Cost & Management Accounting: Relevance Lost A

Critique
Critical Appraisal Of The Main Arguments Of Relevance Lost

Todays management accountant information, driven by the procedures and cycle of the
organisations financial reporting system, is too late, too aggregated, and too distorted to be relevant
for managers planning and control decisions. (Relevance Lost 1987. Johnson & Kaplan)

The above quote is the opening paragraph in Johnson & Kaplans book, summarising what they felt
was wrong with management accounting, below is a set of bullet points which develop the key
arguments made in the book.

Main Arguments

Management accounting systems and techniques in the Western World were as they had been since
1920.

Information systems were geared towards financial reporting, as was the decision making process,
causing a general drift from cost management to cost accounting.

Existing management accounting could not adapt to new competitive environments, management
styles, production techniques and organisational structure.

Management accounting facilitated the growth of large enterprises, throughout in early C20th and
was not just a by-product.

The first argument that will be analysed is the issue that management accounting techniques had not
changed since the 1920s. On the whole Johnson & Kaplans argument was true, from 1920 to the mid
1980s there were no pioneering new management accounting techniques that were established. The
issue raised is why no new management techniques were developed. During the 1920s and onwards
USA firms such as General Motors and Dupont were using to a great extent heavy mass production and
Fordist principles. They could out produce and undercut competition while providing a high quality
product to a market that was in very high demand. From this point in the 1920s to the 1970s these
firms could produce huge amounts of products and sell them to an ever-expanding market.
Competition was essentially localised, markets were secure and the USA was becoming more consumer
society orientated, for reasons such as the introduction of the credit card, baby bust etc. Research
revealed that firms did not need to change. The following quote summarises why no key issues
techniques developed:

There was little incentive to minimise manufacturing costs, as increased costs could be passed on to
the consumer(Changing Nature Of Issues In Management Accounting. Scrapens, Hopper, Ashton).