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

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

The accountant for an enterprise can prepare whatever types of reports and statements it is judged will best serve the needs of management without regard for external reporting requirements insofar as price-level changes are concerned. This may not be true much longer (due to the creation of external reporting standards) [Zlatkovich, 1975].

Edwards [1974] suggested that management accountants would only account for inflation after financial reporting standards had been changed:

If the historical cost valuation basis were to be abandoned, what alternative valuation basis would be used in terms of internal decision-making as it relates to managerial accounting, and how would that affect the managerial accountant? It would place responsibility on him to relate such questions as return on investment not based on cost or book value but rather based on replacement cost in terms of the assets entrusted to management at various levels [Edwards, 1974].

The quotations presented above suggest that management accountants had preferences for particular accounting techniques but were unable to implement these techniques due to the requirements imposed by financial accounting. I will refer to this phenomenon as "technological" subordination. The only exception was in a few firms that had implemented standard cost systems to provide information for monitoring the efficiency of production separately from the general ledger. In the majority of cases, cost accountants either uncritically noted the need to integrate their cost systems with the general ledger or were critical of the effects of this requirement on the quality of information produced for management decision-making.

There is also evidence that management accounting was "organizationally" subordinate as well. The organizational subordination of management accounting followed from its primary use in preparing information for financial reporting:

The inference seems to be fairly obvious that cost accounting is a detail or phase of general accounting and is thereby a secondary or even minor rank in the hierarchy of the finance function in a corporation...Certainly there is no question of secondary status for men soundly trained in accounting, costs and budget principles, whether they be called cost accountant or industrial accountant [Editorial, 1956].

Abbott [1988, pp. 36, 98] notes that a common rhetorical technique in boundary disputes between professions is the attempt by one profession to reduce the work of competitors to a subset of their own. In the quote above, the editor of Cost and Management recognizes that financial accountants have taken this view of cost accounting work but does not effectively rebut the proposition. Instead the editor attempts to reinforce the cost accountants' image of their level of qualifications without making any claim for the independence of cost accounting from financial accounting.

Management accountants were marginalized within the organizations for which they worked. Either they were located at head office within a financial reporting department, or they were assigned to divisional offices as direct support for shop floor level planning and control processes. In either case, management accounting was not positioned to influence organizational priorities or procedures. Management accountants also tended to be isolated in their work settings: