Accounting and Management Control

114 Pages·2011·2.334 MB·English

by  Julia Mundy,Yves Levant,Olivier De La Villarmois

jaar cover (i).qxd 18/11/2011 14:23 Page 1
ISSN 0967-5426
Volume 12Number 3 2011
Journal of
Applied Accounting
Research
Accounting and management
control
Guest Editors: Julia Mundy, Yves Levant
and Oliver de La Villarmois
www.emeraldinsight.com
Journal of ISSN 0967-5426
Applied Accounting
Volume 12
Number 3
Research 2011
Accounting and management control
Guest Editors
Julia Mundy, Yves Levant and Oliver de La Villarmois
Access this journal online___________________________ 182
CONTENTS
Editorial advisory board____________________________ 183
Guest editorial_____________________________________ 184
Opening the “black box”: how internal
reporting systems contribute to the quality
of financial disclosure
Florence Cav´elius_________________________________________________ 187
The role of the balanced scorecard in the
formulation and control of strategic processes
G´erald NaroandDenisTravaill´e____________________________________ 212
From adoption to use of a management control
tool: case study evidence of a costing method
OlivierdeLa Villarmoisand YvesLevant_____________________________ 234
Contextual factors affecting the deployment
of innovative performance measurement systems
Maurice Gosselin_________________________________________________ 260
Rethinking budgetary slack as budget
risk management
MoatazElmassriandElaine Harris__________________________________ 278
Thisjournalisamemberofand
subscribestotheprinciplesofthe
CommitteeonPublicationEthics
www.emeraldinsight.com/jaar.htm
Asasubscribertothisjournal,youcanbenefitfrominstant, Additional complementaryservices available
electronicaccesstothistitleviaEmeraldManagementeJournals. Whenyouregisteryourjournalsubscriptiononlineyouwillgain
Youraccessincludesavarietyoffeaturesthatincreasethevalueof accesstoadditionalresourcesforAuthorsandLibrarians,offering
yourjournalsubscription. keyinformationandsupporttosubscribers.Inaddition,our
dedicatedResearch,TeachingandLearningZonesprovide
Howtoaccess thisjournal electronically specialist‘‘Howtoguides’’,casestudies,bookreviews,
Ourliberalinstitution-widelicenceallowseveryonewithinyour managementinterviewsandkeyreadings.
institutiontoaccessyourjournalelectronically,makingyour
E-mailalertservices
subscriptionmorecost-effective.Ourwebsitehasbeendesignedto
provideyouwithacomprehensive,simplesystemthatneedsonly Theseservicesallowyoutobekeptuptodatewiththelatest
minimumadministration.AccessisavailableviaIPauthenticationor additionstothejournalviae-mail,assoonasnewmaterialenters
usernameandpassword. thedatabase.Furtherinformationabouttheservicesavailablecan
befoundatwww.emeraldinsight.com/alerts
Tobenefitfromelectronicaccesstothisjournal,pleasecontact
[email protected] EmeraldResearchConnections
beprovidedtoyou.ShouldyouwishtoaccessviaIP,please Anonlinemeetingplacefortheworld-wideresearchcommunity,
providethesedetailsinyoure-mail.Onceregistrationiscompleted, offeringanopportunityforresearcherstopresenttheirownworkand
yourinstitutionwillhaveinstantaccesstoallarticlesthroughthe findotherstoparticipateinfutureprojects,orsimplyshareideas.
