Management Accounting Also by Akira Nishimura ACCOUNTING IN THE ASIA-PACIFIC REGION (co-editor with N. Willett) Management Accounting Feed Forward and Asian Perspectives Akira Nishimura © Akira Nishimura 2003 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP.
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A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Nishimura, Akira, 1938– Management accounting : feed forward and Asian perspectives / Akira Nishimura. Includes bibliographical references and index. Managerial accounting—Japan.
Managerial accounting—Asia. Managerial accounting—United States.1511—dc21 2003050457 10 9 8 7 6 5 4 3 2 1 12 11 10 09 08 07 06 05 04 03 Contents List of Tables and Figures viii Preface and Acknowledgements x 1 Introduction 1 1.2 Japanese management accounting and feed forward control 2 1.3 A comparative study of Japanese and Western management accounting 4 1.4 Feed forward control and management accounting in general 7 1.5 The comparative study of Asian management accounting and the impact of target costing on Asian management accounting 9 2 The Control Functions of Accounting and Management Accounting 11 2.1 Accounting and the control function 11 2.2 The control functions of accounting and accountability 13 2.3 Accountability and disclosure 14 2.4 Controllability and accountability 18 2.5 Conclusion 20 3 The Development and Future of Management Accounting in Japan and the USA: A Comparison of Management Philosophies 23 3.1 The development of Japanese management accounting up to the 1970s 23 3.2 The development of management accounting in the USA 25 3.3 Characteristics of contemporary Japanese management accounting: cost and the just-in-time ( JIT) system 27 3.4 Comparison of US and Japanese management accounting practices 31 3.5 Future aspects of management accounting development 34 3.6 Conclusion 35 v vi Contents 4 Developments in Japanese Management Accounting and their Impact on British and New Zealand Companies 37 4.2 The management accounting system in Japan and its differences from the American type of management accounting 38 4.3 Horizontal organization and two-way management 43 4.4 Horizontal two-way management and the Japanese social environment 47 4.5 Nissan New Zealand and Japanization 51 4.6 Conclusion 54 5 Transplanting Japanese Management Accounting and Cultural Relevance 56 5.2 Culture and management accounting 56 5.3 Japanese management accounting and culture 59 5.4 Transplanting of Japanese management in the West and in other Asian countries 61 5.5 Transplanting of the management system and transfer cost 63 5.6 Conclusion 68 6 Asian Economic Growth and Management Accounting 70 6.2 Development of management accounting and Japanese management accounting 71 6.3 The present situation and the characteristics of management accounting in Asia 76 6.4 The transfer of Japanese-style management accounting 82 7 Japanese Management Accounting and its Effects on the Asian-Pacific Region 86 7.2 Japanese management organization and management accounting 87 7.3 Management accounting in the Asian-Pacific Region and Japanese management accounting 92 7.4 The integration of high quality and low cost in Southeast Asian countries 95 7.5 Conclusion 97 Contents vii 8 Implications of Target Costing and its International Application 98 8.1 Cost design and target costing in Japan 98 8.2 Investigations of practical cost design, or target costing in Japan 100 8.3 Cost target and target cost 102 8.4 Target costing in the Taiwanese Guorui Car Company 106 8.5 Target costing in the Handan Steel Company, China 108 8.6 Conclusion 111 9 Integrated Management Accounting and the Analysis of Cost Reduction 113 9.2 Fundamental problems in recent management accounting 113 9.3 Concerns of today’s management accounting 116 9.4 New paradigm and management accounting 118 9.5 Activity-based costing 120 9.6 Cost design, or target costing 123 9.7 Integrated cost accounting 126 9.8 Analysis of cost reduction and feed forward 133 9.9 Cost reduction analysis and accounts procedure 135 9.10 Conclusion 137 10 Feed Forward Cost Accounting and Strategic Management 139 10.2 Strategy and accounting 140 10.3 Strategy and feed forward control 143 10.4 Preceding literature on strategic management accounting 146 10.5 Target cost accounting and strategic management 149 10.6 Conclusion 156 11 Conclusion 158 Notes 163 Bibliography 170 Index 179 List of Tables and Figures Tables 3.1 Popularization of planning in Japanese companies 24 3.2 Comparison of the USA and Japan on quantitative analysis 27 3.3 Aspects of management accounting 28 4.1 Usage of costing in Japan and the USA (percentages) 40 4.2 Profit appropriation of Japanese affiliates in foreign countries (money amounts in billion yen) 55 5.1 Japanese management in the UK, New Zealand and Taiwan 62 5.2 Profit on investment in Japanese overseas affiliated companies in foreign countries (percentages) 64 5.3 Sales profit rate in Japanese overseas affiliated companies (percentages) 64 5.4 Ratio of local procurement of parts by Japanese overseas affiliates in each area, 1992 (percentages) 65 5.5 Number of seconded managers and ROI in electronics and transport equipment industry 66 6.1 The development stages of management accounting 72 6.2 Present situation of management accounting in Japanese manufacturing firms 74 6.3 Management accounting practices in Taiwan manufacturing firms 77 6.4 Management accounting practices in Korea 78 6.5 Management accounting practices in Singapore 79 6.6 Management accounting practices in China 81 7.1 Financial results of Japanese overseas affiliated companies in the electronics and transportation machine industries 87 7.2 Productivity and capital in Japanese overseas affiliated companies (money amounts in millions of yen) 88 7.3 Comparison of management accounting practices between Malaysia, Singapore, and Thailand (usage rate) (percentages) 93 8.1 Practices of cost design (target costing) in Japanese companies 100 8.2 Comparison of traditional with Japanese target costing systems 105 9.1 Comparison of the paradigms of the old and new management systems 119 9.2 Transformation of fixed overheads to direct cost 130 9.3 System of profit management in Honda 132 9.4 Analysis of cost reduction 137 viii List of Tables and Figures ix 10.1 Differences between the two management accounting systems 141 10.2 Recent examples of deficit product and loss in 2001 (billion Japanese yen) 144 10.3 Cost design and conventional strategic costing 149 11.1 Feedback and feed forward in cost accounting 161 Figures 2.1 Financial and management accounting 21 2.2 Development forms of management accounting 21 3.1 Framework of management accounting 32 3.2 Recent development of management accounting 33 5.1 Japanese management in Europe 61 6.1 Development of management accounting until 2000 82 8.1 Cost design activity in the Guorui Motor Company 107 8.2 Diagram of target costing in Handan Steel Company 109 9.1 Development of management accounting 129 9.2 Accounts organization of cost reduction variance 136 10.1 Recent trend of feed forward control 145 10.2 Integration of the two strategies 145 10.3 Ex post system and formal accounting system 150 10.4 Target costing and formal accounting system 151 10.5 Outline of target costing (cost design) activities 152 10.6 Feed forward and cost bookkeeping 155 11.1 The relation of feedback and feed forward control systems 159 11.2 Accounting function and management accounting 161 Preface and Acknowledgements Management accounting was born early in the twentieth century, ramifying from financial accounting. Management accounting, and so too does financial accounting, embodies accounting eyes, or control function, and the former takes the social shape of controllability in contrast to that of disclosure in the latter. In our society, both are originally one and undivided, since disclosure would not realize accountability without controllability.
Disclosure without controllability is only an empty ceremony. As the separation of ownership and management increases according to the devel- opment of joint-stock companies, disclosure gradually established itself relatively independently of controllability. In the case of fraudulent accounts, both completely confronted each other. However, because both must be connected, auditing was given birth to as a neutralizing measure.
Managers who assume controllability must be socially responsible for business risk, even if their responsibility can be discharged by disclosure. When risk can be dissolved by a feedback system, disclosure and controlla- bility work well and stakeholders may continue to expect future recovery. At present, as experienced in Enron’s failure, not only Enron but also the accounting firm, Arthur Anderson, fell into such a dangerous situation as to tear their international networks and branches to shreds, and caused widespread redundancies and insolvencies. In Japan, we have also seen some cases in which, for example, a big business fell into bankruptcy in a single night as a result of selling detrimental foods to health shops.
Feedback control can no longer function in these firms because social costs are so great and there is not enough time to rectify errors. There is a complete failure of separation of disclosure and controllability. We therefore should go forward into the twenty-first century with the integration of financial and management accounting. At the same time, this integration should be strongly based upon feed forward management.
As a result of the socialization and globalization of big business, feed forward man- agement assumes more and more importance, because failed controllability brings such serious ‘irrecoverable losses’ on societies that feedback control cannot solve. The proactive countermeasures to prevent us from this calamity should not be carried out by a few excellent managers, but should be the responsibility of every member of an organization. Feed forward management is not implemented until strategic management is organically united with cooperative management in a company. This book has been stimulated by the feed forward management practised by Japanese management accounting, particularly Cost Design, and tries to further advance this idea.
However, the object of this book is not to x Preface and Acknowledgements xi introduce the structures and contents of Japanese management accounting, but to consider what is the true nature of management accounting and how should it be studied, through the study of Japanese management account- ing. This book grapples with these problems from the angle of feed forward management and an Asian viewpoint in order to make clear some perspect- ives of management accounting science and its global development. Accounting science is a social science, which scientifically studies methods to systematically and synthetically measure, recognize, and control economic phenomena related to business management. Accounting is the control calculation, which systematically and synthetically measures and recognizes economic phenomena by means of accounting methods (T form, double-entry, credit and debit accounts, and others) and supports business management, or decision-making and performance evaluation.
Management accounting also depends upon this function of control: accountability. Here is a brief summary of the main contents of the various chapters. Chapter 2 addresses the fundamental content and structure of accounting and their relationship to management accounting, after giving an overview of the existing literature in terms of Japanese management accounting, feed forward control, and the comparative study of Asian management accounting. They are deeply based on some concepts such as accountability, controllability, disclosure, and feed forward and feedback management.
The chapter also lays a foundation for the analysis in subsequent chapters that are always related to the development of formal accounting systems.