Comparative Management Accounting – Literature Review on Similarities and Differences Between Management Accounting in Germanic and Anglophone Countries pot

Comparative Management Accounting – Literature Review on Similarities and Differences Between Management Accounting in Germanic and Anglophone Countries This paper compares management a

Literature Review on Similarities and Differences Between Management Accounting in Germanic and Anglophone Countries

Andreas Hoffjan, Professor

WHU – Otto Beisheim School of Management, Vallendar

Pascal Nevries, Assistant Professor

WHU – Otto Beisheim School of Management, Vallendar

René Stienemann, Dipl.-Kfm

cronos billing consulting GmbH, Muenster

Comparative Management Accounting – Literature Review on Similarities and Differences Between

Management Accounting in Germanic and Anglophone Countries

This paper compares management accounting practices in Germany, the UK and the USA and reveals a range of differences and similarities The most significant difference is in the use of either the general-ledger concept or the two-circle system Through following these varying approaches, further differences arise, e.g., the total lack of imputed costs in the Anglo-Saxon countries and different bases for calculated profits in Germany German management accounting exerts a stronger influence on management, because in the Anglo-Saxon countries financial accounting figures are not regarded as being useful for internal decision making Thus management in Germany relies much more heavily on internal calculations provided by management accounting Management accountants in the USA and UK exert a much deeper impact on operational matters and are involved in broader fields of activity than their German counterparts While Anglo-Saxon management accounting is also directed at shareholders, German management accounting is addressed at internal target groups alone Apart from these differences, several important similarities could also be observed Management accountants in all three countries have reasonably similar objectives and goals Among the most important are the provision of information, participation in the management process and attempts to ensure rational decision making by management In general, a converging approach in management accounting practice is observable

1 Introduction

The competitive environment in which companies operate is steadily becoming more challenging and demanding Major corporate take-overs increase the demand for more sophisticated and advanced management accounting information in order to react appropriately to external market pressures Multinational companies have to cope regularly with various different institutional environments, management practices, and cultural (mis)understandings between the respective countries

While, in this context, the field of financial accounting has already attracted considerable attention from the academic world at a comparative international level, the area of internal management accounting has largely been limited to approaches focussing only on individual countries These approaches have been analysed thoroughly by national academic researchers and, as a consequence, influenced practices in other countries However, in order to initiate a debate on the subject and to highlight best practices, as well as innovations and inefficiencies

in the management accounting world, a sophisticated comparison, drawing on the differences and similarities between the observed countries, has only recently been conducted in the management accounting literature

Furthermore, “different labels, in different languages, are used to refer to management accounting around the world” (IFAC, 1998: 84) The relatively young discipline of

comparative management accounting attempts to fill this gap in management accounting

research, by determining the degree of diffusion of applied concepts and practices in different countries Divergences should be analysed in order to learn from other language areas and to understand the approaches used

The present paper analyses the different characteristics of management accounting in Germany, the United Kingdom (U.K.) and the United States of America (U.S.A.) The intention of this paper is to highlight the differences between the observed countries and the effects they induce

The paper is organized as follows First, we explain the choice of the selected countries and the methodology used Section 3 then introduces the general concept of comparative management accounting Based on the terminological specification of nationally diverging definitions of management accounting labels, the following section 4 describes and compares the main aspects and characteristics of management accounting in Germany, the U.S.A and the U.K Finally, section 5 summarizes the findings

2 Methodology

The present study concentrates on Germany, the U.K and the U.S.A These countries have been selected due to various reasons For a start, the U.S.A is the world’s leading economic power and thus of fundamental significance with respect to management accounting Many countries have been and still are influenced by new developments in American management accounting (SHERIDAN, 1995: p 293) Therefore, the inclusion of the U.S.A is considered essential in this comparative study To a lesser degree, this also applies

to the UK Furthermore both, the U.S.A and the U.K., continuously influence management accounting developments in other countries, because English is the dominant language in the world of business (PISTONI and ZONI, 2000: 311) In addition, it is often claimed that management accounting has its roots in the U.S.A and has influenced accounting practices and developments in German management accounting (Otto, 2000: 25)

