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Topic 1 Reading Tillema Notes

Accounting Notes > Management Accounting, Budgets and Behaviour Notes

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Topic 1: "Towards an integrated contingency framework for MAS sophistication" (Tillema, 2005)

TOPIC 1: "TOWARDS AN INTEGRATED CONTINGENCY FRAMEWORK FOR MAS SOPHISTICATION" (TILLEMA, 2005)

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"the appropriateness of using sophisticated techniques may depend on the circumstances in which these techniques are being used" The contingency approach to management accounting has been the subject of much criticism (Otley, 1980; Fisher, 1995; Chapman, 1997; Chenhall, 2003) o The criticism is largely related to the research method that was used in almost all of these studies
? i.e. Cross-sectional survey method Gordon and Narayanan (1984) and Mia (1993) found that as managers perceive greater environmental uncertainty, they attach more importance to or make more use of broad scope accounting information Abernethy and Guthrie (1994) found that broad scope management accounting information has a more positive effect on performance in firms that follow a prospector strategy than in firms that follow a defender strategy Tillema (2005) adopts an alternative method o Based on case studies o But includes both cross-sectional and longitudinal elements

THEORETICAL FRAMEWORK

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Tillema classifies accounting instruments to their level of sophistication o Focuses on scope rather than scope, timeliness, aggregation and integration that Chenhall and Morris (1986) used o Scope refers to the dimensions of focus (on events either within or outside the organization), quantification (either in financial or in non-financial terms), and time horizon (related to either historical or future events) Develops an integrated contingency framework for the scope of accounting instruments Based on dimension of scope, we can distinguish three levels of accounting sophistication (van Loon, 1995) Level of Scope Available Information Examples Narrow scope

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Financial

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Budgets (profit and instruments information on loss account) historical events

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Capital investment

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Non-financial intuition that expected information and sales growth justifies intuition investment

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Financial

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Selling prices: information on the correcting historical future based on trends prices for inflation on historical events Average scope

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Financial and non- *
Standard costing instruments financial information and life-cycle costing on future events based for selling price on plans for internal determination operating activities

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NPV analysis of cash flows associated with investment

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