Changing Role of the Management Accountant

(Keynote address by Mr. Udayasri Kariyawasam, Chairman of Securities and Exchange Commission of Sri Lanka, and the Chairman of Insurance Board of Sri Lanka at the Achievers CIMA Graduation ceremony on 30 August 2009 at BMICH) (Full text is available on www.sec.gov.lk)

Mr. Ravi Edirisinghe Chairman of Achievers, Mr. Faris Ismail, Mr. Bradley Emerson Regional director of CIMA Distinguish invitees, Ladies and gentlemen, Good evening! First of all, let me thank Mr. Faris and his team for inviting me to be the Chief Guest and deliver the Keynote Address at todays graduation ceramony. It is a great honor for me to address tomorrows corporate leaders of Sri Lanka. Being involved in the private sector education field for nearly two decades, I always enjoy the company of young professionals like you. Let me congratulate all the graduates who have excelled in their exams, and thank all the lecturers who helped you to achieve such remarkable results.

The Accounting profession, I believe, is the most important and challenging profession in the world economy today, in terms of resource allocation, and controlling & measuring business performance. Its role has become more important now, than at any other time in our lifetime, due to the severe impact of the global recession. The role of the Management Accountant in particular, has become more important, not only in the corporate level, but also at the national level, and even more importantly, at the international level. Management Accountants are closely involved in supporting, planning, controlling, directing, communicating & coordinating the decision-making activities of organizations in the private sector, as well as the public sector. Managers of an organization are considered to be the Customers of the Management Accountant, so far as management accounting information is concerned, and Management Accountants should be continuously aware of the need to satisfy their requirements.

Some believe advisory services and information services to be the two main work areas of Management Accountants. Advisory services include the tendering of opinions, assisting the making of evaluations or the formation of expectations, and the development of norms or objectives. Information services include the provision of historical information, and future-oriented information. It has also been identified that Compliance, Control and Competitive support, are the three factors which influence management accounting work. Over time, the relative emphasis on these three factors has changed. Previously, a great deal of management accounting work was driven by the need for Compliance and Control. But now, the emphasis on Compliance and Control is declining, while the emphasis on Competitive support is increasing. The greater need for Competitive support has risen due to increased competition, greater customer focus, globalization, and the importance of quality. At the same time, organizations have responded to the changing competitive environment with flatter
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organizational structures, which are more flexible, responsive & customer-focused. The increased emphasis on Competitive support now requires management accountants to have strong Analytical and Communication skills. Furthermore, they must now actively support the line & process managers, and be directly involved in the decision processes. They must also consider long-term as well as short-term planning horizons. They must develop management accounting systems capable of providing information which supports both strategic & operational decisions. Importantly, management accountants must become directly involved in the formulation, and the implementation of organizational strategies. It has been established that the role of the management accountant in an organization is to support the information needs of management. The type, size, structure and form of ownership of the organization will influence the management role, and thus, determine the complexity of
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the management accountants role. Such differences in size do not change the basic role of the management accountant, nor the basic work which he or she does. However, the size of the organisation may change the degree of formality or sophistication with which the function is carried out, or the level of resources devoted to management accounting. But, the management accounting function remains essentially the same. In many public sector organizations, output cannot be measured easily, and the meeting of objectives and the measurement of efficiency become problematic tasks. Nonetheless, public sector organizations in many countries today adopt both management and management accounting practices which are very similar to those used in the private sector. Consequently, while there may be differences in some aspects of management accounting between the two sectors, these are less marked than what they may have been, say, fifteen years ago.

