GLOBAL ACCOUNTING AND CONTROL: A MANAGERIAL EMPHASIS

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GLOBAL ACCOUNTING AND CONTROL A MANAGERIAL
EMPHASIS

• Sidney J. Gray, University of New South Wales
• Stephen B. Salter, University of Cincinnati
• Lee H. Radebaugh, Brigham Young University
• Slides Prepared by Jennifer Anne Salter

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CHAPTER FOUR

• COMPARATIVE INTERNATIONAL
• MANAGEMENT ACCOUNTING

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INTRODUCTION

• In this lecture we will cover
• Management control as it applies across borders.
• Objectives, form and role of management control
  in different countries.
• Cross-national differences in setting overall
  corporate objectives and budgeting.

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What is Global Management Accounting?

• Global Management Accounting is a mixture
  of 2 disciplines
• Management Control
• Cost Accounting

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What is Global Management Accounting - Cost
Accounting

• Cost Accounting is
• The skill of understanding how costs are made up
  and how they change.
• The science of computing how why costs changed.
• How costs can be reduced to match market prices.

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What is Global Management Accounting - Management
Control

• Management Control focuses on
• The strategic objective of the firm.
• The types of resources the firm needs, where it
  can get them in the short and long terms.
• A system that tells the firm if it is going off
  track and needs to make corrections.
• How to evaluate and reward manager performance.

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What is Global Management Accounting? Continued

• The Cross Border setting asks the following
• questions
• How do external internal environments affect
  information needs and questions?
• Are there different views in different countries?

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What is Global Management Accounting? Continued
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CULTURE, MARKETS CONTROLCulture An
Introduction

• A firms social/business environment affects
  strategy and control dimensions.
• These environment dimensions are culture and
  markets.
• Hofstedes model of culture identified dimensions
  of human values that affect decision making by
  society and individuals.

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CULTURE, MARKETS CONTROLAn Introduction to
Culture Continued

• Hofstedes Dimensions
• Individualism versus Collectivism.
• Large versus small power distance.
• Strong versus weak uncertainty avoidance.
• Masculinity versus femininity (Achievement
  Orientation).
• Long term versus short-term orientation.

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Table 4.1A Selection of Hofstedes Scores
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CULTURE, MARKETS CONTROLCulture and Control

• The impact of a cultural variable on management
  control is not always clear.
• Studies suggest that management control is
  affected by individualism, power distance,
  long-term orientation.

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CULTURE, MARKETS CONTROLStudies of Culture and
Control I

• These studies find
• Asian nations tend to look to longer term market
  dominance profile.
• Collectivists, e.g., Japan, tend to plan and
  reward at the group level.
• Individualist cultures link reward and
  performance for each individual.

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CULTURE, MARKETS CONTROL Studies of Culture
and Control II

• The Western concept of checks and balances makes
  the individual responsible culpable.
• The individualist culture is the basis for the
  system.
• In Collectivist cultures group rewards dominate.
  These take longer to emerge, so planning would be
  longer term.
• High Power Distance societies have few
  consultative/participative budgeting processes.

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EMPIRICAL STUDIES OF DIFFERENCES IN OBJECTIVES
ACROSS NATIONS

• US Multinationals
• In a study of MNEs, Robbins Stobaugh (1973)
  found
• Intangible items rarely taken into account when
  evaluating performance.
• Foreign subsidiaries are judged on same basis as
  domestic subsidiaries.

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EMPIRICAL STUDIES OF DIFFERENCES IN OBJECTIVES
ACROSS NATIONS Cont

• US Multinationals Continued
• Return on Investment is most utilized measure of
  performance.
• A Supplementary device is often used to gauge a
  foreign subsidiarys performance.
• Comparison to budget is most widely used.

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Table 4.2Evaluating Foreign Subsidiaries and
Foreign Subsidiary Managers
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EMPIRICAL STUDIES OF DIFFERENCES IN OBJECTIVES
ACROSS NATIONS Cont

• Non-US Multinationals
• British Firms
• Appleyard, Strong Walton (1990) found that
  British companies
• Preferred to us budget/actual comparison followed
  by some form of ROI.
• Tended to use the same ROI measure for foreign
  subsidiaries as for domestic subsidiaries.

