ACCOUNTING, BUDGETING, AND CONTROL SYSTEMS IN THEIR

ORGANIZATIONAL CONTEXT: THEORETICAL AND EMPIRICAL PRESPECTIVES

By: Eric G. FlamHoltz
Accounting and budgeting system must be seen as a part of carefully designed total
system of organizational control. If there is failure to connect or make link from all of them, the
system may not fulfill its functions properly. There are three components to representation an
organizational overall control system. The first component is organizational culture, can be
define as a pattern of values, norms, and beliefs shared by an organizations members. These
dimension of culture help influence the behavior of members of an organization. The second
component of organizational overall control system is organizational structure. The choice of an
organizational structure represents a managerial strategy on how to adapt the organizational
entity to the requirements of markets, technology and environment. Last component is core
control system which presented as an integrated structure of four basic organizational processes:
planning, operations, measurement, and evaluation-reward. Planning can be defined as the
process of deciding about the goals of an organization as well as the means to attain
organizational goals. Operations refer to the ongoing system for performing the functions
required for day to day organizational activities. Measurement is the process of assigning
numbers to represent aspects of organizational behavior and performance. The last is evaluationreward system which refers to mechanism for performance assessment and the administration of
rewards. After the culture has been defined, structure and the core control system help transmit
and reinforce the entitys culture throughout the organization to govern strategic and operational
decisions and actions. The failure to design a structure or core control system which are
consistent with the organizations value system is likely to create resistance and produce a
motivation to defeat the purposes of the structure and core control system.
The need for a different orientation of the role that accounting and budgeting play in the
control process as well as a broader concept of control system was studied in this paper by three
cases. First studies (conventional budgeting and control system), study in medium sized
residential real estate company. This study aimed to test whether a budget is a control system or a
component of the overall control system in a company. The result of this study support the theory
that the design of an effective control system must explicitly consider the relationship between
culture, structure and the core control system. Second studies (accounting system and
organizational), study in mall distributor of industrial abrasives, aimed to see whether the
accounting system can function as a part of the control system in a company. The result shown
the use of accounting as a control mechanism is a part of a socio-technical system, because it
involves change in the social or cultural system which interacts with the accounting technology.
Third study was study in very large US financial institutions (Organizational culture and zero
based budgeting as control mechanism) aimed to test whether a budget is a control system or a
component of the overall control system in a company. The result shown the aim of budgeting is
to provide a mechanism for effective planning and control in organizations so budgeting is a
component not a control system.