Chapter 2Management AccountingAbstract This chapter focuses on management accounting. Section 2.1 outlines thevarious (changing) roles that management accounting captures. Section 2.2 on theone hand elaborates an understanding of management accounting information andon the other hand gives information on the different roles of management accountinginformation within organizations. Finally, Sect. 2.3 categorizes accounting systems,gives further information on the various types and the respective elds of applicationof accounting systems within organizations and locates costing systems within thiscategorization.2.1 The Roles of Management AccountingIn its most simple form, management accounting can be dened as collecting andrecording useful accounting and statistical data as well as reporting themto decisionmakers (Crossman 1958; Singer 1961; Feltham 1968; Bruns and McKinnon 1993;Horngrenet al. 2005). Earlystudiesplacemanagementaccountinginaservicefunctionwiththescopetoprovideall levelsof management withhigh-qualityscorekeeping, attention-directingandproblem-solvinginformation(Simonet al.1954). Crossman (1958) argues that management accounting provides managementwithdatainorder toestablishpolicies, developplans andcontrol operations.Furthermore, in his denition Crossman (1958) includes analysis and interpretationand representation of data in accordance withthe recipients needs. Additionally,thereisaseparatedivisionwithinmanagement accountingwhichcapturescostaccounting, cost analysis, cost control and cost reduction (Crossman 1958). Singer(1961) and Bruns and McKinnon (1993) point out that management accounting cap-tures collecting (nancial) information which is useful. Usefulness in this contextrefers to decision-making relevance. In his elaborations Feltham (1968) focuses onthe aspect of supplying management with information. He argues that managementaccountantsplayakeyroleindecidingwhichinformationshouldbeproduced.Bruns and McKinnon (1993) additionally argue that providing management withinformation captures twoaspects,i.e., (1) thecommunication of information andS. Leitner, Information Quality and Management Accounting, Lecture Notesin Economics and Mathematical Systems 664, DOI 10.1007/978-3-642-33209-8 2, Springer-Verlag Berlin Heidelberg 20121112 2 Management Accounting(2)thecontrol of thesystemsandprocessesbywhichinformationreachestherecipients, i.e., the managers. Furthermore, Bruns and McKinnon (1993) point outthat information does not necessarily have to be solely quantitative as considered inearly denitions of management accounting (e.g. Singer 1961) and that managementaccounting also captures the consideration of the nature of managerial work and thepsychological processes inherent in decision-making (Brignall 1997).There is evidence that the traditional accounting functions remain popular but,atthesametime, management accountingtransformsintonewroles(BurnsandVaivio2001; Burns andYazdifar 2001). Theliteratureprovidesaset of morecomprehensive roles which management accounting should be aspiring. AccordingtoCooper andDart (2009)theserolesaretobemodernandbusiness-oriented(GranlundandLukka1998b), tobeaninternal businessconsultant (BurnsandVaivio 2001), tobe astrategic management consultant (Holtzman 2004) orto bea hybrid accountant (Burns and Baldvinsdotti 2005).GranlundandLukka(1998b) investigatemanagement accountingpracticesinFinnish organizations. They argue that management accounting evolves as a morebusiness orientedfunction, i.e., inadditiontoprincipals of nancial analysis,management accounting captures good knowledge of the business the rm operatesin, uent communication skills and knowledge of (change) project management.Burns andVaivio(2001) refer toCoad(1999) andarguethat the modernmanagement accountants rolehas changed from controller tobusiness supporteror internal business accountant. Specically, they mean that the managementaccountant nowadaysisinvolvedintopicssuchasstrategy, informationsystemimplementation and change management. In addition to the role of internal businessconsultant, Coad (1999) refers to Kaplan (1995), Evans and Ashworth (1996) andCooper (1996a,b) and argues that management accountants nowadays need tobeskilledinthedesignof cost management systemsandbeinvolvedinbusinessdecision processes.Holtzman(2004) analyzes thechange(management) accountingrms haveundergone during the twentieth century and claims that management accountantshave transformed froman information processing entity to strategic businessadvisors. Holtzman (2004) argues that changes in the environment (e.g., advancedcommunication technology) have led accounting rms to provide new services toits customers which, in consequence, has led to a redenition of the managementaccountants role within organizations.Burns and Baldvinsdotti (2005) analyze theemergence ofteam-oriented man-agement accounting roles and argue that nowadays management accountants needto have hybrid skills. Specically, Burns and Baldvinsdotti (2005) argue that apartfrom the traditional roles, management accounting is becoming wider involved inintegrated business situations, agendas and decision-making forums.J arvenp a