Chapter 23 Managerial Accounting.pdf

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Managerial accountingStephen Salter

CONTENTS

OBJECTIVES

23.1 Introduction23.2 The balanced scorecard as an overview tool23.3 Currency and control

23.3.1 Introduction23.3.2 Types of exposure23.3.3 The need to translate23.3.4 Operational budgeting under foreign exchange fluctuations23.3.5 Capital budgeting

23.4 Variances and foreign exchange23.5 Culture and management accounting

23.5.1 Overview of culture and control23.5.2 Choosing a strategic objective23.5.3 The budget process across countries and other MCS issues23.5.4 Are US management control practices a ‘parochial dinosaur’?23.5.5 Culture and control: a summary

23.6 Control and performance23.6.1 International aspects23.6.2 Philosophies and models of control23.6.3 Sarbanes-Oxley and global control

23.7 Looking forwardSummaryReferencesQuestions

After reading this chapter you should be able, within a comparative and multinationalcontext, to:

l discuss the choice, by companies, of a strategic objective;

l outline the budgeting process within multinational companies;

l explain how multinational companies attempt to avoid foreign currency translation,transaction and economic exposures;

l explain the differences between behaviour control, outcome control and clancontrol;

l explain the impact of the US Sarbanes-Oxley Act on global control.

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23.1 Introduction

The field of managerial accounting and control in a global business environmenthas the interesting property of being a mixture of two disciplines. The first is therelatively soft art of management which, at least as far as ‘international’ is con-cerned, finds its origins in anthropology and psychology and attempts to provide aperspective on the unique behavioural problems of controlling a business entity.The second part, ‘accounting’, deals with the technical side of recording and manip-ulating information to provide what may be described as an optimal package or setof information. This chapter attempts to look at both areas as they relate to doingbusiness in various countries.

The need for management accounting and control arises from the strategy of thefirm. Management accounting serves both to provide information to managementand to be used by management as a tool for ensuring that employees’ actions andobjectives are aligned with those of the firm. The basic challenges of managementaccounting within a firm can be formalized as follows:

1 What is the strategic objective of the firm?

2 What types of resources does the firm need and where does it anticipate gettingthem in the short term (operating budgets) and in the longer term (capital budgets)?

3 Is there a system in place that tells the firm whether it is going off track and needsto make corrections?

4 How does the firm know that it has arrived at where it wants to go?

5 How does the firm evaluate and reward the performance of its managers?

Figure 23.1 suggests the links that occur within a strategy and control system indiagrammatic form.

Section 23.2 looks at a popular method for assessing whether objectives havebeen met. In the international area, meeting objectives is made more complicatedby different currencies and cultures. Sections 23.3 and 23.4 address the currencyissue, and Section 23.5 looks at the role of culture. Section 23.6 examines controland performance.

Figure 23.1 Strategy and control: an overview

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23.2 The balanced scorecard as an overview tool

In attempting to approach the multi-level objectives of any firm described above,one tool that has come to the fore is the balanced scorecard (Kaplan and Norton,1992). The idea of this control tool is that firms that both derive successful strate-gies and implement them within a coherent and controlled framework develop andmaintain advantages over their competitors.

Organizations face an increasingly global, competitive environment. This trendhas influenced strategic choices, such as what businesses and markets to be in.Taking advantage of global strategies also includes structuring decisions. Forinstance, the degree of centralization versus decentralization becomes an integralpart of the strategy implementation process. In line with this thinking, going globalentails increasing complexity with regard to management control systems. Unfor-tunately, typical, traditional, financial-only measures do not provide sufficientinformation for managers of international firms to implement global strategies. Toaddress this problem, the balanced scorecard (BSC) can be used as a complement tothe existing organizational control systems and as a means to better communicateand thus implement strategy. Robert Kaplan and David Norton introduced the tech-nique in a 1992 Harvard Business Review article.

Since 1992, the BSC has gained immense popularity in the United States. Bainand Company conducts an annual survey to determine the popularity of variousmanagement techniques in the United States. They reported that about 50 per centof Fortune 1000 firms use balanced scorecards (Furnald, 2001). A study by Marr(2004) of 780 CEOs and CFOs from large US organizations is more conservative andfinds that 35 per cent of those surveyed use a balanced scorecard. Internationallythe results vary as well. In a survey of internal auditors across 34 countries, Melville(2003) concludes that the BSC has been widely adopted and forms a strong basis forinternal control and commitment to the firms’ strategies. This commitment includesusing some of the softer objectives that are not typically associated with accountants.A study of senior executives by Franco et al. (2004) finds that while 35 per cent ofAustralian organizations use a BSC to measure performance, only 18 per cent ofmajor UK companies do. In the United Kingdom, the preferred tool is Key Perform-ance Indicators (KPI) which are quantifiable measurements, agreed to beforehand,that reflect the critical success factors of an organization, but tend to be hard, suchas financial ratios, rather than soft.

The traditional balanced scorecard is shown in Figure 23.2 (overleaf). As can beseen, the balanced scorecard is limited to four perspectives at different parts of theorganization’s value adding process. Landry et al. (2002) have suggested that a fifthperspective could be added in order to monitor the organization’s uniquely globalissues such as political risk, transfer pricing, exchange rate risk and protection andmarket demographics. This would supplement the standard domestic balancedscorecard. A possible five-perspective card is illustrated in Figure 23.3 (overleaf).

Finally, Landry et al. (2002) have suggested how this might be applied to GeneralElectric, a leading US multinational (see Table 23.1).

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Figure 23.2 A traditional balanced scorecard: four perspectives

Figure 23.3 A traditional balanced scorecard adapted for internationalorganizationsSource: Landry, S., Chan, W. and Jalbert, T. (2002) Balanced scorecard for multinationals, Journal of Corporate Accountingand Finance, September/October, p. 38. Copyright © 2002 John Wiley & Sons. Reproduced with permission.

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Table 23.1 What the international perspective might look like for a global company

General Electric international perspective of balanced scorecard (hypothetical)

PerspectiveInternational

Note: 1 General Electric’s 2001 Annual Report noted these factors under the ‘Globalization’ route to accelerated growth.Source: Adapted from Landry et al. (2002) ‘Balanced scorecard for multinationals’, Journal of Corporate Accounting and Finance, p. 38.Copyright © 2002 John Wiley & Sons, Inc. Reprinted with permission.

