Management Accounting Application in China

-A Cultural Analysis-

RYAN PUTERA PRATAMA MANAFE

(Prasetiya Mulya Business School, Indonesia)

A. A Western management theory and management accounting

Management accounting originated in the West, is the cost accounting of its predecessor. But it really has formed and developed since the late 19th century and early 20th century. And the development of management science is one of the major factors affecting the development of management accounting. Although the phenomenon along with the emergence of their own labor as mankind has long history of several thousand years, in the West, taking knowledge management system as a separate field to research and development has only 100-year history, which was began in the late 19th century and early 20th century. Considering from the history and the development of contents, western management theory can be broadly divided into four phases: scientific management theory, behavioral science theory, modern management theory and cultural management theory.

The implementation of management accounting is the initial stage of formation and development stage of management accounting. It was an accounting information system, which is based on Taylor’s scientific management theory, its dominant position is from the early 20th century to the 1950s. The core of Taylor’s scientific management theory stresses the importance of improving production and efficiency, requires enterprises to reduce as much loss and waste as possible. In order to achieve this goal, it calls for the management, performing “the most perfect system of calculation and supervision”. And in their management accounting it is scientifically formulated by the “standard cost.” strict “budget control” and “balance analysis”, which become significant progress in management system of accounting for the wide implementation of Taylor in the calculation and monitoring. It particularly introduces stringent calculation in advance to the accounting system, implemented in advance, incident control and after analysis, which can be seen as an important milestone in the history of the development of accounting. Moreover, it provides an opportunity for the development of management accounting, and creates a new path for accounting for direct services to enterprises and enterprise management services directly.

After 1950s, the development of management accounting came into management decision-making stage. Entered the stage of rapid development of the post-war capitalist economy, modern science and technology were advancing by leaps and bounds, a large number of multinational companies were appearing, and competition was getting more intense, these new conditions and environment for enterprise management put forward a new demand that was urgent of modern enterprise management, scientific management of the pre-war doctrine which was unable to adapt. Taylor’s scientific management theory focuses on the individual elements of the production process, the individual aspects of the regulatory scheme to standardize. In order to maximize production and efficiency and to create conditions for people and machines as a slave, it is ranged stressed its two fundamental flaws. It introduces more advanced management theories to the management accounting, behavioral management science. It views people as the key to improving efficiency, compared with “economic human” in scientific management; it has a big step forward. Behavior management science, although born in 1920s, the introduction of behavior management science in management accounting was made in 1960s. After 30 years of development, it has gradually become an important and wide prospect for development in specialized areas. It is characterized by:

(1) In the study of management accounting issues, it is directly from the behavioral sciences related to the introduction and application of the concept, principles and methods;

(2) Through the application of modern management theory and behavioral sciences research — the main is “Organizational Behavior”, indirectly introducing behavioral science;

(3) Based on behavioral science and organizational behavior, or through standardized, it continues to enrich applicable the assumptions of the management accounting, or through empirical studies (field observations, experiments and questionnaires etc.) verified the applicability of various acts of management accounting assumptions, expanding the application of the results.

In the late of the 20th century, major changes to the socio-economic conditions and the rapid development of science and technology happened. The modern management theory and the theory of cultural management were emerged. These theories have also further promoted the development and application of management accounting, such as cultural management theory. There are many scholars and experts in the study of management accounting, attached great importance to the role played by the corporate culture.

B. The West culture and the formation of management accounting

Management accounting is not only a kind of technology science, but also a very practical application of disciplines built on the basis of management activities. The development of management accounting and that of modern western management theory have synchronization in time. And western management theory also shows itself in the management of the role played by accounting process. Moreover, on one hand, the activities of management practices need for the support of a management information system, its changes also require management information system to make corresponding changes to provide the necessary information support systems, to play the role of management accounting and to promote management practices.

This management information support system is undoubtedly management accounting. On the other hand, a certain period of the practice is surely guided by management thinking, and its development. Or that management accounting is the support, absorption, extraction and dissemination of western management practices. A western management practice, which is the guiding ideology and western management, such thinking is in a certain cultural formation and development environment. Management accounting shape and develop in the West, certainly has a long history with Western culture. As professor YU Xu-ying said, “Accounting is not a simple technical problem. Accounting information is obtained through collecting, processing, integrating and analyzing. To enable it to play a positive role in socio-economic development, the primary issue is viewed the correct social and cultural concept as a guide”.

From the cultural point, management accounting in the West is developed and applied so quickly. To a certain extent, because it has very deep roots of Western culture, the West easily accepts it. And it is reflected in the following aspects:

(1) With westerners’ importance of personal presence and personal achievement, a strong culture of the legendary hero, and stressing on the independence and freedom of the individual, it should be emphasized that the act does not meet the unified group. Westerners are accustomed to handling matters alone, solving the problem alone, they believe in the efficiency and capacity of the individual. After making decision, westerners would like to accept the responsibility and consequences. They must think this is the price of freedom. Such emphasis on the role of individuals, and another traditional West culture “decentralized” also has a long history. Only the separations of powers can influx the individual role to play. These have a profound impact on West culture management thinking, which emphasized the individual’s role in managing, promoting decentralized management. Behavior management science in management accounting emphasized on its role of the individual is of great importance to relations. Responsibility accounting in management accounting plays the individual role on the basis of decentralization. And incentive mechanism and performance evaluation system will push the individual role to a new height.

