GLOBAL ACCOUNTING AND

CONTROL: A MANAGERIAL EMPHASIS

Sidney J. Gray, University of New South Wales
Stephen B. Salter, University of Cincinnati
Lee H. Radebaugh, Brigham Young University

Slides Prepared by: Jennifer Anne Salter

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CHAPTER FOUR

COMPARATIVE INTERNATIONAL
MANAGEMENT ACCOUNTING

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INTRODUCTION
In this lecture we will cover:
Management control as it applies across
borders.
Objectives, form and role of
management control in different
countries.
Cross-national differences in setting
overall corporate objectives and
budgeting.

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What is Global Management
Accounting?
Global Management Accounting is a
mixture of 2 disciplines:

Management Control, and

Cost Accounting.

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What is Global Management
Accounting - Cost Accounting
Cost Accounting is:
The skill of understanding how costs are
make up and how they change.
The science of computing how & why
costs changed.
How costs can be reduced to match
market prices.

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What is Global Management
Accounting - Management Control
Management Control focuses on:
The strategic objective of the firm.
The types of resources the firm needs, where it
can get them in the short and long terms.
A system that tells the firm if it is going off track
and needs to make corrections.
How to evaluate and reward manager
performance.

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What is Global Management
Accounting Continued
The Cross Border setting asks the following
questions:
How do external & internal environments affect
information needs and questions?
Are there different views in different countries to
the points in the previous slide? Why?
See the following slide for another view of a
management control value chain.

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 What is Global Management
Accounting Continued?
The Management Control Value Chain

Planning & Monitoring

Firm Strategy
Budgeting
Objectives

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CULTURE, MARKETS &
CONTROL
Culture: An Introduction
1. A firms social/business environment affects strategy and
control dimensions.
2. These environment dimensions are: culture and markets.
3. Hofstedes model of culture identified dimensions of
human values that affect decision making by society
and individuals.

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CULTURE, MARKETS &
CONTROL:
An Introduction to Culture Continued
Hofstedes Dimensions:
Individualism versus Collectivism.
Large versus small power distance.
Strong versus weak uncertainty
avoidance.
Masculinity versus femininity.
Long term orientation.

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CULTURE, MARKETS &
CONTROL:
Culture and Control
1. The impact of a cultural variable on management
accounting is not always clear.
2. Studies suggest that management control is affected by:
individualism, power distance, long-term orientation.

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CULTURE, MARKETS &
CONTROL:
Studies of Culture and Control I
These studies find:
Asian nations tend to look to longer term market
dominance profile.
Collectivists, e.g., Japan, tend to plan and
reward at the group level.
Individualist cultures link reward and
performance for each individual.

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CULTURE, MARKETS &
CONTROL:
Studies of Culture and Control II
The Western concept of checks and balances
makes the individual responsible & culpable.
The individualist culture is the basis for the system.
In Collectivist cultures group rewards dominate.
These take longer to emerge, so planning would
be longer term.
High Power Distance societies have few
consultative/participative budgeting processes.

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EMPIRICAL STUDIES OF
DIFFERENCES IN OBJECTIVES
ACROSS NATIONS.
US Multinationals:
In a study of MNEs, Robbins &
Stobaugh (1973) found:
Intangible items rarely taken into
account when evaluating performance.
Foreign subsidiaries are judged on same
basis as domestic subsidiaries.

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EMPIRICAL STUDIES OF
DIFFERENCES IN OBJECTIVES
ACROSS NATIONS Cont.
US Multinationals Continued:
Return on Investment is most utilized measure of
performance.
A Supplementary device is often used to gauge
a foreign subsidiarys performance.
Comparison to budget is most widely used.
In the following slide we see that Abdallah &
Keller (1985) provide support for these findings.

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EMPIRICAL STUDIES OF DIFFERENCES IN
OBJECTIVES ACROSS NATIONS Cont.
Percent of the Total 64
MNEs
Financial Measures Foreign Foreign
Subsidiary Subsidiary
(%) Manager (%)
Return-on-investment 74 67
(ROI)
Profits 78 66
Budgeted ROI compared 66 64
to actual ROI
Budgeted profit compared 86 87
to actual profit
Other measures 36 36
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EMPIRICAL STUDIES OF
DIFFERENCES IN OBJECTIVES
ACROSS NATIONS Cont.
Non US Multinationals:
British Firms:
Appleyard, Strong & Walton (1990) found that
British companies:
Preferred to us budget/actual comparison followed by some
form of ROI.
Tended to use the same ROI measure for foreign subsidiaries as
for domestic subsidiaries.