Critical success factors1

Customer support

Investment in globalcapabilities

Creation of strong andglobal teams

Performance measures– International customer satisfaction– International customer retention– Quality international customer service– Number of new international markets entered– Number of products introduced into international markets– Production plants opened and/or expanded in foreign

countries– Intensify hiring of indigenous personnel– Cross-cultural training– Cultural as well as job rotation– Language training

23.3 Currency and control

23.3.1 IntroductionExchange rate movements, just as in financial accounting, have an influence onmanagement accounting, particularly on budgeting and performance measurement.From a manager’s point of view this is particularly important. In theory, non-domestic managers should be evaluated after taking account of differences in environment, such as currency fluctuations. However, Borkowski (1999) finds thatmultinational enterprises (MNEs) evaluate domestic and foreign subsidiary managerswithout compensating for these. A good understanding of the interactions of for-eign exchange and management control systems can help the manager to deal with,or at least assess, the risks of a non-domestic venture.

23.3.2 Types of exposureDefining the risks starts by understanding that movements in exchange ratesbetween the home and other currencies leads to three types of exposure: translation,transaction and economic.

Translation exposure

‘Translation exposure’ is an accounting issue. It exists because, upon consolidation,assets in one currency have to be re-expressed in another. Balance sheet and incomestatement items, whose value remains constant in local currency, will change as theyare translated into that of the parent company. This translation effect influencesbudgets. First, in budgetary planning, an initial rate must be chosen to prepare projected statements. This may be the current rate at the time the budget is prepared,

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a forward rate for the beginning or end of the budget, or some series of multiplerates. During the period for which the budget has been prepared, exchange rate vari-ances occur. These can cause differences between actual and budgeted revenue andexpenditure figures. If the temporal method (see Chapter 18) is used for translation,items such as depreciation and amortization, which are related to historical costassets, would be budgeted using historical exchange rates, and actual costs would betranslated at those same rates. Using the current rate method, by holding the assetsacquired through operations to the end of the year, there will be an additional effectfrom exchange rate movements. Also, assets held since the beginning of the yearwill be affected by the exchange rate movement for the entire year. These effects onshareholders’ funds are known as the cumulative translation adjustment.

These variances are, to some extent, dependent on the initial rate chosen. Forperformance evaluation purposes, some of the impacts of exchange movements canbe removed if an individual manager is not responsible for exchange management.However, there may be indirect effects such as:

l the need to adjust selling prices and plans for out-of-country inputs;

l positive or negative changes in volume from the impact of changes in exchangerates on domestic and export markets;

l deviations from standard input efficiencies because alternative domestic and foreign suppliers, who become more price competitive as a result of exchangechanges, were employed.

To remove all of the effects of foreign exchange rate fluctuations, a separateexchange rate may be required in budgeting for each revenue and expense item,making planning even more complex.

Transaction exposure

‘Transaction exposure’ results from unhedged contracted cash flows (see Section 16.4).Usually a separate budget for international cash flows may be prepared to assesswhether the volume of unhedged cash flows is significant. Such a budget will facilitatethe planning, controlling and evaluating of hedging activities and policies. Whilethis can be done at the local level, the vast majority of companies appear to do itin global or regional treasury departments, and such departments will plan a hedg-ing strategy. However, hedging expenses will need to be included in the income andexpense budgets prepared both for the company as a whole and for the divisions.

Economic exposure

‘Economic exposure’ is the third impact of foreign exchange rate variations on cor-porations and corporate budgeting. It involves uncontracted and unplannedchanges in future cash flows generated from operations and foreign investments asa result of a change in exchange rates. Decisions involved in dealing with this typeof exposure are primarily long-term and include choosing market and productionfacility locations. Other decisions include pricing strategy, sales mix, how opera-tions are financed and personnel rewards. The impact of each of these decisions willclearly be part of the profit planning and control structures. In the case of budget-ing, if the budget is to be at all realistic, these ‘economic impacts’ of foreign

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exchange variations may determine the base decisions which in turn generate themost basic numbers for the budget.

23.3.3 The need to translate

While each of the types of foreign exchange exposure influences budgeting in themultinational, the question then becomes: ‘Why bother to translate at all, why notsimply leave operational budgets in local currency, much as a domestic firm woulddo?’ In fact, if a company has a long-established tradition of being a collection ofrelatively independent operations, each raising capital on the local capital markets,there may well be a strong case for doing just that.

However, there are several arguments for choosing a base foreign currency rateand then translating budgets and targets into a common currency. Comparability ofbranch operations is the major reason to budget and control using information trans-lated into a single currency. As foreign exchange controls have fallen away in mostcountries, planning for a business has become similar to selecting a portfolio of foreignshares. Each of these shares must, in the end, be compared with the other membersof the portfolio for maximum return to the shareholder. Companies using this strategyfind it necessary to have a common basis for decisions if they are to evaluate wherethe foreign operation fits into their portfolio. While this may be grossly unfair to theindividual managing a foreign subsidiary, this information is necessary to calculatedeviations from anticipated returns on investment (ROI) worldwide. Companies,after all, must be responsible to their shareholders, and global ROI in the parent cur-rency is likely to have a major effect on dividends and share prices.

Another reason to budget using translated information is the notion of holdingmanagement responsible for dealing appropriately with exchange rate movements.In countries where the currency is depreciating against the currency of the homecountry, management of the foreign subsidiary may be responsible for repatriatingcash as it becomes available through income, at least within the limits of the locallaw. Thus, management might be charged with getting cash home within those limits to reduce exchange losses. Budgeting and control with translated informationcan help to explain the success or failure of that policy. Finally, the accounting rulesin many countries require significant global consolidation, and the use of a singlemaster currency is likely to facilitate the process of year-end consolidation and reconciliation of management’s internal and external financial data.

23.3.4 Operational budgeting under foreign exchange fluctuations

So we return to the question, what exchange rate should be used for budgeting andcontrol? The budgeting process begins well before the budget year. This providesthree clear choices for exchange rates: the rate at the time of budget completion; therate at the beginning of the budget year; and an estimate of the average rate duringthe budget year (a forward rate). The choice may be made by looking at interiminformation during budget preparation and at who assumes responsibility forexchange management.

Consider a simple example of what can happen. Suppose that a company inSouth Africa is budgeting for its subsidiary in Australia for the calendar year 2007.

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At the beginning of the budgeting process on 1 September 2006, the rate is 5.6 randper dollar. This could certainly be used as the rate for the complete budgeting pro-cess. However, perhaps results have shown a steady weakening of the rand over theprevious 12 months. The company could attempt to anticipate the effect of thiscontinued depreciation by preparing several scenarios, and if this depreciation con-tinues, both budgetary and real action may have to be taken to stabilize profits. Anexample of such action would be at the start of the financial year, for example, toenter into a long-term hedge until 31 December 2007 which would protect theanticipated Australian dollar profits based upon this exchange rate. This would alsorequire a budget planning adjustment at that time.

If the South African management wants the Australian management to assumeresponsibility for protecting the exchange rate change, then a budget based on the beginning of 2007 rate might be appropriate. In this case, the Australian man-agement is only responsible for exchange rate gains and losses beginning with 1 January 2007. Alternatively, the head office may budget using a September 2007 rateand should take a 90-day hedge for the period 1 October 2007 to 31 December 2007to protect the budget until the starting point where the Australian managementtakes over. Once January 1 arrives the Australian management would probably enterinto a hedge to protect against the exchange rate movement during the budget year.