(2) Western human is a “transaction” contacts, that the lease is an important link, thus the first is to consider the “rules and laws”, followed by “custom and tradition” and, finally, “mercy, human and friendliness”. In such a culture it focus on the construction of standard system, and the system is a rigid management. For example, modern management from Taylor’s “Principles of Scientific Management” has a standardized access to the times, such as management standardization. Detailed regulations establish strict modern management system, the entire management of rules, laws, clear standards of rewards and punishments to set performance penalties, it will be promoted personnel management focusing on the organization and management of the targets to play an effective role and so on. Taylor will also standardize the management of these to be reflected in management accounting, cost management accounting standards, Taylor management system is reflected in a “calculated and the most perfect system” in management.

(3) West culture emphasizes competition and welcomes competition, the group is not afraid of outstanding performance; they dare to express themselves more often. Thus a good awareness of risk is made. It reflects in two aspects: first, not to fear risks; second, the importance of risk management. This culture of competition and risk has been fully embodied in management accounting. Enterprise management accounting is in the use of a purpose, which is to enhance the competitiveness of enterprises in the market, while in the market competition; there are so many risks, which require enhancing risk management. From cost accounting to implementation management accounting, cost accounting is due to the focus on cost pool, after calculating the cost of distribution and products, which is ignored before, and control. This is obviously not conducive to competition and risk management. Another example is the proposed strategic management accounting, which is from a higher perspective to look at competition and risk management. And in the environmental management accounting, it is not that its environmental problems are due to stress, but in the new historical conditions it has to make a choice for its own survival and development to enhance their competitiveness and risk management.

In addition, because western culture competes in the distribution, methods are also emphasized by the distribution of contributions, which would be reflected in the accounting responsibilities. Western culture is still pursuing a clear and fair habit. Cause ways of thinking and research on the method, western attention to the deductive method and quantitative analysis method may be provided for the realization of this pursuit. In management accounting the use of quantitative analysis and interpretation of the law can be seen everywhere. Obviously this way of thinking and research methods has deep cultural origins.

C. Chinese traditional culture of China and the application of management accounting

The application of management accounting research in the late 1970s and early 1980s began with the introduction of western management accounting theory. After years of practice and research, it has achieved some success. Along with the development of Chinese market economy, the growing importance of management accounting needs to standardize the development of the capital market to foreign-based financial accounting report. However, the prosperity of the capital market needs the more advanced management accounting, which stresses on internal management accounting. The difficulties and prospects of SOE reform show a huge space in Chinese management accounting. However, due to various reasons, only in economically developed regions, listed companies and mainland enterprises, accounting management is applied to a certain extent, a substantial number of enterprise management personnel knew little about the basic knowledge of the subject of management accounting, such as the full budget, risk analysis, differential analysis, long-term investment decision analysis, evaluation of other staff members, not to mention using these methods in management, thus these greatly constrain the application of management accounting.

Western management accounting has not been popular in China, it is in surface and enough attention isn’t paid to management accounting by business management, but a deeper reason is the cultural factors. As mentioned above, the formation and development of management accounting in the West actually contains deep roots of Western culture. Many elements in management accounting are directly or indirectly reflect the impact of Western culture. This is strongly influenced by western culture in the management accounting theory and model that once be used to copy the popular practice of traditional Chinese culture under the influence of the management activities, Management does not harmonious with its accounting, and it is not surprising that it can’t achieve the intended effect of accounting management. Chinese traditional culture is accumulated in the history of long-term; it exerts a subtle influence on people’s behavior. It is also affected by the application of management accounting through the impacts of value of managers and accounting personnel. Management accounting is not only to deal with the accounting but the management, which is a challenge to the managers of values, but also a challenge to the quality of accounting officers. Chinese traditional accounting in this area mainly reflects in the following aspects:

(1) “Official position” cultural impact. China is a country with more than 5,000 years of history, and a great unified centralized authoritarian state. The feudal rulers uphold a privilege form and develop the system, which view culture as their major culture, make legitimacy of their rule privileges, thereby creating the “official position” culture. “Official position” is that old Chinese culture of this bureaucratic hierarchy and privilege system and the traditional culture of the system description. This generated a sense of the impact on people, namely the “official position”. Official position, in essence, is a respected authority ideological supremacy, advocating worship of authority, power-based, namely man. This existence of official position idea makes management accounting personnel with many ambiguities surrounding the feudal autocratic things. This is shown in the management of corporate leadership “patriarchal”, which is an issue that should not be overlooked. Although through using management accounting information and analyzing after calculating the optimal program are offered for the leaders, however, in this “will”, whether it has effect is not sure. Moreover, we tend to the implementation of management accounting rather than decision-making applications. This also has a certain relation with the “official position” of Chinese traditional culture.