Secondly, Germany and the U.K., although having seemingly different management accounting structures and institutions, are among the dominant countries in Europe with respect to management accounting importance (BLAKE ET AL., 2000: 123) In this context, many studies have revealed a significant impact of German management accounting on several other countries in the world (KEYS andMERWE, 1999: 2; BLAKE ET.AL.,2000: 123) Because the U.S.A and U.K can be assumed as being fairly similar due to the common language, similar financial accounting orientation and the cultural proximity (CARR and

TOMKINS,1998: 215-6; HOFFJAN and WÖMPENER, 2006: 238), in this paper, both countries will be treated commonly as ‘Anglo-Saxon’ or ‘Anglophone’ countries, if nothing else is stated to the contrary

As comparative management accounting is a relatively young discipline, there are few studies dealing with this topic (BLAKE ET AL.,2000: 122) In order to provide an overview of the state of the art in comparative management accounting, the following literature review identifies current research streams and future research questions The first step is to develop a framework for classifying the relevant literature

The few studies published so far in this field of research do not claim to be representative

of comparative management accounting in general, and also vary with respect to objectives, timeframe and methodological approaches (STOFFEL, 1995: 1) Nevertheless, some general tendencies with respect to functional aspects of management accounting can be identified and will be discussed in this paper

STOFFEL’s (1995) study is one of the first to concentrate at length on controllership on an international level In his comparative work, STOFFEL analysed controllership in Germany, the U.S.A and France

On a broader inter-country scale, BHIMANI (1996) focussed on differences and similarities

in management accounting in Europe However, BHIMANI merely collected and published nation-specific results from eleven European studies without explicitly stressing the differences and similarities in detail A similar study from LIZCANO (1996) deals with comparative management accounting in Latin America

More recent empirical studies focussing explicitly on the comparative element of management accounting can be found in AHRENS (1997; 1999), OTTO (2000), ZIRKLER(2002), JONES andLUTHER (2004) and HOFFJAN andWÖMPENER (2006)

In order to obtain an overview of the relevant comparative management accounting literature analysed in this paper, the studies were grouped into six different categories as presented in Figure 1:

[Include Figure 1 here]

The categories are ordered with decreasing relevance to our selected countries and comparative management accounting in general Following this categorisation, all papers in

the first group cover the countries Germany, the U.S.A and / or U.K and deal simultaneously

with comparative management accounting In the literature review, 30 papers could be

included in the first category The second group includes papers that deal with national

management accounting from the respective countries Although not dealing explicitly with comparative management accounting, these papers are nevertheless useful for a deeper analysis Because they represent the characteristics and particularities of the specific countries, these papers can be compared to one another

In the third category, aspects closely related to management accounting are discussed

from the respective country perspective Topics such as culture do not deal explicitly with management accounting, but nevertheless have a direct or indirect influence on different perceptions of accounting in the various countries

In the fourth category, the comparative element is highlighted again, although these

papers do not deal explicitly with the countries that form the focus of this paper This category is included, due to potential cross-references from other countries If it is possible to observe how management accounting differs or converges between other countries, meaningful comparisons could possibly be made

The fifth and sixth categories are included in this categorisation for reasons of

completeness, but are not considered as sufficiently relevant to merit further examination

3 Principles of comparative management accounting

3.1 Comparative management accounting

Comparative management accounting compares management practices and principles between countries and cultures in order to initiate discussion, to highlight best practices, innovations and inefficiencies in management accounting Managers can also achieve competitive advantages by applying innovative management accounting techniques from other countries or cultures (AMAT ET AL.,1999: 20) Additionally, comparative management accounting aims at guiding techniques and practices towards convergence (HOFFJAN and

WÖMPENER, 2006: 241)

3.2 Management accounting versus controlling

Terms like management accounting or controlling are neither equally used nor understood

in all countries (AMAT ET AL., 1999: 19) In Germany for instance, the label management

accountant is not commonly applied as a description of the occupation – neither in the

English term nor the German translation (SHERIDAN, 1995: 1; BIRKET 1998: 487)