A final strategy for selecting a budget exchange rate involves only theoretical ratherthan real actions in the budget process. In this case, although no foreign exchangeactions are taken, the South African head office’s estimate of the average rate or aforward rate for the year could be used to develop the budget, and deviations fromthat rate actually become the responsibility of either the forecasting department orare shared with the subsidiary’s management by giving them the task of managingchanges beyond the forecasters’ predictions.

23.3.5 Capital budgeting

Capital budgeting is the longer-term version of the operational budgeting discussedabove. However, many of the considerations discussed – particularly as they relateto economic exposure – continue to apply. As in short-term planning or budgeting,long-range planning or capital budgeting must take into consideration anticipatedexchange rate movements for discounting future cash flows. This becomes part ofthe risk involved in choosing the discount rate, along with any environmentaluncertainty. Environmental uncertainty can be mild, such as the risk of unexpectedheavier taxation, or severe, such as the risk of expropriation. In general, the risk isgreater in less developed countries than in wealthier trading partners, but even inthe latter there are many adverse events that are unpredictable. For a discussion ofthis problem, see Kobrin (1979) and Edmunds and Ellis (1999).

Whether or not standardized reporting practices are used in a multinational com-pany, it is necessary to consider whether foreign operations and their managersshould be evaluated on a global basis or merely on a national basis. Comparing ROIsor net profit is a primary method to evaluate both individual operations and indi-vidual managers on a standardized or global basis. But can effective decisions bearrived at in this manner? Sometimes, when environmental factors are used in long-term strategic decisions, the outcome may appear to be at odds with the quest for

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Table 23.2 Analyzing variances in the sales budget of Zambezi Boards in 2007

Basic data Reference Value Calculations Results

Exchange rate used budget (R/$) A R 5.66Exchange rate end of budget yr in R/$ B R 5.88Average exchange rate (R/$) C R 6.01Budgeted sales price ($) D $349Budgeted volume (units) E 10,000Sales budget ($) F D × E $ 3,490,000Sales budget (R) G D × E × A R 19,755,843

ResultsActual sales (units) at OZBOARDS Australia H 7500Actual Sales Price $ OZBOARDS Australia in AUD I $275

What went wrong in OZ: Australian $ variance calculations untranslated sub in $.Actual sales ($) J H × I $ 2,062,500Actual sales (units) × budgeted (std) price K H × D $ 2,617,500Sales price variance (minus sign is unfavourable) L J – K −$ 555,000Sales volume variance (minus sign is unfavourable) M K – F −$ 872,500

What did the exchange rate do to Zambezi Boards: translated variance calculations in RActual sales R at average exchange rate (R/$) N H × I × C R 12,395,625Actual sales (units) × actual price ($) × budgeted O H × I × A R 11,675,194

(std) exchange rateExchange rate variance (minus sign is unfavourable) Q N – O R 720,431

You can recompute variances from aboveActual sales (units) × budgeted (std) price × std P H × D × A R 14,816,882

exchange rateR Sales price variance (minus sign is unfavourable) R O – P −R 3,141,689R Sales volume variance = (Actual sales (units) × budgeted S P – G −R 4,938,961

(std) price × std exchange rate) – Sales budget (R)

strong ROIs on a year-to-year basis. Therefore capital budgeting may require evenmore judgement than operational budgeting. In any case, the assignment of budgetresponsibility should be treated seriously. It also leads us to the significant issue inthe management control area, namely that of control and performance evaluation,together with an allied reward structure.

23.4 Variances and foreign exchange

We have discussed in the budgeting section how changes in the value of a local cur-rency can affect budgeting and decisions. It can equally affect performance evalu-ation. The key link is a formal system of variance analysis, which can be a usefulanalytical tool telling management where problems lie. Consider a South AfricanCompany, Zambezi Boards, which is attempting to arbitrage the lucrative trade inhigh end surfboards between South Africa and Australia. Zambezi Boards forms anAustralian Subsidiary (Ozboards) to sell its products in Australia. As can be seenfrom Table 23.2, in 2007 Ozboards suffers a number of unfortunate occurrences.

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Due to continued personal imports by Australian surfies buying their boards directlyfrom South African traders, Ozboards is less successful than expected. First sales vol-ume (in units) has dropped which, even if prices had remained the same as bud-geted in Australian dollars, would have resulted in a drop in sales of $872,500 (seeitem M). However, sales price per unit has also fallen from $349 to $275, enough to reduce revenue by a further $555,000 (item L). These variances would be thesame whether Ozboards was a domestic company or the subsidiary of a multi-national. Fortunately, the South African currency, the rand, has depreciated and thecompany gets 6 per cent more rand than originally budgeted for each Australiandollar. The net result is that, when the South African managers examine their opera-tions, they find that these variances are offset by the foreign exchange variance.This exchange variance, however, is insufficient to offset the drop in sales price andvolume. Problems therefore lie with the Australian market, and Zambezi boardsneeds to decide how to price its boards for next year. Similar calculations can bemade for direct and indirect expenses.

23.5 Culture and management accounting

23.5.1 Overview of culture and control

Many reasons can be cited for transnational differences in management accountingand management control systems (MCS), for example, history or economic condi-tions. However, these reasons can be distilled into a system of beliefs broadlyreferred to as ‘culture’. Many authors have attempted to define what culture is andto classify countries by culture. Few have been more successful or accepted thanHofstede (1980, 1984, 1991), whose work was examined in Chapter 2.

How would a senior manager begin to address the issue of making MCS culturallyeffective? He or she may wish to start by examining whether the cultural valuesmatter in management accounting. The answer is far from clear. Granlund and Lukka(1998) argue that, at a macro level, management accounting practices (includingconcepts, ideas, techniques, system designs) and the technical aspects of the purposeof management accounting have converged globally and are no longer subject tocultural forces. However, Granlund and Lukka see culture having effects at the microlevel of behavioural patterns and styles of information use. There is considerable evid-ence that cultural attitudes are reflected in the different ways in which informationis processed and how persons react to MCS in different countries (see Harrison and McKinnon (1999) for a summary and Section 23.5.3 for more detail). Existingevidence, as summarized in Chow et al. (1999), suggests that many multinationalsrespond to these cross-national differences in information processing by creatingunique aspects for the MCS for each national subsidiary. In addition, Borkowski(1999) indicates that there is some shifting of performance goals by US, Japanese andCanadian multinationals for subsidiaries operating in another country. Table 23.3illustrates the Borkowski (1999) findings for the US firms at home and abroad.

