Technological Innovation Impact on Accounting Field
Technological Innovation Impact on Accounting Field
Technology innovation is the process through which new (or improved) technologies are developed and brought into widespread use. Innovation can be composed of research, development, demonstration, and deployment. Although it is known clearly that innovation is not a linear process – there are various interconnections and feedback loops between these stages, and often even the stages themselves cannot be significantly disaggregated.
I don’t think if the phenomenon of technological innovation can become a stumbling block in prosperity of management accounting since through innovation management accounting discipline and career have been significantly improved. These areas are as follows The Information Revolution: in early years it was cost fully to collect, analyses and store accounting information. This was because of inadequacy of infrastructures which were importantly needed for this purpose.
Today information technology makes possible sophisticated database accounting systems that are both powerful and flexible in terms of the accounting information that they can collect, organize and report. Even today, however, the cost of designing, implementing, and running cost accounting systems is a substantial obstacle in many organizations; a fact probably underrepresented in business schools. Proliferation of Product Lines: This is not much matters if a company makes only one product, since many cost accounting issues can be resolved.
When companies significantly expanded their product lines to gain market share and increase profits, the difficulty and importance of obtaining accurate cost information on individual products increased. Back then companies were allocating costs among products in a manner that led to poor production and marketing decisions. A management accounting tool called activity-based costing was developed to help correct this problem, by improving the accuracy with which costs are allocated among products.
Globalization of the Economy: Globalization has several implications for management accounting. First, globalization has resulted in a more competitive environment, which encourages the implementation of accounting systems that provide the most accurate, relevant, and timely information possible. Second, the growth of multinational corporations has increased the importance of transfer pricing. A transfer price is the amount one division of a company charges another division for an intermediate product.
Transfer pricing plays a role in taxation, international trade negotiations, and production and marketing decisions within decentralized firms. Finally, globalization has increased the pace of change within the management accounting profession. Many recent innovations in management accounting, as well as in the fields of strategy and operations management, originated in Japan. Direct competition between Japanese and U. S. companies has led many U. S. companies to adopt these Japanese management practices. Innovative Management Practices:
In addition to the four economic and technological trends described above, the following three innovations in the fields of strategy and operations management have influenced management accounting systems and practices over the past several decades. Total quality management (TQM): Quality programs go by several names, including TQM, zero defect programs, and six sigma programs. The focus on quality has had a significant impact on many organizations in all sectors of the economy, beginning with the automobile industry and some other industries in the manufacturing sector of the economy about forty years ago.
Sophisticated quality programs are found today in many areas of government, education and other not-for-profit organizations as well as in for-profit businesses. The impetus for TQM programs is the assessment that the cost of defects is greater than the cost of implementing the TQM program. Advocates of TQM claim that some costs of defects have been underestimated historically, particularly the loss of customer goodwill and future sales when a defective unit is sold. Some advocates of quality programs believe that the most cost-effective approach to quality is to eliminate all defects at the point at which they occur.
If successful, these “zero defect” programs would not only result in higher levels of customer satisfaction, but would also eliminate costs associated with more conventional quality control procedures, such as inspection costs that occur at the end of the production line, the cost of reworking units identified as defective, and costs associated with processing customer returns. The focus is on preventive controls to prevent the defect from occurring in the first place, as opposed to detective controls to identify and correct the defect after it has occurred.
Just-in-time (JIT): During the last two decades of the 20th century, many companies implemented just-in-time programs designed to minimize the amount of inventory on hand. These companies identified significant benefits from reducing all types of inventories—raw materials, work-in-process, and finished goods—to the lowest possible levels. These benefits consist principally of reduced inventory holding costs (such as financing and warehousing costs), reduced losses due to inventory obsolescence, and more effective quality control The relationship between JIT and TQM is important.
Many defects in raw materials or the production process can be ignored indefinitely if high-quality materials can be substituted for defective materials, and if additional first-quality units can be produced to replace defective units. In a non-JIT environment, defective materials and half-finished units might be set aside in a corner of the factory. However, under a JIT program, if raw materials received at the factory are defective, there might be no first-quality materials on hand to substitute for the defective materials.
In extreme cases, the production line might be shut down until first-quality materials are received. Hence, a JIT program can focus attention on quality control in ways not generally possible in a non-JIT environment. The challenge in a JIT environment is to avoid stock-outs. To meet this challenge, some companies have found ways to decrease production lead times. Shorter production schedules result in less work-in-process inventory, and also allows companies to maintain lower levels of finished goods inventory while still maintaining high levels of customer satisfaction.
Early in the 21st century, acts of terrorism (such as the destruction of the World Trade Center in New York City) and natural disasters (such as Hurricane Katrina) prompted some companies to rethink the practice of maintaining extremely low levels of inventories. These companies are concerned that future incidents could result in the disruption of inventory pipelines, particularly for imported materials. Consequently, the advantage of maintaining safety stocks of inventory is receiving renewed interest.