(2) Chinese traditional culture advocate moderation, with important ethics and system. Chinese traditional culture advocating moderation and acting itself does not pay attention to things, but personnel is the principle of verification personnel. As for personnel, China also attaches great importance to ethical and cultural tradition, emphasises on people’s morality, stresses the moral norms of behavior, and has shown his pursuit of “truth” and “good”, the pursuit of “harmonious” trend so that little attention is paid to the construction of regulatory system, and much is to the ethics of the people convert. Even if there is a relevant regulatory system, in order not to hurt friendship, it takes into account the relevant regulatory regime face as hypothetical. Modern management accounting has many “standards”, “control” and “assessment” etc, running counter to some extent, with the Chinese traditional culture. For instance, modern management accounting calls for telling praise from punishment in the evaluation of performance requirements, but many operators are affected by the obsession of “big problems into small”, it is difficult in “punishment.” Which make the role of management accounting in enterprises only getting half the result with twice to affect its application.

(3) Traditional Chinese culture is an agricultural culture. The natural economic and cultural self-sufficiency in agriculture formed the People Climbing back in the saddle complacent, the status quo philosophy of life. It cannot give people the incentive to advance but only give moral paralysis. Coupled with the doctrine of precipitation, people cannot avoid strong sense of uncertainty, still seek stability, flexibility and focus on unity rather than individual initiative. This enables the people to take defensive mentality while accepting new things. But because of the traditional values, people highly depend on the executive power, and also hope to be controlled through administrative regulation, in order to reduce the uncertainty they face. Under the influence of this culture, Chinese management accountants in enterprises, when facing with certain business, first find any corresponding norms, in the absence of corresponding norms require standardized or checking. This text and that before neglected regulatory construction system is contradictory. On one hand, people have more action and work ethics of the Chinese tradition, the other facing with new things; on the other hand, people are also accustomed to the relatively rigid standards for its control. However, at present we have management accounting, which reduces the application of management accounting initiative. And with the development of the management accounting, technologies are flexible and diverse and it forms of a new field constantly. This requires that management accountants should have the flexibility and creativity, boldly discard the traditional ideas and methods, take the initiative to use new methods, and to explore new fields.

(4) The traditional Chinese culture permeates with a strong egalitarian thinking. Confucius on the “ping”, KONG-Zi said: “The news is the state of, not scarcity of resources, but uneven worse than poverty and suffering from anxiety.” Obviously, “not a problem, but unequal” is an egalitarian typical small peasant mentality. This egalitarian thinking about equal pay, no equal pay, emphasizes the “finish line” equality not “start”, it easily induces pessimistic and is content with mediocrity, also becomes easy credit against mediocre advanced able tool. In real life, “forest green, red eyes,” the looting appeared in the news media frequently. It is a reflection of the country farmers’ thinking deep-rooted fact; it is absolutely egalitarian thinking problems. The “management” in modern management accounting should be based on fair competition, according to the distribution of contributions, thus its popular use will allow those enterprise staffs affected by the ideological influence of egalitarianism. Enterprise staffs become inconsistent in their subconscious awareness.

(5) The Chinese traditional culture has demonstrated a strong philosophy, but it stresses on practical, neglects theory. More attention is paid to practical issues than abstract theory and the logic of his general permit. In using method, it pays attention to the use of qualitative research methods and the use of induction, not inclined to use data for quantitative analysis and deductive reasoning. Thus, on one hand, management accounting research results are based on a large amount of data in a certain degree. In China-related database systems, management accounting research results do not apply; On the other hand, Chinese such cultural practices make people not to accept the use of large amounts of data in management accounting to illustrate the problem, and strengthen management using deductive reasoning. This is also reflected in the actual work. For instance, management responsibility for the appraisal work is not clear and many managers handle thing with experience rather than on projections and so on.

D. Inspiration

The application of management accounting in China is restricted by Chinese culture, especially by traditional culture, and it is a fact. But that does not prevent the use of Chinese enterprises on the management accounting. After all, as a science, it is conducive to China’s science and the improvement of management is really important. But after the founding of New China, we have a lot of characteristics of enterprise management. Although not using “management accounting” of the name, but in reality it is management accounting, Chinese enterprises are also in very evident need of management accounting. Management Accounting in China’s popularity may also need for a period of time. With the deepening political and economic reforms in other aspects, the application environment of management accounting in China in the near future will be greatly improved. At present, we still do something in considering cultural factors, including conditions at the same time, to promote the wider use of management accounting. Meanwhile, we need to make innovations based on the introduction of the existing management accounting, to form management accounting in a number of areas suitable for China’s conditions and with Chinese characteristics, For example, how to reflect Chinese traditional culture stressing ethical attention and flexible management in management accounting. Of course, how to reflect flexible management also needs to make greater efforts in theoretical research industry practice to achieve. We may have created management accounting with Chinese characteristics in the environment of Chinese culture, and make contribution to the development of management accounting.

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