In order to understand how cultural values might cause MCS to need interna-tional modification, one first needs to understand how culture may determine what

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an appropriate management control system is. Harrison and McKinnon’s (1999)review provides a good summary of the considerable research that has been donethus far (see Table 23.4). They conclude that, while some relationships have beendemonstrated between culture and MCS, the broad concept remains unproven.Similarly Chenhall (2003, p. 153) concludes:

Overall, the research has provided mixed results as to whether culture does have effectsacross aspects of MCS. There are few areas where consensus can be drawn. This is becausestudies have examined different combinations of cultural dimensions and have consideredaspects of MCS in different ways. As a consequence there is little overlap between studiesto enable themes to be drawn or comparisons made and generalizations developed.

Both of these studies seem rather pessimistic and the next sections look at howculture has been perceived as playing a role in firms’ strategic and other controldecisions. The corporate objectives discussed in Section 23.1 should be borne inmind as these studies are explored.

23.5.2 Choosing a strategic objective

A great deal has been written on strategy for the multinational (see, for example,Gupta and Govindarajan, 1991; or Edmunds and Ellis, 1999). Most companies, insetting strategic objectives, focus on choosing a suitable numerical target. This canbe in terms of a particular budget number or financial ratio, and it seems to varyconsiderably from country to country and from business unit to business unit.Possible targets include:

l sales;

l cost reduction;

l quality targets;

l market share;

l profitability;

l budget to actual.

Table 23.3 Rating for key performance measures for US firms only

Performance US Canadian Japanese German UK goal domestic subsidiaries subsidiaries subsidiaries subsidiaries

Cost reduction 1 2 2 2 2Sales growth 2 1 1 1 1Profit margin 3 4 4 3 3Goal attainment 4 2 3 5 4Budget adherence 5 5 5 4 5

Note: Rank of 1 = most utilized by firms surveyed.Source: Extracted from Borkowski, S. (1999) ‘International managerial performance evaluation: a five country com-parison’, Journal of International Business Studies, Vol. 30, No. 3, pp. 543–4.

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Table 23.4 Harrison and McKinnon’s cross-cultural studies in management control systemdesign after 1990

Study

Chow, Shields and Chan (1991)

Frucot and Shearon (1991)

Vance, McClaine, Boje and Stage (1992)

Harrison (1992)

Harrison (1993)

Ueno and Sekaran (1992)Ueno and Wu (1993)

Harrison, McKinnon,Panchapakesan and Leung (1994)

Chow, Kato and Shields (1994)

Country(sample size)

Singapore(96)USA (96)

Mexico (83)

ThailandIndonesiaMalaysia, USA707 > 68%response

Singapore(115) Australia (96)

Singapore(115)Australia (96)

USA (205)Japan (247)

USA (104)Australia(140)Singapore(65)Hong Kong(55)

USA (54)Japan (39)

Method

Experiment

Surveyquestionnaire

Surveyquestionnaire

Surveyquestionnaire

Surveyquestionnaire

Surveyquestionnaire

Surveyquestionnaire

Experiment

MCS characteristic(s)

Work flow interdependencePay interdependence

Relation between locus of control, budgetary participation,performance, job satisfaction

Formality of structures and controlsIndividual vs. team developmentEmployee involvement in appraisalIntrinsic versus extrinsic rewardsFeedback frequency

Relation between budgetaryparticipation and reliance onaccounting performance measures(budget emphasis) in managerevaluation

Reliance on accountingperformance measures in superiorevaluative style

Formalizing communication and coordination in budgetaryplanning processes

Organizational design:DecentralizationResponsibility centresPlanning and control:Use of quantitative techniquesPlanning time horizonGroup vs. individual decision makingFormalization

Organizing: Environmentaluncertainty, hierarchy height,centralization, interdependencies,formal rulesPlanning: Top-down planning,standard difficultyEvaluating: Controllability filters,relative evaluationRewarding: Individual-basedrewards, preset pay

Culturaldimension(s)/values

Individualism

Power distanceUncertaintyavoidance

UncertaintyavoidancePower distanceIndividualism

Power distanceIndividualism


IndividualismUncertaintyavoidance

Power distanceIndividualismConfucian dynamism

Power distanceIndividualismUncertaintyavoidanceMasculinity

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Each of these has its value. In basic management accounting theory the mostappropriate method to be used in a multinational is best defined by the focus of theunit for which the target is being set. Sales or market share is particularly relevantfor a unit that has no control over its input costs and whose primary purpose is tosell the goods of some other unit. Profitability, measured as a ratio or some othermeasure, is most appropriate for a fully fledged strategic business unit (i.e. a unitwithin a group of companies that makes its own business decisions at all levels, e.g.a major division or subsidiary). In addition, targets for a unit may be linked notonly to its objective, but also to that part of its operations that it controls.

Turning from companies as a whole to an analysis of companies by country oforigin, there is considerable evidence that suitable targets vary across countries.

Lau, Low and Eggleton (1995)

Merchant, Chow and Wu (1995)

O’Connor (1995)

Chow, Shields and Wu (1996)

Chow, Kato and Merchant (1996)

Source: Derived from Harrison, G. and McKinnon, J. (1999) ‘Cross-cultural research in management control systems design: a review ofthe current state’, Accounting, Organizations and Society, Vol. 24, p. 486 where full references to cited papers are given. Reproduced withpermission from Elsevier.

Singapore(112)

Taiwan (23)USA (54)

Singapore(125)

Taiwan (155)

USA (54)Japan (28)

Surveyquestionnaire

Open ended,in-depthinterviews

Surveyquestionnaire

Surveyquestionnaire

Surveyquestionnaire

Relation between budgetemphasis, budgetary participationand task characteristics affectingjob related tension andperformance

Size of performance-dependent rewardsGroup vs. individual-basedperformance rewardsLong-term performance incentivesSubjective vs. objectiveperformance evaluations

Participation in budget settingParticipation in evaluation

Decentralization, structuring of activities, participativebudgeting, standard tightness,performance rewards,controllability filters, reliance on accounting performancemeasures, participativeperformance evaluation

Control tightnessProcedural controlsControls through Directives at meetings


Power distanceIndividualismCollectivismConfucian dynamismUncertaintyavoidanceMasculinity

Power distance

Power distanceIndividualismConfucian dynamismUncertaintyavoidanceMasculinity

CollectivismPower distanceUncertaintyavoidance

Table 23.4 (Cond’t)

Study Country Method MCS characteristic(s) Cultural (sample size) dimension(s)/values

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Borkowski (1999) provides a good summary of studies prior to that year (see Table 23.5). A few studies listed in the Table 23.5 stand out as classics. In an earlystudy using some 200 US multinationals, Robbins and Stobaugh (1973) identifiedROI as the primary target used by US multinationals. However, because of the problems of calculating ROI, some supplementary measure, usually a comparison of actual results to budget, was often used. In a sample of 70 US chemical multi-nationals, Morsicato (1980) found that multiple measures were used, including indescending order of use: profit, ROI, and budgeted-versus-actual for profit and sales.Abdallah and Keller (1985) found similar results.

