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Is double entry accounting here forever?

Some time ago, I read a blog post on the Zoho website about double entry accounting. Zoho provide a number of business related applications. The essence of the Zoho blog post is conveyed in the title of this post. Double entry accounting has been around for the last six centuries and has been embedded in the most simple and most complex accounting software. And there are no signs of it disappearing. The have been some proposed alternatives, such as the Resources, Events, Agents model (which is sometimes used in teaching). But like the DVORAK keyboard, even if some alternatives may be an improvement on the double entry system, they are likely never to catch on. Why you might ask?  Well, in my institutional theory thinking the answer is probably because the practices around double-entry accounting have been repeated so many times by so many people, that they have become the accepted way of doing things in business. In other words, the double entry system of accounting is a routine. And, not only that, there are also rules about double entry. I regard rules as written, and there are plenty of written rules of the double entry system – in text books, in software for example. If a practice has both been repeatedly performed for 600 years or so, and it has been written as a rule, the as the Zoho blog post says ” the traditional double-entry model was deeply ingrained in the business person’s and accountant’s psyches, and it was never going to be easily changed”. And it will probably remain so.

Institutionalised practices – a simple example

In my research work, I write and read a lot about how accounting practices become taken-for-granted within organisations. This taken-for-grantedness might be equated with the term “institutionalised”, based on theories from economics and sociology.  When we think of the term institutionalised, we often associate with things like being in jail for too long, or something that’s more physical like the an Institute of Engineers. But, it can be something far more fluffy. While driving to work in early December, a useful example came to mind as I listened to the radio. It was December 1st, and an Irish radio DJ called Larry Gogan is typically accepted as the person to play the first Christmas song on the Irish airwaves – it was Fairytale of New York for Christmas 2011 just in case you’re interested.  It is not written down anywhere that Larry does this, and to be honest I don’t know how this practice came about. But radio listeners know that Larry is expected to play the first Christmas song each year. In other words, it is an institutionalised practice. And what happens is something tries to change this? After a quick search I found some comments from 2006 on a boards site:

Every year on 2fm Larry Gogan plays the first christmas song on the radio, usually in the first week of december, Apparently Gerry Ryan went and broke the tradition thats nearly 25 years old, i’m a little bit pissed off about that, larry is like a national treasure, you shouldn’t mess with him, boo gerry boo i say

I hope he gets a rap on the knuckles / kick in the balls for stealing Larry’s thunder. If he wants to do it after Larry has gone to the Great Microphone in the Sky (not for many years yet, I hope, I hasten to add), fair enough, but he shouldn’t have upstaged Larry like that  

These quotes/posts above show that some people did not like the fact that another DJ broke the accepted practice. This is quite typical when change to any institutional practices is attempted. Similarly, in the world of accounting, there may be practices which are just accepted as how things should be done. Trying to change these can be tricky, but if we can understand why such practices became institutionalised, then we might be able to foster some change.

Tacit knowledge in management accounting

I read a short piece by Bill Fischer in the April issue of Financial Management (CIMA’s monthly journal). The woes of Toyota was the main subject – in case you’re not aware, Toyota have had major safety concerns on a number of its models in the past year or so. Fisher quotes from a book by Paul Ingrassia (Crash Course: The American Automobile Industry’s Road from Glory to Disaster). In this book, Ingrassia writes how Toyota ignored its own “three nevers” principle when deciding to manufacture some of its models in the US e.g. the much reported on Camry model with its jamming brake and accelerator pedals. The “three nevers” principle is: never build a new product, in a new facility, with a new workforce. In the case of the Camry in the US, all three were broken. But surely, you might say, a company as large as Toyota would have rules and procedures about how things are done? They do of course, but a large amount of tacit knowledge – or know-how in the heads of experienced employees – never gets written down and passed on. In the case of Toyota, such tacit knowledge cannot be passed on in a new country, with a new plant, model and workforce in a short time period.
Any what’s the relevance of tacit knowledge for management accounting. Quite a lot actually. If you have studied accounting, do you remember those early first year lectures where management accounting was defined for you? Compared to financial accounting, management accounting is unregulated and loosely structured. While two management accountants having a chat about budgets will both know what a budget is, it’s quite likely that they do their respective budgets in very different ways. There’s a good chance too they do not write down how they prepare budgets or do any other work for that matter. Many academics have written in the importance of tacit knowledge and management accounting practices. For example, the work of Burns and Scapens (2000) uses institutional theory to help explain why management accounting practices remain stable. One reason they offer is that management accounting may become engrained and accepted. This does not imply that management accountants follow rigid rules saying what they should do, rather that the work they do becomes tacitly accepted.
So when you get you first job as a management accountant, sit back, listen, figure out what is going on. In other words, you’ll have to pick-up the tacit knowledge of what management accounting means in the organisation.

Burns, J. & Scapens, R. 2000, “Conceptualising management accounting change: an institutional framework”, Management Accounting Research, vol. 11, pp. 3-25.

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