a(2001)elaboratescharacteristicsofthenewhybridmanagementaccountant. Analytical skills, instrumental accountingcompetenceandindepen-dencyremainofequalimportance, whilecommunicationskills, cooperationandinterpersonal skills, wide business management skills and the ability to understandlarge entities gain importance.2.1 The Roles of Management Accounting 13Byrne and Pierce (2007) investigate new characteristics of management account-inganddistinguishskillsat theindividual level androlesat theactivitylevel.At the skill-level they argue that management accountants inter alia need tohave business knowledge, communication skills, IT- and technical skills andmonitoring skills. Additionally, management accountants are characterized byexibility, organizationalinuenceandpersonalqualities. Fortheactivitylevel,Byrne and Pierce (2007) argue that the management accountant faces the challengeof providing information and supporting decision-making and planing. Additionally,management accounting is characterized by providing management withperiodicperformance reporting and ad-hoc analyses, instructing operational managers,supporting business administration and being involved in project management.Kelly and Pratt (1992) argue that management accounting fullls a multiplicity ofpurposes and analyze actions in which management accountants are involved. For asystematization of roles they refer to Burchell et al. (1980) who dene the followingeight roles: (1) a rational/instrumental role, (2) a symbolic role, (3) a ritualistic role,(4) a mythical role, (5) a political/bargaining role, (6) a legitimating/retrospectiverationalizing role, (7) a disciplinary role and (8) a repressing/dominating/ideologicalrole. For the (1) rational/instrumental role, KellyandPratt (1992) argue thatmanagers suffer from bounded rationality (Simon 1957) and, according to Simonet al. (1954), management accountingis inchargeof providingscorekeeping,problem-solvingandattention-directinginformationinorder toinducerationaldecision-making. For the (2) symbolic role, Kelly and Pratt (1992) refer to Feldmanand March (1981) and argue that management accounting is in charge of signalingothers (within and outside the organization) that decisions are made rationally andthat decision-makersareaccountablefortheirdecisions. The(3)ritualisticrolereferstomanagement accountingbeingresponsiblefor settingrulesandxingparametersforprocesseswithinorganizations. Specically, thisrolefocusesonrelationships between collaborators within an organization, rather than the originalactivity of the organization itself. These relations are regarded to be ritualistic andmanagement is in charge of controlling these interactions, xing rules and settingparametersfor interaction(Gambling1987; KellyandPratt 1992). Inorder tooutline the (4) mythical role of management accounting, Kelly and Pratt (1992) referto Meyer (1983) and argue that the mythical role of accounting refers to the purposeof reducing complexity of comprehensive situations, i.e., management accounting isin charge of providing some solution to bounded rationality. In addition, Kelly andPratt (1992) differentiate between the (3) ritualistic role and the (4) mythical role.They argue that the (3) ritualistic role focuses on controlling the behavior of thosewho are involved in rituals, while the (4) mythical role serves decision-makers. Forthe (5) political/bargaining role of management accounting, Kelly and Pratt (1992)state that organizations are a composition of individuals with potentially divergentinterests where political processes are a feature of organizational life. They refer toBurchell et al. (1980) and argue that it is within the scope of management accountingtodesigninformationandaccountingsystems inorder provideinformationtomanagethesepolitical processes. For the(6) legitimating/retroperspectiverole,Kelly and Pratt (1992) claimthat managers face complexdecision-problems.14 2 Management AccountingOnce decisions are made, the decision-makers expect feedback on decisions,i.e., informationonrationalityofdecisionsbasedonpreviouslydenedcriteria,whereby management accounting is in charge of providing this information. The (7)disciplinary roleof management accounting captures the control ofbehavior andsocial practices within organizations. Kelly and Pratt (1992) refer to Knights andCollinson(1987) andarguethatthedisciplinaryroleofmanagement accountingaimsat supportingmanagementincontrollinglabour. Inaddition, Cooperet al.(1981) showthat this roleof management accountingdoes not solelycapturebehaviorcontrolbut alsothecontrolofagendasandissues. Finally, forthe(8)repressing/dominating/ideological role, Kelly and Pratt (1992) argue that managersareinchargeofprotectingtheinterestsoftheownersoftheorganization.Thisinvolvesunderstandingtherelationshipbetweenmanagers, shareholders, capitalandlabour. KellyandPratt (1992) notethat thewords repressing, dominatingandideological,whicharemainlyusedinasocietalperspectiveofmanagementaccounting, might give way to terms like control, management and objectives. Inordertomonitorperformancewithrespecttotheownersinterests, surveillancesystems need to be installed which are under the management accountings area ofresponsibility.The elaborations outlined above on the (changing) roles of management account-ing are reected in the literature on empirical research on management accountingtasks. Intheir investigation, BurnsandYazdifar (2001)analyzethechangesinmanagement accountingbetween1995and2000. Inter alia their investigationincludes tasks that were vitally important for management accountants within thisperiod. Thetopthreetasks arebusiness performanceevaluation, cost/nancialcontrol and interpreting/presenting management accounts. This is (at least partly)consistent with both the earlier and thenewer conceptualizations of managementaccounting. Representing and providing management accounts is contained in earlyelaborations on management accounting (cf. inter alia Crossman 1958; Singer 1961;Feltham1968).Thetasklistedintherstplace, i.e. businessperformance eval-uation, is also captured by the political and the repressing/dominating/ideologicalroleaselaboratedbyKellyandPratt (1992), cost/nancial control isalsocon-sideredinelaborations onthe roles of management accounting(cf. inter aliaCrossman1958; GranlundandLukka1998a). BurnsandYazdifar (2001) rankthe implementation/design of new information systems seventh in their list of topmanagementaccountingtasks. Inelaborationsonmanagementaccountingtasks(asoutlinedabove)thisfeaturehasaprominentposition. BrunsandMcKinnon(1993), Burns and Vaivio (2001), Coad (1999), Kaplan (1995), Evans and Sridhar(1996), Cooper(1996a,b), ByrneandPierce(2007)andKellyandPratt (1992)explicitly list information systems design as a typical management accounting task.Intheiranalysisofmanagementaccountingtasks, Russell et al. (1999)list vework activities that have gained more attention in the previous years, i.e., internalconsulting,long-term/strategic planning,computersystemsandoperations,man-agement of the accounting function, process improvement and performing economicanalysis. AsincaseoftheinvestigationofBurnsandYazdifar(2001), ndingspresentedbyRussell et al. (1999) arealsoreectedinthe conceptualizations2.2 Management Accounting Information 15of management accountingoutlinedabove. Theinternal consultingfunctionisconsidered in the elaborations of Burns and Vaivio (2001), the long-termperspectiveis captured by theconceptualization of Holtzman (2004) and the management ofthe accounting function is covered by control of accounting processes (Bruns andMcKinnon1993),management skillsandtheabilitytounderstandlargeentities(J arvenp a a 2001) and the ritualistic role of management accounting (Kelly and Pratt1992). Asintheinvestigation ofBurns andYazdifar (2001), thestudy presentedbyRussell et al. (1999)suggeststhat management accountingsystemsplayanimportant role in the context of management accounting tasks. In the investigationcarriedout byCooper andDart (2009) thetopveactivities associatedwithmanagement accountingare the preparationandinterpretationof managementaccountinginformation, thecommunicationandpresentationof nancial infor-mation, leadership,development andimplementationofmanagement accountingsystemsandmanagingstaff. Hence, similartostudiesconductedbyBurnsandYazdifar (2001) and Russell et al. (1999), tasks associated with collecting, gener-ating and reporting information appear to be an important feature of managementaccounting.2.2 Management Accounting InformationTheelaborations onthe roles of management accountingwithinorganizationsindicate that onemajor feature ofmanagement accounting istoprovide decisionmakers with information (cf. Sect. 2.1). In this section various roles of managementaccounting information aredescribed. First,Sect. 2.2.1 focuses onthedistinctionbetween management accounting data and management accounting information. InSect. 2.2.2, the two roles of management accounting information, i.e., the decision-facilitating and the decision-inuencing role, are outlined and differentiated fromeach other.2.2.1 Management Accounting Data and InformationLiebenauandBackhouse(1990),ChecklandandHolwell(1998)andMcKinneyand Yoos (2010) argue that there is no generally accepted denition of the termsdata and information but there are clusters of ideas of what these terms might mean.According to Avison and Fitzgerald (1995), information has a meaning and stemsfrom summarized data that is presented in a way that is useful to the informationrecipient, while data are described as unstructured facts. Laudon and Laudon (1991)refer to data as raw facts while they dene information as data that has been shapedintoameaningful anduseful form. MartinandPowell (1992)describedataasrawmaterialoforganizational life(i.e. numbers,words, symbolsandsyllables),whileinformationisdenedasprocesseddata. Specically, MartinandPowell16 2 Management Accounting(1992) add that information is useful in managerial decision-making. From a moretechnical point of view, Ferstl and Sinz (2008) and Bauer and Goos (1991) arguethat, in the context of information systems, data stands for a sequence of characters.This sequence of characters is interpreted according to a specic routine in ordertogenerateinformation. HansenandNeumann(2001) denedataasthebasisforinformationwherebyinformationisalsousefulfortherecipient.Hildebrand(1995)alsoreviewsvariousdenitionsfor