journal’sTableofContentspageatwww.emeraldinsight.com/ Registeryourselforsearchourdatabaseofresearchersat
0967-5426.htmMoreinformationaboutthejournalisalsoavailable www.emeraldinsight.com/connections
atwww.emeraldinsight.com/jaar.htm
Choice of access
Emeraldonlinetrainingservices
Visitwww.emeraldinsight.com/helpandtakeanEmeraldonline Electronicaccesstothisjournalisavailableviaanumberof
tourtohelpyougetthemostfromyoursubscription. channels.Ourwebsitewww.emeraldinsight.comisthe
recommendedmeansofelectronicaccess,asitprovidesfully
searchableandvalueaddedaccesstothecompletecontentofthe
KeyfeaturesofEmerald electronic journals journal.However,youcanalsoaccessandsearchthearticle
contentofthisjournalthroughthefollowingjournaldelivery
Automaticpermissiontomakeupto25copiesofindividual services:
articles EBSCOHostElectronicJournalsService
Thisfacilitycanbeusedfortrainingpurposes,coursenotes, ejournals.ebsco.com
seminarsetc.withintheinstitutiononly.Thisonlyappliestoarticles
InformaticsJ-Gate
ofwhichEmeraldownscopyright.Forfurtherdetailsvisit
www.j-gate.informindia.co.in
www.emeraldinsight.com/copyright
Ingenta
Onlinepublishingandarchiving www.ingenta.com
Aswellascurrentvolumesofthejournal,youcanalsogainaccess MinervaElectronicOnlineServices
topastvolumesontheinternetviaEmeraldManagement www.minerva.at
eJournals.Youcanbrowseorsearchthesedatabasesforrelevant
OCLCFirstSearch
articles.
www.oclc.org/firstsearch
Keyreadings SilverLinker
Thisfeatureprovidesabstractsofrelatedarticleschosenbythe www.ovid.com
journaleditor,selectedtoprovidereaderswithcurrentawarenessof SwetsWise
interestingarticlesfromotherpublicationsinthefield. www.swetswise.com
Referencelinking
Emerald Customer Support
Directlinksfromthejournalarticlereferencestoabstractsofthe
mostinfluentialarticlescited.Wherepossible,thislinkistothefull Forcustomersupportandtechnicalhelpcontact:
textofthearticle. [email protected]
Webhttp://info.emeraldinsight.com/products/subs/
E-mailanarticle customercharter.htm
Allowsuserstoe-maillinksonlytorelevantandinterestingarticlesto Tel[phone]
anothercomputerforlateruse,referenceorprintingpurposes. Fax[phone]
Structuredabstracts
Emeraldstructuredabstractsprovideconsistent,clearand
informativesummariesofthecontentofthearticles,allowingfaster
evaluationofpapers.
EDITORIAL ADVISORY BOARD Editorial
advisory board
Dr Panagiotis Andrikopoulos Professor Yves Levant
De Montfort University, UK LilleGraduateSchoolofManagement,France
Professor JanBebbington Professor WoodyM.Liao
University ofSt Andrews,UK University ofCalifornia Riverside, USA
Dr DavidBence Professor SueLlewellyn
University ofBath, UK University ofManchester, UK 183
Dr Sarah Blackburn Dr Joanne Locke
TheWayside Network,UK Birmingham University, UK
Dr RhodaBrown Professor AlanLowe
Loughborough University, UK Aston University, UK
Professor GinChong Ray Mackie
Prairie ViewA&MUniversity, USA HTECLimited, UK
Professor IanDavidson Dr Ashok Patel
University ofSussex, UK De Montfort University, UK
Professor IvanDushanov Professor Brenda Porter
University ofNational andWorldEconomy, Visiting Professor atChulalongkom
Bulgaria University, Thailand and Exeter University,
UK
Professor SamirM.El-Gazzar
Pace University, USA Dr AlySalama
Durham University, UK
Dr JamieElliott
Deloitte &Touche, UK Professor AlanSangster
Middlesex University, UK
Dr JaneGibbon
Newcastle University Business School, UK Professor Dr Gerrit Sarens
Universite´ Catholique de Louvain, Belgium
Catherine Gowthorpe
Cheshire, UK PhilipJ.Shrives
Northumbria University,UK
Professor Christine Helliar
University ofDundee, UK Professor PremSikka
University ofEssex, UK
MrSimonHorne
National Magazine Co.Ltd, UK Professor Richard Slack
Northumbria University,UK
Professor Sandor Kerekes
Corvinus University ofBudapest, Hungary Professor LauraF. Spira
Oxford BrookesUniversity, UK
Dr JackKrogstad
Creighton University, USA
JournalofAppliedAccounting
Research
Vol.12No.3,2011
p.183
#EmeraldGroupPublishingLimited
0967-5426
JAAR Guest editorial
12,3
Accountingand management control
184 Accountingandmanagementcontrolaremajorconcernsfororganisationsofalltypes.
Managementcontrol,includingmanagementaccounting,involvestheuseofavariety
of problematics and methodologies to help organisations to achieve their objectives.
