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The preliminary study of management accounting practices (MAPs) in small business.


The role of managerial accounting is very different now than it was a decade ago. This process is known as identifying, measuring, analyzing, interpreting, and communicating information in achievement of organization's purpose and goals. It's also an integral part of the management process, managerial accountants which are important strategic partners in management team. This is on the needs of managers within the organization, rather than interested parties outside the organization (Hilton, 2008).

At various times cost accounting has been driven by financial accounting and the need to supply information on inventory value and costs (Johnson & Kaplan, 1987) and the environment that management accountants work in has changed in the last century therefore traditional economies has moved from a state of mass production to mass customization (Ross, 1990).

However, Kaplan (1984) has argued that there has been no development of management accounting techniques during the period of 1925 to the 1980s. Furthermore, Atkinson (1987) confirmed a crisis of management accounting profession that has lost relevance in Canada. But, Boer (2000) acknowledges that there is a change in management accounting practice, but is unsure what the change has been to. Thus, researches implement this survey in order to investigate the behavior of management accounting practices particularly in small business.

The objectives of the study are:

1. To determine the Management Accounting Practices (MAPs) in Small Business

2. To indicate the most important objective for Management Accounting Practices (MAPs) in Small Business

The remainder of this paper is organized as follows. A review of related literature on management accounting practices and research questions is discussed. Next, the methodology employed in this study, research instruments used and data analysis method involved are described. Finally, the empirical results and discussion of the study are drawn.

Literature Review

Previously, Chenhall and Smith (1998) have done a study on adoption and benefits of management accounting practices in Australia. They found that traditional management accounting techniques were widely adopted than recently developed techniques. However, most of the companies intended to adopt newer techniques in future especially activity based technique and benchmarking.

In adoption of new and developed techniques, the most important factor is the size of company perhaps since the adoption will be too costly and the changes are too complex. According to Chenhall and Smith (1998) that suggested the large size and business environment of Australian companies will be the reasons for the practices adoption. Drury and Tyles (1994) also found that recently developed management accounting practices particularly in activity based costing has shown that adoption rates are much higher in larger firms. Furthermore, Innes and Mitchell (1995) found high adopters of recently developed management accounting practices are their relatively greater access to resources to experiment with administrative innovations.

The study of Abdel-Kader and Luther (2006), report the current state of management accounting practices in UK food and drinks industry that focused on costing system, budgeting, performance evaluation, information for decision making and strategic analysis. They found that traditional management accounting practices are still alive and well but there are indications of likely increased use of cost of quality, non-financial measures and the analysis of the strengths and weaknesses of competitors. Besides that, they also have done a study on the impact of firm characteristics with management accounting practices.

Management accounting practices survey has been conducted by Dick-Forde et al. (2007) and also consists of the importance of management information to management decision making in organization. At present, management is really focusing on financial accounting report instead the importance of cost management in organization. In fact, the cost management is the one importance aspect in determining the successful of organization operation. This can be seen from Kaplan (1984) and Johnson and Kaplan (1987) suggest that there might be a disproportionate emphasis on financial accounting thus can neglect the internal reporting system. Furthermore, most financial accounting report depend on computerized accounting system that been set up to fulfill the financial accounting requirement and disregard the management accounting requirement too.

In Dick-Forde study, there is a preference for conventional and traditional management accounting practices by the companies because they found 14 practices were currently being used among the 19 practices that have been asked in the survey. According to Dick-Forde et al. (2007), they found that traditional management accounting practices are in use and consistent with findings from Asia. In addition, In Sulaiman et al. (2004), traditional management accounting practices were widely used in India and Singapore.

Currently, according to Sulaiman et al. (2004) study, cost management is a system that considered a core aspect of the internal management information system for decision making by managers. However, the study that conducted by Sulaiman et al. (2004) found the contemporary management accounting practices was low to non-existent in four Asian countries. Futhermore, Hopper. T et al. (2001), the focus on the use of advanced management accounting techniques must be contextualized to the industry and culture of a nation since it was found that the advanced approaches used by the Japanese were the same western ideas tailored to the different manufacturing environment.

Moreover, the objective of organization perceived management accounting practices are very important to determine. According to Dick-Forde et al. (2007), they found the most important objectives were for the purpose of cost control, cost allocation, pricing decision and cost reduction. Guilding et al. (2005) has suggests that Barbadian companies has some control over the prices they set and as a result seek to manage their profitability through cost plus pricing strategies. Beside the four objectives, management accounting practices are for the purpose of information for annual reports, strategic decision making, inventory management planning, planning, performance evaluation and risk management.