thetermsdataandinformationandconcludes that there is no perfect denition. Heinrich (1992) refers to information asknowledge about past, present and future states and events of the real world wherebyknowledgeisdenedasinformationthat isusedinordertoachieveobjectives(cf. also Wittmann 1959).Checkland and Holwell (1998) argue that the most common elements in deni-tions for the term data are raw facts and raw material. Denitions of informationfrequently containthewords shape,interpret, transform andprocesswhereby alldenitions ofinformation describedataasthestartingpoint inordertogenerateinformation. Eschenr oder (1985) and Hildebrand (1995) additionally argue that inthe economic context, information is associated with costs.Buhaisi (2011)arguesthat accountinginformationassistsmanagersinplan-ning, evaluating and controlling operations. Several authors argue that accountinginformationshouldfacilitateeffortsinthecontrollingofcosts, theimprovementof productivity and the improvement of organizational processes (e.g. Johnson andKaplan 1987; Demski 2008; Buhaisi 2011). Additionally, Buhaisi (2011) refers toChadwick (1993) who outlines that accounting information captures all informationwhich assists management in achieving objectives, formulating policies, monitoringandassessingperformance, evaluatingalternativescenarios, makingplans, con-trollingoperations, takingaccount of behavioral factorsandavarietyof otherproblems. Hansen and Mowen (1994) review which trends the outlined changes inthe management accounting profession might be due to and conclude that (1) just-in-timemanufacturing andemphasis onquality, (2)ahigher diversity inproductrangesandshortproduct-life-cycles and(3)advancesininformationtechnologyand computer integrated manufacturing are the main factors that drive the changesoutlined above.Inaccordance withtheunderstanding ofdataand information outlined above,in this simulationstudy, agents interact with MASandenter data into thesesystems. TheMAStransformsdataintoinformation.Hence, MASrepresentthetransformation-procedurefromdatatoinformationandMASprovidedecision-makerswithinformation whichisusefulformanagerial decision-making. Intheaccounting literature, it iswidely accepted that accounting information canservetwo distinct roles (cf. Wall and Greiling 2011). In line with the distinction originallymadebyDemski andFeltham(1976) theroles of accountinginformationaretypically divided into the (1) decision-facilitating and the (2) decision-inuencingrole. These two roles are outlined in Sect. 2.2.2.2.2 Management Accounting Information 172.2.2 The Decision-Facilitating and the Decision-InuencingRole of Accounting InformationAccordingtoDemski andFeltham(1976), decision-facilitatinginformationisgiventothedecision-makerex-antetothedecision. Hence, decision-facilitatinginformation is a direct input into the decision-making process and is expected to helpthe decision-maker to make better decisions (Evans et al. 1994; Wall and Greiling2011).AccordingtoSprinkle(2003), thepurposeofthistypeofinformationistoreducetheex-anteuncertaintyof thedecisionat hand(cf. alsoDemski andFeltham 1976; Tiessen and Waterhouse 1983), to revise the decision-makers beliefs(cf. also Baiman 1982) and assist in problem-solving (cf. also Simon et al. 1954;Emsley 2005). Sprinkle (2003) adds that the use of decision-facilitating informationimproves the decision-makers knowledge and, hence, enhances their ability to makedecisions that also meet the organizational objectives. This type of information playsaroleinjudgements anddecisions thatconcern boththepast(e.g., performanceevaluation) and the future (e.g., planning). Sprinkle (2003) argues that performanceevaluationinthe context of decision-facilitatinginformationis different frommanagerial performance evaluation. In particular, he argues that decision-facilitatinginformation might also be used to asses prior choices and decisions with the aim ofimproving future performance.Decision-inuencinginformation, onthecontrary, isprovidedex-post totheselectionandimplementationof the decision. Decision-inuencingaccountinginformationisusedtoovercomeorganizationalcontrol problemsduetoselshbehavior(JensenandMeckling1976;Baiman1982),i.e. it helpstoensurethatdecision-makers exhibit behavior that is oriented toward the organizational objec-tives (Sunder 1997; Indjejikian 1999; Sprinkle 2003). This type of accounting infor-mation is used to evaluate the decision-makers choices ex-post to decision-making(cf. alsoDemskiandFeltham1976;TiessenandWaterhouse1983),toevaluateperformance (cf. also Baiman 1982) and fulll the scorekeeping function (cf. Simonetal. 1954),i.e. decision-inuencing informationalsocapturesinformation usedforcompliancereporting (Emsley2005). Hence,decision-inuencing accountinginformation also supports the attention-directing function of information. The useof the decision-inuencinginformationaims at affectingthe decision-makersbehavior, i.e., via monitoringof behavior andmeasurement andevaluationofperformance, whichsubsequentlyarerewardedorpenalized,individual behavioris affected (Sprinkle 2003; Walland Greiling 2011). The performance evaluationpurpose of decision-facilitating information, on the contrary, aims at making betterdecisionsinthefuturebyevaluatingperformance ofpastdecisions.Evansetal.