The Uptake of Management Accounting Practices Among Malaysian Firms in SMEs Sector HAU YIN TING A EPPA 2033 PERAKAUNAN KOS SEMESTER 1 SESI 2014/2015

INTRODUCTION  Importance of SMEs comprises approximately 99% of all Malaysian businesses generate economic growth create employment contributed substantially to the Malaysian Gross Domestic Product (GDP) and total exports attracted foreign direct investment (FDI)

INTRODUCTION  Reasons for the discontinuity of business among SMEs adequate working capital poor management skill inadequate use of essential business and management practices The use of management practices which can provide crucial information to the management is vital to ensure the effectiveness and efficiency of the business.

Challenges into the study of management accounting practice in SMEs  Management accounting fails to respond to developments in the technological and competitive environment  Management accounting had not changed since the early part of the 20th century  Failing to provide relevant information for managerial needs

OBJECTIVES OF STUDY  Provide vital input to the Malaysian regulators/policy makers to help improving the performance of SME’s sector  Enhance the understanding of the adoption of management accounting practices (MAPs) in small and medium sized enterprises (SMEs)  Promote knowledge and awareness of MAPs among small business in Malaysia

Level of frequency of the application of management accounting techniques used by the selected companies in practice  Majority of respondents have used the five management accounting area: COSTING SYSTEM STRATEGIC MNAGEMENT ACCOUNTING PERFORMANCE EVALUATION SYSTEM BUDGETING SYSTEM DECISION SUPPORT SYSTEM

Medium sized firms have a higher adoption of all MAPs as compared to small sized firms  use of decision support system and strategic management accounting (SMA) where usage is 26% and 23% higher  increased complexity of business activity in medium firms  more capital intensive and this additional investment in their business possibly leads to greater risk aversion  greater access to resources to experiment with administrative innovations

Medium firms employ budgetary systems more frequently  size of the firms  more complex tasks ***Little variation in the usage of the other two management accounting practices; performance evaluation system (2%) and costing system (10%) Monitoring business performance and the availability of cost information are equally important to both categories of firms

Ranking of All MAPs The most favored: Costing System The least favored: Strategic Management Accounting ~This technique is not yet practical for many small and medium firms in Malaysia There is little difference in the ranking of adoption rates of management accounting practices between small and medium companies

Extent of the use of management accounting practices  COSTING SYSTEM ~high uptake of an individual technique (few firms will use probably more than one cost collection method or one costing technique) Overall uptakes of small and medium firms is similar except for process costing and activity-based costing which are more commonly applied by medium firms Overall it can be seen that most of the respondents make moderate use of techniques included under the heading costing system. Process costing is the most widely employed cost collection method Absorption and variable costing techniques are most commonly but by no means universally employed costing technique. The lower uptake for ABC is in line with previous research.

Extent of the use of management accounting practices  BUDGETING SYSTEM The type of budget prepared and timings of budgeting Majority of respondents make use of budgeting systems in their firms The most dominant: sales budget Moderately adopted: purchasing, production, cash flow and financial position budgets In terms of timing, annual budget is widely used

Extent of the use of management accounting practices  Performance evaluation system Financial and Non-financial Non-financial measures were grouped under three headings: customer; internal processes; and employees Medium firms have a much higher use of these measures compared to small firms

Extent of the use of management accounting practices  Decision support systems Short-run and long run decisions Overall uptake of decision support system is relatively low Medium firms have far greater uptake of all techniques than small firms Larger firms are more likely to use a sophisticated approach to management accounting

Extent of the use of management accounting practices  Strategic management accounting target costing, strategic costing, value chain, life cycle cost, strategic pricing, competitor position monitoring overall uptake of individual strategic management accounting practices is low Small firms have a considerably lower adoption rate than medium firms Similar reasons to those for decision support systems

CONCLUSION  All five categories of MAPs surveyed (costing, budgeting performance evaluation, decision support system and SMA) are adopted by the majority of responding Malaysian manufacturing firms  Adoption rate for traditional management accounting techniques is higher for established practices (budgeting, performance evaluation and costing) than for more recently developed practices (decision support system and SMA)  Higher usage by medium sized firms as opposed to small firms  The study also investigated the specific extent of use by Malaysian SMEs of a range of specific management accounting techniques.  Process costing is the most widely used cost collection method, and absorption and variable costing are the most frequently applied costing techniques

SUGGESTIONS  The management accountants in Malaysia need to play a new and more proactive role by increasingly becoming part of the management team within a business process  The management accountants in Malaysia must play a big role in order for management accounting to remain relevant in the new challenging globalised business world  Further research to be done in investigating the practice and evolution of management accounting in Malaysia  Future research investigates the reasons why some business organisations fail to implement the latest or the advanced management accounting techniques in its organisations.