Merging management accounting with database design: management accountants have a greater opportunity to support the implementation of corporate strategy when they are involved in developing IT databases using a conceptual design tool in concert with the balanced scorecard

Management Accounting Quarterly, Wntr, 2005 by George Joseph, Asha George

EXECUTIVE SUMMARY There has been increasing concern recently that accounting, the "language of business," is not expressive enough to match the potential created by the phenomenal growth of technology. While management accountants have taken a lead role in developing frameworks for performance evaluation that encompass financial and nonfinancial measures, the methods by which antiquated accounting systems are designed prevent them from taking full advantage of advances in information technology. If management accountants were to get more involved in the process of software design, particularly through models such as the resources, events, and agents (REA) model, they could become more involved in supporting firm-wide strategic management and control.

We assert in this article that management accountants have a greater opportunity to support corporate strategy when they are involved in developing IT databases using a conceptual design tool in concert with the balanced scorecard (BSC). We try to establish a logical link between the design potential of the REA model and the performance measurement framework of the BSC. This link provides the basis for an integrated conceptual database design framework that will enable management accountants to assist in the development of meaningful accounting information systems and establish their role as partners in the development and evaluation of corporate strategy and planning.

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Peter Drucker spoke of the turbulence in accounting that is becoming evident as the CFO's role in organizational strategy undergoes a transformation. (1) Now that structured tasks are computerized, which has resulted in reengineering and some outsourcing of traditional accounting tasks, management accountants who use only the traditional skills required for such tasks do so at their and the profession's peril. The work of management accountants has become analytical and decision oriented, but these financial professionals are unable to fully realize the changes in their role unless they become partners in the design and development of the information systems in their organizations. To become partners, management accountants need to develop and identify tools that give them greater insight into database development processes.

We will describe two developments in accounting: the resources, events, and agents (REA) model and the balanced scorecard (BSC) model. We assert that the two, operating together, can close the loop among the performance measurement, strategic decision-making, and systems design functions of a company.

The REA model, a conceptual model for database design, has the potential to enable management accountants to play an intrinsic role in the design of information systems. (2) The balanced scorecard provides a framework for an "integrated view" of the organization that extends beyond the traditional financial view. It also provides a wealth of information about the firm that can enable management accountants to define and describe entities in the database more accurately.

The objective of this article is to develop a basic framework for an integrated conceptual database design, incorporating strategy based on the BSC and using the "mixed" approach for designing schemas. (3) We will discuss (1) the problem confronting management accountants that leads to the need for a change in their role and, therefore, the usefulness of the framework; (2) the two tools, BSC and REA, that form the basis of the framework; (3) the details of the REA framework as an integrated systems design; and (4) the significance of the framework for integrating accounting models and information systems.

THE PROBLEM

Information technology continues to transform the role and content of accounting. Drucker pointed out that advances in information technology have made accounting one of the most challenging and turbulent areas of management, increasingly creating an overlap of accounting and management information systems. (4) He said that while management systems personnel are generally more concerned with technical issues related to computer hardware and software, the "challenges increasingly will not be technical but instead will be to convert data into information that is actually being used." (5) Another perspective forecasts that, in the next 10 years, management accounting--probably under a different name--will produce a broad set of strategic and operational measurements of which financial accounting would be a subset. (6) With corporate strategies shifting from competing on cost to quality, time, and customer service, many more participants, such as engineers, IT professionals, and consulting firms, will compete with management accountants as information providers and may even have an advantage over them for specific types of information. In this changing environment, with the "need for real-time interpretations of this flood of information ... the challenge to accountants will be to prove their inherent competitive advantage in these changing roles." (7)