Budget Use and Managerial Performance

TLDR

Management accounting effectiveness hinges on both technical fit and user behavior, yet accounting data are frequently ignored, distorted, or falsified, often due to mismatches between information and organizational complexity or divergent individual goals. The study seeks to determine whether accounting information distortion is inevitable and can only be mitigated by increasingly stringent methods.

Abstract

The effectiveness of a management accounting system depends not only on the appropriateness of its technical characteristics to the particular organizational and environmental circumstances to which it is applied, but also on the way in which organizational participants make use of the information that it provides. It is a commonplace that accounting information is often ignored, sometimes manipulated, and even falsified by those to whom it is provided. Many of the reported examples (see Rosen and Sneck [1967], Lowe and Shaw [1968], Mintzberg [1975], and Yetton [1976]) indicate that dysfunctional behavior frequently stems from the fact that the information provided by the accounting system does not adequately match the complexity of the underlying organizational and economic events; but it is also evident that distortion of information can occur even when the accounting system itself is technically adequate. Such distortion is a consequence of the divergence of individual goals from those of the organization and most commonly manifests itself in attempts to make accounting reports reflect more favorably on an individual's contribution to overall organizational performance. Although evidence in anecdotal form abounds (for example, Dearden [1960] and Schiff and Lewin [1970]), little consideration has been given to the type of circumstances in which manipulation of accounting data occurs. It is important to know whether distortion of accounting information is inevitable and can therefore be limited only by ever stricter methods