Preface

Preface

Preface

Preface

Preface

This paper briefly traces the evolution of the impact that activities of accounting regulatory bodies have had on financial accounting research during the last two decades. It analyzes the continuing erosion of the link between accounting research and regulations and the adverse effect of that erosion on empirical studies. Regulators, authors and editors of scholarly accounting journals may share responsibility for this trend. Some suggestions are offered on how to reverse this trend and how to better link empirical and analytical studies to some of the concerns which motivated earlier studies. Policy makers may then be provided with evidence to support their regulatory activities. Résumé. L'auteur retrace brièvement l'évolution des répercussions qu'ont eues les activités des organismes de réglementation de la comptabilité sur la recherche en comptabilité financière depuis deux décennies. Il analyse l'érosion progressive du lien entre la recherche et la réglementation comptable et l'incidence négative de cette érosion sur les études empiriques. Les responsables de la réglementation, les auteurs et les directeurs de revues spécialisées en comptabilité peuvent partager la responsabilité de cette tendance. L'auteur offre certaines suggestions relatives à la façon de renverser cette tendance et de mieux lier les études empiriques et analytiques à certaines des préoccupations qui ont motivé les recherches antérieures. Ainsi les responsables de la formulation de politiques disposerontils de documents sur lesquels appuyer leurs activités de réglementation.

My task is to provide a perspective regarding the general topic of choosing optimal cost drivers, as that topic is reflected in the selected articles of this Forum. This perspective can be developed more easily if I first digress back to the 1960s when managerial accounting research was beginning to evolve to its present stages. In the 1960s, teaching and research in managerial accounting were heavily influenced by the growing popularity of operations research and management science approaches to business problems. These approaches were largely normative in nature, consisting basically of optimization techniques that, if implemented, promised to improve managerial decision making. Their normative character was carried over into managerial accounting as well, with the basic theme of many managerial accounting articles in that era being, "Here is how optimization techniques may be used to guide the design of improved managerial accounting systems." Rarely, if ever, did the researcher provide empirical evidence or other forms of proof that the new systems would in fact lead to improvements in managerial decisions. Rather, the main result provided was that the new systems could generate new accounting numbers under certain assumed conditions. If these new numbers appeared to be materially different from the old, implementation of the new systems could lead to changes in managers' decisions. The changes in managers' decisions were assumed to be desirable ones to induce. However, desirability was based primarily on subjective criteria adopted by the researcher. Generally, a necessary condition for potential improvements in managerial decisions from new accounting systems is that the new system generate accounting numbers that are materially different from those obtained from the existing system. For this reason, I label such studies as materiality studies, since they basically follow the traditional materiality rule in accounting. But different accounting numbers might not lead to changes in decisions that result in payoffs sufficient to justify the costs of implementing the new systems. Indeed, recognition of this basic limitation of materiality studies was a strong motivation for managerial accounting researchers to investigate the advantages of using the information economics paradigm to estimate the net payoffs from implementing new accounting systems. Recall that information economics is a conceptual framework that can be used to assess how new information will affect managerial decisions and, assuming decisions will change, the expected payoffs from implementing a new accounting information system. Included in the framework Is an assumed decision-maker with a particular utility function who processes information through a specific decision model. The model, in turn, yields an ex ante optimal decision. The value of new information is then measured as the change in the net payoffs induced by moving from a previous optimal decision to a revised optimal decision under the assumption that the new information does in fact induce a revision in the optimal decision. Note that the original optimal decision might still remain optimal even though the new information received by the decision maker differs from the old. Obviously, the conclusion in the latter case is that the new information system would have either a zero or negative expected net value.

[My task is to provide a perspective regarding the general topic of choosing optimal cost drivers, as that topic is reflected in the selected articles of this Forum. This perspective can be developed more easily if I first digress back to the 1960s when managerial accounting research was beginning to evolve to its present stages. In the 1960s, teaching and research in managerial accounting were heavily influenced by the growing popularity of operations research and management science approaches to business problems. These approaches were largely normative in nature, consisting basically of optimization techniques that, if implemented, promised to improve managerial decision making. Their normative character was carried over into managerial accounting as well, with the basic theme of many managerial accounting articles in that era being, "Here is how optimization techniques may be used to guide the design of improved managerial accounting systems."1 Rarely, if ever, did the researcher provide empirical evidence or other forms of proof that the new systems would in fact lead to improvements in managerial decisions. Rather, the main result provided was that the new systems could generate new accounting numbers under certain assumed conditions. If these new numbers appeared to be materially different from the old, implementation of the new systems could lead to changes in managers' decisions. The changes in managers' decisions were assumed to be desirable ones to induce. However, desirability was based primarily on subjective criteria adopted by the researcher. Generally, a necessary condition for potential improvements in managerial decisions from new accounting systems is that the new system generate accounting numbers that are materially different from those obtained from the existing system. For this reason, I label such studies as materiality studies, since they basically follow the traditional materiality rule in accounting. But different accounting numbers might not lead to changes in decisions that result in payoffs sufficient to justify the costs of implementing the new systems. Indeed, recognition of this basic limitation of materiality studies was a strong motivation for managerial accounting researchers to investigate the advantages of using the information economics paradigm to estimate the net payoffs from implementing new accounting systems. Recall that information economics is a conceptual framework that can be used to assess how new information will affect managerial decisions and, assuming decisions will change, the expected payoffs from implementing a new accounting information system. Included in the framework is an assumed decision-maker with a particular utility function who processes information through a specific decision model. The model, in turn, yields an ex ante optimal decision. The value of new information is then measured as the change in the net payoffs induced by moving from a previous optimal decision to a revised optimal decision under the assumption that the new information does in fact induce a revision in the optimal decision. Note that the original optimal decision might still remain optimal even though the new information received by the decision maker differs from the old. Obviously, the conclusion in the latter case is that the new information system would have either a zero or negative expected net value.]

In recent years there has been a rapid growth in the application of mathematical programming techniques to the solution of particular types of managerial problems. This increased use of programming techniques should be of interest to accountants for at least two general reasons: there is a definite similarity in the underlying approaches of programming and accounting to a certain type of managerial problems and the application of programming techniques by managements of firms will have a rowing impact on the accountant's function of supplying data used in making decisions concerning the allocation of resources and also the data needed for the control and evaluation of these decisions. The manager of a firm is generally faced with two broad categories of decision-making problems. First he must determine the proper amounts and types of resources which are necessary for the achievement of the organization's objective or objectives. The implementation and the evaluation of linear programming solutions seem to require more work in the development of an analysis of standard cost systems since these systems traditionally have not seemed to be explicitly related to the current planning governing the uses of committed resources.