All articles for the course Research in Management Control. Hall, Ferreira and Otley, Malmi and Brown, van de Ven and Johnson, Malmi and Granlund, Tucker and Lowe, van der Volk et al., Choi et al., Speklé and Verbeeten, van Triest et al., Pfister and Lukka, Jansen et al., Malmi et al., Brandau et ...
The purpose of management accounting information is to provide information to assist managers in
their planning and control activities.
What do we know about managerial work?
Managerial work involves responding to the unusual, the ad hoc, and the unplanned, where problem
boundaries are typically hazy and unstable.
The objective of this paper is to examine, and encourage further research to examine, how and why
managers use accounting information.
Three primary insights into how and why managers use accounting information in their work.
1. Managers primarily use accounting information to develop knowledge of their work
environment rather than as an input into specific decision-making scenarios. In this role,
accounting information can help managers to develop knowledge to prepare for unknown
future decisions and activities. Importantly, in a knowledge development role, rather than
complex and sophisticated repots and analyses, managers require accounting information
that is easily understandable and provides a common-sense story of organizational
performance.
2. As accounting information is just one part of the wider information set that managers use to
performance their work, it is imperative to consider its strengths and weaknesses not in
isolation but relative to other sources of information at manager’s disposal. In particular, and
in contrast to traditional criticisms of accounting, the strengths of accounting information
relate to its aggregation properties and its role as a common, financial language to facilitate
communication among managers.
3. Managers interact with information and other managers utilizing primarily verbal forms of
communication. As such, it is primarily through talk rather than through written reports that
accounting information becomes implicated in managerial work. In particular, verbal forms of
communication allow managers to tailor accounting information to specific operational
concerns, and provide a context to debate and discuss the meanings and implications of
accounting data. Accounting information can also prompt discussions by signaling the need
to investigate an issue further.
The role of accounting information in developing knowledge of the work environment
In the decision-facilitating role, accounting information, in the form of periodic reports or special
analyses, is a source of information for making decisions. The provision of accounting information for
decisions-facilitating purposes and the characteristics f that information have been found to improve
individuals’ knowledge and their ability to make better decisions.
Although managers do make decisions, and many of these are undoubtedly important, empirical
investigations of what managers actually do show that such activities are only a relatively small part
of managerial work and sometimes not that critical.
The varied nature of much managerial work means that managers typically do not deal with one or
two problems; rather, they deal with portfolios of problems, where it is unclear how problems are
related or how small problems may relate to or be indicative of something more serious. In this way,
a critical task for managers is to deal with problems that involve turbulence, doubt, uncertainty, and
the potential for significant error.
,Managers often use past experiences and prior knowledge to develop appropriate responses, make
decisions and take actions. As such, most of the information that managers gather is not for decision-
making purposes but is used to develop a context of knowledge and meaning for unknown possible
future actions. In this process, the significance of information gathering is as an investment in an
inventory of knowledge, not as an input into a specific decision-making scenario.
The process of developing knowledge of the work environment involves a variety of specific
activities. These are reflective of a more general process whereby managers ensure they are up-to-
date and informed about significant events and occurrences that relate to their work environment.
Accounting, as a key source of information about business performance, can help managers to
develop knowledge of the work environment in several ways: to make visible those activities not
visible through a manager’s daily activities; and to provide an overall quantitative perspective on
their work. Accounting information can make visible those problems that are not visible form day-
today activities and can provide an independent check on operations to help managers ‘’know what
is going on’’.
Three factors influence the usefulness of accounting information for developing knowledge of the
work environment: ‘’closeness’’ to operational activities, time horizon, and diversity of operational
factors under consideration.
1. Managers who are close to operations use observations of physical processes and informal
reports from subordinates and peers as their primary means of developing knowledge of the
work environment.
For day-to day concerns, developing knowledge is facilitated most efficiently by non-financial
numbers as they relate more directly to operational activities, and, importantly, are usually
available immediately without delay. In contrast, events and transactions take too long to go
through the formal accounting reporting system for the output to be actionable.
Furthermore, the aggregations required for the production of financial numbers can obscure
details that are important for understanding day-to-day problems.
2. As the time horizon lengthens, however, financial information becomes much more
important in providing overall measures of effectiveness and in highlighting key problem
areas that require further investigation.
3. When managers have only a few operational factors to consider, non-financial measures and
direct observation of processes can provide adequate information. However, as managers
consider a more diverse range of operational factors, financial information can operate to
translate these factors into a single, financial dimension, which allows for an overall
assessment of the net effect of all kinds of disturbances and actions that have taken place.
One approach to increasing the role of accounting in knowledge development activities is to increase
its sophistication and complexity. These systems, such as BSC and ABC, attempt to make accounting
information a more complete and more relevant description of underlying organizational activities. In
contrast to these developments, however, research shows that accounting information does not
need to be elegant, complete or accurate to be useful for developing knowledge.
Information needs to be easily comprehended by managers such that they have confidence in their
understanding of the underlying data. Such confidence is likely to prove increasingly difficult in
settings where the complexity of accounting information increases but managers have little time to
spend on understanding it.