Additional studies worth mentioning are those of Bailes and Assada (1991) andDemirag (1994). Contrasting major listed US and Japanese firms (256 Japanese and80 US), Bailes and Assada (1991) found that most Japanese firms (86.3 per cent) pre-ferred to use sales volume as their overall objective, with net profit after corporateoverhead being a poor second (44.7 per cent); American companies, by contrast,tended to use ROI most often as the divisional budget goal (68.4 per cent) followedby controllable profit (51.8 per cent). Demirag (1994) similarly found that Japanese

Table 23.5 Selected empirical studies of corporate objectives and managerialperformance evaluation

Sample

Author(s)

Robbins and Stobaugh

Morsicato

Abdallah and Keller

Demirag

Borkowski

Kopp

Keating

Source: Adapted from Borkowski, S. (1999) ‘International managerial performance evaluation: a five country com-parison’, Journal of International Business Studies, Vol. 30, No. 3, p. 539.

Year

1973

1980

1985

1987

1993

1994

1997

Country

US MNEs vsdomestic firms



Japanese MNEsin the UK vs UK

US MNEs

EU MNEsJAPAN MNEsUS MNEs

US MNEs

N.

150

70

66

105

247

233424

78

Findings

Same objectives for both. ROIsupplemented by budget to actual


Same objectives for both. ROIsupplemented by profits


Within a firm both international anddomestic subsidiaries shared the sameobjectives of goal achievement butinternational units focused more onsales growth/cost reduction

Performance evaluation measures vary across international operations by home country of the MNE

Divisional accounting criteria are the most important goal rather thanoverall accounting measures

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companies in the United Kingdom tended to use sales and market share targets overthe longer term.

The Borkowski (1999) study not only reviewed the available information but alsoexamined the performance goals of 261 multinational companies drawn from sam-ples of global companies in Canada, Germany, Japan, the United States and UnitedKingdom. Borkowski found that firms from Canada, Germany, Japan, the UnitedStates and United Kingdom each have different objectives in their own countries(see Table 23.6). In Japan net income is the most important measure of performance.German and Japanese companies also focus quite heavily on sales growth. Canadiancompanies pay attention to sales, but their premier goal is profit margin. UK com-panies’ premier measures of success are cost reduction and profit margin. For US com-panies, cost reduction is the number one goal along with sales and profit growth.

These results are quite different for Japan and the United States from those ofBailes and Assada (1991). According to Borkowski (1999) the focus of US companiesappears to have shifted from ROI to profit margin (gross margin) as the primarygoal, and sales growth from controllable profit as a secondary goal. Japanese com-panies had shifted their focus to net income rather than market share.

In summary, these studies on corporate objectives tell us that corporate goalsvary across nations and that companies need to be aware that their competitorsmay not be playing for the same objectives. Controllers also need to adapt goals,and the MCS for each national subsidiary to attempt, by socialization or selection,to create a common corporate culture that overrides national culture. Some of thisuniqueness may be reflected in the budget process to which we now turn.

23.5.3 The budget process across countries and other MCS issues

The budget process involves taking the firm’s objectives and setting them out in aseries of formal plans for both the short term and the long term. The issues that gen-erally need to be resolved are:

l Is there a formal budget setting process?

l Who participates in the budget process and how?

Table 23.6 Top objectives by country

Canada Germany Japan UK US

Net income 4 3 1 >5 5Return on assets >5 >5 >5 >5 5Market share >5 4 >5 >5 >5Cost reduction 2 5 >5 1 1Profit margin 1 2 4 1 3Sales growth 2 1 2 >5 2Budget adherence >5 >5 5 3 5Goal attainment 5 >5 3 3 4

Source: Summarized from Borkowski, S. (1999) ‘International managerial performance evaluation: a five countrycomparison’, Journal of International Business Studies, Vol. 30, No. 3, p. 545.

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l What style of communication (formal versus informal) should be used?

l How are the budget objectives set?

Other more general issues are, for example:

l What period should be covered (short term versus long term)?

l Should there be a specific monetary objective for the plan or would a non-quantitative objective be more appropriate?

It is intrinsically likely that Asian countries, which have a higher long-term ori-entation (LTO) score, will take a longer-term perspective and produce budgets thatcover a longer period. Therefore, one might expect an Asian entity to use yardsticksfor measuring budget performance that are less clear in their immediate impact onprofits but potentially valuable in the long run. Examples of such longer-term tar-gets are upward mobility for quality standards, increased market share, and/or sales.

Evidence seems to support theory. Ueno and Sekaran (1992), for example, reportthat Japanese firms indeed prefer longer budgeting horizons than US firms. A few ofthe findings of Ueno and Sekaran (1992) run contrary to the view of Bailes andAssada (1991) and Hawkins (1983). Despite having a longer performance rewardperiod, Japanese managers did not have an appreciably longer planning horizonthan US managers. One must remember, however, that much very long-term plan-ning takes place outside the formal numerical atmosphere of a budget. Comparingthe perspectives of over 400 managers in Australia, the United States, Singapore andHong Kong, Harrison et al. (1994) concluded that Anglo-Saxon managers prefershorter-term but more quantitative budget objectives.

Taking a slightly different angle, Ueno and Wu (1993) find that collective soci-eties are likely to plan and reward at the group level, whereas individualist culturesmight set up a series of budgets that, when linked together, become a contract linking reward and performance for each employee. This has two immediate im-plications. Firstly, in terms of time scale, group rewards and performance often take longer to emerge, and so group planning as found in a collectivist society willbe longer term. Secondly, there is less need in a collectivist society for individual‘cover’ provided by documentary evidence of the budgeting process. Employees ina collectivist society may well use communication channels and forms that aremore informal in the design of budgets. This indicates that the employees feel morecomfortable with each other and seek the best way to defeat a common externalenemy. This does not preclude the existence of a very detailed set of budgetary documents as the output, but does reduce the documentation of the consultativeprocess. Finally, if there is less need to assign blame or reward to a particular indi-vidual within a group or company, there is a proportionally lower need to definewhich part of the budget plan is controllable by a particular office or office holder.

Turning to participation in budgeting, Anglo-American practice in budgetingassumes that participation matters. If managers are permitted to participate in setting their own budget targets, they not only feel better about them but also tendto perform better. This type of behaviour was documented in a series of experimentsby Brownell (1982), who suggests that, for participation to work fully, managersmust feel like ‘insiders’, i.e. that their participation will actually influence decisionsand have some impact on the outcome. This concept of insider/outsider is described

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as ‘locus of control’. Hofstede’s (1991) power–distance dimension appears to be relevant primarily in determining who is involved in budget setting. A high power–distance society is one where those who are ruled tolerate and expect power to comefrom above. This would seem to preclude the kind of consultative and participativebudgeting more common in Anglo-American societies where power is expected tobe evenly distributed.