In order to compare the work of management accountants in the three countries, equivalences for the corresponding Anglophone meanings must be found In this respect,

German controlling is generally viewed as similar to the Anglophone management

accounting in the relevant academic literature (SHERIDAN, 1995: 1; OTTO 2000: 38; WILLSON

ET AL., 2003: 5; KÜPPER, 2005: 6) The discussion of controlling-related problems and

innovations in Anglophone journals like Management Accounting Research, Management

Accounting Quarterly or Advances in Management Accounting can be regarded as an

indication of the terminological proximity of German controlling and Anglo-Saxon management accounting (KÜPPER, 2005: 6)

Although there is not such a demand for theoretical definitions in the U.S.A that are comparable to those used in Germany (Otto, 2000: 25), the following chapter tries to examine whether deeper differences are identifiable from an initial view of the definition and terminology of both terms

3.2.1 Management accounting terminology and definitions in the U.S and the U.K

In the Anglophone literature, it is evident that various terms are used for management accounting Labels like ‘internal accounting’, ‘enterprise reporting’ and ‘managerial accounting’ are widely used as synonyms for management accounting (ZIRKLER, 2002: 17) Given these different labels that are used for the same basic concept, AMAT ET AL.(1999: 19) also observed that “the term management accounting implies different meanings across national boundaries” In general, two different perceptions of the scope of management accounting can be observed in the relevant Anglo-Saxon literature (MUSSNIG, 1996: 13)

The first perspective defines management accounting from a narrow point of view, such that the term refers mainly to internal cost accounting and internal calculations (MUSSNIG, 1996: 13; HORVÁTH,2003: 79)

A second, much broader perspective is more common in the Anglo-Saxon countries According to the NATIONAL ASSOCIATION OF ACCOUNTANTS (1981: 4) management accounting is defined as:

“[…] the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial information used by management to plan, evaluate, and control within an organization 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.”

In this definition, which is characteristic of management accounting in the Anglo-Saxon countries (MUSSNIG, 1996: 13; Zirkler, 2002: 18) and will therefore be used in this paper, a clear focus on financial information becomes apparent Furthermore, it is noteworthy that the definition includes non-management reporting for taxation and regulatory purposes as part of management accounting (MUSSNIG, 1996: 13) Management accounting is therefore an

integral part of the management process It can be regarded as an umbrella term for the general managerial process of planning, evaluating and controlling, as well as of reporting

Another label which is commonly applied in both the U.S.A and U.K., is the term

controller WILLSON ET AL (2003: 11) observe that, for the chief accounting officer (CAO) especially in large companies, “the most common title used is controller” Although the label

controller can therefore be regarded as widespread in the Anglo-Saxon countries, its

application is commonly reserved as a description of the highest-ranking management accountant in the corporation, rather than for all management accountants The authors also acknowledge that, while various titles can be applied to the position of the CAO, the title

controller may be an unfortunate one, because it emphasises the aspect of ‘control’ more than

other also relevant responsibilities like reporting, management and planning

The label controlling also raises some important issues While the term controller is commonly applied as stated above, controlling is only used as a description of the leadership

process of the final stage in the managerial decision making process (STOFFEL, 1995: 9;

KÜPPER, 2005: 6) Therefore, controlling and controller are only similar with respect to the origin of the term in the Anglo-American countries, but not at the conceptual level (SIEGWART, 1982: 98; STOFFEL, 1995: 10)

This difficulty concerning the job description of the controller is quite often referred to in the Anglo-Saxon literature ”The modern controller does not do any controlling in terms of line authority except in his own department“ (HORNGREN ET AL 2005: 13; STOFFEL, 1995: 10)

Finally, the term ‘controllership’ rather than controlling most often characterises the field

of activity of the controller or management accountant in the Anglo-Saxon countries (OTTO, 2000: 26)

3.2.2 Management accounting terminology and definitions in Germany

In contrast to the Anglophone label ‘management accounting’, business managers in Germany generally use the term ‘controlling’ as a description of the field of activity of management accountants (BIRKET, 1998: 487; AHRENS and CHAPMAN 2000: 482; KÜPPER, 2005: 3-.4f) In this context, controlling describes the relatively young discipline of