This special issue of the Journal of Applied Accounting Research (JAAR), co-guest
editedbyOliverdelaVillarmoisoftheUniversityofLille,YvesLevantoftheSKEMA
BusinessSchool,andmyself,presentsaseriesofstudiesthatdemonstratetherangeof
topical issues, as well as the variety of both traditional and interdisciplinary
perspectives,thatfocusontheroleanduseofaccountingandmanagementcontrolin
practice.Itaimstocontributetotheexistingtheoreticalandmethodologicalliterature
in the field of accounting and management control while also responding to calls for
greater practical relevanceof our research.
ThisspecialissuehastheunusualdistinctionofcontainingonlyoneBritishauthor
among its five papers. With three articles from France, one from Canada, and an
Egyptian co-author, the issue provides insights into theoretical themes that are of
recurringinteresttoresearchersandpractitionersincountriesnothighlyrepresented
in previous issues of JAAR.
Theeditionincludesfivepapersthateachaddressesadifferentaspectoftheuseof
accounting and control from a range of perspectives. The first paper, by Cave´lius, is
concerned with an issue little explored by researchers but of great relevance to
practitioners: thereconciliation of internalcommunicationoffinancialmeasureswith
those required for disclosure. The paper aims to develop theory by drawing on data
collected from 55 large firms to construct a typologyof “practice” that characterises
firms according to how they use information from accounting systems to disclose
financial information to their investors. By defining two dimensions (static/dynamic
and voluntary/conformist), the paper presents a taxonomy for categorising four
differentapproaches to financial disclosure.
In addition to contributing to both the theory and practice offinancial disclosure,
Cavelius’paperdemonstratestheimportanceofundertakingempiricalresearchatthe
interfaceofmanagementaccountingandfinancialaccounting.Researchthatcombines
bothfieldsofaccountingarerelativelyscarce,butthispaperservestoremindusthat
theyareinextricablylinked,andthatthislinkislikelytohavecrucialimplicationsfor
the use of reporting and controlthroughoutthe organisation.
Thebalancedscorecard(BSC),anenduringtopicformanagementcontrolresearch,
isthefocusofoursecondpaper.Thewell-documentedproblemswiththeBSCsinceits
appearance25yearsagopartlyexplainitscontinuingappealtobothresearchersand
practitioners alike. Naro and Travaille´’s paper aims to address the criticisms
surrounding the theoretical underpinnings of the Balanced Scorecard. They employ
Simons’(1995)leversofcontrolframeworktoinvestigatehowtwofirmsusetheBSCto
alignintendedandemergentstrategies.Thestudyoffersinsightsintohowthedesign
JournalofAppliedAccounting phase during implementation of a BSC represents an interactive lever of control that
Research firmscanexploittoformulatestrategyandbuildconsensusarounditsstrategicplans.
Vol.12No.3,2011
pp.184-186 The levers of control framework has been used in a number of academic studies to
rEmeraldGroupPublishingLimited
0967-5426 investigate various aspects of management control but has received much less
exposure in the practitioner-focussed literature. Simons developed the framework Guest editorial
partly from inductive studies based on direct observations in a number of large
organisations, a fact that alerts us to the potential for utilising the framework more
directly to investigate issues of relevance to practitioners. For example, while
practitionersmaybeinterestedinacquiringarangeoftoolsandprocessestohelpthem
implement organisational strategy, the levers of control framework can provide
insights into how their use, rather than their existence, affects organisational 185
outcomes.
Thethirdpaperin thisspecial issue,bydela Villarmoisand Levant, exploresthe
implementation phases and associated uses of data arising from a French costing
method, UVA (Added Value Unit). While similar to ABC, UVA has a number of
apparent methodological advantages that render it popular with smaller firms,
particularly in France, that lack the resources necessary to implement more
complicated costing methods. The high utilisation rate of UVA suggests that these
advantageswarrant further investigation in the ABCliterature.
