. Thus, managerial accounting focuses more on the future, while financial accounting focuses on reporting what has already happened. In addition, managerial accounting uses nonfinancial data, whereas financial accounting relies solely on financial data.

For example, Daryn’s Dairy makes many different organic dairy products. Daryn’s managers need to track their costs for certain jobs. One of the company’s top-selling ice creams is their seasonal variety; a new flavor is introduced every three months and sold for only a six-month period. The cost of these specialty ice creams is different from the cost of the standard flavors for reasons such as the unique or expensive ingredients and the specialty packaging. Daryn wants to compare the costs involved in making the specialty ice cream and those involved in making the standard flavors of ice cream. This analysis will require that Daryn track not only the cost of materials that go into the product, but also the labor hours and cost of the labor, plus other costs, known as overhead costs (rent, electricity, insurance, etc.), that are incurred in producing the various ice creams. Once the total costs for both the specialty ice cream and the standard flavored ice cream are known, the cost per unit can be determined for each type. These types of analyses help a company evaluate how to set pricing, evaluate the need for new or substitute ingredients, manage product additions and deletions, and make many other decisions. Figure \(\PageIndex{1}\) shows an example of a materials cost analysis by Daryn’s Dairy used to compare the materials cost for producing \(500\) gallons of their best-selling standard flavor—vanilla—with one of their specialty ice creams—Very Berry Biscotti.

Financial and Managerial Accounting Comparative

Managerial and financial accounting are used by every business, and there are important differences in their reporting functions. Those differences are detailed in Figure \(\PageIndex{2}\).

Users of Reports

The information generated from the reports of financial accountants tends to be used primarily by external users , including the creditors, tax authorities and regulators, investors, customers, competitors, and others outside the company, who rely on the financial statements and annual reports to access information about a company in order to make more informed decisions. Since these external people do not have access to the documents and records used to produce the financial statements, they depend on Generally Applied Accounting Principles (GAAP). These outside users also depend greatly on the preparation of audits that are done by public accounting firms, under the guidelines and standards of either the American Institute of Certified Public Accountants (AICPA), the US Securities and Exchange Commission (SEC), or the Public Company Accounting Oversight Board (PCAOB).

Managerial accounting information is gathered and reported for a more specific purpose for internal users , those inside the company or organization who are responsible for managing the company’s business interests and executing decisions. These internal users may include management at all levels in all departments, owners, and other employees. For example, in the budget development process, a company such as Tesla may want to project the costs of producing a new line of automobiles. The managerial accountants could create a budget to estimate the costs, such as parts and labor, and after the manufacturing process has begun, they can measure the actual costs, thus determining if they are over or under their budgeted amounts. Although outside parties might be interested in this information, companies like Tesla , Microsoft , and Boeing spend significant amounts of time and money to keep their proprietary information secret. Therefore, these internal budget reports are only available to the appropriate users. While you can find a cost of goods sold schedule in the financial statements of publicly traded companies, it is difficult for outside parties to break it down in order to identify the individual costs of products and services.

LINK TO LEARNING

Investopedia is considered to be the largest Internet financial education resource in the world. There are many short, helpful videos that explain various concepts of managerial accounting. Watch this video explaining managerial accounting and how useful it can be to many different types of managers to learn more.

Types of Reports

Financial accounting information is communicated through reporting, such as the financial statements. The financial statements typically include a balance sheet, income statement, cash flow statement, retained earnings statement, and footnotes. Managerial accounting information is communicated through reporting as well. However, the reports are more detailed and more specific and can be customized. One example of a managerial accounting report is a budget analysis (variance report) as shown in Figure \(\PageIndex{3}\). Other reports can include cost of goods manufactured, job order cost sheets, and production reports. Since managerial accounting is not governed by GAAP or other constraints, it is important for the creator of the reports to disclose all assumptions used to make the report. Since the reports are used internally, and not typically released to the general public, the presentation of any assumptions does not have to follow any industry-wide guidelines. Each organization is free to structure its reports in the format that organizes its information in the best way for it.

This type of analysis helps management to evaluate how effective they were at carrying out the plans and meeting the goals of the corporation. You will see many examples of reports and analyses that can be used as tools to help management make decisions.

Think it Through: Projection Error

You are working as the accountant in the special projects and budgets area of Sturm, Ruger & Company, a law firm that currently specializes in bankruptcy law. In order to serve their customers better and more efficiently, the company is trying to decide whether or not to expand its services and offer credit counseling, credit monitoring, credit rebuilding, and identity protection services. The president comes to you and asks for some sales and revenue projections. He would like the projections in three days’ time so that he can present the results to the board at the annual meeting.

You work tirelessly for two straight days compiling projections of sales and revenues to prepare the reports. The report is provided to the president just before the board is to arrive.

When you return to your office, you start clearing away some of the materials that you used in your report, and you discover an error that makes all of your projections significantly overstated. You ask the president’s administrative assistant if the president has presented the report to the board, and you find that he had mentioned it but not given the full report as of yet.

What would you do?

• What are the ethical concerns in this matter?
• What would be the results of telling the president of your error?
• What would be the results of not telling the president of your error?

Frequency of Reports

The financial statements are typically generated quarterly and annually, although some entities also require monthly statements. Much work is involved in creating the financial statements, and any adjustments to accounts must be made before the statements can be produced. A physical count inventory must be done to adjust the inventory and cost of goods sold accounts, depreciation must be calculated and entered, all prepaid asset accounts must be reviewed for adjustments, and so forth. The annual reports are not finalized for several weeks after the year-end, because they are based on historical data; for a company that is traded on one of the major or regional stock exchanges, it must have an audit of the financial statements conducted by an independent certified public accountant. This audit cannot be completed until after the end of the company’s fiscal year, because the auditors need access to all of the information for the company for that year. For companies that are privately held, an audit is not normally required. However, potential lenders might require an independent audit.

Conversely, managers can quickly attain managerial accounting information. No external, independent auditors are needed, and it is not necessary to wait until the year-end. Projections and estimates are adequate. Managers should understand that in order to obtain information quickly, they must accept less precision in the reporting. While there are several reports that are created on a regular basis (e.g., budgets and variance reports), many management reports are produced on an as-needed basis.

Purpose of Reports

The general purpose of financial statement reporting is to provide information about the results of operations, financial position, and cash flows of an organization. This data is useful to a wide range of users in order to make economic decisions. The purpose of the reporting done by management accountants is more specific to internal users. Management accountants make available the information that could assist companies in increasing their performance and profitability. Unlike financial reports, management reporting centers on components of the business. By dividing the business into smaller sections, a company is able to get into the details and analyze the smallest segments of the business.

An understanding of managerial accounting will assist anyone in the business world in determining and understanding product costs, analyzing break-even points, and budgeting for expenses and future growth (which will be covered in other parts of this course). As a manager, chief executive officer, or owner, you need to have information available at hand to answer these types of questions:

• Are my profits higher this quarter over last quarter?
• Do I have enough cash flow to pay my employees?
• Are my jobs priced correctly?
• Are my products priced correctly in order for me to make the profit I need to make?
• Who are my most productive and least productive employees?

