When choosing a CPA...

1. The CPA should have several years of business experience. Knowledge and experience with other businesses in your sector is even better.

2. They answer their phone, return phone calls promptly and respond to e-mail. Excellent communication skills are essential.

3. They should be able to think strategically about your business options and offer suggestions on how to improve your business in the future and not just compile financial reports from last year.

4. Help you execute a tax plan that legitimately allows you to keep more of what you earn. This extends past the taxes that the business pays and includes the income taxes paid by the investors and principals.

5. They are candid and direct in their conversations and communications. It is easy to find an accountant to agree with your decisions but you want someone to tell you when they think you are heading down the wrong road and why.

6. Help you protect your business from embezzlement, fraud, and dishonest employees through good financial controls and procedures. They should also help you implement internal procedures to more quickly detect any errors or omissions.

7. Provide an objective perspective about your business performance. Your sales manager will overestimate sales and the operations manager always fails to add in one-time expenses so you need a clear and accurate picture to make informed decisions.

8. Save you money and increase your profit by helping you identify “best” practices. This is where their experience gives them actionable insight into the business.

9. Be involved in the business community. They should have contacts that can help you grow your business and form strategic alliances.

A face-to-face interview provides the opportunity to know if there's a “right fit” for your business. In addition to all of the above, the chemistry between your personalities needs to match. Make sure to check their references. He or she should have a history of working with successful companies. It is reasonable to think the accountant had a part in that success.

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Contingency theory and MCS

What is contingency theory? List and explain at least six macro (organizational level) variables and their relationships with management control systems which appeared in the assigned readings.

Contingency theory utilizes the framework that there is no one best way to set up an organization or Management Control System (MCS), but that is contingent upon the macro variables such as the size of the firm, technological robustness, internal and external factors relative to the firm, the organizational structure itself, the degree of centralization, the degree of formalization, and the complexity of the firm itself. The manager must determine which of these the driving variables are because these are the one you can control.

Participative Budgeting and Employee Satisfaction

The relationship between participation in the budgeting process and employee satisfaction and performance has been researched for over twenty years. List and explain the relationship between at least four “individual differences” that have been researched in behavioral accounting as moderating variables for the participation----satisfaction----performance relationships.

The four MV's are; need for achievement, locus of control, leadership style, and reward structure. Need for achievement can influence the relationship between performance and goal level. Someone with a high need for achievement will set higher goals when allowed to participate in the budget process. Locus of control can impact he relationship between performance and goal level. An internally driven person may set harder goals because they believe they can control their own destiny through increased effort. Leadership style influences the level of perceived participation that a subordinate feels. The amount of consideration shown by a leader towards a subordinate has a impact on participation goal linkage. Finally, the reward structure can have a strong link to performance. Truth Inducing Compensation Schemes should be the appropriate approach to mitigate budgetary slack in conjunction with increased budget difficulty for improved performance.

Goal theory and Behavioral Accounting

There are public goals which are higher order goals and there are private goals which represent lower order goals. To be effective (measured by goal accomplishment) the two goals need to be aligned to achieve goal congruence between the divergent paths. One goal setting factor that affects performance is feedback, both external and self-generated.
However, self-generated feedback is a more effective motivator. The other factor is participation in the goal setting process which can help obtain superior performance. This is related to goal acceptance and commitment. Other factors that have an affect on performance are self -efficacy about whether they can accomplish the goals under the given conditions, are they committed to the goals, the nature of the task itself, and cultural factors.

Expectancy Theory and Behavioral Accounting Research

Vroom's expectancy theory, motivation = valence x instrumentality x expectancy, where valence measures the value an individual places in the reward, instrumentality refers to the whether the individual will actually receive the promised reward, and expectancy quantifies the expectation that the individual perceives in attaining a successful outcome. Vroom understood that employee performance is based on many individual factors such as motivation, skills and experience. VET has been used to study the effect of human behavior on accounting control systems and goal setting in the budget process.

