FACTORS IMPACT TO THE IMPLEMENTING OF MANAGEMENT ACCOUNTING IN SMALL AND MEDIUM ENTERPRISES IN VIETNAM

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY  TRAN NGOC HUNG FACTORS IMPACT TO THE IMPLEMENTING OF MANAGEMENT ACCOUNTING IN SMALL AND MEDIUM ENTERPR

MINISTRY OF EDUCATION AND TRAINING

UNIVERSITY OF ECONOMICS HO CHI MINH CITY



TRAN NGOC HUNG

FACTORS IMPACT TO THE IMPLEMENTING OF

MANAGEMENT ACCOUNTING

IN SMALL AND MEDIUM ENTERPRISES IN VIETNAM

Major: Accounting Code: 62.34.03.01

SUMMARY OF DOCTORAL THESIS

HO CHI MINH CITY, 2016

Thesis research was done at: University of Economics Ho Chi Minh City

Professional advisor:

1 Dr TRAN VAN THAO

2 Dr DOAN NGOC QUE

INTRODUCTION

1 Research problem

During the global process of integration into “flat world” the traditional business environment have changed fast, become unpredictable with the participating of more and more powerful competitors (Friedman, 2005) However, the change not only brings the threats but also the chances for enterprises and economies They have two choices: being eliminated or be changed to catch up the development Changing in their structures, their business strategies, their management philosophy etc make the enterprises adapt better with higher need from customers (Langfied-Smith et al., 2009)

At the first stage of integration, Vietnamese enterprises, especially SMEs, had to face with new challenges and new opportunities However, with some disadvantages such as small, being impossible to borrow from the support capital resources, hiring the low qualification labor force etc the Vietnamese SMEs seem to have some disadvantages when competing with powerful competitors in the world such

as multi-national groups In addition, the Vietnamese enterprises are also not familiar with modern management techniques such as management accounting techniques As the general terms when participating in WTO, ASEAN or recently signed the European Union – Vietnam FTA (EVFTA), there presents exciting opportunities in a multilateral trading partnership But not only agreements slashed tariffs on nearly 99 percent of all Vietnamese exports to the EU, it also means measures have also been taken to ensure that the FTA stays updated in the face of future agreements on both sides, and take off almost tariff barriers It makes the commercial exchanges become easier and more convenient, but it also means that the competition becomes more drastic

When business environment has been changed to catch up the global development, Vietnamese management should implement new management techniques such as management accounting techniques in order to increase their competitive advantages But with the history of late conversion toward market economy, the management accounting subject just has been taught in Vietnam since beginning of 90 of 20th century So that almost of Vietnamese enterprises, especially SMEs, seems far from familiar with the use of management accounting Through some recent preliminary surveys, we see that the use of management accounting in Vietnamese SMEs still have a lot of obstacles And it leads to the result that when being interviewed, almost manages admitted that they feel reluctant in implementing management accounting techniques in their business management Besides, the implementing of management accounting in Vietnamese SMEs are impacted by some factors such as size, culture, cost etc So the study about which factors impact to the use of management accounting in Vietnamese SMEs will contribute greatly not only academic filed but also practical application among

business communities So that is the reason we chooses the subject as “Factors impact to the

implementing of management accounting in small and medium enterprises in Vietnam”

2 Research objectives and research questions

Thesis aims to identify and measure factors, which impact to the use of management accounting techniques in Vietnamese SMEs The findings will be discussed to suggest some solutions in order to enhance the possibility of implementing management accounting techniques in Vietnamese SMEs It will help Vietnamese SMEs improve their competitive capability in the flat world as the trend of globalization

To achieve the objectives, there are two questions being raised as below:

Question No.1: The current implementing of management accounting in Vietnamese SMEs?

Question No 2: Which factors impact to the implementing of management accounting in Vietnamese

SMEs? How measurement is their impacts?