In the world of business, information is power; stated simply, the more you know, typically, the better your decisions can be. Managerial accounting delivers data-driven feedback for these decisions that can assist in improving decision-making over the long term. Business managers can leverage this powerful tool in order to make their businesses more successful, because management accounting adds value to common business decision-making. All of this readily available information can lead to great improvements for any business.

Focus of Reports

Because financial accounting typically focuses on the company as a whole, external users of this information choose to invest or loan money to the entire company, not to a department or division within the company. Therefore, the global focus of financial accounting is understandable.

However, the focus of management accounting is typically different. Managerial reporting is more focused on divisions, departments, or any component of a business, down to individuals. The mid-level and lower-level managers are typically responsible for smaller subsets within the company.

Managers need accounting reports that deal specifically with their division and their specific activities. For instance, production managers are responsible for their specific area and the results within their division. Accordingly, these production managers need information about results achieved in their division, as well as individual results of departments within the division. The company can be broken into segments based on what managers need—for example, geographic location, product line, customer demographics (e.g., gender, age, race), or any of a variety of other divisions.

Nature of Reports

Both financial reports and managerial reports use monetary accounting information , or information relating to money or currency. Financial reports use data from the accounting system that is gathered from the reporting of transactions in the form of journal entries and then aggregated into financial statements. This information is monetary in nature. Managerial accounting uses some of the same financial information as financial accounting, but much of that information will be broken down to a more detailed level. For example, in financial reporting, net sales are needed for the income statement. In managerial accounting, the quantity and dollar value of the sales of each product are likely more useful. In addition, managerial accounting uses a significant amount of nonmonetary accounting information , such as quantity of material, number of employees, number of hours worked, and so forth, which does not relate to money or currency.

Verification of Reports

Financial reports rely on structure. They are generated using accepted principles that are enforced through a vast set of rules and guidelines, also known as GAAP. As mentioned previously, companies that are publicly traded are required to have their financial statements audited on an annual basis, and companies that are not publicly traded also may be required to have their financial statements audited by their creditors. The information generated by the management accountants is intended for internal use by the company’s divisions, departments, or both. There are no rules, guidelines, or principles to follow. Managerial accounting is much more flexible, so the design of the managerial accounting system is difficult to standardize, and standardization is unnecessary. It depends on the nature of the industry. Different companies (even different managers within the same company) require different information. The most important issue is whether the reporting is useful for the planning, controlling, and evaluation purposes.

Example \(\PageIndex{1}\): Daryn’s Dairy

Suppose you have been hired by Daryn’s Dairy as a market analyst. Your first assignment is to evaluate the sales of various standard and specialty ice creams within the Midwest region where Daryn’s Dairy operates. You also need to determine the best-selling flavors of ice cream in other regions of the United States as well as the selling patterns of the flavors. For example, do some flavors sell better than others at different times of the year, or are some top sellers sold as limited-edition flavors? Remember that one of the strategic goals of the company is to increase market share, and the first step in meeting this goal is to sell their product in 10 percent more stores within their current market, so your research will help upper-level management carry out the company’s goals. Where would you gather the information? What type of information would you need? Where would you find this information? How would the company determine the impact of this type of change on the business? If implemented, what information would you need to assess the success of the plan?

Answers will vary. Sample answer:

Where would you gather the information? Where would you find this information?

• Current company sales information would be obtained from internal company reports and records that detail the sale of each type of ice cream including volume, cost, price, and profit per flavor.
• Sales of ice cream from other companies may be more difficult to obtain, but the footnotes and supplemental information to the annual reports of those companies being analyzed, as well as industry trade journals, would likely be good sources of information.

What types of information would you need?

• Some of the types of information that would be needed would be the volume of sales of each flavor (number of gallons), how long each flavor has been sold, whether seasonal or limited-edition flavors are produced and sold only once or are on a rotating basis, the size of the market being examined (number of households), whether the other companies sell similar products (organic, all natural, etc.), the median income of consumers or other information to assess the consumers’ willingness to pay for organic products, and so forth.

How would Daryn’s Dairy determine the impact of this type of change on the business?

• Management would evaluate the cost to expand into new stores in their current market compared to the potential revenues from selling their products in those stores in order to assess the ability of the potential expansion to generate a profit for the company.

If implemented, what information would Daryn’s Dairy need to assess the success of the plan?

• Management would measure the profitability of selling any new products, expanding into new stores in their current market, or both to determine if the implementation of the plan was a success. If the plan is a success and the company is generating profits, the company will continue to figure out ways to improve efficiency and profitability. If the plan is not a success, the company will determine the reasons (cost to produce too high, sales price too high, volume too low, etc.) and make a new plan.

Contributors and Attributions

• Template:ContribManagerialAccountingOpenStax

1.2 Distinguish between Financial and Managerial Accounting

Now that you have a basic understanding of managerial accounting , consider how it is similar to and different from financial accounting . After completing a financial accounting class, many students do not look forward to another semester of debits, credits, and journal entries. Thankfully, managerial accounting is much different from financial accounting. Also known as management accounting or cost accounting , managerial accounting provides information to managers and other users within the company in order to make more informed decisions. The overriding roles of managers (planning, controlling, and evaluating) lead to the distinction between financial and managerial accounting. The main objective of management accounting is to provide useful information to managers to assist them in the planning, controlling, and evaluating roles.

Unlike managerial accounting, financial accounting is governed by rules set out by the Financial Accounting Standards Board (FASB) , an independent board made up of accounting professionals who determine and publicize the standards of financial accounting and reporting in the United States. Larger, publicly traded companies are also governed by the US Securities and Exchange Commission (SEC), in the form of the generally accepted accounting principles (GAAP) , the common set of rules, standards, and procedures that publicly traded companies must follow when they are composing their financial statements.

Financial accounting provides information to enable stockholders, creditors, and other stakeholders to make informed decisions. This information can be used to evaluate and make decisions for an individual company or to compare two or more companies. However, the information provided by financial accounting is primarily historical and therefore is not sufficient and is often synthesized too late to be overly useful to management. Managerial accounting has a more specific focus, and the information is more detailed and timelier. Managerial accounting is not governed by GAAP, so there is unending flexibility in the types of reports and information gathered. Managerial accountants regularly calculate and manage “what-if” scenarios to help managers make decisions and plan for future business needs. Thus, managerial accounting focuses more on the future, while financial accounting focuses on reporting what has already happened. In addition, managerial accounting uses nonfinancial data, whereas financial accounting relies solely on financial data.

For example, Daryn’s Dairy makes many different organic dairy products. Daryn’s managers need to track their costs for certain jobs. One of the company’s top-selling ice creams is their seasonal variety; a new flavor is introduced every three months and sold for only a six-month period. The cost of these specialty ice creams is different from the cost of the standard flavors for reasons such as the unique or expensive ingredients and the specialty packaging. Daryn wants to compare the costs involved in making the specialty ice cream and those involved in making the standard flavors of ice cream. This analysis will require that Daryn track not only the cost of materials that go into the product, but also the labor hours and cost of the labor, plus other costs, known as overhead costs (rent, electricity, insurance, etc.), that are incurred in producing the various ice creams. Once the total costs for both the specialty ice cream and the standard flavored ice cream are known, the cost per unit can be determined for each type. These types of analyses help a company evaluate how to set pricing, evaluate the need for new or substitute ingredients, manage product additions and deletions, and make many other decisions. Figure 1.3 shows an example of a materials cost analysis by Daryn’s Dairy used to compare the materials cost for producing 500 gallons of their best-selling standard flavor—vanilla—with one of their specialty ice creams—Very Berry Biscotti.