Summery of The Role Of The Management Accountant by Robert Kaplan

The article by Robert Kaplan is a concise detailed presentation of the development of the practice and profession known as management accounting. He also challenges the current practitioners to realize that most of the key aspects of cost accounting had been developed around 1925. In light of this knowledge Kaplan encourages a reexamination of current processes that are being applied in today's business climate, and may not be appropriate for contemporary business needs.

Kaplan traces key innovations in the early years of the Second Industrial Revolution circa 1850 through the culmination in 1925 with the management control improvements of DuPont and Sloan. The modern aspects began with the growth of large factory mills, railroad, and distribution concerns that needed reliable methods to track conversions costs and related efficiencies. Railroads were vast organizations that handled considerable dollar amounts and transactions. Subsequently, methods were developed to manage and record the operational results. About 20 years later, these new cost accounting procedures were applied to the emerging industries of mass distribution and production enterprises. Of main importance was the application of the voucher system in the steel industry, especially Andrew Carnegie's steel company. The next major development was accounting for the "factory burden" or factory overhead. J Maurice Clark of the University of Chicago made chief contributions regarding factory overhead cost analysis and treatment. He also proposed the use of statistical methods in cost behavior analysis and warned against over-reliance on such methods. Thus, through these academic discussions of Clark, refined cost accounting theories had been developed by 1925.
The next major innovation was the managerial control systems that were initiated at the DuPont Company. Kaplan outlines the history of the reorganization of the DuPont Powder Company and the best practices that were implemented during the period between 1903-1910. These organizational breakthroughs, decentralized departmental leadership, return on investment formula, prioritized capital allocation, and systemic budgeting and forecasting procedures allowed the successful organization of large industrial corporations. The basic application of ROI concepts at the departmental level is still in use today. The work Pierre DuPont and Alfred Sloan began at GM was basically a codification of modern managerial control practices. By 1925, decentralization, ROI performance evaluations, capital appropriation process, budgeting and planning cycles, flexible budgeting and other innovations were firmly in place.

After the major improvements preceding 1925, Kaplan writes there have been little new innovations outside of academia. Some of these ideas are modern capital budgeting processes, the use of discounted cash flows, transfer-pricing analysis, and the application of quantitative techniques such as regression analysis, linear programming, and probability theory to cost accounting problems. Kaplan states that firms have not accepted many of the academic developments because much of the research is not linked to actual companies, such as the innovations with DuPont and GM. Therefore, the academic models were not corporately developed or tested in actual firms.

Kaplan then proceeds to discuss some of the problems that have arisen from the profit center concept that treats each division like a miniature company, mainly the short-term management decisions. Often, decisions are made for short-term financial gain at the expense of the long-term competitive position of the enterprise. Kaplan raises the question; why did this problem not reveal itself sooner? Several potential reasons are given. First, there was less pressure on short-term profit goals in 1920s than in the 1980s. Secondly, the frequency of manager turnover has increased; therefore there is greater focus on short-term financial objectives than in the past. Thirdly, today's larger organizations are more susceptible to short-term profit maximization decisions by profit center managers if the control systems have changed to accommodate the larger enterprise. Forth, a possible shift in hiring practices during the last 60 years. Employees in the past tended to stay with the firm longer and subsequently would look after the long-run interests of the organization. The current situation is the opposite. A fifth reason is the wide use of executive compensation schemes, which place operational focus on achieving annual profit goals in order to meet personal bonus objectives. Sixth, the overall business environment of the 1980's and beyond is substantially different then that of the 1920s and likewise the management control system that worked well previously are inadequate for today's needs. Kaplan explains that financial measures alone will continue to be important factors in determining performance in profit center operations. But, a more balanced approach will need to be utilized to better serve the long-term objectives of the firm.

Kaplan states that the inclusion of non-financial measures in an organizations control and planning systems will be unfamiliar and uncomfortable for managerial accountants. Financial performance measures are easy to manipulate, therefore, other more ambiguous measures will need to be utilized for performance evaluation.