ComparisonsbetweenABCandUVAarereminiscentofasimilardebateconcerning
the Balanced Scorecard and its French equivalent, the Tableau de Bord. This raises
questions about the extent to which accounting innovations that are common in one
countrycan be transplanted to firms in other countries. Studies of other innovations
thatdeviatefromthetraditionalAnglo-Americanmodelshavethepotentialtoincrease
thequalityoftriedandtestedtechniquesavailabletopractitioners,andjournalssuch
as JAAR provide a vital means for identifying and communicating the variety of
accounting innovations in use across theworld.
Gosselin’spaper,thefourthinthisspecialissue,employsasurveyquestionnaireto
examinetheinfluenceofarangeofcontextualfactorssuchasstrategy,structure,and
environmental uncertainty on the use of innovative performance measures. By
providing insights into the use of awide varietyoffinancial, non-financial, outcome,
andprocessmeasuresacrossdifferentcontextsthestudyenhancesourunderstanding
oftheinfluencesovertheimplementationanduseofinnovativeperformancemeasures.
Finally,ElmassriandHarrisexplorearecurringthemeinthemanagementcontrol
literature;namely,howmanagerscreateandusebudgetaryslack.ElmassriandHarris
extendrecentresearchonthepositiveaspectsofbudgetaryslackbyreconceptualising
it in terms of risk management. The paper contributes to the risk management
literature by showing how budgetary slack can help organisations to mitigate
planning and operational risks by providing contingencies to budgets beyond those
includedathigherlevelsoftheorganisation.Theconsiderationofbudgetaryslackas
an important element of risk management maycause practising accountants toview
their budgeting processesin a differentway.
Insummary,thefivepapersincludedinthisspecialissuedemonstratetherangeof
accounting and management control issues that interest both researchers and
practitionersalike.Theyraiseanumberofimportantpointsforresearchersinthefield
ofaccountingandmanagementcontrolwhowishtoexploreissuesthatarerelevantto
practice. First, there exists plenty of scope to investigate issues at the interface of
different fields across management and financial accounting. While academics are
careful to delineate their research into different fields of accounting, this dichotomy
often does not exist in practice, particularly in smaller firms where accountants
continually face challenges that cross the boundaries of research fields. Researchers
can contribute to the practice of accounting and control by questioning the extent
to which their research is both relevant and appropriate to practitioners. Second,
JAAR Anglo-Americanmodelsinevitablydominateourliterature,potentiallyrestrictingthe
12,3 rangeofinnovationsandapproachesavailabletopractitioners.Ifwearetoincreaseour
engagement with practice, then as researchers we have a responsibility to seek and
investigate alternative models. Third, by taking different perspectives on popular
themes, such as budgetaryslack, researchers havethe potential to radicallyalter the
waythat practitioners viewcommon practiceswithin their firms.
186 Inapreviousguesteditorialtoa JAARthemedissue,Brown(2009)expressedregret
at the relatively small number of audit researchers who apply their expertise to
problems that are rooted in audit practice. A similar criticism is often levelled at
accounting and control research. Together with my co-guest editors I hope that this
special issue illustrates just a small range of accounting control issues potentiallyof
interesttobothresearchersandpractitioners,andthatitwillencouragecontributions
from other researchers with similar ambitions to explore issues that are relevant to
practice.
Julia Mundy
Guest Editor
References
Brown, R. (2009), “Revisiting the expectations gaps after 15 years”, Journal of Applied
AccountingResearch,Vol.10No.2,pp.92-5.
Simons,R.L.(1995),LeversofControl. HowManagersUseInnovativeControlSystemtoDrive
StrategicRenewal,HarvardBusinessSchoolPress,Boston,MA.
Thecurrentissueandfulltextarchiveofthisjournalisavailableat
www.emeraldinsight.com/0967-5426.htm
Opening the “black box” Opening the
“black box”
How internal reporting systems contribute to
the quality of financial disclosure
Florence Cave´lius
187
ESSEC Business School, Cergy, France
Abstract
Purpose–Institutionalinvestorsusetheinformationdisclosedbylistedcompaniestoanalyzethe
performance of their investments. The purpose of this paper is to open the “black box” of the
constructionoffinancialdisclosurebyanalyzingtheinternalreportingsystemsoffirmswithreference
totheinformationdisclosed.