Financial and Managerial Accounting Comparative

Managerial and financial accounting are used by every business, and there are important differences in their reporting functions. Those differences are detailed in Figure 1.4 .

Users of Reports

The information generated from the reports of financial accountants tends to be used primarily by external users , including the creditors, tax authorities and regulators, investors, customers, competitors, and others outside the company, who rely on the financial statements and annual reports to access information about a company in order to make more informed decisions. Since these external people do not have access to the documents and records used to produce the financial statements, they depend on Generally Applied Accounting Principles (GAAP). These outside users also depend greatly on the preparation of audits that are done by public accounting firms, under the guidelines and standards of either the American Institute of Certified Public Accountants (AICPA), the US Securities and Exchange Commission (SEC), or the Public Company Accounting Oversight Board (PCAOB).

Managerial accounting information is gathered and reported for a more specific purpose for internal users , those inside the company or organization who are responsible for managing the company’s business interests and executing decisions. These internal users may include management at all levels in all departments, owners, and other employees. For example, in the budget development process, a company such as Tesla may want to project the costs of producing a new line of automobiles. The managerial accountants could create a budget to estimate the costs, such as parts and labor, and after the manufacturing process has begun, they can measure the actual costs, thus determining if they are over or under their budgeted amounts. Although outside parties might be interested in this information, companies like Tesla , Microsoft , and Boeing spend significant amounts of time and money to keep their proprietary information secret. Therefore, these internal budget reports are only available to the appropriate users. While you can find a cost of goods sold schedule in the financial statements of publicly traded companies, it is difficult for outside parties to break it down in order to identify the individual costs of products and services.

Link to Learning

Investopedia is considered to be the largest Internet financial education resource in the world. There are many short, helpful videos that explain various concepts of managerial accounting. Watch this video explaining managerial accounting and how useful it can be to many different types of managers to learn more.

Types of Reports

Financial accounting information is communicated through reporting , such as the financial statements. The financial statements typically include a balance sheet, income statement, cash flow statement, retained earnings statement, and footnotes. Managerial accounting information is communicated through reporting as well. However, the reports are more detailed and more specific and can be customized. One example of a managerial accounting report is a budget analysis (variance report) as shown in Figure 1.5 . Other reports can include cost of goods manufactured, job order cost sheets, and production reports. Since managerial accounting is not governed by GAAP or other constraints, it is important for the creator of the reports to disclose all assumptions used to make the report. Since the reports are used internally, and not typically released to the general public, the presentation of any assumptions does not have to follow any industry-wide guidelines. Each organization is free to structure its reports in the format that organizes its information in the best way for it.

This type of analysis helps management to evaluate how effective they were at carrying out the plans and meeting the goals of the corporation. You will see many examples of reports and analyses that can be used as tools to help management make decisions.

Think It Through

Projection error.

You are working as the accountant in the special projects and budgets area of Sturm, Ruger & Company, a law firm that currently specializes in bankruptcy law. In order to serve their customers better and more efficiently, the company is trying to decide whether or not to expand its services and offer credit counseling, credit monitoring, credit rebuilding, and identity protection services. The president comes to you and asks for some sales and revenue projections. He would like the projections in three days’ time so that he can present the results to the board at the annual meeting.

You work tirelessly for two straight days compiling projections of sales and revenues to prepare the reports. The report is provided to the president just before the board is to arrive.

When you return to your office, you start clearing away some of the materials that you used in your report, and you discover an error that makes all of your projections significantly overstated. You ask the president’s administrative assistant if the president has presented the report to the board, and you find that he had mentioned it but not given the full report as of yet.

What would you do?

• What are the ethical concerns in this matter?
• What would be the results of telling the president of your error?
• What would be the results of not telling the president of your error?

Frequency of Reports

The financial statements are typically generated quarterly and annually, although some entities also require monthly statements. Much work is involved in creating the financial statements, and any adjustments to accounts must be made before the statements can be produced. A physical count inventory must be done to adjust the inventory and cost of goods sold accounts, depreciation must be calculated and entered, all prepaid asset accounts must be reviewed for adjustments, and so forth. The annual reports are not finalized for several weeks after the year-end, because they are based on historical data; for a company that is traded on one of the major or regional stock exchanges, it must have an audit of the financial statements conducted by an independent certified public accountant. This audit cannot be completed until after the end of the company’s fiscal year, because the auditors need access to all of the information for the company for that year. For companies that are privately held, an audit is not normally required. However, potential lenders might require an independent audit.

Conversely, managers can quickly attain managerial accounting information. No external, independent auditors are needed, and it is not necessary to wait until the year-end. Projections and estimates are adequate. Managers should understand that in order to obtain information quickly, they must accept less precision in the reporting. While there are several reports that are created on a regular basis (e.g., budgets and variance reports), many management reports are produced on an as-needed basis.

Purpose of Reports

The general purpose of financial statement reporting is to provide information about the results of operations, financial position, and cash flows of an organization. This data is useful to a wide range of users in order to make economic decisions. The purpose of the reporting done by management accountants is more specific to internal users. Management accountants make available the information that could assist companies in increasing their performance and profitability. Unlike financial reports, management reporting centers on components of the business. By dividing the business into smaller sections, a company is able to get into the details and analyze the smallest segments of the business.

An understanding of managerial accounting will assist anyone in the business world in determining and understanding product costs, analyzing break-even points, and budgeting for expenses and future growth (which will be covered in other parts of this course). As a manager, chief executive officer, or owner, you need to have information available at hand to answer these types of questions:

• Are my profits higher this quarter over last quarter?
• Do I have enough cash flow to pay my employees?
• Are my jobs priced correctly?
• Are my products priced correctly in order for me to make the profit I need to make?
• Who are my most productive and least productive employees?

In the world of business, information is power; stated simply, the more you know, typically, the better your decisions can be. Managerial accounting delivers data-driven feedback for these decisions that can assist in improving decision-making over the long term. Business managers can leverage this powerful tool in order to make their businesses more successful, because management accounting adds value to common business decision-making. All of this readily available information can lead to great improvements for any business.

Focus of Reports

Because financial accounting typically focuses on the company as a whole, external users of this information choose to invest or loan money to the entire company, not to a department or division within the company. Therefore, the global focus of financial accounting is understandable.

However, the focus of management accounting is typically different. Managerial reporting is more focused on divisions, departments, or any component of a business, down to individuals. The mid-level and lower-level managers are typically responsible for smaller subsets within the company.

Managers need accounting reports that deal specifically with their division and their specific activities. For instance, production managers are responsible for their specific area and the results within their division. Accordingly, these production managers need information about results achieved in their division, as well as individual results of departments within the division. The company can be broken into segments based on what managers need—for example, geographic location, product line, customer demographics (e.g., gender, age, race), or any of a variety of other divisions.