‘Betriebswirtschaftslehre’ (business administration) Contrary to the purely practical approach

in the U.S.A and U.K., the basics of controlling have been developed within the academic literature (SCHERRER, 1996: 100; AHRENS andCHAPMAN 2000: 482;JONES andLUTHER 2004: 4; KÜPPER, 2005: 6) and its definitions and interpretations are characterized by its great variety and diversity A widely-accepted definition of controlling in the German literature has, therefore, not been so far discernible until the present (FREIDANK, 1993: 400)

Nevertheless, it can be observed that the majority of definitions focus on the support function (BERENS ET AL., 1995: 144), the coordinative function (HORVÁTH, 2003: 148-9; KÜPPER,2005:5) or define controlling as safeguarding managerial rationality (WEBER, 2004: 47)

decision-While controlling concentrates more on internal accounting matters, in the Anglo-Saxon countries, management accounting includes internal as well as external accounting aspects and can be seen as a general term for accounting as a whole (MUSSNIG,1996: 13)

Comparing controlling with management accounting definitions, it can therefore be argued that, on the one hand, management accounting is defined and understood in a functional broader context, whereas controlling definitions, on the other hand, are comparably characterised by their greater universality (e.g WEBER, 2004: 48)

Despite this broader scope of management accounting, some similarities are evident All definitions cover the aspect that the responsibility of management accountants or controller’s

is to support managers with relevant information so as to promote objective and fair making

decision-3.3 Determinants of and influences on differences between management accounting processes

To analyse why and how management accounting differs between countries, it is important to concentrate on the main determinants and key drivers that lead to such variations The most frequently-stated influence factor held responsible for differences in management accounting is culture (CHOW ET AL., 1991: 209-10; Chow et al., 1999: 441) Other factors such as academic and institutional background, as well as the economic situation of the particular country, can have an impact on diverging management accounting systems (PISTONI andZONI, 2000: 285; SHIELDS, 1998: 505-6)

3.3.1 Culture as an influence factor in management accounting

Culture can be defined as a “system of collectively held values” (HOFSTEDE, 1991: 5) In this context, the cultural framework of HOFSTEDE is commonly applied by management accounting researchers to explain the variations between different nations and their cultures (CARR and TOMKINS, 1998: 217) HOFSTEDE (2001: 373-4) developed the familiar five dimensions of power distance, uncertainty avoidance, individualism vs collectivism, masculinity vs femininity and long versus short-term orientation Using this framework, it can be argued that, for instance, Japanese business managers are characterised by more organisational commitment than their American colleagues, due to a lower tendency towards individualism (CARR andTOMKINS, 1998: 218)

In the economic literature, special attention is also paid to the differences in financial culture While, on the one hand, it is commonly stated that the Anglo-Saxon world is more shareholder and stock-market driven, on the other hand, many scholars do in fact refer to the German financial culture as more stakeholder driven (SHERIDAN, 1995: 290)

Culture can therefore explain national differences in management accounting However, whenever culture is quoted as an influence-factor on management accounting, it is important not to treat this complex field too simplistically (HARRISON and MCKINNON, 1999: 483)

Moreover, because this paper focuses on the characteristics and consequences of these differences, rather than on their cultural causes, these studies are only considered peripherally

3.3.2 Education, occupation and management accounting institutes as influence factors

The respective educational and institutional situation also varies between the analysed countries and should be included in the comparative framework While both in the U.K and U.S.A., management accounting is based on a professional environment (AHRENS and

CHAPMAN, 2000: 480; JONES andLUTHER, 2004: 4), management accounting in Germany can

be characterised more as a discipline taught at university than a fully-fledged profession (SHERIDAN, 1995: 289; AHRENS andCHAPMAN, 2000: 482)