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EMPIRICAL STUDIES OF
DIFFERENCES IN OBJECTIVES
ACROSS NATIONS Cont.
Japanese Firms
Shields et al (1991) compared US and
Japanese MNEs and found that:
Japanese firms tend to use sales as the major
performance criteria.
US firms prefer ROI.

The following slide contains Shield et als (1991)

criteria used for evaluating divisional managers

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EMPIRICAL STUDIES OF
DIFFERENCES IN OBJECTIVES
ACROSS NATIONS Cont
Japan USA A
A (%) (%)
Sources:
Sales 69 19
Sales growth 28 28
Market share 12 19
Asset turnover 7 13
Return-on-sales 30 26
ROI 7 75
Controllable profit 28 49
Residual income 20 13
Profit minus corporate 44 38
costs
Manufacturing costs 28 13
Other 8 17
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EMPIRICAL STUDIES OF
DIFFERENCES IN OBJECTIVES
ACROSS NATIONS Cont
Bailes & Assada (1991) also compared US
and Japanese MNEs (see table next slide).
Japanese firms prefer to use sales volume as
overall objective. Net Profit is second.
American companies tend to use ROI most
often, then controllable profit.
Demirag (1994) - Japanese MNEs in the UK
tend to use sales/market share targets.

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EMPIRICAL STUDIES OF
DIFFERENCES IN OBJECTIVES
ACROSS NATIONS Cont
Japan United
(%) States (%)
Sales volume 86.3 27.9
Net profit after corporate 44.7 35.0
overhead
Controllable profit 28.2 51.8
Profit margin on sales 30.7 30.5
Sales growth 19.4 22.4
Return on investment 3.1 68.4
(ROI)
Production cost
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40.7
CHAPTER 4
12.4
EMPIRICAL STUDIES OF
DIFFERENCES IN OBJECTIVES
ACROSS NATIONS Cont
APEC Firms:
Merchant, Chow & Wu (1995) found little
evidence of a link between national culture and
firms goals in Taiwan.
Kong, Harrison et al (1994) find that Anglo-Saxon
managers prefer shorter term but more
quantitative objectives.
Company objectives vary from culture to
culture

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EMPIRICAL STUDIES OF
DIFFERENCES IN THE BUDGET
PROCESS ACROSS NATIONS
Issues needed to be resolved are:
is there a formal budget setting process?
Who participates and how?
What style of communication should be
used?
How are objectives set?
Time period to be covered?
Should there be a monetary objective or
non-quantitative objective?

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EMPIRICAL STUDIES OF DIFFERENCES
IN THE BUDGET PROCESS ACROSS
NATIONS
US Firms:
Anglo-American practice assumes that
performance is improved through
participation of persons in carrying out
the budget.

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EMPIRICAL STUDIES OF DIFFERENCES
IN THE BUDGET PROCESS ACROSS
NATIONS
Japanese Firms:
Bailes & Assada compared US/Japanese
cos.:
90% of companies in both countries prepared master
budgets.
This process varied by country.
US Managers tend to be more involved.
Japanese managers tend to see this process as a way
to improve performance.

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EMPIRICAL STUDIES OF DIFFERENCES
IN THE BUDGET PROCESS ACROSS
NATIONS
Japanese Firms Continued:
Ueno and Sekaran (1992) found:
US Managers use a more formal structure.
Budgeting thus becomes a drawing together of
diverse, often conflicting interests.
US budget makers tended to create more slack.
Japanese managers tend to measure performance
over a longer time horizon than US managers.

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EMPIRICAL STUDIES OF
DIFFERENCES IN THE BUDGET
PROCESS ACROSS NATIONS
Mexican Firms
Frucot & Shearon (1991) found:
Performance of Mexican managers is the same as
typical US managers.
Higher level managers participate more.
Lower level managers participate less. This is
attributable to the high power distance culture.
Managers of foreign owned subsidiaries show no desire
to participate in the budget process. See themselves as
powerless and process as alien.

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EMPIRICAL STUDIES OF DIFFERENCES
IN THE BUDGET PROCESS ACROSS
NATIONS
APEC Firms:
Comparing managers in Australia and
Singapore, Harrison (1992) found no
significant relationship between national
origin and participation, interaction and
satisfaction.
Both groups seem to prefer a
participative style of budgeting.

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EMPIRICAL STUDIES OF DIFFERENCES
IN THE BUDGET PROCESS ACROSS
NATIONS
Harrison et al (1994) compared
Australia, US, Singapore and Hong
Kong. They found:
Anglo-American firms place emphasis on
decentralization, responsibility centers,
organizational design, as well as
quantitative and analytical techniques in
planning and control
Singapore/Hong Kong Firms place
emphasis on long term planning & group
centered decision making
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 Copyright
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Chapter 4

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