3 Research objects

The thesis researches the Vietnamese SMEs who had implemented, had been implementing or intend to implement management accounting techniques Throughout these subjects, we will identify and measure factors, which impact the implementing of management accounting in Vietnamese SMEs

4 Scope of research

Even there are so many factors, which can impact to the use of management accounting techniques in SMEs in the world, but we focuses on some specific factors, which seem appropriate with Vietnamese economy characteristics In addition, due to the limitation of time and recourses, we just focus the locals including Hochiminh City, Hanoi and other provinces nearby, some small provinces in Middle etc This sample will help to diversify the different corporate cultures, size, qualification of labor force etc The time to conduct the surveys is from January to December of 2015

5 Research methodology

Thesis concurrently uses qualitative and quantitative research Content of the methodology shall be presented in more detail in chapter 3 of this summary

6 Contribution of the thesis

The research results of the thesis have contributed at a certain level to theoretical and practical aspects of public sector accounting include:

(1) Academic contribution: By summarizing cases of the implementing of management accounting

in small and medium enterprises in the world and in Asian area, and from these cases there are some lessons will be learned for the use of management accounting in Vietnam

Based on some research models in the prior researches, we have collected some factors, which are considered to be appropriate with Vietnamese SMEs characteristics After discussion with experts through deep interviews, there are some new factors are added and measured with the results showing that these factors having significant impact on the use of management accounting in Vietnamese SMEs And this result should be a reliable source of reference for related researches in coming future

(2) Practical contribution: By using quantitative methodology, we have identified and measured

factors, which impact to the use of management accounting in small and medium enterprises in Vietnam Through the findings, results have been discussed and recommendations have been suggested to contribute some comprehensive solutions to increase the possibility of the use of management accounting in small and medium enterprises in Vietnam

7 Structure of thesis

The thesis includes 5 chapters in addition to introduction and appendix:

 Chapter 1: Overview of the use management accounting and issues related to

 Chapter 2: Theoretical foundations of management accounting and factors impact to the use

of management accounting

 Chapter 3: Research methodology

 Chapter 4: Findings and discussion

 Chapter 5: Conclusions and recommendations

CHAPTER 1- LITERATURE REVIEW AND KEY RESEARCH AREA

1.1 OVERSEA KEY RESEARCHES

1.1.1 Overview

Small and medium-sized enterprises (SMEs) play the vital role of the business population in most countries in the world therefore they constitute a vital force in modern information-based economies Anyway, it was considered that there was a lack of study about management accounting practice in SMEs (Marriott & Marriott, 2000; Mitchell & Reid, 2000) These key researches concerning to this issue can be summarized as below:

- The first one, there were researches about the changes and the cause leading to changes of management accounting throughout the development stages

- The second one, there were researches about the use of management accounting practices in SMEs

- The third one, there were researches about the factor which can impact to the use of management

accounting practices in SMEs

1.1.2 Consideration

By summarizing the prior related researches in the world, we has summarized the trend and the process of management accounting from beginning to now: implementing traditional simple management accounting techniques at beginning stage to the complicated system nowadays; the change of management accounting in order to meet the diversified requirement of enterprises; the reasons leading to the change of management accounting Besides, at early stage researches had not paid much attention on implementing management accounting in SMEs, but nowadays they begin to focus on researching the use of management accounting on SMEs in both of developed and

developing countries, because of strong globalization, increasing global competition and world process The prior researches, by both of qualitative and quantitative methods, have shown how complicated the management accounting systems were, which kind of management accounting techniques, which factors impact to the use of management accounting in enterprises

flatting-1.2 1.1 KEY RESEARCHES IN VIETNAM

1.2.1 Overview

Almost researches about the use of management accounting in Vietnamese enterprises, including SMEs, in the stage of 1997 to 2010 concluded that Vietnamese enterprises had not paid enough attention on implementing management accounting techniques And in some cases, they really do not have a concept about management accounting practices, and almost of them had not had an independent management accounting segment (Pham Van Dưoc, 1997; Tran Anh Hoa, 2003; Pham Ngoc Toan, 2010)

1.3 GAP RESEARCH AND THE AIM OF STUDY

1.3.1 Determining the gap research

By synthesizing and considering prior researches in Vietnam and in the world, we have considered that the implementing management accounting in Vietnamese SMEs plays a vital role in the successful management It should contribute to enhance the capable management in Vietnamese SMEs, but in fact the rate of practical use of management accounting in Vietnamese SMEs is still very low, especially for small and very small enterprises

Nowadays in Vietnam there had been some researches about the use of management accounting in SMEs but not use the quantitative and objective methods, so the recommendations still have some limitation due to subjective thinking basing on viewpoint and experiences of researchers

1.3.2 The aim of study

By determining the gap research above, we inherit and conduct the research about the factors impact

to the use of management accounting in Vietnamese SMEs In addition, the study will measure by

reliable methods about the level of impact of each factor The study will be conducted with steps as below:

