Accounting

Management accountR12

The theory aims at reflecting management accounting system as dependent on factors that crop up from time to time. This theory brings details of the factors which rise up and affect a management accounting system. According to this contingency theory, the contingent factors affecting a management accounting system are unique to each organisation. Organisations vary from one another in terms of operations thus the difference in the form of adoption, functioning and sophistication of a system. This means that each company will have a management accounting system which is specific to its form. This explains why we do not have a globally adopted accounting system. Contingency theory has made bold steps in helping us understand how accounting and budgetscan and should be used to deal with the issue of management control. The theory basically supports the handling of accounting and budgets in a way which recognizes related changes which might occur in the company (Sharma, 2009). The contingency theory is usually very important in ensuring that the management accounting system in a company is in sync with the prevailing factors at a given time. The efforts by this theory have been successful through the manipulation of the factors that affect a management accounting system among other factors. … With this, the organisation does not need to have management control based on a sophisticated management accounting system. Under such a situation, themanagement will control the organisation on the basis of the set out budgets. The contingency theory also shows how accounting and budgets can be used to handle matters of management control through the consideration of strategies and mission as situational factors. Basically, the type ofstrategies and mission applied by a company determines the kind of system for management accounting to be put in use. For example a firm may decide to apply a strategy of low cost and defense. Under such a strategy, a company will work towards standard products, few lines of products, low cost operations as well as policies promoting economies of scale. with this, there will be need to have plans capable of making employees uphold low cost mentalities, incentives to workers depending on the results of evaluation of financial performance and adherence to budgets among others. This means that there is need for a management accounting system which is a bit sophisticated. Contingency theory shows that accounting can be utilized to handle the issue of management control through the determination of the accounting information need and use (Emmanuel et al,1990). According to this theory, the kind of accounting information needed by an organisation is very key in determining the management accounting system required. In a situation where the accounting information required iscomplex, then a highly sophisticated management accounting system is required. If a firm requires just simple information, then a less sophisticated management accounting system is required by an organisation. There is also the intended use of the

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