Changing Role of the Management Accountant (Keynote address by Mr. Udayasri Kariyawasam, Chairman of

Securities and Exchange Commission of Sri Lanka, and the Chairman of Insurance Board of Sri Lanka

at the Achievers CIMA Graduation ceremony on 30 August 2009 at BMICH)

(Full text is available on www.sec.gov.lk)

Mr. Ravi Edirisinghe – Chairman of Achievers, Mr. Faris Ismail, Mr. Bradley Emerson – Regional director of CIMA Distinguish invitees, Ladies and gentlemen, Good evening! First of all, let me thank Mr. Faris and his team for inviting

me to be the Chief Guest and deliver the Keynote Address

at today’s graduation ceramony. It is a great honor for me

to address tomorrow’s corporate leaders of Sri Lanka.

Being involved in the private sector education field for

nearly two decades, I always enjoy the company of young

professionals like you. Let me congratulate all the

graduates who have excelled in their exams, and thank all

the lecturers who helped you to achieve such remarkable

results.

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The Accounting profession, I believe, is the most important

and challenging profession in the world economy today, in

terms of resource allocation, and controlling & measuring

business performance. Its role has become more important

now, than at any other time in our lifetime, due to the

severe impact of the global recession. The role of the

Management Accountant in particular, has become more

important, not only in the corporate level, but also at the

national level, and even more importantly, at the

international level.

Management Accountants are closely involved in

supporting, planning, controlling, directing, communicating

& coordinating the decision-making activities of

organizations in the private sector, as well as the public

sector. Managers of an organization are considered to be

the Customers of the Management Accountant, so far as

management accounting information is concerned, and

Management Accountants should be continuously aware of

the need to satisfy their requirements.

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Some believe ‘advisory services’ and ‘information

services’ to be the two main work areas of Management

Accountants. ‘Advisory services’ include the tendering of

opinions, assisting the making of evaluations or the

formation of expectations, and the development of norms

or objectives. ‘Information services’ include the provision

of historical information, and future-oriented information.

It has also been identified that Compliance, Control and

Competitive support, are the three factors which influence

management accounting work.

Over time, the relative emphasis on these three factors has

changed. Previously, a great deal of management

accounting work was driven by the need for Compliance

and Control. But now, the emphasis on Compliance and

Control is declining, while the emphasis on Competitive

support is increasing. The greater need for Competitive

support has risen due to increased competition, greater

customer focus, globalization, and the importance of

quality. At the same time, organizations have responded to

the changing competitive environment with flatter

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organizational structures, which are more flexible,

responsive & customer-focused.

The increased emphasis on Competitive support now

requires management accountants to have strong Analytical

and Communication skills. Furthermore, they must now

actively support the line & process managers, and be

directly involved in the decision processes. They must also

consider long-term as well as short-term planning horizons.

They must develop management accounting systems

capable of providing information which supports both

strategic & operational decisions. Importantly, management

accountants must become directly involved in the

formulation, and the implementation of organizational

strategies.

It has been established that the role of the management

accountant in an organization is to support the information

needs of management. The type, size, structure and form of

ownership of the organization will influence the

management role, and thus, determine the complexity of

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the management accountant’s role. Such differences in size

do not change the basic role of the management accountant,

nor the basic work which he or she does. However, the size

of the organisation may change the degree of formality or

sophistication with which the function is carried out, or the

level of resources devoted to management accounting. But,

the management accounting function remains essentially

the same.

In many public sector organizations, output cannot be

measured easily, and the meeting of objectives and the

measurement of efficiency become problematic tasks.

Nonetheless, public sector organizations in many countries

today adopt both management and management accounting

practices which are very similar to those used in the private

sector. Consequently, while there may be differences in

some aspects of management accounting between the two

sectors, these are less marked than what they may have

been, say, fifteen years ago.

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Ladies and gentlemen, let us take a brief look at the

situation in public sector enterprises in Sri Lanka. Most of

the commercially important public enterprises in Sri Lanka

do not have a separate division to handle management

accounting work, nor do they have a designation called

‘management accountant’. Moreover, such public

enterprises are unable to recruit qualified management

accountants, mainly due to very low salaries and other

benefits that are offered in the public sector. We must not

forget the fact that almost 70 per cent of the funds of this

country are owned by the state. Therefore, I believe that the

general treasury of the Ministry of Finance needs lots of

management accountants in order to improve performance

of the wider public sector in Sri Lanka. The Ministry of

Finance has implemented various strategies at the Treasury

in order to improve the performance of such enterprises.