Nature of Reports

Both financial reports and managerial reports use monetary accounting information , or information relating to money or currency. Financial reports use data from the accounting system that is gathered from the reporting of transactions in the form of journal entries and then aggregated into financial statements. This information is monetary in nature. Managerial accounting uses some of the same financial information as financial accounting, but much of that information will be broken down to a more detailed level. For example, in financial reporting, net sales are needed for the income statement. In managerial accounting, the quantity and dollar value of the sales of each product are likely more useful. In addition, managerial accounting uses a significant amount of nonmonetary accounting information , such as quantity of material, number of employees, number of hours worked, and so forth, which does not relate to money or currency.

Verification of Reports

Financial reports rely on structure. They are generated using accepted principles that are enforced through a vast set of rules and guidelines, also known as GAAP. As mentioned previously, companies that are publicly traded are required to have their financial statements audited on an annual basis, and companies that are not publicly traded also may be required to have their financial statements audited by their creditors. The information generated by the management accountants is intended for internal use by the company’s divisions, departments, or both. There are no rules, guidelines, or principles to follow. Managerial accounting is much more flexible, so the design of the managerial accounting system is difficult to standardize, and standardization is unnecessary. It depends on the nature of the industry. Different companies (even different managers within the same company) require different information. The most important issue is whether the reporting is useful for the planning, controlling, and evaluation purposes.

Daryn’s Dairy

Suppose you have been hired by Daryn’s Dairy as a market analyst. Your first assignment is to evaluate the sales of various standard and specialty ice creams within the Midwest region where Daryn’s Dairy operates. You also need to determine the best-selling flavors of ice cream in other regions of the United States as well as the selling patterns of the flavors. For example, do some flavors sell better than others at different times of the year, or are some top sellers sold as limited-edition flavors? Remember that one of the strategic goals of the company is to increase market share, and the first step in meeting this goal is to sell their product in 10 percent more stores within their current market, so your research will help upper-level management carry out the company’s goals. Where would you gather the information? What type of information would you need? Where would you find this information? How would the company determine the impact of this type of change on the business? If implemented, what information would you need to assess the success of the plan?

Answers will vary. Sample answer:

Where would you gather the information? Where would you find this information?

• Current company sales information would be obtained from internal company reports and records that detail the sale of each type of ice cream including volume, cost, price, and profit per flavor.
• Sales of ice cream from other companies may be more difficult to obtain, but the footnotes and supplemental information to the annual reports of those companies being analyzed, as well as industry trade journals, would likely be good sources of information.

What types of information would you need?

• Some of the types of information that would be needed would be the volume of sales of each flavor (number of gallons), how long each flavor has been sold, whether seasonal or limited-edition flavors are produced and sold only once or are on a rotating basis, the size of the market being examined (number of households), whether the other companies sell similar products (organic, all natural, etc.), the median income of consumers or other information to assess the consumers’ willingness to pay for organic products, and so forth.

How would Daryn’s Dairy determine the impact of this type of change on the business?

• Management would evaluate the cost to expand into new stores in their current market compared to the potential revenues from selling their products in those stores in order to assess the ability of the potential expansion to generate a profit for the company.

If implemented, what information would Daryn’s Dairy need to assess the success of the plan?

• Management would measure the profitability of selling any new products, expanding into new stores in their current market, or both to determine if the implementation of the plan was a success. If the plan is a success and the company is generating profits, the company will continue to figure out ways to improve efficiency and profitability. If the plan is not a success, the company will determine the reasons (cost to produce too high, sales price too high, volume too low, etc.) and make a new plan.

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• Authors: Mitchell Franklin, Patty Graybeal, Dixon Cooper
• Publisher/website: OpenStax
• Book title: Principles of Accounting, Volume 2: Managerial Accounting
• Publication date: Feb 14, 2019
• Location: Houston, Texas
• Book URL: https://openstax.org/books/principles-managerial-accounting/pages/1-why-it-matters
• Section URL: https://openstax.org/books/principles-managerial-accounting/pages/1-2-distinguish-between-financial-and-managerial-accounting

© Dec 13, 2023 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License . The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.

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Past and Present Use

Regulation and uniformity, reporting details, the bottom line.

• Corporate Finance
• Financial statements: Balance, income, cash flow, and equity

How Financial Accounting Differs From Managerial Accounting

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

Financial accounting and managerial accounting are two of the four largest branches of the profession, in addition to tax accounting and auditing. Despite many similarities in approach and usage, there are significant differences, most of them centering around compliance, accounting standards, and target audiences.

Key Takeaways

• Managerial accounting involves identifying, measuring, analyzing, interpreting, and communicating financial information to managers to help them set an organization's goals.
• Financial accounting involves recording and summarizing the stream of transactions and economic activity resulting from business operations and reporting it to investors and regulators.

Main Objectives of Both Accounting Practices

The main objective of managerial accounting is to produce useful information for a company's internal decision-making. Business managers collect information that feeds into strategic planning, helps management set realistic goals, and encourages an efficient directing of company resources.

Financial accounting has some internal uses as well, but its focus is on informing those outside of a company. The final accounts or financial statements produced through financial accounting are designed to disclose the firm's business performance and financial health.

Managerial accounting is created for a company's executives. Financial accounting is created for its investors, creditors, and industry regulators.

The information created through financial accounting is entirely historical. A financial statement contains data for a defined period of time.

Managerial accounting looks at past performance but also creates business forecasts . Business decisions are informed by this type of accounting.

Investors and creditors often use financial statements to create forecasts of their own. In this sense, financial accounting is not entirely backward-looking.

Nevertheless, no future forecasting is allowed in the statements issued by a financial accountant.

The biggest practical difference between financial accounting and managerial accounting relates to their legal status. Reports generated through managerial accounting are only circulated internally. Each company is free to create its own system and rules on managerial reports.

In contrast, financial accounting reports are highly regulated, especially the income statement , balance sheet , and cash flow statement . Since this information is released for public consumption and is highly anticipated by investors, companies are very careful about how they make calculations, how figures are reported, and in what format those reports appear.

The Financial Accounting Standards Board (FASB), under the aegis of the Securities and Exchange Commission (SEC), establishes financial accounting rules in the United States. The sum of these rules is referred to as generally accepted accounting principles (GAAP).

This uniformity allows investors, lenders, and analysts to compare companies directly on the basis of their financial statements.

Moreover, financial statements are released on a regular schedule, establishing consistency of external information flows.

Financial accounting reports tend to be aggregated, concise, and generalized. Information is simultaneously more transparent and less revealing.

This is not the case with managerial accounting as there can be reasons to highlight information that is particularly relevant or even downplay information that is not. For example, you might want to bury lower bonuses in an overall number for expenses to avoid angering mid-to-lower level employees who peruse the report.

Managerial accounting reports are highly detailed, technical, specific, and even exploratory in nature. Companies are always looking for a competitive advantage, so they may examine a multitude of details that could seem pedantic or confusing to outside parties.

What Are the 4 Types of Accountant?

