Gary Spraakman

Transaction cost economics: a theory for internal audit?

Compared to external audit, internal audit has been charged with having no theory to guide academic research and practice. Suggests that the claims that internal audit has no theory have overlooked the theory of transaction cost economics. A variation of agency theory, transaction cost economics provides a conceptual framework for internal audit. Explains the theory that transaction cost economics provides for internal audit, and tests the theory with an experiment involving the usefulness of internal audit findings for senior executives in government organizations.

ERP systems and management accounting: a multiple case study

Purpose - The present study seeks to refine the findings and theory on the impact that enterprise resource planning (ERP) implementations have had on management accounting. Specifically, the purposes of this paper are to analyze the changes that ERP implementations have had on performance measures, management accounting techniques, activities of management accountants, and the use of non-financial information. Design/methodology/approach - The controllers of 13 major Canadian firms were interviewed as part of a multiple case study. Open-ended questions were used. Findings - The research assesses how ERP implementations through more computational power, relational databases, standardized state-of-the-art transaction processing, and extended chart of accounts change management accounting. The enhanced computing power and overall standardization lead to more accurate and timely information. The standardized transaction processing and the charts of accounts have increased the availability of information from units and products previously deficient of information, and ensured a consistency of information across all units and products. The standardization and automation of transaction processing has reduced the amount of data entry done by management accountants. Performance measures have been standardized, expanded to more units and products, increased in accuracy, and produced more quickly. Management accounting techniques have become more efficient and effective. Management accountants are less involved with data entry, thus allowing them to undertake more analyses. Non-financial information is more extensive. Originality/value - This research provides new insights or contributions to understanding how ERP systems impact management accounting and management accountants. First, ERP system implementations affect management accounting. Second, the three part lens or conceptual framework – physical, transactional, and information – explicates the impact of ERP systems on management accounting and management accountants. Third, understanding the impact is further guided by recognizing the expanded chart of accounts inherent with ERP systems.

The transfer of management accounting practices from London counting houses to the British North American fur trade

Abstract During the late eighteenth and early nineteenth centuries management accounting practices were transferred from London counting houses to the British North American fur trade. This transfer involved a set of practices that was more effective for implementing the strategy being pursued at the time than the set used with the previous strategy. London counting houses had developed management accounting practices to facilitate their backward integration strategies with America and the West Indies. Pivotal to this development was the requirement for sub-unit accountability and responsibility.

The use of performance measures: case studies from the microfinance sector in Kenya

Purpose - The intent of microfinance institutes (MFIs) in developing countries is to provide loans to very poor people in order to help them transform their lives. MFIs tend to receive subsidies; sustainability is being sought to free MFIs from non-market dependencies. Sustainability is expected to be achieved with “best practices,” of which management with performance measures is a component. The purpose of this paper is to examine the use of performance measures by three Kenyan MFIs, which are classified as formal and client based, and likely to use rational and explicit performance measures. Clients in these MFIs are placed into self-help groups with two responsibilities: to provide mutual support and advice to the borrowing client; and to provide the MFI with a guarantee that loans of group members will be repaid. Design/methodology/approach - Based on a review of the economics and performance measurement systems literatures, research questions were developed along with an interview guide. Case studies were used to administer an interview guide which was distributed to the respondents prior to the face-to-face interviews. Findings - The study concludes that MFIs have relatively well-developed performance measures that support their particular businesses. There was a good balance between the use of financial and non-financial performance measures. However, output measures were more commonly used than process measures. The nature of the MFIs suggests the importance of performance measurement. The managers of the MFIs are concerned with performance measurement, as expected within a bureaucracy, and a top-down demand is present. In addition, group members or clients are interested in performance measurement as each member guarantees the loans of all fellow group members who have loans with the MFI. Thus, the customers exert a bottom-up demand for performance measurement. Originality/value - The findings support the view that performance measures are a means for managing MFIs and are a likely requirement for sustainability. Furthermore, the findings have identified performance measures (similar to those at banks) that are appropriate for the three MFIs in Kenya. The findings are important since the identified performance measures may be adopted by other evolving MFIs in this relatively new sector. In addition, the findings contribute to a better understanding of the genesis of the less popular results and determinants performance measurement framework of Fitzgerald

The development of management accounting at the Hudsonís Bay Company, 1670-1820

In their archival study, Roy and Spraakman (1996) found that the Hudsons Bay Company had developed extensive management accounting techniques by the 1820s. However, they did not concern themselves with the origins of the management accounting techniques employed in the 1820s. Based on the Companys archives for 1670 to 1820, it is clear that the basic components of the management accounting techniques were in place from the Companys beginnings or by 1700. These practices were changed significantly in 1810 as the Company grappled with declining profits and the need for new management accounting techniques that allowed for efficiency in inland trading. This trading had different requirements than trading from a few posts with easy ocean access to London. Although the successful techniques were put in place in 1810, it took until the 1820s and the efforts of Governor George Simpson for them to work effectively as a system. This paper also tests hypotheses developed from transaction cost economics and makes suggestions for a transaction cost economics theory of management accounting.