1st step: conducting research about current situation of the use of management accounting in Vietnamese SMEs

2nd step: surveying and synthesizing factors impact to the use of management accounting in Vietnamese SMEs

3rd step: measuring the level of impact of factors mentioned above

4th step: recommendations and suggestions will be made to enhance the possibility of the use of management accounting in Vietnamese SMEs

CONCLUSION OF CHAPTER 1

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CHAPTER 2 - THEORETICAL FOUNDATIONS ABOUT MANAGEMENT ACCOUNTING AND FACTORS IMPACT TO THE USE OF MANAGEMENT ACCOUNTING IN SMEs

2.1 MANAGEMENT ACCOUNTING OVERVIEW

2.1.1 Management accounting concepts

The evolution of management accounting will now be explored in terms of the changing definitions from three major accounting bodies: The Institute of Management Accountants (IMA); the Chartered Institute of Management Accounting (CIMA); and the International Federation of Accountants (IFAC)

In 1981, the Institute of Management Accountants (IMA) has provided his initial definitions of management accounting that reflect changing demands by businesses for accounting information; but

more recently, IMA has redefined management accounting as “ a profession that involves partnering

in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy” (Anthony A.Atkinson et al., 2012) The new definitions

had reflected the change in the role of management accountants evolving from a transaction and compliance orientation (as reflected in the prior definition) to one of a strategic business partner that helps the organizations incorporate performance management, planning and budgeting; corporate governance processes, risk management, internal control, and financial reporting at a time of great change; and experts in cost management methods (IMA, 2008)

In 1986, the Chartered Institute of Management Accounting (CIMA) had just declared his definition

of management accounting as the provision of information required by management for such purposes as: the formulation of policies; planning and controlling activities of the enterprise; decision taking on alternative courses of action; disclosure to those external to the entity (shareholders and others); disclosure to employees; and safeguarding assets (CIMA, 1986) Later, in process of CIMA’s revised version of management accounting terminology, the role of management accounting had moved

forward to a broader one CIMA had redefined management accounting as the application of the principles of accounting and financial management to create, protect, preserve and increase value for the stakeholders of for- profit and non-profit enterprises in the public and private sectors CIMA (2005) further elaborated the definition of management accounting to emphasize that management accounting is an integral part of management, which requires the identification, generation, presentation, interpretation and use of relevant information CIMA’s changed definitions show that management accounting has moved closer to senior management concerns with a focus on efficiency, strategic planning and value creation And now since 2015, the new definition about management

account of CIMA is only simple as “Management accounting combines accounting, finance

and management with the leading edge techniques needed to drive successful businesses” (CIMA,

2015)

In 1989, IFAC defined management accounting as “ the process of identification, measurement,

accumulation, analysis, preparation, interpretation, and communication of information (both financial and operating) used by management to plan, evaluate, and control within an organization and to assure use of and accountability for its resources …” (IFAC, 1989) This definition was

similar to the one defined by IMA However, only nine years later the scope had widened considerably in new definition, in which management accounting was viewed as an activity that is interwoven in the management processes of all organizations Management accounting refers to that part of the management process, which is focused on adding value to organizations by attaining the effective use of resources by people, in dynamic and competitive contexts And till to 2002,

management accounting was redefined as “…refers to the process and techniques that focus on

effective and efficient use of organizational resources, to support managers in their task of enhancing both customer value and shareholder value” (Langfield-Smith et al., 2009, 6)

According to Vietnamese Accounting Law issued in 2003, management accounting is defined as

“…collecting, handling, analyzing and providing information about economic, finance according to

required management/making decision within internal enterprises” (Vietnamese Accounting Law

issued, 2003)

2.1.2 The role and function of management accounting

Nowadays, management accounting plays a vital role in management According to IFAC, the role of management accounting plays as a part, which is impossible to take part from process of management

It provides essential information to control enterprise’s present activities, defines strategy and tactical plans, maximizes the use of resources, measures and evaluate performances etc (IFAC, 1999)

Almost theories of management accounting mentioned about planning, controlling, and performance evaluating, improving and deploying competitive strategy, making decision etc were major role of management accounting in order to obtain the enterprise’s objectives (Scapens, 1991; Weetman, 1999; Upchurch, 1998; Atkinson &ctg., 2001) And according to Ernst & Young and IMA management accountants were considered to become business partners, not as bookkeepers anymore

like before, and they focused to more and more about main strategy, reaching out of financial accounting (Ernst & Young and IMA, 2003)