There are four main specializations that an accountant can pursue:

• A tax accountant works for companies or individuals to prepare their tax returns. This is a year-round job when it involves large companies or high-net-worth individuals.
• An auditor examines books prepared by other accountants to ensure that they are correct and comply with tax laws.
• A financial accountant prepares detailed reports on a public company's income and outflow for the past quarter and year that are sent to shareholders and regulators.
• A managerial accountant prepares financial reports that help executives make decisions about the future direction of the company.

What Do Accountants Do All Day?

Whether they are managerial accountants or financial accountants, they spend much of their time keeping the books. They are responsible for accurately recording every transaction that a company makes, whether it's paying a contractor or buying a new machine.

Their deep understanding of the company's transactions allows them to specialize in financial reporting or managerial reporting.

What Are the Highest-Paid Jobs in Accounting?

As in any profession, there are steps up the ladder in accounting, some of them dependent on post-graduate education as well as professional experience. The top three:

• A company controller is the head accountant and is deeply involved in the company's management decisions.
• A certified management accountant (CMA) has special training in strategic thinking and business analysis.
• A certified public accountant (CPA) is a state-licensed professional who has completed post-graduate work and has some accounting experience. (Outside the U.S. this is a chartered accountant.)

The key differences between managerial accounting and financial accounting relate to the intended users of the information.

Managerial accounting information is aimed at helping managers make well-informed business decisions on the direction of the company. Financial accounting reports a company's performance for a specific period of time and does it in the most straightforward way possible.

Financial accountants must conform to certain standards to maintain the company's publicly traded status. Even privately-held companies in the U.S. must conform to GAAP standards in order to meet the disclosure requirements of financial institutions that they borrow money from.

Because managerial accounting is not for external users, it can be modified to meet the timely specific needs of its intended users. This may vary considerably by company or even by department within a company.

Financial Accounting Standards Board. " About the FASB ."

Brighton College. " Top 10 Highest Paying Accounting Careers ."

• Accounting Explained With Brief History and Modern Job Requirements 1 of 51
• What Is the Accounting Equation, and How Do You Calculate It? 2 of 51
• What Is an Asset? Definition, Types, and Examples 3 of 51
• Liability: Definition, Types, Example, and Assets vs. Liabilities 4 of 51
• Equity Meaning: How It Works and How to Calculate It 5 of 51
• Revenue Definition, Formula, Calculation, and Examples 6 of 51
• Expense: Definition, Types, and How Expenses Are Recorded 7 of 51
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• Accounting Principles Explained: How They Work, GAAP, IFRS 10 of 51
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• Accounting Convention: Definition, Methods, and Applications 12 of 51
• What Are Accounting Policies and How Are They Used? With Examples 13 of 51
• How Are Principles-Based and Rules-Based Accounting Different? 14 of 51
• What Are Accounting Methods? Definition, Types, and Example 15 of 51
• What Is Accrual Accounting, and How Does It Work? 16 of 51
• Cash Accounting Definition, Example & Limitations 17 of 51
• Accrual Accounting vs. Cash Basis Accounting: What's the Difference? 18 of 51
• Financial Accounting Standards Board (FASB): Definition and How It Works 19 of 51
• Generally Accepted Accounting Principles (GAAP): Definition, Standards and Rules 20 of 51
• What Are International Financial Reporting Standards (IFRS)? 21 of 51
• IFRS vs. GAAP: What's the Difference? 22 of 51
• How Does US Accounting Differ From International Accounting? 23 of 51
• Cash Flow Statement: What It Is and Examples 24 of 51
• Breaking Down The Balance Sheet 25 of 51
• Income Statement: How to Read and Use It 26 of 51
• What Does an Accountant Do? 27 of 51
• Financial Accounting Meaning, Principles, and Why It Matters 28 of 51
• How Does Financial Accounting Help Decision-Making? 29 of 51
• Corporate Finance Definition and Activities 30 of 51
• How Financial Accounting Differs From Managerial Accounting 31 of 51
• Cost Accounting: Definition and Types With Examples 32 of 51
• Certified Public Accountant: What the CPA Credential Means 33 of 51
• What Is a Chartered Accountant (CA) and What Do They Do? 34 of 51
• Accountant vs. Financial Planner: What's the Difference? 35 of 51
• Auditor: What It Is, 4 Types, and Qualifications 36 of 51
• Audit: What It Means in Finance and Accounting, and 3 Main Types 37 of 51
• Tax Accounting: Definition, Types, vs. Financial Accounting 38 of 51
• Forensic Accounting: What It Is, How It's Used 39 of 51
• Chart of Accounts (COA) Definition, How It Works, and Example 40 of 51
• What Is a Journal in Accounting, Investing, and Trading? 41 of 51
• Double Entry: What It Means in Accounting and How It's Used 42 of 51
• Debit: Definition and Relationship to Credit 43 of 51
• Credit: What It Is and How It Works 44 of 51
• Closing Entry 45 of 51
• What Is an Invoice? It's Parts and Why They Are Important 46 of 51
• 6 Components of an Accounting Information System (AIS) 47 of 51
• Inventory Accounting: Definition, How It Works, Advantages 48 of 51
• Last In, First Out (LIFO): The Inventory Cost Method Explained 49 of 51
• The FIFO Method: First In, First Out 50 of 51
• Average Cost Method: Definition and Formula with Example 51 of 51

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Research on the Transformation from Financial Accounting to Management Accounting Based on Drools Rule Engine

1 School of Accounting, Wuhan College, Wuhan 430212, Hubei, China

2 The Centre of Finance Research, Wuhan University, Wuhan 430212, Hubei, China

Associated Data

All data generated or analysed during this study are included in this published article.

With the development of Internet economy and the advent of artificial intelligence era, the transformation from financial accounting to management accounting has become an inevitable trend of financial management among companies. In this paper, the significance of the transformation from financial accounting to management accounting is expounded under the background of artificial intelligence, and the current situation, problems and reasons of the transition are analyzed. In addition, the development of self-management accounting system based on Drools rule engine is put forward, including rule management, rule engine and so on. The core processes such as pattern matching and auto-billing are analyzed, and then the core subsystems such as data receiving and processing, accounting rule engine are designed in detail. Finally, the technological advancement and structural stability of this system are discussed, which can provide reference for promoting the transformation from financial accounting to management accounting under artificial intelligence.

1. Introduction

The deep combination of artificial intelligence and financial management has promoted the development of financial management among enterprises towards automation and intelligence. Under this trend, traditional financial methods have been difficult to apply to modern financial management. Financial management must undergo subversive changes to fully adapt to the development of artificial intelligence [ 1 ]. Under the background of artificial intelligence, financial management needs to actively use information technology, integrate financial data, and provide guarantee for various business management decisions of enterprises, so as to avoid the lag of traditional financial management. Considering the current situation, with the help of a new generation of scientific and technological revolution and industrial transformation, artificial intelligence has achieved good application in many professional fields. Combined with relevant survey [ 2 ], in the next 10 years, the accounting industry will probably be the professional field most affected by the application of artificial intelligence. From the perspective of accounting management, the concept of traditional financial accounting management has been weakened by the management accounting, and the repetitive labors in financial work can be reduced by combining the artificial intelligence, which ensures the improvement of financial quality [ 3 – 5 ]. It is not difficult to see that with the support of artificial intelligence technology, the transformation and development from financial accounting to management accounting will be further promoted.