Transaction cost economics as a predictor of management accounting practices at the Hudson's Bay Company, 1860 to 1914

With its emphasis on cost minimisation, transaction cost economics (TCE) predicts that as asset specificity and uncertainty increase, thereby making transaction management more difficult, the use of hierarchy for managing transactions will also increase. It follows that as a hierarchical mechanism for managing transactions, management accounting will also be positively associated with asset specificity and uncertainty. Roy and Spraakman (1996) tested those propositions with evidence from the Hudsons Bay Company. The evidence supported those propositions for the 1821 to 1860 period when the Company had extensive asset specificity and uncertainty. Compared to that frontier period, between 1860 to 1914 the Company experienced a decrease in uncertainty as communications and transportation modernised. During this later period, the Companys transportation network became worthless. The transportation networks devaluation was equivalent to a decrease in asset specificity. With less asset specificity and uncertainty, TCE predicts decreases in hierarchical governance and the use of management accounting information. Evidence for the 1860 to 1914 period was largely consistent with those predictions.

Transaction cost economics and nineteenth century fur trade accounting: relevance of a contemporary theory

In examining how the historical, fur-trading Hudsons Bay Company (HBC) controlled the agency problem, Carlos and Nicholas (1990) concluded that accounting in general was one of the many techniques used. This study expands on the work of Carlos and Nicholas. For the period from 1821 to 1860, it examines original documents in addition to published documents used by Carlos and Nicholas. It uses a specific agency theorytransaction cost economics (TCE). Because of the uncertainty that prevailed through communication lags caused by the great distances, TCE suggests that the HBC would develop extensive directing and monitoring mechanisms and use what is now known as management accounting. The data suggest that the HBC conformed well to the TCE predictions that directing and monitoring mechanisms would be highly developed. The internal accounting had many features comparable to contemporary management accounting.

Employers' Perceptions of Information Technology Competency Requirements for Management Accounting Graduates.

Abstract Management accountants work in a computerized workplace with information technology (IT) for producing financial ledgers and for reporting. Thus, the role of the management accountant has shifted from capturing and recording transactions to analyzing business issues. The research question is: what IT knowledge and skills do employers require of management accounting graduates? An exploratory field research approach was used; chief financial officers and their subordinates at some of New Zealands largest firms were consulted. These respondents were consistent in their requirements. They emphasized intermediate proficiency with some Microsoft tools (Excel, Word, PowerPoint, and Outlook) and sufficient familiarity with the structure and navigation of an enterprise resource planning system to process transactions such as accounts receivable. Of those requirements, Excel for analysis was the most important. Our contributions update and augment the literature by clarifying the perceptions of employers regarding the IT competencies required of management accounting graduates.

The Impact of Enterprise Resource Planning Systems on Management Accounting: Some Canadian Evidence and Suggestions for Future Research

Enterprise resource planning systems have great potential for changing how companies are administered. In accepting that premise, this paper has two purposes: (1) to demonstrate the capacity of ERP systems to improve capital budgeting by specifying explicitly the intended impacts on revenues, expenses, costs, asset utilization, etc, and (2) to survey Canadian companies about how their use of ERP systems have affected their capital budgeting, management accounting, and control systems. From the 71 surveyed large Canadian companies, 31 responded for a response rate of 43.7 percent. It was found from the respondents that ERP systems are allowing capital budgeting, budgeting, operating statements, forecasting, performance measurement, and costing to be more detailed, more accurate, and quickly reported. However, it is inferred that the adoption of ERP systems is at an early stage and that there are other unidentified factors contributing to management accounting changes.

INTERNAL AUDIT AT THE HISTORICAL HUDSON'S BAY COMPANY: A CHALLENGE TO ACCEPTED HISTORY

The accepted history of managerial internal audit is that its origins are in financial and compliance auditing. Managerial was added after firms started to expand geographically or into other businesses. That expansion increased complexity and created problems for managers which the internal auditor assisted in solving with managerial audits. Contrary to that two stage development, something comparable to managerial internal audit was being practiced by the Hudsons Bay Company in the form of inspections as early as 1871. Rather than in financial and compliance auditing, these inspections had their geneses in the desire of the senior manager and the committee (board of directors) for additional information on the fur trade and retail operations. This paper will describe the inspection function at the historical Hudsons Bay Company, the circumstances leading to the development of this function, and how it complemented other controls.