(1994) argue that basing the decision-makers compensation on decision-inuencinginformation, i.e., informationonthe performanceof the previouslymade andimplemented decision, might more efciently induce the manager to make decisionsthat are congruent with the owners objectives.18 2 Management Accounting2.3 Types of Management Accounting SystemsAccording to Horngren and Harrison (1992) and Weygandt et al. (1993), the scopeof MAS is to produce (nancial) reports which are used by managers in order tomakedecisions. MAScanbeboth, computerizedsystemsandmanual systems.Typically, each organization designs its systemin order to achieve organizationalobjectives such as control and acceptable cost-benet relationship.The tasks which MAS serve appear to be a rm basis in order to categorize typesof MAS systematically (Seicht 1990; M ows 1991; Ebert 2000; Horngren et al. 2005;EwertandWagenhofer 2008).Illetschko(1984), Seicht(1990) andEbert (2000)distinguish between (1) nancial accounting systems, (2) cost accounting systems,(3) budgeting systems and (4) systems that capture business statistics. At the sametime,Illetschko (1984) adds that MASmight alsobe categorized onthebasis oftheir purposes within an organization and lists three possible clusters of MAS-types,i.e. MAS for (1) control purposes, (2) planning purposes and (3) the provision ofinformation. Horngren et al. (2005) provide a more detailed list of MAS-purposes.Inparticular, theylist ve purposes for whichaccountingsystems potentiallyprovide information, i.e.,(1)theformulation ofoverall strategies andlong-rangeplans, (2) resourceallocationdecisions, (3) cost planningandcost control, (4)performance measurement and evaluationof people and (5) meetingexternalregulatory andreporting requirements.Atthesametime,Horngren etal. (2005)addthat all thesepurposesrequireadifferentrepresentationorreportingmode.Horngrenetal. (2005)distinguishbetweenmanagementaccountingsystemsfordecision making (i.e., cost accounting systems, capital budgeting systems), planningandbudgetarycontrol systems andmanagement control systems. Furthermore,MAS can be differentiated on the basis of information recipients, i.e. internal andexternal accounting systems (Hummel and M annel 1986; Kilger 1992; Schneider1997; Ebert 2000; M oller et al. 2005; Ewert and Wagenhofer 2008; G otze 2010).Basedontherecipientsoftheprovided information, HansenandMowen(1994)distinguish between nancial and management accounting systems, whereby nan-cial accounting systems capture information systems that primarily serve externalinformationrecipientsandmanagementaccountingsystemsprovideinformationforinternalrecipients.Additionally,Schneider(1997),M ows(1991)andM olleret al. (2005) distinguish between MAS on the basis of time-relation, i.e. MAS thatareorientedtowardsthepast (nancial accounting, cost accounting, calculationfor control purposes) andMASthat areorientedtowards thefuture(nancialplanning, cost planning, calculationforplanningpurposes). Furthermore,M ows(1991) differentiates the determination of (nancial) information and analysis. Forthe process of determination of information, M ows (1991) lists nancial and costaccounting systems while analysis is captured by business statistic systems. Ewertand Wagenhofer (2008) also distinguish between internal and external accountingsystems whereby nancial accounting systems serve external accounting purposesand costing systems and capital budgeting and accounting systems are categorizedasinternal accountingsystems. It might beassumedthat businessstatisticsareimplicitly included in the other types of accounting systems.2.3 Types of Management Accounting Systems 19Fig. 2.1 Classication of accounting systemsBasedontheapproachestoclassifyMASoutlinedabove, theclassicationappliedinthis studydistinguishes betweenMASonthe basis of informationrecipients andpurposes ofMAS.Ontheonehand, accounting systemsarecate-gorized as internal and external systems, respectively, where information systemsfor external purposes are nancial accounting systems and information systems forinternalpurposesareMAS. Ontheotherhand,thisstudydistinguishesbetweennancialaccounting systems,costaccounting systemsandcapitalbudgetingandcapital accountingsystems(cf. alsoFig. 2.1). ThiscategorizationfollowsEwertandWagenhofer (2008) andassumesbusinessstatisticstobeimplicitlyincludedintheothertypesofMAS. Inaddition, planningsystems, asconsideredinthecategorizationof Seicht (1990), areconsideredtobeafunctionof all typesofaccounting systems, i.e., all types of accounting systems can be extended by ex-anteplanning. This follows the argumentation of Illetschko (1984). Financial accountingsystems are classied as external accounting systems while cost accounting systemsand capital budgeting systems are subsumed under management accounting systemswhichprimarilyprovideinformationforinternalrecipients. HansenandMowen(1994) add that both nancial and management accounting systems are part of anentire accounting system whereby all information is often derived fromthe same setof data, which in many cases is data for external accounting purposes (with is oftenadapted for internal accounting purposes). Many organizations expand the existingdata set in order to satisfy the needs of internal information recipients. For the char-acterization of the accounting system applied in this simulation study cf. Sect. 4.1.20 2 Management Accounting2.3.1 Financial Accounting SystemsFinancial accounting systems primarily produce information for external recipients.Morse et al. (1988), Seicht (1990) and Hansen and Mowen (1994) compare MASto nancial accountingsystems andcharacterize nancial accountingsystemsas (1) an externallyfocusedsystem, (2) orientedtowards externallyimposedrules (determined bylawandgenerally acceptedaccounting principles whilethecharacterizationof MASis alignedtothespecicneeds of theorganization),(3)orientedtowardsthepast, (4)asystemthat evaluatesandgivesinformationontheorganizationas awhole, (5) aself-containedsystemand(6) asystemthatfocusesonnancialoperations whileMASalsofocus ontheorganizationaltransformationprocesses. Morseet al. (1988) outlinethat nancial accountingsystems are information processing systems that primarily generate general-purposereports for the respective organization. In particular, these are reports on nancialoperations, i.e., (1) income statement and (2) statement of cash-ows, and reports ofnancial position, i.e., (3) balance sheet. Additionally, nancial accounting systemskeep track of the organizations assets, obligations and the payment of debts (Morseet al. 1988; Wagenhofer and Ewert 2002). Wagenhofer and Ewert (2002) add thatorganizations that are listed on the stock exchange are required to provide interimreports. In addition, listed organizations often provide ad-hoc reports on effects thatmight affect the share prices.The (1) income statement shows revenues and expenses during a specic periodof time and any gains or losses within this time period. The (2) statement of cash-ows summarizes inows and outows of cash and the (3) balance-sheet reports theeconomic health of an organization at a specic point of time, i.e., it shows assetsand claims on assets (Morse et al. 1988; Wagenhofer and Ewert 2002; Ewert andWagenhofer 2008).Althoughnancial accountinggives acomprehensiveoverview, it has littlevalue in day-to-day operations. Due to the fact that it is oriented towards the past,informationistooaggregatedandit isnot action-oriented, managersoftenndlittle value in nancial accounting information (Morse et al. 1988). Of course, forthe originally intended information recipients of nancial accounting systems, theprovided information shows a certain usefulness in decision-making, e.g., providedinformation helps potential future shareholders to make better informed decisionsabout whether or not to purchase shares (Wagenhofer and Ewert 2002).2.3.2 Management Accounting SystemsIn contrast to nancial accounting systems, MAS provide information for decision-makers within organizations and capture orientation towards the past and towardsthe future. In contrast to nancial accounting systems, Morse et al. (1988), Seicht(1990) and Hansen and Mowen (1994) characterize MAS as (1) internally focused2.3 Types of Management Accounting Systems 21with (2) no mandatory rules, (3) it focuses also on the future, (4) it allows for internalevaluationof segments(alsounder theaspect of behavioral controlling), (5) itprovides detailed information and (6) MAS are typically broad and multidisciplinarysystems.MAS can be subdivided into cost accounting systems and capital planning andbudgeting systems, respectively. Sections 2.3.2.1 and 2.3.2.2 differentiate betweencost accounting systems and capital planning and budgeting systems.2.3.2.1 Cost Accounting SystemsCost accounting systems are primarily applied in the context of planning, evaluationandcoordinationof decisionswithinorganizationswherebythesedecisionsaretypically short-dated (Ewert and Wagenhofer 2008). In contrast to nancial account-ingsystems(whichareprimarilybasedonrevenuesandexpenses), informationprovided by cost accounting systems is based on the consumption and productionof goods and services within certain time periods (Seicht 1990; Ebert 2000; Ewertand Wagenhofer 2008).Ebert(2000) characterizes costaccounting systemsasthesetofmethods andsystems that aim at determining, allocating and evaluating costs and performance(intermsofprovidedgoodsandservices)that result out ofoperationsinorderto provide information for decision-inuencing and decision-facilitating purposes.M ows (1991) gives a moredetailedviewonthepurposes of cost accountingsystems, i.e. (1) determining short-dated prot or loss, (2) determining valuationsthat are also usedfor nancial accountingpurposes, (3) evaluatingeconomicefciency and(5) providing information fordecision-making. In hiselaborationsM ows (1991) does not consider the decision-inuencing purpose of cost accountinginformation. For (1) determining short-dated prot or loss, M ows (1991) argues thatthe determination of prot or loss can typically be found in the area of responsibilityofnancialaccounting.Duetothefactthat decision-makerstypicallyneedthisinformationforshort-datedperiods(andnancialaccountingnormallyperformsthis task annually), cost accounting is also in charge