Furthermore, institutional bodies like the Chartered Institute of Management Accountants (CIMA) and the Institute of Management Accountants (IMA) represent the interests of management accountants in the Anglo-Saxon countries Conversely, German management accounting is highly educationally oriented (Jones andLuther 2004: 3) and there is no well-established institutional environment Although not all studies explicitly compare German with Anglo-Saxon management accounting institutions, all studies nevertheless mention either the highly sophisticated management accounting profession in the U.S.A and the U.K.,

or stress the minimal institutional background in Germany Therefore, the analysed literature generally concurs with the statement that professional institutions for management accounting are more sophisticated in the Anglo-Saxon countries than in Germany

Consequently, German developments in management accounting are mostly based on new ideas and concepts from academics, whereas Anglophone scholars have a reputation for focussing much more on practical research (AHRENS andCHAPMAN, 1999: 42)

There are also differences between Germany and the U.K with respect to the type of qualification of accountants that they acquire before applying for a job in accounting The occupational biographies of management accountants highlight the fact that the main route into the profession of management accounting is achieved via a university degree (AHRENS

and CHAPMAN, 2000: 480-1) However, while in Germany, it is almost mandatory for management accountants to have graduated in ‘controlling’ or at least some other field within

‘Betriebswirtschaftslehre’, AHRENS and CHAPMAN (2000: 480) found that “all but one practitioner” in Britain had graduated in a subject that was not relevant to business or economics

It can therefore be noted that education in German management accounting is predominantly acquired by means of an university degree in economics, whereas accountants

in the U.K are predominantly trained and qualified on the job

3.3.3 Economic background as an influence factor

In terms of economic background, fluctuations continuously influence and affect different countries in different ways (GOLDSTEIN, 1995: 719-20) The economic situation in a particular country can influence the management accounting practices in that country, as well as in other countries (BLAKE ET AL.,2000: 123) If, for example, one country has to cope with high levels

of inflation, management accountants must consider these circumstances (BLAKE ET AL., 1998: 56) In addition, if a country is dominated by the economic power of another country, management accountants will inevitably adopt the latter’s practices; although with varying degrees of responsiveness

4 Comparison of relevant management accounting concepts

4.1 Responsibilities and objectives of management accounting

4.1.1 Objectives and target groups of management accounting

In contrast to Germany, management accounting practices in Anglo-Saxon countries also include, by definition, the provision of financial reports for non-management groups like shareholders, creditors and tax authorities Consequently, one could assume that both the target groups and the objectives of management accounting differ between these countries

According to the NATIONAL ASSOCIATION OF ACCOUNTING (1982: 24) in the U.S., the objectives of management accounting include ‘providing of information’ and ‘participating in the management process’ Analysing these objectives further, it becomes apparent that there are many similarities to the German understanding of management accounting objectives In Germany, the aim of management accounting is commonly described as that of ensuring rational managerial decision making as well as safeguarding the processes of controlling, planning and governing (AMSHOFF, 1993: 216; MACHARZINA, 2003: 393; WEBER, 2004: 29-30; KÜPPER, 2005: 11) Furthermore, it can be stated that all management accountants pursue the company goal of profit maximisation as well as that of supporting the management

Therefore, despite a broader field of management accounting target groups in Saxon countries compared to Germany, it can be argued that management accountants in the observed countries share similar goals and objectives

Anglo-4.1.2 Long-term versus short-term goals

A widely-discussed question in comparative management accounting literature is whether Anglo-Saxon countries like the U.S or the U.K are short-term oriented, whereas countries like Germany and Japan are possibly more long-term oriented with respect to their business decisions (SHERIDAN, 1995: 290;AHRENS,1997: 557-8; CARR and TOMKINS, 1998: 217)

The dominance for managerial decision making of stock markets in London or New York

is often stated as a key argument for this short-term orientation of Anglo-Saxon managers (SHERIDAN,1995: 290)

In addition to economic reasons, cultural background is also often cited as a reason for the differences between these countries Many scholars refer to the cultural model of HOFSTEDE (2001) for an explanation for the short-term vs long-term orientation (SHERIDAN, 1995: 290;

COATES ET AL., 1995: 132)