Currently, the transformation of traditional management accounting practices to contemporary practices is very crucial. According to Islam and Kantor (2005), the major reason for the rise in importance of management accounting practice was the ability to reconcile with financial statement income numbers, which became increasingly more important. Besides that, the growth of the service and non-manufacturing sectors of the economy has also undercut traditional management accounting practices since the model is limited to apply to non-manufacturing organizations. In addition, most of the techniques used need required non-accounting expertise and management accountant.

In Sulaiman et al. (2004), survey have been done for traditional and contemporary management accounting practices in four Asian countries such as Singapore, Malaysia, China and India. They focused on traditional budgeting, standard costing and variance analysis, cost volume analysis, performance measurement, target costing, activity based costing and balanced scorecard. Budget is one of traditional management accounting that has been practiced in most of organization. Based on Consortium for Advanced Manufacturing-International (CAM-I) in Sulaiman et al. (2004), traditional budget acts as a barrier to effective management, particularly in the present dynamic business environment. They claim that the budgeting process, as traditionally practised, is simply an exercise in justifying the increase and decrease in the previous year's spending. Even there is criticism, the use of budgets as a planning, control and performance evaluation tool is widespread in the selected Asian countries such as in Singapore, and the 97% indicates an increasing use of budgets by companies. In Malaysia, surveyed done by Sulaiman et al. (2002), 61 companies in the industrial and consumer products sectors of the Kuala Lumpur Stock exchange's (KLSE) main board and found that 98% of the survey respondents used budgets.

Besides that, in India, study done by Joshi (2001), was examined the adoption rate of 44 management accounting techniques, sought the manager's perceptions on the benefits of such tools and their importance in future by surveying 60 large and medium size firms. They indicated that budgets were used for planning day by day operations and cash flows. Other Asia countries, Bromwich and Wang (1991) found that only 4% perceived operational budgets to be useful in China.

In addition, standard costing and variance analysis is also one of preference techniques. According to Joshi (2001), in India 68% of the 60 firms surveyed still use standard costing for planning and control purpose. Furthermore, Bromwich and Wang (1991) also found that 94% of the Chinese partner firms and 92% of state owned government used standard costing for joint product costing. This can be supported by Firft (1996) because standard costing can be used to aid budgeting and becoming a control tool for foreign and foreign partnered joint venture firms in China.

In term of performance measurement in management accounting practices, the adoption of measurement indicators are very important whether financial of non-financial. Return on Investment (ROI) is one of financial indicator that has been used as management control technique and only 48% used ROI for each department in Singapore (Ghosh and Chan, 1996). However, in Joshi (2001), they found that non-financial measures are preferred by Indian companies almost 80% evaluated based on customer satisfaction.

Presently, Target costing, Activity Based Costing and Balanced Scorecard are examples for new practices. In Sulaiman et al. (2004), only 35% of the firms adopted that they have adopted target costing in terms of its benefits and 4% from 214 companies plan to implement in the next five years. Then, the Activity Based Costing was preferred by 14 of the 106 Singaporean companies because they believed that this practice will helped to identify activities that drive costs (Ghosh and Chan, 1996). The Balanced Scorecard is one of practice that focused on four perspectives in business that consist also non-financial measurement. However, study found by Hoque and James (2000) and Joshi's (2001) that stated the adoption of Balanced Scorecard was depending on the size of the company and also the large companies have intention to use new developed practice.

Based on the mixed from the previous findings hence researchers of this current study come out with Research Questions (RQs) in order to achieve the main objective of this study:

RQ1: How often is cost and management accounting information used in decision making process?

RQ2: How often management accounting report is prepare in small business?

RQ3: Which are the most preferable usage and still considering Management Accounting Practices (MAPs)?

RQ4: Which is the most importance objective for each Management Accounting Practice (MAP)?

Research Methodology


This study relied on survey design as it deemed more appropriate compared with other designs of research to achieve of the study. The population of this study covered the small business particularly manufacturing sector in Labuan F.T. that has been registered with Companies Commission of Malaysia (CCM). However, 67 list of business being selected due to their active operation. We have distributed one questionnaire for each company and the total is 58 businesses thus represent 85.6%. This questionnaire has been answered by account executive in each business.


The instrument of this study is modified based on the instruments, which was developed by Dick-Forde study. It presents administered questionnaire that consist of usage frequency of costing and management accounting, frequency of management accounting report, usage of management accounting practices and the importance of management accounting objectives. In addition, the questionnaire also sought information regarding business profile that consists of industry, paid-up capital, turnover, and type of business.

Findings and Discussion

Table 1 presents the business profile for each small business in Malaysia particularly in Labuan. Among the industry, 32.8% is come from food beverage and tobacco and their type of business is the most from sole proprietorship (43.1%) as respondents for this preliminary study. Furthermore, most of small business owned paid up capital between RM10,001-RM100,000 and received business turnover less than RM100, 000.