The results from tests of the interaction of participation and budgeting areunclear. Frucot and Shearon (1991) conducted a study using Mexican managers totest this. Mexico was graded as a culture that is high on power distance and low onindividualism. The researchers anticipated that, given this cultural profile, Mexicanmanagers would not favour participation even given insider status, i.e., they wouldrather be dictated to. Frucot and Shearon’s (1991) results appeared to indicate that no culture effect had been found. All members of the firms studied initiallyappeared to be motivated by participation regardless of position. However, whenthe sample of Mexican managers was divided by company rank, only higher-levelmanagers displayed the American model and lower-level managers seemed to pre-fer a less participative style. This is as one would expect, given Mexico’s culture.

Similarly, comparing high power–distance Asian societies with low power–distance Australia, Chow et al. (1999) and Salter and Schulz (2005) find that partici-pation and information sharing is culture dependent but that the effects are muchmore subtle than expected. Overall, managers from lower power–distance societiesshare more information but this can often be confounded by sub-cultural issuessuch as saving face (and machismo in Latin America).

23.5.4 Are US management control practices a ‘parochial dinosaur’?

Boyacigiller and Adler (1991) argue that organizational sciences, including man-agement control, have relied primarily on US theorists, reflecting its developmentduring a time when the US economy dominated world economic activity. Both theory and practice of US multinationals are based on predetermined culturalassumptions. In management control and the fundamental ideas of structure andinformation flow that underlie it, the question that has bedevilled academics is howexportable are different elements of a US control system. More specifically, do theywork in Chinese-based and other emerging markets?

There is, frankly, no clear answer, as examining four studies shows. Harrison et al.(1994) draw on the national cultural dimensions of power–distance, individualismand Confucian dynamism to predict and explain differences in philosophies andapproaches to organizational design, management planning and control systems in Australia, the United States, Singapore and Hong Kong. They used question-naires mailed to senior accounting and finance executives in 800 organizations to collect their data. The results support the importance of national culture ininfluencing organizational design and management planning and control systems.In particular, the cultural values of Anglo-American society are associated with anemphasis on decentralization and responsibility centres in organizational design,and an emphasis on quantitative and analytical techniques in planning and con-trol. By contrast, the cultural values of East Asian society are associated with agreater emphasis on long-term planning and on group-centred decision making.

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Using a longitudinal study, Wickramasinghe and Hopper (2005) test similarideas, i.e. that organizational controls only work in their country of origin or simi-lar countries. They describe successive attempts to impose conventional manage-ment accounting in a Sri Lankan jute mill as control shifted between the state andforeign private owners and again to the state. In all cases the control system faileddue to workers’ resistance. While results initially improved after privatization andthe imposition of commercial budgeting practices, problems of cultural asymmetrywere inflamed by a coalition of workers and local managers against foreign owners,who fled when financial irregularities were discovered. The government resumedownership and budgeting practices of previous eras returned. The lesson is that,while ‘more sophisticated’ methods work in some cultures, they fail in others.

Two recent studies contradict the view that culture is everything and present apicture of globalization of the approach to management control driven by eco-nomic reality. Waweru et al. (2004) examined retail enterprises in South Africa andfound that considerable changes in management accounting systems within SouthAfrica increased the use of Anglo-American contemporary management accountingpractices, notably activity-based cost allocation systems and the balanced scorecardapproach to performance measures. These changes were a direct result of govern-ment reform/deregulation and increased global competition. Similarly, O’Connor et al. (2004) studied the adoption of Western management accounting/controls byChina’s state owned enterprises (SOEs). O’Connor et al. (2004) used both interviews(focusing on 1995–7) and a survey (focusing on 1996–9). They found that:

1 China’s SOEs had increased their use of management accounting/controls.

2 This change reflected a purposeful move towards more formal and transparentmanagement accounting controls.

3 The main objectives of the change were to improve decision making and toincrease performance accountability.

4 The increase in the use of Western management techniques was a response to:

(a) an increasingly competitive environment;

(b) institutional factors such as joint venture experience and stock exchange listing;

(c) the percentage of employees on limited-term employment contracts and theavailability of training.

5 Obstacles to change included:

(a) government or holding company interference;

(b) withholding of decision rights;

(c) managers’ lack of ability;

(d) individual employees’ resistance to erosion in job security;

(e) the ability to rely on informal business relationships.

The results of all the studies are important to managers in global organizations.They need to understand that, while some Anglo-American global techniques canwork, cultural factors cannot be wholly ignored in control system design. This isparticularly true in Asian and Latin American nations which represent large poten-tial areas for expansion of business, trade and inward foreign direct investment.

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Further, as a result of Japanese and Chinese investments in Europe and NorthAmerica, many Westerners are experiencing the joys and frustrations of dealingwith a control system based on completely different values.

23.5.5 Culture and control: a summary

The literature seems to indicate that many aspects of management control areaffected by the culture of the organization. However, Harrison and McKinnon(1999) severely criticized the way in which these studies were conducted.Specifically, they suggested that the research did not take into account that manydimensions of culture may be operating simultaneously, nor did it compensate forthe possibility that, in any one country, a particular dimension of culture may becore to how people react to information and MCS. This would make other culturalconstructs pretty much irrelevant to a decision. This ongoing area of study willbecome even more relevant as management control moves from the relatively concrete reporting area to the more subjective information sharing to extract themaximum value from staff.

23.6 Control and performance

23.6.1 International aspects

In a multinational corporation, steps must be taken to ensure that the control sys-tem implemented does not become more complicated than the operation itself. Anoverly complex system may result in suspicion of (and by) the executives, frustra-tion among middle managers, and wasted management time. A parent companymust not request information simply because the cost of providing it is borne bythe subsidiary. The amount of useful feedback to the subsidiary must be made com-mensurate with the level of information requested from it.

Let us take the example of a sales plan. As part of this, a corporation will manageand monitor the manufacturing process through the production budget. A varietyof decisions enter into the production budget, including the level of inventoryrequired to minimize costs and stock-outs. A multinational corporation involved in inventory planning must consider and examine transportation, customs proced-ures, import restrictions, supply problems (e.g. dock strikes, embargoes), importduties and foreign exchange rate changes.

One possible approach to international planning involves establishing a simpledecentralized control system while centrally monitoring other important infor-mation that is readily available. Flexible budgeting is useful for budget control in a foreign environment where a large degree of uncertainty exists. Many of theuncontrollable influences of the international environment can be isolated to provide a better picture of management’s performance. Flexible budgeting allowsmanagement to forecast the effects of a variety of scenarios so that strategies can beprepared and implemented if necessary.