Design/methodology/approach – Using indexes, the quality of the financial disclosure and
the internal reporting systems are measured, and analyzed with a view to finding some links
betweenthem.Itisexpectedthatthequalityofdisclosureisdependentonthequalityoftheinternal
reporting.
Findings–Complexinteractionsbetweeninternalreportingandfinancialdisclosurearerevealed,
whichleadstotheidentificationofatypologyofpractices.Thedependenceoftherelationshipmaybe
troubled by the willingness of the firm to communicate, or by the internal methods of control.
Accordingtothevariouscases,differentlevelsofusefulnessoftheinformationfortheinvestorare
expected.
Originality/value – This paper is a first attempt to analyse information disclosed by firmswith
regardstotheinternalinformationattheirdisposal.
Keywords Financialreporting,Disclosure,Financialcommunication,Qualityofinformation,
Publicandprivatedisclosure,Indexes
Papertype Researchpaper
1. Introduction
Institutionalinvestorsusetheinformationdisclosedbylistedcompaniestounderstand
the strategic and operational key factors explaining their performance (Eccles et al.,
2001). This information has to possess a number of features or qualities that are
essential to investors in order to ensureits usefulness.
FollowingtheaccountingharmonizationinEurope,in2005,whichrequiresallEU-
listedcompaniestoadoptinternationalaccountingstandards(IAS/IFRS),commission
regulations must assess whether the application of accounting standards in financial
statements offers a true and fair view of the financial position and performance of a
company. The commission must check whether the financial information meet the
criteriaof“understandability,relevance,reliabilityandcomparability”inordertomake
economicdecisionsandassessthestewardship ofmanagement(Article3,Regulation
No. 1606/2002). In fact, these requirements have been laid out by international
regulations (IASB, 1111, IAS1) in terms of the following criteria: representativeness
orfairview(theinformationaccuratelyreflectstheeconomicrealityofthecompany),
substance over form, reliability (the information is exempt from fault or error),
relevance (it allows the investors to make decisions) including timeliness or
JournalofAppliedAccounting
Research
Vol.12No.3,2011
Theauthorwouldliketothankthetwoanonymousreviewersandtheparticipantsofthe30th pp.187-211
Annual Congress of the Association Francophone de Comptabilite´ (AFC) for their helpful rEmeraldGroupPublishingLimited
0967-5426
commentsonanearlierversionofthepaper. DOI10.1108/09675421111187665
JAAR accessibility (the information reaches its destination in due time), intelligibility,
12,3 comparability.
While many researchers have studied the quality and the value of disclosed
information (Copeland and Fredericks, 1968; Vickrey, 1985; Chow and Wong-Boren,
1987; Cooke,1989;Bradbury, 1992; Raffournier,1995), as far aswe are aware, noone
has tried to understand how this information was put together within the company.
188 The information comes from internal financial and managerial accounting systems,
especially fromthecompany’sinternalreporting.Toensurethequalityofdisclosure,
the information should necessarily be part of the reporting system and include the
required qualities.BushmanandSmith (2001) thus point out:
Inspiteofdistinctionsbetweeninternalandexternalreporting,thereislikelytobeapositive
relationbetweenthemanagerialaccountinginformationreportedinternallyandthefinancial
accountingreportedexternally[y].Hence,managerialaccountingsystemsareapotentially
importantomittedcorrelatedvariable.
Thispaperspecificallyaddressesthiscall.Thefocusofthispaperisthustocompare
the quality of the information issued via internal reporting, and the quality of the
information disclosed to investors.Wecontend that a communityof practices should
exist according to the link between these. To investigate this, the paper intends to
compare and assess, from a sample of French listed companies, financial
communication practices and internal reporting systems (IRS) by measuring their
quality. The quality measure of both systems will then bring out a typology of
practices, suggesting different possible useof information disclosed.
This paper makes two contributions: theoretical and practical. It first intends to
contribute to both financial and managerial fields of accounting research. Indeed,
financial scholars are more concerned with the reaction of shareholders to the
informationdisclosed,withnointerestintheinternalreportingmechanismsoffirms.
On the contrary, management accounting research is interested in methods of
measuring performance from an internal point of view, without any consideration
for external views or needs, particularly those of investors. This paper tries to fill
this gap.