With the rapid development of information technology and the global popularity of artificial intelligence, the management accounting system has gone through a process from manual accounting to computerized accounting to informatization. After entering the twenty-first century, under the impact of the rapid development of artificial intelligence and e-commerce, the emergence and development of accounting information system has been regarded as the inevitable trend [ 6 ]. Network accounting information system is based on Internet technology, which reflects the accounting and supervision of financial resources within the whole enterprise, which realizes comprehensive, timely and dynamic accounting supervision, prediction and management of the whole enterprise [ 7 ]. By providing enterprises with accounting methods and financial management modes under the network environment, accounting management is gradually becoming standardized, and the supervision and accounting functions of accounting are fully exerted. Therefore, Promoting the informatization, networking and automation of management accounting system in the era of artificial intelligence is helpful to the transformation from traditional financial accounting to management accounting, which has become the new direction of development in accounting system.

2. Analysis of Financial Accounting and Management Accounting under Artificial Intelligence

2.1. definition of financial accounting and management accounting, 2.1.1. financial accounting.

The so-called financial accounting refers to the general term of economic management activities for investors and creditors who have economic interested relationship with the development of enterprises outside the enterprise and information about financial status and profitability provided by relevant government departments [ 8 , 9 ]. In the development of modern enterprise, financial accounting is one of the most important management items. Generally speaking, through a series of financial accounting procedures, financial management can provide useful decision-making information for managers, and can promote enterprises to run efficiently in the process of serving the market economy.

2.1.2. Management Accounting

The so-called management accounting refers to a branch of accounting [ 10 , 11 ] which is separated from traditional accounting, integrates accounting and financial management, and focuses on providing economic forecast, investment decision-making, management improvement and economic benefit service for enterprise managers. Theoretically, the concept of management accounting enriches the related research on accounting and management in academic circles. From the practical function point of view, where management accounting mainly has the following functions: first, it can put forward objective and practical suggestions on the development of enterprises based on data from the financial point of view, so that the development of enterprises can be more scientific and reasonable; Second, it is able to grasp the capital status of an enterprise in the process of development in time, which makes the context of the enterprise's capital clear; Third, to a certain extent, it can reduce the cost in the process of business operation and expand the profits of enterprises. At the same time, it can also make full preparations for further investment to a certain extent, and ensure the steady progress of enterprises.

2.2. Differences between Financial Accounting and Management Accounting

In recent years, with the rapid development of artificial intelligence technology, management accounting system has been successfully integrated into various professional fields for practical application, and achieved remarkable results. For financial management, with the support of decision-making of artificial intelligence technology, the differences between financial accounting and management accounting are becoming more and more obvious [ 12 ].

On the one hand, under the background of “artificial intelligence,” the financial accounting work of enterprises is more focused on serving the management of enterprises. Generally speaking, in the process of business management, enterprises will involve a large number of capital transactions and financial data. If only the previous financial accounting methods are used for management, in terms of financial integration, it is easy to make mistakes. By using informatization management, enterprise financial data information can be integrated and given feedback to managers in the form of financial statements, which can effectively reduce errors of management [ 13 ]. At the same time, in the management of economic activities, the financial department of an enterprise can complete the decision-making analysis of financial data by means of management accounting, in which managers can make forward-looking deployment for the direction in a certain period according to the information data fed back by the financial report [ 14 ].

On the other hand, the methods of financial management become more flexible and diverse. Compared with the traditional financial management model, the financial accounting of modern enterprises pays more attention to reflecting the diversified characteristics, requiring financial managers to flexibly adjust the selected management methods according to the actual operation of enterprises. The essential purpose of financial accounting and management accounting is to realize high-quality process of financial management, but there are still some differences in responsibility [ 15 ]. For example, financial accounting reports are more strict in preparation than management accounting, and legal responsibility is also relatively strict. In other words, Accounting is more obvious in terms of financial constraint, while management accounting can actively combine artificial intelligence and other technical contents to realize systematic treatment of financial management, and timely adjust financial management according to the financial operation, with more obvious decision-making characteristics.

2.3. Problems in the Current Management Accounting System

In order to promote the transformation from financial accounting to management accounting, first, the current management accounting system must be optimized. At present, the management accounting system used by most companies is a software system under computerized accounting. The whole process of the traditional management accounting system is: transaction, voucher, accounting, reconciliation, trial calculation, financial statements, most of which need manual participation, thus exposing some urgent problems [ 16 – 19 ].

2.3.1. Inefficient Manual Accounting

The basic function of accounting is calculation and supervision, so in the daily business of the company, every transaction involving capital changes needs accounting. From the traditional cycle process, it can be seen that from the transaction to the voucher accounting, reconciliation, trial calculation, and the issuance of financial statements, manual intervention is needed because it is mainly designed for traditional invoicing enterprises, while the turnover rate of inventory funds in traditional enterprises is slow, so it has no need for real-time auto-billing. However, with the in-depth development of artificial intelligence, the Internet-based financial enterprise does not have the concept of inventory, but provides online payment or financial services, with rapid transactions. Therefore, their capital turnover rate is fast, and manual accounting is obviously inefficient and cannot meet the actual business needs of the company's financial management.

2.3.2. Low Accuracy Rate of Data

The current management accounting system cannot reflect the detailed changes of the whole business or individual business of the company. The data recorded by accountants are generally the data after statistics of various business systems, due to the changes of transaction data in real time. Moreover, the financial personnel can only record the total statistics of each business system in advance, so the changes of individual transactions cannot be reflected in the current financial system, and all the business systems are connected to the management accounting system.

2.3.3. Nonnetworking Based on Single Machine

At present, the company's management accounting system is based on the client stand-alone mode, and the financial personnel need to install the client first. Without the client's personal PC or mobile devices such as mobile phones and IPAD, the financial personnel cannot count the financial statements, and managers cannot analyze and make decisions according to the financial statements. In addition, the management accounting system under computerized accounting is not based on the Internet. Under the circumstance that enterprises are constantly building various information systems, it will be out of touch with the major information systems of enterprises. For example, the data format of each business information system will be inconsistent with the format required by the management accounting system. Therefore, the computerized accounting software based on single machine can easily lead to the formation of information islands.

3. Design and Implementation of Management Accounting System Based on Drools

Management accounting system is undoubtedly very important during the normal operation of management activity. It can help managers to know the profit and loss situation of enterprises in time, so as to formulate reasonable strategies. From the above analysis, it can be seen that in order to promote the transformation from traditional financial accounting to management accounting, first of all, it is necessary to solve the problems that the current accounting management system needs to manually record the accounting vouchers of each transaction, as well as it cannot provide business rules to automatically match transaction orders with large amounts of data, and cannot automatically make trial balance [ 20 ]. Therefore, a management accounting system based on Drools rule engine is designed in this paper, s as to better realize the faster and better transformation of financial accounting.

3.1. Introduction of Drools Rule Engine Technology

3.1.1. basic concepts of rule engine.