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A major question that arises in the control and performance literature is whatinternal (transfer) prices should be charged by one division to another. At firstglance, this seems to be an unusual question. By treating each division as a cost centre, one could simply pass along the total cost to the next division – and eachsubsequent division would do the same. When the final product came to be sold,revenue would accrue to the company and not to specific divisions; control wouldbe achieved through cost control. However, this is not normally the case amongAnglo-American companies. Divisions are generally treated as profit centres, andinternal sales are recorded. This practice may have its roots in a variety of sources,for example, cultural norms, previous practice and the experience base of thecomptroller (most tend to be from a finance or public accounting background). Inorder to create suitable reports for divisions, corporations are faced with determin-ing market-based or other profit-inclusive internal prices.

In addition to these economic questions, internationally there may be politicalissues in play within the company or within the country. For example, Chan andLo (2004) studied large Foreign Investment Enterprises (FIEs) in China which hadinvestors from the United States, Japan, and Europe. They found that the moreimportant management perceives the interests of local (Chinese) partners and the maintenance of a good relationship with host (Chinese) government to be, themore likely it is that the FIE will use a market-based transfer-pricing method. On the other hand, the more important the management perceives foreign exchangecontrols in transfer-pricing decisions, the more likely it is that the FIE will choose acost-based method. Finally, there is a moderate consistency between US and non-US FIEs on the relative importance that they give to these environmental variables.Transfer pricing thus is a control, culture and taxation issue. More discussion oftransfer pricing is contained in Chapter 22.

23.6.2 Philosophies and models of control

Ouchi (1979, 1980) proposed three models of control (behaviour control, outcomecontrol and clan control) in which the optimal type of control was a function of the nature of task or process to be controlled. Behaviour control comprises par-ticipation in decision making, hierarchy of authority, job codification and ruleobservation. Outcome controls are typically accounting measures. Clan control,however, is exercised through personnel policies that ensure that individuals withthe appropriate training, values and norms are selected into the organization.Abernethy and Brownell (1994) used Ouchi’s framework to test the effectiveness ofvarious types of control in R&D organizations in the United States and Australia.Their main findings were that, for their pooled sample (they did not report differ-ences between the two groups), clan controls were most effective in an environ-ment of high task uncertainty.

Based on Ouchi’s framework and given the uncertainty of overseas operations,one would expect that international control would initially centre on behaviouralor clan systems of control. This would allow time to determine what an appropri-ate measure of performance is. It may also give information on how such perform-ance might be maximized, given cultural constraints. In fact, the primary forms ofcontrol, at least in Anglo-American countries, are outcome controls, usually measured

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1 http://www.kpmg.ca/en/services/audit/sarbanes.html

by accounting returns matched to a particular objective. Therefore, as shown byBailes and Assada (1991), US companies tend to focus on ROI or budget variancesto set reward structures. Given this predilection when evaluating a foreign opera-tion, the Anglo-American research literature emphasizes that a company must baseperformance measurement only on areas that a manager controls.

Large manufacturing companies often have separate departments or divisions thatmanufacture a product for another division. In some cases, this is the only activity ofa division. The receiving division continues manufacturing the product and theneither passes it on to yet another division or sells the finished product in the market.The only item that the first division appears to control is its costs. However, overallstrategy dictates that a market price comparison needs to be made to ensure thatdivisions continue to be competitive. A good example of how this might be con-ducted is the significant savings that companies such as Volkswagen in Germanyand General Motors in the United States have achieved by switching comparisonsfrom internal cost-plus transfer pricing to market-based competitive pricing.

23.6.3 Sarbanes-Oxley and global controlThe Sarbanes-Oxley Act (SOX), enacted in the US in July 2002, created new stand-ards for corporate accountability and stiff new penalties for acts of wrongdoing.SOX requires companies to implement new data retention policies and outlawschanging or destroying financial records. This applies both to US companies, wher-ever located, and to non-US companies, such as BP, that are listed on US capitalmarkets (see Chapter 5).

While SOX is primarily focused towards auditors, management accountants needto be aware that section 404 of the SOX Act directs the Securities and ExchangeCommission to adopt rules requiring each company’s annual report to contain astatement of management’s responsibility for establishing and maintaining an adequate internal control structure, and management’s assessment of the effective-ness of the company’s internal control structure and procedures.

Section 404 also requires the company’s auditor to attest to, and report on, man-agement’s assessment of the effectiveness of the company’s internal controls. SOX,designed for a post-Enron US financial reporting environment, has begun to affectmanagement control in other countries that may not be subject to the unique prob-lems of the US legal and business environment. Thus, auditors in other countriesmay end up certifying the control system of a wholly local company that happensto raise capital in the US. KPMG Canada’s website on SOX1 is a good example ofhow SOX may affect another country’s reporting.

23.7 Looking forward

The relentless pace of global business and the continuous updating of informationsystems technology is likely to continue to have a large impact on the development of

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internal reporting systems. Just-in-time inventories, computer-integrated manu-facturing systems, and job shop workstations have all altered traditional productcosting. The introduction of activity-based costing, where overhead is made moreof a direct cost by finding cost drivers for costs and assigning overhead to productsusing these drivers rather than by plant-wide or department overhead rates, hasaltered many firms’ views of where to produce goods globally. This often leads toresults that may not seem intuitive, such as the production of goods in relativelyhigh-wage countries because efficiency, as well as raw cost, becomes a driver in over-head allocation.

Firms in the Anglo-American world are seeking to find a way of incorporatinginto budgets and performance appraisal non-quantitative or more culturally appro-priate means of control. The openness to change that this demonstrates is perhapsone of the more interesting features that globalization has brought to what, untilthe early 1980s, was a stable discipline of management accounting. The changinglegal environment with SOX, and the changing management structures that will beneeded to manage loose confederations of outsourcers, pose challenges to the man-agement control system globally.

One interesting and quite forward-looking perspective is the use of a major con-trol tool, the Balanced Scorecard to monitor corporate social responsibility (CSR).While this is not strictly international, firms which operate in nations where this isa particularly important issue may wish to include such goals. A recent article byCrawford and Scaletta (2005) argues that such a focus may not only increase posi-tive perceptions of the firm but may increase profits. They present as an exampleDow Chemical’s scorecard, which is reproduced as Figure 23.4.

Another ongoing question is the role of software in ‘flattening’ the world.Friedman (2007) has argued that the internet and other tools have created a ‘flatworld’ where routine functions including accounting can be carried out anywherein the world. One of the drivers of this is the use of enterprise reporting systems(ERPs) to allow managers at all levels and countries to see into the very core of thebusiness. This should in theory flatten the business as managers work together inthis virtual world. However, Quattrone and Hopper (2005) provide evidence in acase study that this effect is company specific. They find that the ways in which ERPwas configured in corporations created different forms of distance and relationsbetween headquarters and the scattered subsidiaries. In one organization the ERPreproduced existing structures and distance which permitted conventional account-ing controls based on action at a distance to be maintained. The second organ-ization used ERP to collapse distance through real-time information in a matrixstructure. This did not increase centralization but rather produced constantlychanging loci of control and managerial feelings of ‘minimalist’ control. Theseorganizations were also from different countries indicating that more work needs tobe done at the interaction points of centralization and national origin.