The Research Question 1 (RQ1) is to determine the frequency of cost and management accounting information used in decision making process. Table 2 presents the usage behaviour of costing and management accounting for each small business. Most of the businesses about 51.7% have their own used of management accounting practices. However, 22.4% of the business also practice the costing and management accounting although "sometimes". We can assume that the lack of knowledge of accounting, the awareness towards management accounting is still at the low level, less influence of external business surrounding and the high level of difficulty perception. In Dick-Forde et al, (2007), 69% reported "often" used and 19% "always" used in decision making process. However, some of businesses that really have higher operation seem to have complicated transactions of costing therefore need to practice costing and management accounting although traditional management accounting can be assumed will be obsolete.

The Research Question 2 (RQ2) is to determine the frequency of management accounting report is prepare in small business. Table 3 shows the frequency of management accounting report that have presented by each business. The monthly reporting have been prepared by 41.4% small business and we can assume that business have practice similar with financial accounting report which they prepare and keep track the costing every month in order to get the information up to date and timeliness. However, the report also prepared in weekly (10.3%) and daily (3.4%) that represents the more up to date information. Moreover, it seems that most of business that choose to practice monthly report will always referring to this report to make any decision that related to costing and management. In addition, this report usually consists of financial and non-financial information regarding the internal operation which shows more truthful in measuring any decision for the next operation in each business. This is because monthly report is one of accurate and sufficient information compared with quarterly, semi-annually, and annually.

The Research Question 3 (RQ3) is to determine the most preferable usage and still considering Management Accounting Practices (MAPs). Table 4 presents management accounting practices usage in 58 small businesses. They were asked whether the practice is in use, still considering using or still not considering using any of management accounting practice. The four most used MAP by each business are standard costing (44), annual budget (39), process costing (37), cash budget (36), and fixed/variable cost analysis (36). Those practices were considered traditional practices and easier to understand and apply by most businesses. In Pierce and O'Dea (1998) that found the highest usage are budgets, variance analysis and standard costing which seems consistent with these results. They also found that for low usage are flexible budgets and breakeven analysis Pierce and O'Dea (1998). However, four most unconsidered practices to use are Balanced Scorecard (33), Economic Valued Added (30), Benchmarking (26) and Batch Costing (25). We can consider and assume that the application of management accounting will involve higher cost in developing the practice and educate the staffs which are the reason why they refuse to implement. However, the usage of new technique of MAP application is depends on business transaction and operation because we can assume that the more complicated the operation, the more advances technique or approach need to be implemented in order to confirm their efficiency. In Pierce and O'Dea (1998), they indicate that new techniques are generally lower than those reported for traditional techniques especially the frequency of never use for balanced scorecard about 80%. However, in Waweru et al. (2005), they found that modern management accounting techniques such as activity based costing and balanced scorecard type performance measures are used together with the traditional management techniques such as budgeting and standard costing.

The Research Question 4 (RQ4) is to determine the most importance objective for each Management Accounting Practice (MAP). Table 8 presents objective of management accounting practices for small business. Most of business perceive important for pricing decision (4.6207), cost control and reduction (4.3621), planning and budgeting (4.3103) and cost allocation (4.2069). This result is also consistent and include in Dick-Forde et al. (2007). In addition, Abdel-Kader and Luther (2006) found that the important in costing system, budgeting, performance evaluation, information for decision making and strategic analysis. From this current result, we can assume that small business also need MAP in order to make right decision regarding costing, planning, budgeting and pricing the good or service in effective and efficient ways. This is because the profitability of each business is actually depends on internal planning and decision making. However, three most not important objectives perceived by business are providing information to shareholders (3.2931), providing information to relevant government agencies (3.2931) and providing information to creditors (3.4483) because this management accounting practices are not for the purposes of external parties for each business such as shareholders, government agencies and creditors which suppose relate with the statement of financial reporting, debt statement and taxation statement. Therefore, this MAP report is usually more important to management, marketing, finance, and inventory department.


This study attempts to determine the Management Accounting Practices (MAPs) in Small Business. Besides that, this study will also indicate the most important objective for Management Accounting Practices (MAPs) in Small Business. This research consist of 58 small businesses that process and operate in Malaysia particularly in Labuan Federal Territory. The result shows most of the businesses have their own used of management accounting practices (MAPs). However, they need to improve their knowledge and skills in accounting in order to increase the usage frequency in management accounting practices. Then, most of the business also preferred to prepare the monthly report for costing and management accounting. This report is seems useful in management for decision making particularly for costing because monthly report is one of accurate and sufficient information. Further, the most preferable usage for Management Accounting Practices (MAPs) are standard costing (44), annual budget (39), process costing (37), cash budget (36), and fixed/variable cost analysis (36). The usage of new technique of MAPs application is depends on business transaction and operation because we can assume that the more complicated the operation, the more advances technique or approach needs to be implemented in order to confirm their efficiency. Finally, the results also show that the most importance objective perceived for each Management Accounting Practice (MAP) are pricing decision (4.6207), cost control and reduction (4.3621), planning and budgeting (4.3103) and cost allocation (4.2069). This objective perceived importance to business in order to confirm the advancement of management accounting practices.

Limitation of the study

The number of the sample in this study is relatively small. The small sample size is limited only among Labuan F.T privates companies and cannot be generalized throughout Malaysia. The aspect of time also affected the data collection method; i.e., by using questionnaire. A respondent who is not particularly interested in answering the questionnaire is more likely interspersed to answer the question. This is because some of them are very busy with their tasks and duties. As a result, they did not answer the questionnaire genuinely.


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Corresponding Author

Azleen Iliascan be contacted at:

Azleen Ilias, Mohd Zulkeflee Abd Razak, and Mohd Rushdan Yasoa'

Universiti Malaysia Sabah, Malaysia
Table 1: Business Profile

Industry Frequency Percent

Food Beverage & Tobacco 19 32.8
Machinery & Engineering 4 6.9
Manufacturing Related Services 8 13.8
Non-Metallic Product 1 1.7
Paper & Printing 4 6.9
Plastic Product 1 1.7
Rubber Product 1 1.7
Textiles, Apparels & Leather 4 6.9
Wood & Wood Product 2 3.4
Miscellaneous 1 1.7
Services Provider 5 8.6
IT Related Services 7 12.1
Construction & Health 1 1.7
Total 58 100.0

Type of Business Frequency Percent
Sole Proprietorship 25 43.1
Partnership 21 36.2
Limited Company 12 20.7
Total 58 100.0

Business Paid-Up Capital Frequency Percent
RM 101-RM 1000 1 1.7
RM 1001-RM 10000 9 15.5
RM 10001-RM 100000 21 36.2
RM 100001-RM 1000000 16 27.6
more than 1 million 11 19.0
Total 58 100.0

Business Turnover Frequency Percent

less than RM100000 14 24.1
RM100001-RM200000 10 17.2
RM200001-RM300000 4 6.9
RM300001-RM400000 5 8.6
RM400001-RM500000 1 1.7
RM500001-RM600000 4 6.9
RM600001-RM700000 3 5.2
RM700001-RM800000 1 1.7
RM900001-RM10 million 12 20.7
more than RM10million 4 6.9
Total 58 100.0

Table 2: Usage Frequency of Costing and Management Accounting

 Frequency Percent

Valid Never 9 15.5
 Rarely 6 10.3
 Sometimes 13 22.4
 Often 12 20.7
 Always 18 31.0
 Total 58 100.0

Table 3: Frequency of Management Accounting Report

 Frequency Percent

Valid weekly 6 10.3
 monthly 24 41.4
 quarterly 4 6.9
 semi-annually 2 3.4
 annually 20 34.5
 other (daily) 2 3.4
 Total 58 100.0

Table 4: Management Accounting Practices Usage

 In Use Considering Neither

Customer profitability Analysis 25 17 16
ABC / ABM 29 15 14
JIT system 31 9 18
Variance Analysis 28 9 21
Standard costing 44 3 11
Annual budget 39 5 14
Flexible budget 16 23 19
Cash budget 36 12 10
Process costing 37 5 16
Batch costing 26 7 25
Transfer pricing 18 16 24
Cost Volume Profit 31 15 12
Balance Scorecard 10 15 33
Fixed/variable cost analysis 36 9 13
Capital Budgeting Techniques 21 15 22
Target costing 19 18 21
Economic Value Added 7 21 30
Benchmarking 12 20 26

Table 5: Objectives of Management Accounting Practices

 Mean Deviation Rank

Cost allocation 4.2069 1.15103 4
Pricing decision 4.6207 .69655 1
Information for annual 3.9138 1.23238 9
Performance evaluation 4.0517 1.03318 7

Cost control & reduction 4.3621 .87255 2
Planning & Budgeting 4.3103 .95893 3
Strategic decision making 4.1552 1.00528 5
Inventory management 4.0690 1.10600 6
Risk management 3.8448 1.08905 10
Inventory valuation 3.8276 1.21595 11
Providing information 3.2931 1.42667 14
 to shareholders

Providing information 3.2931 1.35088 13
 to relevant government

Providing information 3.4483 1.46506 12
 to creditors
Preparation tax return 3.9310 1.10600 8
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Author:Ilias, Azleen; Razak, Mohd Zulkeflee Abd; Yasoa, Mohd Rushdan
Publication:Global Business and Management Research: An International Journal
Article Type:Report
Geographic Code:9MALA
Date:Jan 1, 2010
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