Drawing on empirical findings in the literature, management accountants from the U.K consider themselves to be under high pressure to achieve short-term oriented goals, in contrast

to their colleagues in Germany (AHRENS,1996: 149-50) Similar results can be found in the comparative study of COATES ET AL.(1995: 127), according to which German managers are longer-term in their thinking than their U.K and U.S counterparts Finally, according to the empirical study of CARR andTOMKINS (1998: 220), company payback periods are also shorter

in the Anglo-Saxon countries than in Germany The majority of research discussed above, thus agree on the short-term orientation of Anglo-Saxon countries in contrast to the long-term orientation in Germany (COATES ET AL 1995: 132; SHERIDAN, 1995: 290; AHRENS, 1997: 557-8; CARR AND TOMKINS, 1998: 217) The findings from the literature are summarised in Figure 2:

[Include Figure 2 here]

Despite this apparent consensus in the literature, an excessively undifferentiated analysis

of these stereotypes must be criticised, because of a lack of questioning the reasons behind and the implications of these assumptions (AHRENS, 1997: 558) HOROVITZ (1978), for instance, found no significant differences between long-term planning in the U.K and Germany In his comparative study, he found that the same percentage of chief executives in Germany and the U.K use long-range plans (HOROVITZ, 1978: 100) In a long-term orientation index developed by HOFSTEDE (2001), Germany is also ranked as only slightly more long-term oriented than the U.S.A and the U.K (HOFSTEDE, 2001: 356)

Furthermore, assuming a convergence of management accounting practices as observed

by the majority of scholars, a growing similarity of the instruments used for both long-term and short term business-orientations is identifiable as well (COATES ET AL.,1995: 131)

4.1.3 Management accounting versus financial accounting

Creditor protection and the principle of prudence are historically strongly emphasised in German accounting Hence, stringent regulations concerning the reported content to outsiders

of the company can be observed in Germany (BAETGE ET AL., 2002: 112) Consequently, financial accountants are driven by statutory requirements, particularly with respect to the (German) legal and commercial codes and the tax regime (JONES and LUTHER, 2004: 13) Their task is to emphasise legal requirements, rather than economic needs inside the company Financial accounting is directed formally at the state, and not primarily towards shareholders, as in Anglophone countries

Consequently, external reports from financial accounting are sometimes considered as

“not relevant to management decision making” in Germany (JONES and LUTHER, 2004: 13), probably leading to a denial that financial accounting is a bone fide component of management (ibid.)

Furthermore, Anglo-Saxon management accounting does not operate with imputed costs such as opportunity costs for managing owners, as is common in German management accounting (ZIRKLER, 2002: 23; MESSNER, 2003: 262) Anglophone accounting figures are based on the same business values that are used in financial accounting Due to imputed costs, profits calculated in financial accounts normally differ from those calculated in the management accounting system in Germany (BAETGE ET AL., 2002: 565-6) Managers in Germany still emphasise that the numbers reported in the financial statements are not relevant for internal decision-making purposes

Because the data reported by financial accountants is based on the protection of stakeholders and is not relevant for supporting managerial decisions, financial accounting is separate from controlling The former is responsible for reporting to the state, taxation authorities and other stakeholders such as creditors The latter concentrates on entrepreneurial

or managerial efforts in order to fulfil managerial needs for relevant decision support (KEYS andMERWE, 1999: 7; JONES andLUTHER, 2004: 14)

In Anglo-Saxon countries, management accounting and financial accounting are also treated as two separate fields of accounting activity However, comparing the degree of separation, it can be observed that a much clearer split between financial and management

accounting is prevalent in Germany than in the U.S or the U.K (JONES and LUTHER, 2004: 13) Indeed, this has already been stated in the definition of management accounting from the

NATIONAL ASSOCIATION OF ACCOUNTANTS (1981) Management accounting in the U.S.A or the U.K not only operates with the same data base as for financial accounting, but a clear division of financial and management accounting of the occupational level as in Germany, is also uncommon

4.1.4 Fields of activity for management accountants

Comparing the fields of activity for which management accountants are responsible, internal cost management is regularly identified as being one of the main functions of management accountants in all observed countries (MUSSNIG,1996: 13-14; ZIRKLER, 2002:17) This is backed up by empirical findings, that internal cost management is relevant for 65% of German controllers and for 91% of the interviewed U.S management accountants (STOFFEL, 1995: 156)