Unfortunately, the outcome of such strategies has been

minimal or negligible. In my opinion, issuing circulars and

calling for various reports would not improve the

performance of public enterprises in this country. It is my

understanding that the public administration bureaucracy of

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this country has not understood the importance of the

services of management accountants, for improving the

performance of public enterprises.

Today’s management accountants need to understand what

management accounting is at the present time, and why it is

so. Management accounting is changing – the nature &

extent of change, and the reasons for change, are

determined by a number of factors. These include: changes

in world economic & social structures, the globalization of

markets, environmental issues, technological development,

the importance of quality, and the need for organizations to

become customer-focused. In addition to these global

factors, issues have arisen at the organizational level, in

matters such as how organizations and their management

have adapted to change, how management information

needs have changed, what effect this has had on

management accounting, and how different people have

interpreted the need for change and how they have

presented their opinions.

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In addition to the drivers of change in management

accounting, stemming from concepts & practices in

contemporary business & management, the impact of

academic thought must also be considered. In 1985

Michael Porter published the second of his books on

strategy, defining ‘Competitive advantage’. In describing

how a firm establishes any competitive advantage which it

might have over its competitors, he examined the notion of

what constitute the ‘product’ in the eyes of consumers. He

took the view that the product was more than its physical

configuration, appearance and dimensions. Accordingly,

the concept of ‘Value Chain’ has impacted heavily on the

role of the management accountant and the scope of

management accounting work.

In 1987, Johnson and Kaplan challenged the management

accounting profession by claiming that the management

accounting had lost its relevance. Their book entitled

‘Relevance Lost: The Rise and Fall of Management

Accounting’ questioned the relevance of contemporary

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management accounting and aimed to stimulate further

writing and research on the subject.

Following the publication of his book ‘Cost Accounting: A

Managerial Emphasis’ in 1962, Charles Horngren’s work

is regarded by many as influential in the development of

modern management accounting. In 2002, he teamed up

with George Foster and Srikant Datar and maintained that

‘the design of a management accounting system should be

guided by the challenges facing managers'. They suggested

that there are four evolving management themes that are

driving the evolution of management accounting systems:

customer focus,

value chain & supply chain analysis,

key success factors, and

continuous improvement & benchmarking.

It may be important for us to think about developing a

management accounting framework for the future, at least

for the next decade. Any such framework must be suitable

for organizations of varying sizes operating under different

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forms of ownership, and in different industry sectors. Such

a framework must also reflect the fact that management

accounting is seen by many as having significant human

behavior connotations. Additionally, such a framework

must cover four important factors. Firstly, it must identify

the strategic role of management accounting. There is

widespread acceptance that management accounting can

play a vital, and increasingly important role in strategic

management. Secondly, it must be able to identify the

critical success factors of the industry in which an

organization operates. These are the critical things which

each organization in the industry must be able to perform

successfully, or risk not being able to compete successfully

in that industry. Thirdly, the framework needs to focus not

only on short-term results, as is typically done today, but

also on the long-term results of an organization. Focusing

only on short-term objectives will encourage managers to

maximize short-term results rather than long-term results.

The management accounting system must monitor those

factors which will indicate whether or not the organization

is on target to meet its long-term goals as well as its short-

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term objectives. Finally, the management accounting

system must be able to measure and report performance at a

number of levels. The top management may typically

require measurements & reports on the performance of the

firm as a whole, a division or a department, the manager of

a business unit, a product or product range, a market, a

particular customer, or a particular competitor.

Management accountants today spend their time on

‘strategic management accounting’ with a view to

broadening the span of traditional management accounting.

The term ‘strategic management accounting’ was first

coined by Ken Simmonds in 1981. The Chartered Institute

of Management Accountants’ official terminology

describes strategic management accounting as ‘a form of

management accounting in which emphasis is placed on

information which relates to factors external to the firm, as

well as non-financial information, and internally generated

information’.

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In conclusion, I wish to emphasis the skills that are

required for the revised management accounting role.

Robert S. Kaplan suggests that management accountants

will need to spend less time dealing with financial

accounting, audit and tax issues. More of their time must be

spent learning about product & process technology,

operations systems, marketing strategy, and the behavioral

& organizational issues relating to the implementation of

new systems & processes. Some other authors are of the

view that familiarity with the business, understanding the

industry, interpersonal & leadership skills, business

proficiency, and speaking & presentation skills are essential

requirements for the ‘new’ breed of management

accountants.

I wish you all success, in your future endeavors!

Thank you for your attention.

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