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EMPIRICAL STUDIES OF DIFFERENCES IN OBJECTIVES
ACROSS NATIONS Cont

• Japanese Firms
• Shields et al (1991) compared US and Japanese
  MNEs and
• found that
• Japanese firms tend to use sales as the major
  performance criteria.
• US firms prefer ROI.

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Table 4.3 - Criteria Used for Evaluating
Divisional Managers
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EMPIRICAL STUDIES OF DIFFERENCES IN OBJECTIVES
ACROSS NATIONS Cont

• Bailes Assada (1991) also compared US and
  Japanese MNEs.
• Japanese firms prefer to use sales volume as
  overall objective. Net Profit is second.
• American companies tend to use ROI most often,
  then controllable profit.
• Demirag (1994) - Japanese MNEs in the UK tend to
  use sales/market share targets.

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Table 4.4Top Budget Goals for Division Managers
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EMPIRICAL STUDIES OF DIFFERENCES IN OBJECTIVES
ACROSS NATIONS Cont

• APEC Firms
• Merchant, Chow Wu (1995) found little evidence
  of a link between national culture and firms
  goals in Taiwan.
• Kong, Harrison et al (1994) found that
  Anglo-Saxon managers prefer shorter term but more
  quantitative objectives.
• Company objectives vary from culture to culture

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EMPIRICAL STUDIES OF DIFFERENCES IN THE BUDGET
PROCESS ACROSS NATIONS

• Issues needed to be resolved are
• Is there a formal budget setting process?
• Who participates and how?
• What style of communication should be used?
• How are objectives set?
• Time period to be covered?
• Should there be a monetary objective or
  non-quantitative objective?

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EMPIRICAL STUDIES OF DIFFERENCES IN THE BUDGET
PROCESS ACROSS NATIONS

• US Firms
• Anglo-American practice assumes that performance
  is improved through participation of persons in
  carrying out the budget.

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EMPIRICAL STUDIES OF DIFFERENCES IN THE BUDGET
PROCESS ACROSS NATIONS

• Japanese Firms
• Bailes Assada compared US/Japanese companies
• 90 of companies in both countries prepared
  master budgets.
• This process varied by country.
• US Managers tend to be more involved.
• Japanese managers tend to see this process as a
  way to improve performance.

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EMPIRICAL STUDIES OF DIFFERENCES IN THE BUDGET
PROCESS ACROSS NATIONS

• Japanese Firms Continued
• Ueno and Sekaran (1992) found
• US Managers use a more formal structure.
• Budgeting thus becomes a drawing together of
  diverse, often conflicting interests.
• US budget makers tended to create more slack.
• Japanese managers tend to measure performance
  over a longer time horizon than US managers.

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EMPIRICAL STUDIES OF DIFFERENCES IN THE BUDGET
PROCESS ACROSS NATIONS

• Mexican Firms
• Frucot Shearon (1991) found
• Performance of Mexican managers is the same as
  typical US managers.
• Higher level managers participate more.
• Lower level managers participate less. This is
  attributable to the high power distance culture.
• Managers of foreign owned subsidiaries show no
  desire to participate in the budget process. See
  themselves as powerless and process as alien.

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EMPIRICAL STUDIES OF DIFFERENCES IN THE BUDGET
PROCESS ACROSS NATIONS

• APEC Firms
• Comparing managers in Australia and Singapore,
  Harrison (1992) found no significant relationship
  between national origin and participation,
  interaction and satisfaction.
• Both groups seem to prefer a participative style
  of budgeting.

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EMPIRICAL STUDIES OF DIFFERENCES IN THE BUDGET
PROCESS ACROSS NATIONS

• Harrison et al (1994) compared Australia, US,
  Singapore and Hong Kong and found
• Anglo-American firms place emphasis on
  decentralization, responsibility centers,
  organizational design, as well as quantitative
  and analytical techniques in planning and control
• Singapore/Hong Kong Firms place emphasis on long
  term planning group centered decision making