Finally, building on the themes of Friedman (2007), research is needed into therole that culture and religion play in designing control in countries such as India,which are major players in outsourcing, but about which almost nothing is knownin the Anglo-American literature. Readers are encouraged to go further in the areaof international management accounting and control, using the list of references atthe end of this chapter.

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Figure 23.4 Examples of how to integrate CSR into the Balanced Scorecard’s four perspectivesSource: Crawford, D. and Scaletta, T. (2005) ‘The balanced scorecard and corporate social responsibility: aligning values for profit’, CMAManagement, October. Reproduced with permission.

SUMMARY

l Major challenges in the management accounting and control area are affected bythe two most basic problems of doing business internationally, namely thatcountries have different currencies and different cultures.

l With regard to preparing budgets for a subsidiary operating in another country,it is necessary to select appropriate budgeting currency and exchange rate tools.Some argue that local managers should be left alone to budget in local currency,given that they have little control over foreign exchange management.

l Since most companies do their budgeting in the home currency, the primaryquestion is what rate to use for planning and control. The path of least resistancewould be to use the rate at the date of planning. However, this is often so far inadvance of the actual budgeted year that actual results are significantly different

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from budgeted results. If managers are responsible for profit in home currencyterms, this results in an unfair distribution of rewards.

l Thus, some companies use forward rates or continuously updated rates. Using aspecial form of the traditional domestic price and volume variances, firms canascertain what part of the problem is occurring because of movements in cur-rency values.

l The first question concerning control systems relates to differences in the stra-tegic objective of the firm. Anglo-American firms generally prefer shorter-termand more profit-based objectives, but return on investment is declining as a measure. Asian firms, by contrast, have a longer-term objective and seem to besatisfied with more indirect objectives.

l Culture has also been found to play a role in budgeting and control. The budgetprocess in Asia is longer term and less formal than that of Western countries.Outside the Anglo-American world, there is resistance to formal participation,particularly in authoritarian cultures such as that of Mexico. However, culturalresearch has many flaws, and economic need or experience with non-nationalentities may lead to common global standards of control.

l The introduction of the Sarbanes-Oxley Act in the United States has created anew legal environment for management accounting that stretches beyond theborders of that nation.

Abdallah, W. and Keller, D. (1985) ‘Measuring the multinational’s performance’, ManagementAccounting, October, pp. 26–31.

Abernethy, M. and Brownell, P. (1994) ‘Accounting, behavior and clan controls: The designof effective management and control systems’, presented at the American AccountingAssociation Annual Meeting, New York, NY.

Bailes, J. and Assada, T. (1991) ‘Empirical differences between Japanese and American budget and performance evaluation systems’, International Journal of Accounting, Vol. 26, pp. 131–42.

Borkowski, S. (1999) ‘International managerial performance evaluation: A five country com-parison’, Journal of International Business Studies, Vol. 30, No. 3, pp. 533–55.

Boyacigiller, N. and Adler, N. (1991) ‘The parochial dinosaur: Organizational science in aglobal context’, Academy of Management Review, Vol. 16, pp. 262–90.

Brownell, P. (1982) ‘A field study examination of budgetary participation and locus of con-trol’, Accounting Review, Vol. 57, pp. 766–77.

Chan, K. and Lo, A. (2004) ‘The influence of management perception of environmental variables on the choice of international transfer-pricing methods’, International Journal ofAccounting, Vol. 39, No. 1, pp. 93–110.

Chenhall, R. (2003) ‘Management control systems design within its organizational context:findings from contingency-based research and directions for the future’, Accounting,Organizations and Society, Vol. 28, pp. 127–68.

Chow, C., Harrison, G., McKinnon, J. and Wu, A. (1999) ‘Cultural influences on informationsharing in Chinese and Anglo-American organizations: An exploratory study’, Accounting,Organizations and Society, Vol. 24, pp. 561–82.

Chow, C.W., Kato, Y. and Merchant, K.A. (1996) ‘The use of organizational controls and theireffects on data manipulation and management myopia: a Japan vs. US comparison’,Accounting, Organizations and Society, Vol. 21, pp. 175–92.

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Chow, C., Lindquist, T. and Wu, A. (1996) ‘National culture and the implementation of con-tinuous improvement performance standards: An empirical investigation’, paper presentedat the American Accounting Association Annual Conference, Chicago, IL.

Chow, C.W., Shields, M.D. and Chan, Y.K. (1991) ‘The effects of management controls andnational culture on manufacturing performance’, Accounting, Organizations and Society, Vol. 16, pp. 209–26.

Chow, C.W., Shields, M.D. and Wu, A. (1996) ‘The importance of national culture in thedesign of and preference for management controls for multinational operations’, paper presented at the Accounting, Organizations and Society Comparative ManagementAccounting Conference, University of Siena, Italy, November.

Chow, C., Shields, D. and Wu, A. (1999) ‘The importance of national culture in the designand preferences for management controls for multi-national operations’, Accounting,Organizations and Society, Vol. 24, pp. 441–61.

Crawford, D. and Scaletta, T. (2005) ‘The balanced scorecard and corporate social respons-ibility: aligning values for profit’, CMA Management, October.

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Suggested answers to the asterisked questions are given at the end of the book.

23.1∗ Explain how and why the objectives of multinational enterprises vary dependingon their home countries.

23.2∗ What various models of control could be used to describe the organization ofmultinational companies? Which ones are found in practice?

23.3 In what ways does managerial accounting change by adding an internationaldimension?

23.4 What problems are created for performance measurement in multinationals bythe existence of foreign currencies?

23.5 Starting with Table 23.2, prepare Zambezi Board’s next year’s sales budget andvariance report for 2008. Assume that Zambezi plans that its 2008 results inAustralia will mirror those actually achieved in 2007. However, the company isagain wrong. Strong demand from Australians who cannot afford to travel toSouth Africa to import boards personally raises demand to 12,500 boards. Pricesare as budgeted in Australian $ but the rand strengthens and, on average, theAustralian $ is now worth 5.56 rand.

23.6 Explain how and why the process of budgeting used by multinational enterprisesvaries depending on the enterprise’s home country.

23.7 How, and to what extent, does culture provide a more useful tool for the ana-lysis of international differences in managerial accounting than it appears to dofor financial reporting?

QUESTIONS

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Chapter 23 Managerial Accounting.pdf

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