Fromapracticalpointofview,weintendtoreachpractitionersaswell:indeed,we
believe that the more concern the financial controller has in terms of the needs of
investors in matters of information, the more he will try to gather the “right”
information from inside the firm, for the benefit of the internal management. On
anotherhand,theclosertheinvestoristothefirm,theeasieritwillbeforhimtocollect
the information heneeds.
The remainder of the paper is organized as follows: Section 2 elaborates the
theoreticalcontext,inparticularhighlighting thecriteria forquality forbothinternal
reporting and financial communication practices. Section 3 introduces the research’s
methodology. Section 4 presents and discusses the results. Section 5 concludes and
drawsthe implications of the findingsfor futureresearch.
2. Qualityoffinancial communicationpractices and IRS
2.1 Quality requirements for informationdisclosure practices
Researchersgenerallyagreeonthreemainpointsintermsofmeasuringthequalityof
information disclosure practices: the information extent, the vectors of disclosure,
the periodicity and deadlines. Following signal theory (Spence, 1974), firms may be
interestedinstandingoutfromtheircompetitorsbydisclosingvoluntaryinformation
through voluntary vectors, and according to voluntary deadlines (Verrechia, 1983; Opening the
Dye, 1986; Darrough andStoughton, 1990; Healyand Palepu, 2001). “black box”
Regarding extent, institutional investors expect to have access to voluntarily
released information from company managers, including management control
information (Cave´lius, 2007). Investors can then control their investment results,
make decisions and play a cognitive role in utilizing new knowledge. Company
managers must then submit and explain the information in private: this allows for 189
two-waydynamicexchangesandlearningbetweenthe parties,aswellasfacilitating
investors to give their own point of view and perspectives (Holland, 1998). “This
integrated approach to corporate disclosure should end up increasing a company’s
value” (Hutton, 2004). The disclosed information thus includes segment information
(partially required by IFRS 8 standards), forecast information (the budget becomes
a tool for improving information disclosure, according to Miroir-Lair, 2007) and
non-financialinformation(Decock-Goodetal.(2004)andCauvinetal.’s(2006)studies
have established a list of the non-financial information generally disclosed). The
presenceorabsenceofthisparticularinformationwithinpublicdisclosuredetermines
thequalityof the extent (Meeks et al., 1995).
Concerningthevectorsofdisclosure,Hollandpointedout,inhis2005study,thefour
options companymanagers maychoose:
(1) Public disclosure:including mandatoryaswell as voluntary information; the
companymanagershows hiswillingnesstodiscloseinformation(Jensenand
Meckling, 1976), thus distinguishing himself from his competitors (Spence,
1974).
(2) Semi-private disclosure: consisting in private discussions revolving around
publiclydisclosedinformationandinterpretation,clarificationsandanswersto
questions raised.
(3) Private disclosure:consisting of in-depth discussions on strategyelements or
operational aspects. This type of disclosure is rather informal and not
necessarilysupportedbyfigures;yetitisessentialtogetagoodgrasp ofthe
strategic and operational realityof the company.
(4) Secrecy: no information that could lead to competitive or managerial
disadvantageisdisclosed;areluctancetodiscloseuncertaineventscanalsobe
added to this.
The qualityof disclosure vectors can be measured thanks to the number of different
channels of communication used: the internet, conference calls, investor and analyst
meetings,aswellasone-to-onemeetingswithcompanymanagers,etc.(Depoers,1999).
As far as deadlines are concerned, the French stock market authorities, AMF,
establishedcompulsorydisclosuredeadlinesinJanuary2007(TransparencyDirective):
half-yearlyfullfinancialreportshavetobedisclosedwithin60daysfollowingtheend
oftheperiod,andaquarterlyfinancialdisclosure(generaldescriptionofthefinancial
situation and segment turnover) must be provided within 45 days of the end of the
quarter. The companycan decide to willingly release quarterly financial reports in a
shorter time period. A study by PricewaterhouseCoopers (2005) highlighted that the
average time limit for quarterly publication is 29 days for SBF 120 listed companies
(stock exchange index including the 120 most capitalized firms on the Paris stock
exchange).Wewillconsiderthisasthetimelimitforvoluntarypublication.Indeed,the