Drools is a popular rule engine component at present, while its basic components include business rules and rule engines are. Here, the definition, composition and workflow of rule engines are briefly introduced.

Definition of business rules: in essence, business rules can also be understood as a set of conditions and operations, which include conditions and actions. When a business fact meet certain conditions, certain actions will be executed, which is similar to the meaning expressed by conditional statements if…then… in program [ 21 ]. The rules files of this system are managed by Drools Guvnor.

Definition of rule engine: rule engine is the environment where rules are to be executed. Its main functions contain describing rules, compiling rules, rule execution and resolution of rules conflict, which is an independent component that can be embedded into programs [ 22 ]. At present, the rule engines of comparative processes are: Drools of Jboss Company of the United States, VisualRules of Qizheng Company of China and ILOG of IBM abroad.

Composition and workflow of rule engine: “How to make computers think like humans?” This is a problem in the field of Artificial Intelligence, which includes [ 23 , 24 ]: Neural Networks, Genetic Algorithms, Decision Trees, Frame Systems and Expert Systems. Rule engine is one of Expert Systems, which is also known as knowledge-based system. It is a system based on rule base, transferring facts and drawing conclusions. The structure of the rule engine is shown in Figure 1 :

Structure of rule engine.

It can be seen from the figure that the rule engine consists of three parts [ 25 ]: Production Memo, Working Memory, and inference Engine, while the inference engine consists of Pattern Macher, Agenda, and is also known as Conflict Resolution. When one or more facts are met by multiple rules, conflicts will occur. At this time, the Agenda is responsible for coordinating the execution sequence of Activations. Each activation consists of a rule and a fact or multiple facts. The Execution Engine is responsible for executing the rules selected by the Agenda. The actions triggered by the rules may produce new facts, which will be readded to the Working Memoir fact base.

3.1.2. Matching Algorithm of Rete Pattern

Drools is an open source rule engine that coded in Java, and adopts Rete algorithm to calculate rules [ 26 ]. The implementation of DroolsRete is called ReteOO which means that Drools has enhanced and optimized the implementation of Rete algorithm of object-oriented system. Drools allows users to express rules of business logic declaratively. Rules in non-xml native language can be coded which is easy to learn and understand [ 27 ] and Java can be embed directly into the rules file. In addition, Drools has other advantages:

• Supported by an active community
• Convenient to use
• Fast execution
• More and more popular among Java developers
• Comply with Java rule engine API(JSR94)

Drools uses a rule-based method to implement an expert system. It is more accurately classified as a production rule system [ 28 ]. The production rule system is Turing complete, focuses on knowledge representation, and expresses propositions and first-order logic in a concise and nonfuzzy way. The brain of the production rule system is an inference engine Figure 2 . It can be extended to numerous rules and fact reasoning engines to match facts and data according to production rules (also known as production rules or fair rules) to infer the conclusions that lead to actions.

Structure of Rete rule matching algorithm.

3.2. Design of Systematic Architecture

By analyzing and explaining the Drools rule engine based management accounting system, the network architecture, system software architecture and other aspects are analyzes and compared with similar systematic architectures which illustrates the technical advantages of implement based on Drools rule engine.

3.2.1. Systematic Network Architecture

The management accounting system is a comprehensive application system with a large scale of data. The design of platform system should fully consider the needs of the actual accounting business, and on this basis, determine the overall goal of the system, so that the system has the characteristics of advanced practicality, high performance, security, scalability and excellent compatibility [ 29 ]. The network architecture of the management accounting system is shown in Figure 3 .

Systematic network architecture.

B/S (Bowser/Server) architecture is adopted where the client does not need to be installed, and users only need to pass the comparison on personal computers, laptops and IPAD, then Internet browsers such as Rome and Safari can realize the interaction with the management accounting system [ 30 ]. First, users initiate online transactions to the company's business system through HTTP/TCP requests. Besides recording data in the databases of their respective systems, at the same time, the ActiveMQ message is sent to ApacheActiveMQ server through TCP/IP protocol, the data receiving and processing subsystem reads the message of ActiveMQ server through TCP/IP protocol, and then calls the interface of rule engine subsystem through Netty communication framework of TCP/UDP protocol. Afterwards, the data receiving and processing subsystem converts the transaction message into accounting voucher and then the accounting voucher is sent to the rule engine subsystem for processing. After receiving the accounting voucher object, the rule engine subsystem converts the accounting voucher into the corresponding accounting record according to the predefined accounting rules.

The other way is completed by the batch processing task of the data receiving and processing subsystem, because each business system needs to access the management accounting system step by step for a period of time, and at the same time, it is necessary to keep an account of the historical transaction data of each business system, so the accounting batch processing is needed to process the batch processing task through ORACLE's DB1ink technology, so as to let the database of the management accounting system be directly connected to the database reserve of each business system.

3.2.2. Systematic Software Architecture

In the design process, the mainstream three-tier architecture system is adopted, and the whole architecture system is divided into data access layer, business logic layer and presentation layer, which makes the software design convenient for modularization and standardization, and is conducive to the development, maintenance and future expansion and upgrading of the system. The software architecture of management accounting system is shown in Figure 4 .

• Performance layer: it is provided for external end users, and is used by internal staff through the entrance of interoperation with major business systems. For example, it is provided for financial personnel with the back-office management subsystem of management accounting system. After the back-office management personnel log in to the subsystem, audit accounts, bank gateway, bank rate, query and report, etc will be set up. This layer is all displayed in the way of web browser, and users can use the most common browsers without installing any client program, which brings convenience to them.
• Business logic layer: the main business logic of the management accounting system can be realized at this layer, which is mainly composed of four main subsystems: rule management subsystem, data receiving and processing subsystem, rule engine subsystem and accounting background management subsystem. At the same time, the short message system and mail system is externally connected. After the system error or some business is completed, For example, the data receiving and processing subsystem generates all the transaction data into accounting vouchers and accounting records, short messages and emails will be used to inform relevant developers and financial personnel. In addition, relevant data in Memocached cache system can be selected in order to optimize system performance, and ApacheActiveMq message queue system is used to receive transaction data messages of major business systems.
• Data access layer: the business logic layer is connected to the data access layer through JDBC. This system uses the relational database Oraclel0g, and manages the basic data of the accounting system, such as basic data used in accounting rules, accounting subjects, bank gateway, bank rates, etc. Because it involves confidential data of company transactions, the production data is not allowed to be accessed by the test environment. At the same time, The release of DDL and DML in the database only allows special DBA to query and export related statements such as balance sheet, income statement, cash flow statement, etc., and is restricted to financial personnel and company management. The company's business system and management accounting system take Oraclel0g, where DBlink technology can be used to realize high-speed access between business system and accounting management system database.

System software architecture.

The business module has been independent, and loose coupling is realized at the code level. Therefore, when adding or modifying accounting rules, there is no need to recompile the code and release a new system version, just edit the xml or drl rule file online, and all subsystems can adopt the Saturn framework developed by the company. The architecture of framework is clear and easy to maintain and expand, which has superior performance. Saturn framework is shown in Figure 5 .

Saturn framework.

3.3. Systematic Implementation

3.3.1. implementation of rule management subsystem.

