Mutual Relations Between Accounting Information Systems and Strategic Management Accounting

Accounting Information Systems and Strategic Management Accounting: Some Definitions

The definition of accounting information system (AIS) depends on the definition of accounting itself. It is possible to distinguish between the two kinds of accounting: financial accounting and management accounting. Financial accounting is defined as:

The art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof [1],

Likewise, management accounting is defined as:

The process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non-management groups such as shareholders, creditors, regulatory agencies and tax authorities [2].

The aim of financial accounting (FA) is to gather and summarize financial data to prepare financial reports, such as a balance sheet and income statement, for the organization’s management, investors, lenders, suppliers, tax authorities and other stakeholders. FA main recipients are external users, and financial reports must follow precise layouts and rules. In fact, FA must accomplish national and international principles, such as the generally accepted accounting principles (GAAP) or their equivalent in each different country. The focus of FA is to exhaustively represent all the events that occurred by means of reports produced every month, quarter and year.

The theories and the reference models adopted by FA have been defined from a long time and will not change in the future. Hence, FA systems are stable and do not evolve, particularly when comparing this field with other management topics. Once the organization has introduced and implemented a system, FA can run for several years with very little or no changes at all, unless there is a change in external requirements such as new rules, principles or laws.

While FA is oriented towards the request of external users, management accounting (MA) focuses on the needs of managers. In literature, it is possible to find several conceptual models that may be useful in providing information to managers.

These well-known and well-defined models are designed for planning activities and, after the execution of the activities themselves, to control the obtained results and to report discrepancies, if any. Garrison et al. present this non-exhaustive list of reference models [3]:

  • • Cost classification
  • • Job-order costing
  • • Process costing
  • • Cost behaviour
  • • Cost-volume-profit relationship
  • • Variable costing
  • • Activity-based costing
  • • Profit planning (budgeting)
  • • Capital budgeting
  • • Advanced reporting

In the mid-1980s major complaints versus MA emerged in the literature [4]. In fact, although MA is considered essential for informed management activity, MA itself seems to have some flaws, particularly arising from its roots in cost accounting, as it is possible to observe in the above-reported list. As a matter of fact, traditional MA approach considers cost classification and analysis, cost-volume- profit models, profit planning (budgeting), capital budgeting and advanced reporting.

Researchers [5, 6] argued that:

  • 1. MA had not evolved over the past decades.
  • 2. MA is too focused on costs.
  • 3. MA is not very useful for managers, because it is not focused on strategy and on market opportunities.

Manager risks to undertake incorrect decisions based on inadequate and obsolete management accounting data. The lack of attention to clients, competition and performance, together with a poor or even non-existing strategic approach, could lead to incapacity to cope with the new highly competitive environment [7].

Strategic management accounting (SMA hereafter) is a promising and well- acquainted evolution of management accounting [8]. SMA tries to address all the above-mentioned criticisms levelled against management accounting. SMA was initially proposed by Simmonds at the beginning of the 1980s [9], and it was not taken seriously until the late 1980s. Simmonds argues that SMA greatly differs

Table 1 Traditional management accounting versus strategic management accounting

Traditional MA

Strategic MA





Single entity




Outward looking


Manufacturing focus

Competitive focus


Existing activities









Data oriented

Information oriented


Based on existing systems

Unconstrained by existing systems


Built on conventions

Ignores conventions

from MA because of its focus on the comparison of the business with its competitors. Langfield-Smith affirms that there is no agreed definition of SMA in literature [7]. However, Wilson declares that MA differs from SMA in several aspects (see Table 1) [10].

An interesting definition of SMA has been proposed by Bromwich [11], who argues that SMA is:

The provision and analysis of financial information on the firm’s product markets and competitors’ costs and cost structures and the monitoring of the enterprise’s strategies and those of its competitors in these markets over a number of periods.

Ma and Tayles argue that SMA finally bridged the gap that existed between MA and strategic management [12]. SMA moved MA from monetary issues to a more multidimensional approach. It is not simply a new orientation, which is aimed towards strategy; it is a radically different way of rethinking MA around strategic concepts [8]. In fact, according to Lord [13], the functions commonly associated with SMA are:

  • 1. To collect information related to competitors
  • 2. To use accounting for strategic decisions
  • 3. To cut costs on the basis of strategic decisions
  • 4. And to gain competitive advantage through it
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