Management Accounting in International Business

MANAGEMENT ACCOUNTING IN INTERNATIONAL BUSINESS

Abstract

This article aims to reflect on the past, present, and future of management accounting for international business, addressing questions such as: what is the importance of executive management accounting for an organization's international business; what are the main management accounting tools and reports for the decision-making process in organizations; and what essential knowledge should international business professionals have about executive management accounting. Thus, the article first seeks to explain the concepts of accounting, management accounting, and international business, to analyze their impacts in the context of globalization and various decision factors. It also discusses how companies of different sizes observe and analyze the information necessary for decision-making, given that management accounting emerges as a tool for analysis. The article also explores the main characteristics of management accounting professionals and how the future challenges of globalization, in systems and management accounting, can be addressed.

Keywords: Management Accounting. International Business. Financial Management.

Artur Soave Frezza Professor of Economics in Administration and Financial Management Controllership Master’s student in International Business at Must University Faculty of Americana - Published in 2021: https://faculdadedeamericana.com.br/ojs/index.php/Ciencia_Inovacao/article/view/607/833

INTRODUCTION

This work aims to clarify and seek a clear definition of management accounting in its relationship with international business, how accounting emerged, in which areas it was applied, and where it developed best. From this dissertation, some of its current uses will be shown, focusing on applications to international business. This will refer to the future and integrative use of accounting with an international standard, rather than the various standards that still exist today, and it will be presented how important the theme “Global Business” is in the study of accounting (SOUZA et al., 2008).

First, the concept of accounting must be explained, and for that, research was conducted in several books, summarized here as: the science that studies, records, controls, and informs the economic and financial acts and facts that affect the assets of a company, whether public or private (ATKINSON, 2008; MARION, 2008; NETO, 2003; RAMACHANDRAN; KAKANI, 2020; WEETMAN, 2019). This reflects its ancient origin, with the use of mathematics to calculate profits, but only in 1494, with Friar Luca Pacioli, in his work Libri Abicci, considered the “Father” of accounting, did the “double-entry method” emerge and gain popularity (SMITH, 2018). Since then, accounting has evolved significantly and can be divided into two groups: financial accounting and management accounting (ATKINSON et al., 2008; KAPLAN; COOPER, 1998). Financial accounting is aimed at external users, such as controlling shareholders, fund managers, government agencies, and creditors, while management accounting is directed toward users within the company's hierarchical levels or functional areas, each with different demands, usually internal to the company (SOUZA et al., 2008).

In this article, attention will be given to the managerial aspect of accounting, with one of the main authorities on the subject being the Institute of Management Accounting (IMA, 2020), which even offers an international certification, the CMA? (Certified Management Accountant), involving the study of market practices and best practices in management accounting.

Thus, this work was written based on the principles of exploratory research through a bibliographic review, which, according to Gil (2008, p. 50), “is developed from already elaborated material, consisting of books and scientific articles,” reviewing the literature, with data and information collected from reference books on the subject, journal articles, newspaper articles, historical records, government reports, theses, and dissertations, transcribed between 1996 and 2020, in English and Portuguese. All research considered the concepts explored, correlating them with market practices and adapting them to international business, considering the increasing presence of globalization, the global market, and companies operating almost everywhere in the world.

2. METHODOLOGY

We first sought definitions of management accounting, and as Savino (2015) presents in his work, several definitions converge to show that the function of management accounting is to provide managerial information to mitigate risks and uncertainties in the decision-making process, making it as accurate as possible in public or private companies. Thus, management accounting becomes a tool to support and guide the organizational management process (Savino, 2015). This leads to the decision-making process that Amorin (2015) addresses precisely by quoting Peter Drucker, who states that "the most difficult and most important part is ensuring that the decision relates to the right problem." He then presents:

"Management accounting is a vital management tool for organizational decision-making, as it can provide useful information about the internal and external organizational environment, helping managers obtain more detailed analyses of specific internal issues, which would not be possible using traditional accounting alone." (AMORIN, 2015)

The international business area greatly demands the decision-making process since companies are now local with global operations, if not entirely global enterprises with global planning and operations (GUEDES, 2007). This implies the need for more accurate analyses and management accounting data. PUC (2015) argues that to have the capacity to compete globally, it is not enough to be an internationalized company, but one must have competitive advantages that promote the company's success.