These findings are consistent with the expectation that the process of developing knowledge of the
work environment is promoted by managers engaging with simpler information that challenges
existing points of view. Complex accounting systems can reduce or camouflage the very uncertainties
that managers need to be aware of and can eliminate the ability to detect and correct error.
,Rather than trying to formalize relations via cause-and-effect chains, developing knowledge of the
work environment is likely to be facilitated by highlighting key events and outcomes, with managers
developing their own connections and interpretations. This process provided information about
linkages between physical events and financial outcomes that managers could use to update their
knowledge of operations. Importantly, managers used their own experiences to develop knowledge
that linked events and outcomes and did not require accounting information that made these
connections explicit.
Accounting information as one part of manager’s information set
Strengths of accounting information include its aggregation properties and its role as a common
language to facilitate communication among managers with different backgrounds, experience and
knowledge.
For managers who are engaged in a variety of tasks in complex social and organizational contexts,
information needs are diverse and encompass a wider range of information from various sources,
both internal and external to the organization. Mangers use not just accounting information but
information from other specialists, information on market, industry and economic conditions, as well
as direct observation and informal reports.
Managers rely on multiple information sources to corroborate the different types of information that
they use, ranging from facts and forecasts to gossip, intuition and ‘gut feel’. Other information
besides accounting, particularly observation of physical flows and reports of events and activities
from subordinates and peers (informal reports), were available for managers to consider, evaluate
and act on often before they were observed by the accounting process. The use of corroborating
information is not restricted to those managers concerned with operations; even financial managers
seek to corroborate accounting information.
The aggregation process inherent in the accounting system serves to provide information to
managers not generally available from other sources. Because the accounting process assigns
financial numbers to a diversity of operational factors, they can be combined and thus compared
through a process of aggregation. In this way we see how accounting information is useful in
developing knowledge of the work environment by helping managers to identify what all the frenetic
operational activities add up to and by assessing trade-offs among different factors.
Other information available to managers, such as informal reports and even non-financial
information, generally do not have these properties as they are not expressed using the same basis
of measurement and thus are not easily combined and compared.
The translation of operational activities into financial numbers also serves another function: to act as
a common language with which managers can communicate. If information is not uniformly framed,
common interpretations are unlikely, and managers may thus find it more difficult to communicate
with each other. In this way, an accounting language can function as a medium to facilitate
communication among managers with different information requirements, backgrounds and
functional experience.
Furthermore, an accounting language is likely to be very important in settings where managers need
to communicate extensively across functional boundaries, for example, research and development
managers liaising with marketing managers.
An accounting language is also likely to be increasingly important in communicating with managers
outside the organization as new forms of inter-organizational relationships become more prevalent.
, Overall, this analysis indicates that understanding the role of accounting in managerial work requires
the positioning of accounting information as one part of a manager’s information set. Such an
approach can facilitate understanding of how accounting information interacts with other sources of
information, and, in particular, the strengths of accounting information relative to other information
at a manager’s disposal. This can lead to questioning of the need to develop more complex
accounting information in the context of an information set that may already adequately provide
such information from other sources. A more fruitful approach is to focus on the strengths of
accounting information, such as its aggregation properties and role as a common language.
Accounting information and forms of communication
This section examines how managers’ preference for verbal communications affects the use of
accounting information in managerial work. In particular, verbal communication allows managers to
tailor accounting information to specific operational concerns, and provides a context to debate and
discuss the meanings and implications of accounting data. Furthermore, accounting information can
also prompt managerial discussions that take place.
Managers use these verbal contacts to easily bypass formal organization charts and seek information
from those people who have it, rather than wait for information to arrive from formal channels.
Although important, a sole focus on accounting information in written form limits consideration of
how managers actually use accounting information in performing their work. In particular, the
relevance of accounting information is not solely a function of its information characteristics and/or
how it is organized/displayed, but is highly dependent on whether and how managers use accounting
information in verbal communications.
Hence, it is not primarily the design of accounting that determines its relevance, but how managers
actually interpret and use such information, often in verbal communications.
Managers often value information that is speculative and informal (tacit) rather than information
that is authoritative and formal. Accounting information in the form of reports and analyses is likely
to be explicit, verbal communications around the meaning and implications of accounting
information can facilitate the exchange of more tacit forms of information, and provide a context
within which to debate and discuss the meanings and implications of accounting data. Importantly,
managers involved in tasks comprising innovative problem solving and unexpected outcomes tend to
rely on interpersonal communication and intensive forms of information exchange, with little
emphasis on the codification of knowledge via formal reports.
Overall, this analysis shows how accounting information is not merely exchanged verbally but can
serve a more fundamental role in prompting discussions that take place.
What is particularly interesting is whether and how verbal and written forms of accounting
information act as substitutes or complements.
This analysis indicates that managers’ preference for verbal exchanges of information can affect the
use of accounting information in managerial work. In contrast to written reports and analyses, verbal
communication allows managers to relate accounting information to specific operational concerns
and to discuss and debate the meaning and implications of accounting data. Furthermore, accounting
information can prompt the discussions that managers have with each other.
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