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Transformation of a profession-II
January, 14th 2008
My previous column on the future of the costing profession generated an unexpected response. I had written that the species called cost accountant is on its way to extinction and that there is no role for cost accountants in successful organisations any longer.
Since this was published my email inbox and the comments columns of Business Standard have been receiving angry responses from cost accountants who feel that I have demeaned their profession. A few of these commentators have even gone so far as to think up outrageous conspiracy theories.
It is a sign of the intolerance of our times that these fellow members of the Institute of Cost and Works Accountants of India (ICWAI), in their rush to condemn, have completely ignored the conclusion of that column where I have argued that the name of the Institute must be changed, since it no longer reflects the (very valuable) services being provided by its members.
In fact, the cost accounting profession has grown into management accounting while the society in general continues to know the profession as cost accounting because the government is reluctant to change the name of the Institute. The members struggle to explain that their role is that of a cost and management accountant as it is understood in other countries.
The gap between the statutory title of the members and the role they play has had the unfortunate effect of creating misunderstanding among the members themselves that the terms cost accounting and management accounting are interchangeable.
The web site of the Institute, while presenting the scope of cost and management accountant (CMA) writes: In fact, the management orientation of Cost Accountants had been recognised long back in other countries of the world where Cost Accountants are known as Management Accountants. This is simply not true. When I referred to cost accounting in my last column, I had meant traditional cost accounting, which members of the Institute understood differently.
The sharp reactions of the members of ICWAI reveal two interesting phenomena. The first is the rivalry between the two professions: ICWAI and the Institute of Chartered Accountants of India (ICAI). A posting in the Business Standard site alleges that I had taken money from ICAI for writing the column.
Some other members of ICWAI felt that the big brother (ICAI) will benefit from the column. The rivalry is not new. When two professions compete in some common space rivalry is inevitable. Rivalry leads to competition, which is good for the users of the service. However, when the choice of the service provider is left to the government, factors other than competence might come into play, although it is expected that the government looks into the interest of the users of the service.
In a controlled economy, the government plays the most important role in allocating regulated space to competing professions and the profession that enjoys better bargaining power or demonstrates better capabilities gets the larger share of the cake. The losing profession lives with grievances against the government and the rival profession.
The triggers of growth of the two wings of the accounting profession are different. The chartered accountancy (CA) profession, which focuses on the preparation and presentation of financial statements, can grow even in an economy which is not innovative and where growth takes only the quantitative forms of increase in the number of firms; expansions of existing firms (e.g. increase in the number of branches of banks) and increase in funding through intermediaries.
The CA profession grows not only through greater audit revenues but also from the provision of other services where it is in a position of advantage because of the trust earned with managers in the course of the audit process. The profession of management accountancy suffocates in an economy where innovation and competition are stifled.
The role of the management accountant depends on how the accounting information is used by managers. Yet in the absence of change and competitive pressure, the use of accounting information is limited to inventory valuation and pricing.
On the other hand, in a complex and competitive environment, managers must make use of accounting information in various different ways. Therefore, management accountancy evolves with the changing needs of firms in a competitive environment.
Before liberalisation, in the setting of a slowly growing controlled economy, the CA profession grew and the cost accountancy profession stagnated. On the other hand, todays India, with its greater economic dynamism, provides a perfect setting for the growth of the profession of management accounting.
Globally, the scope of management accounting is developing fast. Its changing shape can be gauged by looking at the present frontiers of research. For example the volume on Contemporary Issues in Management Accounting edited by Alnoor Bhimani (Oxford University Press, UK, 2006) covers the established management accounting topics like budgeting and responsibility accounting, contract theory analysis, contingency frame works, performance measurement systems, and strategic cost management.
But it gives equal emphasis to the emerging concerns of network relations, digitization, integrated cost management systems, knowledge management pursuits, and environmental management accounting. The growth opportunity for management accounting is enormous.
The expansion in scope poses great challenges to the professional institutes like ICWAI. Management accounting is now a multidisciplinary function. It is out of the domain of traditional accountants.
The space in which the members of the ICWAI operate is not a regulated space like statutory financial audit or tax audit. Therefore, firms have the freedom to freely choose service providers from among the members of different professions and academic disciplines.
The body of knowledge of applied economics, management accounting and financial accounting overlap with each other and the boundaries between them are getting increasingly blurred. Therefore, professionals from those three areas compete with each other for the role of management accountant.
In order to take advantage of the evolving opportunities, ICWAI will have move fast and strengthen its continuing professional education to help its members in quickly acquiring the state-of-the-art knowledge in management accounting. The ICWAI is aware of this and has initiated number of steps in the right direction.
Another aspect that has come out from the mails received from the members of the ICWAI is the little faith that practitioners have in the level of knowledge of management teachers about industry practices. Some of my correspondents doubted my knowledge about the contributions of management accounting in industry.
They perhaps are not aware that faculty members in the IIMs constantly interact with senior executives from various disciplines and get an opportunity to update themselves about contemporary industry practices. But it is certainly true that the industry-academia interaction is low in India as compared to, say, the US and there is certainly scope for improvement.
But a part of the blame must also be taken by practising managers. The response of managers to academia is at best lukewarm and at worse negative. It is more so in the area of management accounting.
Cost and revenue information is closely guarded by managers. Management accounting is an application oriented discipline, and therefore, empirical research has huge importance in the development of the discipline. Management accountants working in industry should join hands with academia for furthering this research.
Let the debate continue.

Asish K Bhattacharyya
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