While this common ground for activities may not be surprising, many studies dealing with U.S accounting show that management accountants agree with the definition of the

NATIONAL ASSOCIATION OF ACCOUNTANTS (1981), which is responsible for financial

management activities like reporting to investors and creditors or dealing with tax authorities

(STOFFEL,1995: 83)

The key results from STOFFEL concerning the fields of activity of German and U.S management accountants, are presented in Figure 3

[Include Figure 3 here]

With respect to these findings and in conformity with the studies mentioned above, financial accounting plays a dominant role for U.S management accountants, with 97% being responsible for external accounting matters Conversely, in Germany, financial accounting is considered to be relevant for only 21% of management accountants (ZIENER, 1985: 23-4)

This is the most significant difference that can be identified between German and Saxon management accounting activities

Anglo-German controlling is far more detached from cost accounting matters than Anglo-Saxon management accounting This again becomes apparent in the relevance of accounts receivable, for which 66% of U.S management accountants are responsible, compared to 9%

in Germany

Management accountants in both countries ultimately agree that budgeting and internal reporting are important aspects of management accounting – in contrast to the field of internal auditing, which is uniformly regarded as being rather less relevant for daily work However, despite this low circulation of internal auditing, the comparison reveals that it is still more frequently integrated into Anglo-Saxon management accounting than into German management accounting (ZIENER 1985, p 23-4) In Germany, internal auditing can be described as operating closely together with the German controller, but not necessary as being integrated into the controlling department itself (HORVÁTH, 2003: 811; STOFFEL, 1995: 93)

By contrast, internal auditing is regarded as a potential activity for management accountants

in the U.S.A (HABERLAND, 1970: 2182)

Further differences with German und U.S management accounting can be found in the appropriate insurance of the corporation’s assets or the responsibility for computer services (HABERLAND, 1970: 2184; STOFFEL, 1995: 113-14; WILLSON ET AL., 2003: 4) Normally, neither of these two fields of activity is assigned to German controlling (STOFFEL, 1995: 93) Finally, because the fields of activity are positively correlated with the numbers of employees working in a company, these results are only representative for corporations above certain levels of size (Otto, 2000: 273) Therefore, it is evident that, in smaller firms, the management accountant is responsible for a broader range of activities in all observed countries (WILLSON ET AL.,2003: 14)

4.2 Management accounting systems and instruments

Management accounting systems are intended to satisfy managers’ needs and to motivate and assist them in achieving “their organizational objectives in a timely, efficient, and effective manner” (KAPLAN andATKINSON,1998: 1) In this context, management accounting systems must fulfil other requirements than those of financial accounting systems Concerning the former, data relevance is regarded as one of the main aspects, whereas the data used for financial accounting systems is characterised primarily by objectivity and auditability

4.2.1 General ledger versus two circle system

The handling of data used for external and internal accounting needs is handled in different ways in the observed countries As in Germany, management and financial accounting are separated to a high degree (as stated above), and the systems of management and financial accounting are also separated by the use of a ‘two circle’ concept That is, two different accounting circles apply to internal and external accounting (Messner, 2003: 249)

At first glance, there is a dividing line between financial accounting and management accounting in the U.S.A and the U.K., due to the different activites and accounting goals Contrary to Germany, proximity between internal and external accounting can nevertheless be observed in the sense that no two completely separated data bases are used in the Anglo-Saxon countries (KAHLE, 2003, p 775) More specifically, a common data base named

‘general ledger’ is commonly applied (KAHLE, 2003: 775)

While this general ledger system is widely accepted at an international level, the circle or dual cost system is still the most commonly used in Germany Financial and cost systems are run independently in Germany, “with a reconciliation module provided to articulate between the two sets of statements at the end of the year when financial statements are prepared” (KAPLAN and ATKINSON, 1998: 8) In the following discussion, both the characteristics, consequences and differences that arise due to this variation will be discussed The general ledger system can be described as an integrated system that includes all accounts in the financial statements The key characteristic of this system is that the two