Recently, in their research about modern management accounting, Valančienė and Gimžauskienė (2007) studied the changes in the role of management accounting Their conclusion indicated that the role of modern management accounting has extended from data accumulation to providing information as to the progress of strategy implementation And as a result, the role of management accounting has changed focus from being just directed toward shareholders to delivering customer-employee-shareholder integrated solutions Those solutions are focused on permanent monitoring, measurement and management of strategic advantages and future outcomes (translation of strategy into appropriate set of goals and measures, strategy mapping)

2.1.3 Content of management accounting

Management accounting system is information system, which provides information to enhance making decisions for creating value and controlling resources It helps to make a comprehensive information system including regular information and special information for evaluating, measuring, planning and controlling one or more specific product or service So management accounting system

is impossible to provide all kind of information management, instead of, some kinds of information must be gone seeking advisory from outside parties (Langfield-Smith, 2012, 6-9)

According to ACCA (ACCA F5 – 2014) the content of management accounting can include in four parts: cost and management accounting techniques, decision techniques, budget and control, performance evaluation

2.2 CHARACTERISTICS OF SMEs

2.2.1 SMEs concept

Until now, there still has been no consensus internationally on a definition of what constitutes an SME Variations exist between countries and industries SMEs are defined by a number of criteria such as location, size, age, structure, organization, number of employees, sales volume, net assets, ownership structure, innovation and technology (Deros et al., 2006)

In Vietnam, according to the Article No 56/2009/ND-CP of Government issued June 30th, 2009; SMEs have been divided by industries, including: agriculture, forestry and aquiculture; industry and construction, commercial and service Besides, main criteria used to divide SMEs in Vietnam are number of employees and capital, but it is not mentioned this number of employees is an average or concrete number at the time of classification (because this criteria is continually changed in a whole business year); and the capital is also not mentioned this is registered capital or average working

capital of enterprise

2.2.2 Characteristics of Vietnamese SMEs

In general, Vietnamese SMEs have some specific characteristics as below: major private enterprises, low management capability and low qualification labor force, applying mainly backward

technologies, low productivities, low ability of reaching new market, small size (for number of employees and financial resources)

2.2.3 Current disadvantages, advantages when implementing management accounting in Vietnamese SMEs

In general, with stable political regime, almost of Vietnamese SMEs have not been affected by the change from micro-macro economic policy In coming future, many FTA will become effective such

as TPP agreements, ASEAN and EU agreements, RCEP agreements, Vietnam – Korea agreements, Vietnam – Japan agreements etc This will create so many business opportunities for Vietnamese SMEs Besides, Vietnamese labor forces are young, well-trained in universities, colleges This will help Vietnamese SMEs will bring new blood in to management board of enterprises with reasonable prices

However, there are still some disadvantages due to the global business difficulty, so Vietnamese SMEs also face to challenges and difficulty The difficulty not only comes from outside but also from inside enterprises due to lack of management capability The social-economic in 2014 in the world the global business had recovered slowly after the global economic depression In addition, the foreign trade turnover between Vietnam and Russia, EU countries etc had been affected by the unstable policy situations

2.3 FACTORS IMPACT TO THE USE OF MANAGEMENT ACCOUNTING IN ENTERPRISES

From the results of prior researches concerning about the implementing management accounting in the world, there are some factors being synthesized to impact to the implementing management accounting as below:

Firstly, size of enterprise is significant factor being considered to impact to structure and arrangement

control inside enterprises

Secondly, many researchers also mention market competition factor, even though the results are

opposite

Thirdly, decentralization of structure had been tested and indicated that if enterprise have applied

decentralization they always choose the more complicated management accounting techniques centralized one

Fourthly, customer power factor was measured and indicated that when enterprise have to face with

more powerful customer resource, enterprise must implement more complicated management accounting techniques in order to improve the process of making decision and controlling and help them keep their demanding customers satisfied (Abdel-Kader and Luther, R., 2008)

Fifthly, factor of the rate of foreigner-own in enterprise was measured and indicated that if there is the

participation of foreign shareholder, enterprise will intend to use more management accounting techniques