For a company to choose to engage in international business, it must consider: exchange rates, the local and destination economy's base interest rates, the role of cheap and abundant labor, the existence of natural resources, government policies (protectionism, promotion of exporters, and subsidies), administrative practices, organizational culture, and analysis of the relationship between capital and labor (economic production factors) (PUC, 2015). This is also exemplified by the international case of the migration of production lines by several companies to Southeast Asia, as explained by Gough (2001) in his article “Globalization and regional welfare regimes: The East Asian case.” Social dumping in this region provided a clear competitive advantage to companies that relocated their production lines in the 1990s. As a result of this action, China, once an economy with potential growth visibility, has become the second-largest economy in the world, according to the World Bank (2020).

According to Amenn et al. (2018), management accounting is a decision-making approach used to increase the value of an organization by enabling managers to make decisions based on cost assessment and other performance issues. Similarly, Guedes (2015) emphasizes the importance of decision-making based on economic, behavioral, cultural, managerial, and negotiation analyses between governments and multinational companies, particularly in the context of international business and mergers and acquisitions. Globalization presents more complex environments that require analyses based on a broader understanding of international business. This brings management accounting back into focus as it provides strategic and practical information to multinational companies, encompassing multiple levels of analysis (global, international, national, inter-organizational, and intra-organizational), reflecting the broad complexities and interdependencies of international business.

3. ACCOUNTING DEVELOPMENT WITH A FOCUS ON INTERNATIONAL BUSINESS

Accounting has developed rapidly in the globalized world. The digital age has brought about new ways of doing business and opened opportunities for companies to explore markets outside their home countries, increasing the importance of management accounting in international business. The role of technology in enabling this transformation cannot be understated, as it has allowed for real-time data analysis, making management accounting more responsive and accurate in terms of decision-making (ROSS et al., 2016).

International business practices require a more standardized approach to accounting in order to provide consistent information across different regions and countries. This has led to efforts such as the convergence of accounting standards into the International Financial Reporting Standards (IFRS), which aims to unify accounting language globally. According to Deloitte (2020), over 140 countries now require or permit the use of IFRS, making it a key element in the integration of management accounting practices across borders.

Furthermore, the increased complexity of managing multinational corporations has spurred the evolution of management accounting from a mere cost analysis tool to a strategic asset that influences decision-making, risk management, and financial planning. This shift is essential to the competitive nature of modern international businesses, as noted by Kaplan and Atkinson (2020), where management accounting plays a vital role in evaluating global supply chains, pricing strategies, tax planning, and investment decisions.

4. THE IMPORTANCE OF MANAGEMENT ACCOUNTING IN GLOBAL BUSINESS

In global markets, managers face challenges that require the rapid interpretation of complex data. The goal of management accounting in this context is to provide valuable insights into market trends, performance metrics, and economic indicators that influence business decisions.

Management accounting helps businesses address critical issues such as exchange rate fluctuations, inflation rates, tax regulations, and differing legal requirements across various jurisdictions. With these tools, businesses can optimize their resource allocation and minimize risks associated with global expansion. Additionally, the advent of Big Data and artificial intelligence has expanded the possibilities for management accounting, offering more precise predictive models and risk analysis tools (KAPLAN; ATKINSON, 2020).

Management accounting is not only about numbers but also involves understanding cultural, economic, and political contexts that can influence business outcomes. This requires collaboration with experts in other fields and regions, as well as an ability to adapt accounting principles to fit various cultural and legal frameworks, making it a cornerstone of global business success (IMA, 2020).

5. CONCLUSION

In conclusion, management accounting plays a pivotal role in the success of international businesses. Its ability to provide detailed, timely, and relevant information supports managers in making informed decisions, mitigating risks, and enhancing operational efficiency across diverse markets. As the global business environment becomes more interconnected and complex, the integration of management accounting with international business practices will continue to evolve, driven by advancements in technology and the need for standardized global practices.

The convergence of accounting standards, the utilization of management accounting as a strategic tool, and its ability to navigate cultural and economic differences all point to its central role in the global business landscape. In an era of globalization, management accounting serves not only as a means of ensuring financial accuracy but also as a critical driver of competitive advantage.

By embracing technological advancements and maintaining a forward-thinking approach to global market dynamics, management accounting will remain a crucial component in helping businesses thrive in the international arena (Ameen et al., 2018)

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