of providing this informationforperiodswhichareshorterthan1year. Inaddition, cost accountingsystemsprovide this information not only at the organizational level but also on the product,product-group of organizational-unit level. In some cases nancial accounting andcost accounting are interrelated, i.e., (2) cost accounting determines valuations thatareusedfornancialaccountingpurposes(M ows1991;WagenhoferandEwert2002).Thisforexamplecapturesthevaluationofunnishedandnishedgoodsat productioncosts. Withrespect to(3) theevaluationof economicefciency,incontrast to nancial accountingsystems, cost accountingsystems typicallydifferentiate between operational and non-operational prot or loss and are based onthe consumption and production of goods and services. Finally, M ows (1991) arguesthat cost accountingisinchargeof providinginformationfor decision-makingwhereby this purpose appears to be multi-facetted. Specically, M ows (1991) liststhat cost accountinginformationmight beusedfor determining(1) prices for22 2 Management Accountingboth sales and intra company accounting for goods and services, (2) (short-dated)upperandlowerlimitsforsalesprices, (3)theeconomicorderquantity,(4)theoptimized production program, (5) the optimal replacement-time for assets. Thus,cost accounting information appears to be widely used in organizational decision-making. Additionally, Ebert (2000) and Ewert and Wagenhofer (2008) argue thatcost accounting information might also be used for decision-inuencing purposes(cf. also Sect. 2.2.2), i.e., to motivate individuals towards organizational objectives.Inorder tocharacterizecostingsystems, G otze(2010) refers toHummel andM annel (1986) andarguesthat costingsystems are(1) anelement of internalaccounting, (2) are based on imputed numbers, (3) have a short-dated perspective,(4)provideanincomestatementand(5)areprovidedregularlyandvoluntarily.Inorder tooutlinethepurposesof costingsystems, G otze(2010) additionallyreferstoSchweitzerandK upper(2008)andsummarizestherespectivetasksas(1)mappinganddocumentingthewholeorganizationalproductionprocess, (2)providing information for planning and control purposes, (3) providing informationfor behavioral management and (5) providing avaluation base for processed andnishedgoods as well as for assets. In his elaborations oncosting systemscharacteristics, Zimmerman(2011)ispartiallyinlinewiththecharacterizationsof costingsystems outlinedabove. Hearguesthat costingsystems (1) provideinformation necessary to assess protability of products or services, to set optimalpricesandmarket theproductsor services, (2)provideinformationinordertodetect information on inefciencies and ensure minimal cost of production, (3) ifcombined with reward schemes, provide incentives for managers to behave in theorganizations interest, (4) support nancial and taxaccounting functions and (5)contribute more to rm value than they cost. Hence, Zimmerman (2011) considersthe decision-facilitating and the decision-inuencing perspective, the interrelationof nancial andcost accountingsystems andadditionallyadds a cost-benetperspective.Horngren et al. (2005) distinguish between two basic types of costing systems,i.e., (1) job costing systems and (2) process costing systems. At the same time theyadd that organizations do not apply neither pure job costing systems nor pure processcosting systems. Organizations rather combine elements of both types in order tobuild an organization-specic costing system. For (1) job costing systems, costs areassignedtodistinctunitsorbatchesofproductswherebythespecicproduct isoften custom-made. In case of (2) process costing systems, the costs of products orservices are determined on the base of broad averages. Process costing systems aretypically applied for mass-produced goods while job costing systems are applied forcases in which goods are produced for a specic customer.Types of costingsystems canalsobedividedintofull costingsystems andmarginal costingsystems. Inaddition, costingsystemscanbeusedforex-postcost determination or ex-ante cost planning (cf. inter alia Seicht 1990; Ebert 2000).Marginal costing systems consider the cost structure, i.e., marginal costing systemsdifferentiate xed and variable cost components while full costing systems totallyexcludethecost structurefromconsideration. Incaseof full costingsystems,all costs, i.e., xedandvariablecosts, areconsideredincostallocationandare2.3 Types of Management Accounting Systems 23allocated toproducts and services.Incaseofmarginal costingsystems,only thevariable costs are considered in cost allocation. Fixed costs are directly transferredtothecalculationof income(M ows 1991). Thesetwotypologies areextremecharacterizations whereby mixed forms of costing systems are possible. Both typesof costingsystemscanbeextendedbyex-anteplannedcosts. Consequently, ifex-anteplannedcosts areavailable, thesecostingsystems allowfor evaluationof deviations from planned costs. Ebert (2000) argues that theadvantages of fullcostingsystemslieinthesimplicationsandaccelerationofcostallocationandinformation provision. In contrast to marginal costing systems, full costing systemsdosolelyallowforasimplecalculationofdeviationsfromplannedcostswhilemarginal costing systems give the possibility of a more detailed evaluation.Another categorization of costing systems which is widely applied in literature isthedivisionintosophisticated(i.e.,activitybasedcosting)andnon-sophisticatedcostingsystems (i.e., product costingsystems, other types thanactivitybasedcostingsystems) (e.g. Gosselin1997; Clarke et al. 1999; Brownet al. 2004;Al-Omiri and Drury 2007; Brierley 2008). Not at least because of the categorizationofproduct costingsystems(i.e.,othertypes thanactivitybasedcostingsystems)this categorization appears to be very narrowand simple (Al-Omiri and Drury 2007;Brierley 2008). Amongst others, Abernethy et al. (2001) and Al-Omiri and Drury(2007) have elaborated a more detailed differentiation of types of costing systems.The basis for the level of sophistication as elaborated by Abernethy et al. (2001)is three-dimensional. They argue that there are two extreme characterizations, i.e.,(1)lowlysophisticatedcostingsystemsthatconsideroneorganization widecostpools that use cost drivers at the unit-level and apply responsibility based cost poolsand(2)highly sophisticated costingsystemsthatarecharacterized bymany costpools, hierarchical cost drivers and activity cost pools. As in case of the distinctionbyHorngrenet al. (2005), thesetwotypesof costingsystemsarebest viewedasendsof acontinuumwheremanyorganizationsmight combineelementsofbothcharacterizations.Al-OmiriandDrury(2007) similarlydistinguishbetweenhighly and lowly sophisticated costing systems. Specically, they argue that lowlysophisticated systems are simple direct costing systems while highly sophisticatedcostingsystemsareactivitybasedcostingsystems. Theydeterminethelevelofsophistication on the base of the number of cost pools and cost drivers, the methodof cost allocation in the rst step (allocation to cost pools) and the allocation methodin further steps of cost allocation (e.g. whether the allocation is based on transactionor duration drivers).2.3.2.2 Capital Budgeting and Capital Accounting SystemsThe purpose of this nal cluster of internal accounting systems is twofold. On theone hand, capital budgeting systems support decision-makers in assessing potentialinvestments with respect to cost effectiveness. On the other hand, capital accountingsystems support decision-makers in controlling and planning liquidity (Ewert andWagenhofer 2008).24 2 Management AccountingCapital budgetingsystems support management inmakingdecisions inthecontext of capital investment decisions. Inparticular, capital budgetingsystemshelp to determine whether or not acapital investment will earn back the originaloutlay and in addition provide a reasonable return. This type of decisions usuallyinvolves largeamounts oforganizational resources atriskand,atthesametime,affects the future development of the organization (Morse et al. 1988; Zimmerman2011). Horngren et al. (2002, 2005) additionally state that capital budgetingsystems usually focus on capital investment decisions that span many years. Thisdifferentiates capital budgeting systems from income determination and planningwhichusuallyfocusonthecurrentperiod. Capital investmentdecisionsusuallyinvolve cash inows and outows that accrue at different points in time which areusually answered by adding accrued interest of discounting of cash-ows (M olleret al. 2005). For theprocess of capital budgeting, Cliveet al. (1990) refer toKing(1975)andarguethat thecapital budgetingprocessconsistsof sixsteps,i.e.(1)project generation,(2)estimationofcash-ows,(3)progress through theorganization, (4) analysis and selection of projects, (5) authorization of expendituresand(6)post-auditinvestigations. Inthestepof(1)project generation, potentialinvestments areselectedfor whichinstep(2) potential cash-ows areestimated.Instep(3),i.e.,progress through theorganization, Cliveetal.(1990) arguethatcertain projects require approval of top-management (cf. also Scapens et al. 1982).In step (4), i.e., analysis and selection of projects, the selected projects are evaluatedwith respect to the fact that cash inows and outows usually realize at differentpoints in time. Step (5), authorization of expenditures, captures the nal decision(usuallymadebytopmanagement) onwhether ornot toinvest intotheselectedproject. Finally, step (6) captures a post-audit investigation, i.e., after a certain periodof time actual results might be gained which potentially provide input for controlpurposes. Capital budgeting systems particularly support management in step (4),i.e., the analysis and selection of projects.Capital accountingsystemssupport management inplanningandcontrollingliquidity. Inthe context of capital accountingsystems another interrelationofexternal and internal accountingenvisions, i.e., capital budgetingsystems arealsousedfor external accountingpurposes (Ewert andWagenhofer 2008). Inparticular, the cashow-statements are similar to capital budgeting systems (cf. alsoSect. 2.3.1). Inaddition, capitalbudgeting systemsconsider theplanning ofcashinows and outows, give a detailed plan that outline all sources and uses of cashand, furthermore, are applied for control purposes. 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