Ladies and gentlemen, let us take a brief look at the situation in public sector enterprises in Sri Lanka. Most of the commercially important public enterprises in Sri Lanka do not have a separate division to handle management accounting work, nor do they have a designation called management accountant. Moreover, such public enterprises are unable to recruit qualified management accountants, mainly due to very low salaries and other benefits that are offered in the public sector. We must not forget the fact that almost 70 per cent of the funds of this country are owned by the state. Therefore, I believe that the general treasury of the Ministry of Finance needs lots of management accountants in order to improve performance of the wider public sector in Sri Lanka. The Ministry of Finance has implemented various strategies at the Treasury in order to improve the performance of such enterprises. Unfortunately, the outcome of such strategies has been minimal or negligible. In my opinion, issuing circulars and calling for various reports would not improve the performance of public enterprises in this country. It is my understanding that the public administration bureaucracy of
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this country has not understood the importance of the services of management accountants, for improving the performance of public enterprises. Todays management accountants need to understand what management accounting is at the present time, and why it is so. Management accounting is changing the nature & extent of change, and the reasons for change, are determined by a number of factors. These include: changes in world economic & social structures, the globalization of markets, environmental issues, technological development, the importance of quality, and the need for organizations to become customer-focused. In addition to these global factors, issues have arisen at the organizational level, in matters such as how organizations and their management have adapted to change, how management information needs have changed, what effect this has had on management accounting, and how different people have interpreted the need for change and how they have presented their opinions.

In addition to the drivers of change in management accounting, stemming from concepts & practices in contemporary business & management, the impact of academic thought must also be considered. In 1985 Michael Porter published the second of his books on strategy, defining Competitive advantage. In describing how a firm establishes any competitive advantage which it might have over its competitors, he examined the notion of what constitute the product in the eyes of consumers. He took the view that the product was more than its physical configuration, appearance and dimensions. Accordingly, the concept of Value Chain has impacted heavily on the role of the management accountant and the scope of management accounting work. In 1987, Johnson and Kaplan challenged the management accounting profession by claiming that the management accounting had lost its relevance. Their book entitled Relevance Lost: The Rise and Fall of Management Accounting questioned the relevance of contemporary

management accounting and aimed to stimulate further writing and research on the subject. Following the publication of his book Cost Accounting: A Managerial Emphasis in 1962, Charles Horngrens work is regarded by many as influential in the development of modern management accounting. In 2002, he teamed up with George Foster and Srikant Datar and maintained that the design of a management accounting system should be guided by the challenges facing managers'. They suggested that there are four evolving management themes that are driving the evolution of management accounting systems: customer focus, value chain & supply chain analysis, key success factors, and continuous improvement & benchmarking. It may be important for us to think about developing a management accounting framework for the future, at least for the next decade. Any such framework must be suitable for organizations of varying sizes operating under different
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forms of ownership, and in different industry sectors. Such a framework must also reflect the fact that management accounting is seen by many as having significant human behavior connotations. Additionally, such a framework must cover four important factors. Firstly, it must identify the strategic role of management accounting. There is widespread acceptance that management accounting can play a vital, and increasingly important role in strategic management. Secondly, it must be able to identify the critical success factors of the industry in which an organization operates. These are the critical things which each organization in the industry must be able to perform successfully, or risk not being able to compete successfully in that industry. Thirdly, the framework needs to focus not only on short-term results, as is typically done today, but also on the long-term results of an organization. Focusing only on short-term objectives will encourage managers to maximize short-term results rather than long-term results. The management accounting system must monitor those factors which will indicate whether or not the organization is on target to meet its long-term goals as well as its short10

term objectives. Finally, the management accounting system must be able to measure and report performance at a number of levels. The top management may typically require measurements & reports on the performance of the firm as a whole, a division or a department, the manager of a business unit, a product or product range, a market, a particular customer, or a particular competitor. Management accountants today spend their time on strategic management accounting with a view to broadening the span of traditional management accounting. The term strategic management accounting was first coined by Ken Simmonds in 1981. The Chartered Institute of Management Accountants official terminology describes strategic management accounting as a form of management accounting in which emphasis is placed on information which relates to factors external to the firm, as well as non-financial information, and internally generated information.

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In conclusion, I wish to emphasis the skills that are required for the revised management accounting role. Robert S. Kaplan suggests that management accountants will need to spend less time dealing with financial accounting, audit and tax issues. More of their time must be spent learning about product & process technology, operations systems, marketing strategy, and the behavioral & organizational issues relating to the implementation of new systems & processes. Some other authors are of the view that familiarity with the business, understanding the industry, interpersonal & leadership skills, business proficiency, and speaking & presentation skills are essential requirements for the new breed of management accountants. I wish you all success, in your future endeavors! Thank you for your attention.

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