The main function of DroolsGuvnor rule management subsystem is to manage the rule files used by the rule engine subsystem, and to create and edit the rule files, check the grammar correctness, test and publish the rules.

Add repository: after the new repository is added, the role of the repository is to store rule file items. Click Authoring Administ Rational, then click Newreposito to add a new repository, and then fill it down step by step. Enter the name of the repository and the organizational unit to which it belongs. The relative location of the repository is git://localhost: 9418/AccountRepository. The version of the project file is controlled by git tool.

Add items: after the repository is created, create the Project of Drools rule file, and enter the description such as Project Name, Project Description, GroupID, ArtifactID, VersionID, etc. to create the rule file management project of the management accounting system.

Create a new data model:

after the project is created, it needs to create a data model, that is, the Fact model in the rule engine, which is created by DataModeler under the tools menu. Fill in the name of the model and the name of the package where it is located, then add the field name and field type for the new object type, and then click “Save” to save the object model.

Create a rule file: after the relevant data model is created, continue to create the rule file, and send it to create the rule file through the DRLfile in the NewItem, or through the GuideRule or GuideRuleTemplate option.

3.3.2. Implementation of Rule Engine Subsystem

This system uses Maven technology to manage the dependency and construction. The project dependency on DroolsExpert [ 31 ]is configured in the root pom xml of the project as follows:

• <dependencies>⃞⃞
• <dependency>⃞⃞
• <groupld>org.drools</groupId>⃞⃞
• <artifactld>drools-core</artifactId>⃞⃞
• <version>5.5.0.FinaK/version)□⃞
• </dependency>⃞⃞
• <groupId>org.drools</groupld>⃞⃞
• <artifactId>drools-compiIer</artifactId>⃞⃞
• <groupId>com.thoughtworks.xstream</groupId>⃞⃞
• <artifactld>xstream</artifactid)□⃞
• <version>l.3.1/version>⃞⃞
• </dependencies>⃞⃞

3.3.3. Implementation of Data Receiving and Processing Subsystem

The main function of the data receiving and processing subsystem is to receive the order transaction data of major business systems, convert the transaction data into accounting vouchers, and then call the rule engine subsystem to record the accounting vouchers into the management accounting system database. At the same time, there are two ways for data receiving and processing subsystem to receive data: single transaction and batch transaction.

The first way is to provide ApacheActiveMQ message queue address. Every transaction with cash in online business system will send a message to ApacheActiveX queue in real time. Then, the consumer asynchronously extracts the message, after extracting the transaction order data message, the data in JS0N string format are converted into the accounting voucher object, and then the relevant interface of the rule engine subsystem is called to transfer the accounting voucher object to the rule engine subsystem.

The second way is to process the historical transaction data of major business systems. Firstly, task scheduling plan must be set in task scheduling. The batch-running program that runs once every time adopts javax jms MessageListener technology. After a scheduled task is triggered at a certain point in time, the Messagemessage method of MessageListener will receive the information of this scheduled task. Therefore, the batch-running program that triggers the timed batch-running task directly goes to the database backup of the business system by adopting DBLlink technology between the management accounting system and the business system database. The rule engine subsystem is responsible for converting each accounting voucher into accounting entries, and recording the accounting vouchers and accounting entries into the database in turn.

4. Transformation of Financial Accounting under the Management Accounting System Based on Drools

With the rapid development of the company's business, relying on the accounting method of financial accounting can no longer meet the needs of the company's current accounting management. In order to achieve real-time accounting, Drools rule engine is introduced in this system so that the transaction records can automatically match accounting rules after passing through the rule engine subsystem, which has the following advantages to realize the transformation of accounting mode:

4.1. Advanced Technology

The efficiency of automatic accounting is high, and the probability of occurring error is very small. All that needed is to configure the correct entry generation rules in the rule management subsystem. The accounting entry generation rules set up double-entry accounting entries according to the information of transaction data such as transaction platform number, transaction type, payment gateway number, merchant number, etc., which not only realizes automation in accounting, but also in many aspects, such as the generation of trial balance daily-cut accounting statements that is conducive to the transformation from financial accounting to management accounting.

4.2. Reasonable Structure

This system adopts B/S(Browser/Server) architecture, without installing any client. Users only need a terminal that can be connected to the network to access the background management system of the rule management subsystem to manage the accounting system, set accounting rules and manage relevant basic data of the accounting system, or to view and download related financial statements. Compared with the financial accounting system, there is no need to install SqlServer and other related third-party components before running. The current management accounting system provides structural advantages for the transformation of accounting modes.

5. Conclusion

In order to conform to the development of the artificial intelligence, the financial management of modern enterprises needs to be actively based on the background of artificial intelligence management, and solve the problem of lag existing in the current financial management. In this paper, the strategy of transformation from financial accounting to management accounting is analyzed. By designing a management accounting system based on Drools rule engine to realize the transformation from financial accounting to management accounting under the background of artificial intelligence, the architecture of the management accounting system is specifically analyzed, including: the network architecture and software architecture. Then the implementation of the core subsystem related to Drools technology application is studied. The system can realize automation in many aspects such as the generation of trial balance and daily accounting statements, thus promoting the transformation from financial accounting to management accounting under artificial intelligence, and advancing the long-term sustainable development of enterprises and social economy.

Acknowledgments

This work was funded by the Construction Plan of Scientific Research and Innovation Platform of Wuhan College (no. KYP202001) and supported by the Research and Innovation Team of Wuhan College (no. KYT201903). The authors would like to thank Research Center for Value Evaluation and Creation of Private Enterprises and Audit Value Innovation Research Team in the New Era which contribute to this study greatly.

Data Availability

Conflicts of interest.

The authors declare that they have no conflicts of interest.

Artificial Intelligence, ERP, and Managerial Accounting

• First Online: 29 October 2023

Cite this chapter

• Layal Khamis 3 ,
• Faisal Alasfoor 4 ,
• Nabeela Khawaja 4 &
• Rami Abu Wadi   ORCID: orcid.org/0000-0002-4610-7634 5  

Part of the book series: Contributions to Management Science ((MANAGEMENT SC.))

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Enterprise Resources Planning (ERP) have been used by many organizations, then it was developed to be associated with managerial accounting and decision making. ERP has gone through a lot of developments in the past years. As advanced as ERP is, it still has limitation to provide evolving competitive advantage to the bursting technological market today. The raise and development of Artificial Intelligence (AI) and how it could be beneficial for organizations to automate and digitize certain processes in the field of accounts. AI, however, have not spread as fast as expected due to challenges managerial accountants anticipating in the face of AI integration on ERP, since ERP success rate of implementation is still objectively low. There are many advantages and benefits for having ERP and AI in decision making, despite the focus on human unemployment expected to raise, but it can shift careers within accounting sector and business in general.

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Khamis, L., Alasfoor, F., Khawaja, N., Wadi, R.A. (2023). Artificial Intelligence, ERP, and Managerial Accounting. In: El Khoury, R., Nasrallah, N. (eds) Emerging Trends and Innovation in Business and Finance. Contributions to Management Science. Springer, Singapore. https://doi.org/10.1007/978-981-99-6101-6_58

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