Professional dominance: The relationship between financial accounting and managerial accounting, 1926-1986

Accounting Historians Journal, The, Dec 2002 by Richardson, Alan J

Abbott contends that the relationship/boundary between professions is subject to negotiation and suggests, "effective historical sociology of professions must begin with case studies of jurisdictions and jurisdictional disputes" [Abbott, 1988, p.2]. For

Abbott, then, professional dominance is not inherent in the structure of the professions but an outcome of processes of negotiating boundaries between different professional groups. Abbott [1988, p.230] asserts that cost accounting "has been without question the most contested information jurisdiction in American history." His analysis of jurisdictional disputes related to cost accounting, however, focuses on the period up to 1925 and on the boundary between cost accounting and such professions as statistics, engineering and operations research [ibid., pp. 226-239]. He concludes that by 1925 accountants, as a broad profession, had gained control of this field. Further he suggests, 11 since cost accounting took place within organizations, it rapidly lost many of its links with public accounting and became largely independent" [ibid., p. 232]. Contrary to this view of the resolution of jurisdictional disputes in cost accounting, the claims by Johnson and Kaplan that managerial accounting was subordinate to financial accounting suggests that this process of jurisdictional negotiation has failed or is incomplete.

Does it matter if management accounting exists as an independent profession rather than being under the control of financial accounting? There are a number of articles that demonstrate the dangers of using financial accounting information for managerial decision-making [e.g., Kaplan, 1988; Cooper and Kaplan, 1987]. These articles provide technical reasons why management accounting information should be independent of financial accounting. These articles however do not address the question of whether or not management accounting has emancipated itself from financial accounting in order to fulfill the role that theorists suggest it should play in organizations. The issue is of particular concern as the reform movement begun by Kaplan has come full circle. In early work, the need to separate cost accounting systems from financial accounting systems was highlighted but in more recent work the need to integrate information systems has been emphasized through the construction of enterprise resource planning (ERP) systems. [e.g., Cooper and Kaplan, 1998]. If the factors that originally caused management accounting systems to be dominated by financial accounting systems still exist, then the management accounting information supplied by these systems may still be irrelevant for managerial decision-making.

The remainder of the article is organized around three questions. First, is there evidence that management accounting was perceived by management accountants to be subordinate to financial accounting during the period 1926-1986? The evidence supports the induction that Canadian management accountants perceived three forms of subordination: (1) limitations imposed upon management accounting technique due to a requirement to integrate cost accounts into the general ledger (technical subordination); (2) limitations on the influence and innovativeness of management accountants due to their position within organizational hierarchies (organizational subordination); and (3) limitations on the profession of management accountancy originating from the role of chartered accountancy in its creation (professional subordination).