Sixthly, accordingly to the contingency theory, factors such as advanced manufacturing technology

(AMT), total quality management (TQM); just in time … are important factor which impact to the implementing management accounting

Seventhly, factor of perceived environmental uncertainty impact o to the implementing management

accounting in the way that if enterprises perceive a higher degree of environmental uncertainty it will adopt more sophisticated management accounting techniques than the one that perceives lower environmental uncertainty

Eighthly, when studying about the impact of factor organizational culture to the implementing

management accounting, AlperErserim (2012) has pointed out that there were some kinds of organizational cultures such as supportive organizational culture, innovative organizational culture, goal-oriented organizational culture which impact to the implementing management accounting

Ninthly, when studying about the factor of business strategy, many researchers have pointed out that

there was the impact of this factor to the implementing management accounting (Langfield-Smith, 1998b; Baines and Langfield-Smith, 2003; Perera et al., 2007; Tuan Zainun Tuan Mat and Malcolm Smith, 2014)

Tenthly, in SMEs, the existence of qualified internal accounting staff can be a significant factor,

which impacts to the implementing management accounting

2.4 GROUNDED THEORY RELATED TO THE FACTORS IMPACT TO THE USE OF MANAGEMENT ACCOUNTING

During last decades, there had been some researches basing on theories to explained or indicted the association between factors and the use of management accounting in enterprises In this study, we will choose four theories concerning to the purpose of thesis, including cost - benefit theory, contingent theory, agency theory and social philosophy theory

2.5 COMPARISON ABOUT CONTENTS, CONDITIONS, FACTORS IMPACT TO THE USE OF MANAGEMENT ACCOUNTING

In general, when implementing management accounting, SMEs tend to use the simple management accounting techniques, others such as ABC, variance analysis, market research and other higher-technical techniques are used by few large enterprises (Druty et al., 1993) Almost of SMEs usually focus on numbers in reports but ignore evaluating; and they use Microsoft Excel instead management information system As a result of survey, more than a half of SMEs admit that they not apply the strategy management or non-financial ration etc Instead of, they evaluate highly the role of simply tools such as budget, break-even point, performance rations etc

As usual SMEs are always lack of resources, so they rarely hire a full-time professional management accountant Instead of, this employee usually holds more than one job or he/she is lack of competence

of professional management accountant According to the CIMA’s research (Michael Lucas et al., 2013) about the management accounting practices of UK SMEs has indicated that in small enterprises the management accounting was usually done by owner-manager/entrepreneur Meanwhile, with their

power, large enterprises usually organize independent management accounting department, including specific human resources, so the performance is usually better

The lack of resource not only impact to the management accounting human resources but also impact

to the data system It leads to the lack of complicated process in management accounting or lack of ERP in providing data for accounting activities As a result, the information provided to managers is not adequate to make decisions, so its value is low in supportive making-decision for planning and controlling Besides, lack of professional advices can lead to making financial decisions basing on individual experiences (Michael Lucas et al., 2013)

The lack of resource also leads to lack of direction about strategy or following up the process of deployment strategy Because of limitation on size, capability so SMEs usually tend to focus on daily activities and ignore their long-term direction So it leads to inevitable results that investment decisions are always made by managers’ experiences They also ignore long-term budgets, and this action will cause to damage to long-term survival (Daniela Wiedemann, 2014)

Other problem of implementing management accounting in SMEs is the aware/knowledge of owners about contribution of management accounting to the success of SMEs Many owners just want to keep back their control to their enterprises, so they do not want to hire professional management accountants They want to do analysis by themselves because they consider that management accountant’s report may be so summary and will not reflect the comprehensive business activities of enterprises In addition, when implementing management accounting in SMEs, there always exit the doubt from both managers and employees It comes from the feeling being loosing control, or sometimes they feel not happy when receive more jobs without bonus etc (Michael Lucas et al.,

Research process includes two main steps: (1) general research and (2) detailed research

Firstly, in general research we apply the qualitative methodology in order to find out factors (variables) which can impact to the use of management accounting in Vietnamese SMEs, and then adjust and add more factors by the techniques group discussion and interviewed experts

Secondly, in detailed research all of variables are measured by quantitative method by collecting data through choosing samples and sending questionnaires Using the software SPSS 20.0 to check the model research, theoretical model and hypothesizes with EFA method

There are some methods, which use to solve the questions as below: