The Role of Accounting and Accounting Information with Regard to Control and Performance Evolution of Modern Organizations

In: Business and Management

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1. Discuss the role of accounting and accounting information with regard to control and performance evolution of modern organizations. In you discussion you should consider the positive impact and limitations of accounting and accounting information on MCS. The use of accounting information had been started from the traditional cost accounting developments and has undergone many revolutionary attributes such as ROI measure, capital budgeting, agency theory and transaction cost economics. The primary objective of for–profit organizations is to maximize shareholder value. Thus, the results control idea would be to reward each individual employee for doing what s/he does to increase firm value. However, direct measurements of the individual’s contributions to value creation are rarely possible. Therefore, firms have to look for control alternatives. Most firms base their higher managerial level results controls on accounting measures of performance. That is accounting profits and returns and their components. Short-term accounting profit and return measures provide imperfect, surrogate indicators of changes in firm value. Management myopia is an almost inevitable side-effect of the use of financial results control system built on accounting measures of performance. Management myopia can be avoided at top management levels by holding these managers accountable for increasing market valuations. When markets are informed and efficient, managers attempting to maximize long- term cash flows are simultaneously maximizing short-term stock price. The task of reducing myopia is more difficult at middle management levels. There are several advantages for measuring accounting profit or returns as following: * Timeliness, it is measured in short time periods * Precision, (exact) it…...

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