ISSN: 2456 Management Accounting System Practice In .
International Journal of Advanced Research and PublicationsISSN: 2456-9992Management Accounting System Practice InNepalese Commercial BanksDr. Achyut GnawaliTribhuvan University, Central Department of Management, Kathmandu, Nepal, PH-00977 9851077885tu mgmt@hotmail.comAbstract: Management accounting measures analyzes, and reports financial and nonfinancial information that helps managers makedecisions to fulfill the goals of an organization. Managers use management accounting information to develop, communicate, andimplement strategy. They also use management accounting information to coordinate product design, production, and marketing decisionsand to evaluate performance. The purpose of this article is to analyze the management accounting systems tools practices in NepaleseCommercial Banks. It was found that the perceptions of top management representative of commercial banks in Nepal perceivedmanagement accounting system tools as significant in their banking system and have also used these tools to increase their performance.Keywords: Management Accounting, Budgetary control, cash flow statement, balance score card.1. IntroductionAs today‟s business environment becomes increasinglycompetitive, business organizations are becoming moreaggressive and dynamic in identifying competitive strategiesthat will ensure profitable existence. Competition may beattributed to business innovations, advancement intechnology and the changing demand of customers.Competition amongst business organizations may compel themanagement to develop business techniques and strategiesthat would guide an organization towards the maximizationof profits. This may be achieved through increased sales andreduced cost of production. The optimization of profits andminimization of costs may enable an organization to create acompetitive advantage in its industry. Certain managementaccounting practices provide strategies that can influence alarge number of customers to have a lasting preference for acompany‟s products. Management accounting techniquesmay provide an organization with a sustainable competitiveadvantage over its rivals [1]. Management accountingpractices have moved from reporting historical information,especially on variance analysis, to taking part in the strategicplanning process of an organization [2]. The author contendthat management accounting skills are actively applied in thebusiness environment where both market intelligence issought and evaluated, and strategic decisions are made andcompetitive strategies put in place. These are factors which[3] argue that they enable an organization to gain anadvantage in the ever demanding competitive businessenvironment where innovative management accountingpractices need to be employed. The managementaccountants, especially those in the banking sector, shouldtherefore be at the forefront in the search and development ofinnovative competitive strategies that may enable anorganization to remain profitable and competitive. [1] notethat management accounting develops ideas for agement accounting practices may provide strategies forefficiency and cost effectiveness which could be used as acompetitive tool for growth and profitability especially in thebanking sector. Banks have been rapidly expanding theirfinancial services to the customers. This proliferation of newservices has increased in recent years due to competitionbetween the financial institutions. Customers are alsobecoming the more and more knowledgeable and demandingmore facilities. New technology is introduced in bankingsystem to fulfill the new facilities to the customers. Due tothe introduction of the new technology it has also increasedbank costs and posed greater risk of bank failure. Today,number of banks and their branches are increasing at a rapidpace and other financial institutions are virtually offering allservices which a commercial bank offers. The banks areforced to increase the product and service quality, offerbetter rates on deposits, quote lower rates on loans, chargelower fee on various services narrow spread in the exchangerate and the like. Due to the deregulation and increased incompetition, funding costs are dramatically increased. Due toincrease in the competition, the real average cost of theattracting deposits has also increased. With deregulationbankers have been forced to pay competitive interest ratesfor the deposit funds. [4] argues that the role of accounting isto serve the needs of strategic management. Several writershave demonstrated how accounting in involved in processingnow strategic orders insides the firm [5], [6], [7], [8], and [9].[10] pointed out the use of management accountinginformation to support strategy decision making and also theimpact that information can have on organizationaloutcomes. Strategic management accounting is the process ofidentifying, gathering, choosing and analyzing accountingdata for helping the management team to make strategicdecisions and to assess organizational effectiveness [11].Banks have had to expand their customer base by reachinginto expand their customer base by reaching into new andmore distant markets. The result has been a dramatic increasein branch banking activity to provide multiple offices, theformation of holding companies that bring smallerinstitutions together into larger conglomerates offeringsmultiple services, and mergers between some of the largestbank and non-bank financial service firms. Nepal RastraBank has also directed to commercial banks to merge eachother as per their capacity. Consolidation, geographicalexpansion, globalization of banking and increased risk offailure is the emerging issues in commercial banking field.The growth of commercial banks and financial institutionsconcentrating in the urban area with huge credit flows tounproductive sector viz, real estate, housing and margin typelending has created undue pressure in the financial sectors inNepal on the one hand and external and financial sector riskshave risen as evidenced by the significant deterioration of thecurrent account, the reserve decline, wavering confidenceand banking sector liquidity stress in the other. TheVolume 1 Issue 5, November 2017www.ijarp.org72
International Journal of Advanced Research and PublicationsISSN: 2456-9992developing country like Nepal has greatly suffered fromlimited resources endowments, particularly the capital,technical know-how, poor manpower, improper planning,ineffective information and controlling system, ineffectiveimplementation of policies, political instability etc. [12]. Inview of the situation outlined above a number of issuesemerge. The following are the key research issues towardswhich this study has been directed. What is the extent of the use of management accountingsystem in Nepalese Commercial Banks? What are the roles of management accounting inNepalese Commercial Banks‟ management?management representatives with an expected rate of returnof 100% on account of their vital role in bankingmanagement accounting system decisions. Out of thedistributed 50 questionnaire, all questionnaires were returnedafter minimum follow ups.3.1. Reliability of Top level management representatives’QuestionnaireThe Cronbach„s α for Top level management representatives‟Questionnaire on Management Accounting Techniques was0.865 (highly reliable) for application part and 0.917 forsignificance part.Table 1: Reliability Statistics for Top Managementrepresentative questionnaire2. Objective of the studyThe main purpose of this paper is to analyze the managementaccounting systems practices and its roles in NepaleseCommercial Banks. More specifically this study proposesfollowing specific objectives:1. To examine the extent of the use of managementaccounting system in Nepalese commercial banks.2. To examine the roles of management accounting inNepalese commercial banks‟ management.3. Research MethodologyThe target population identified for gathering informationregarding this concern is Nepalese Commercial Banks fromamong the firms in the various industries that comprise theservice sector. There were 28 banks at the time of the study.Out of these 28 banks only 17 numbers of banks wereestablished before 2002. The selection of the bank for thestudy was framed on the basis of ten years in operations.Furthermore, six earliest established Nepalese commercialbanks were selected for the study. These banks wereestablished between 1937 and 1993.In the samplingframework, samples of employees, customers of these banksand Top level management representatives were taken for thestudy. As stated earlier, the sample of banks were done withstratified sampling method. Out of 28 commercial banks inNepal, 17 numbers were stratified according to theirestablished year and completion of ten years in operation.Furthermore, it has been stratified to six commercial bankswhich were the earliest among them. Therefore, the bankswere selected which were established between 1937 and1993. This stratification of population resulted into samplingframe of six banks namely, Nepal Bank Ltd. Kathmandu(1937), Rastriya Banijya Bank Ltd. Kathmandu (1966),Nabil Bank Ltd. Kathmandu (1984), Nepal Investment BankLtd. Kathmandu (1986), Standard Chartered Ltd. Kathmandu(1986), and Himalayan Bank Ltd. Kathmandu (1993).However, one bank ADB was a pseudo commercial bank;hence it was not considered for the study. Keeping in viewthe objectives of this study both primary and secondarysources of data have been used in this study. The sources forprimary data are different levels of employees, managementrepresentatives and customers of the bank. For the purpose ofdata collection regarding higher level managementaccounting techniques in these banks, the Top levelmanagement representatives were also involved in survey. Arandom sampling of 50 Top level managementrepresentatives such as Chief Executive Officer (CEO),Financial Officer (FO) and other higher level officers atdecision level was taken. The decided number ofquestionnaires was distributed randomly to the top levelSl.No.12VariablesCronbach's AlphaN of ItemsSignificance of MATsApplication of MATs0.9170.86523234. ResultsResearch findings are presented in the following sections: (a)descriptive analysis, (b) correlation analysis (c) impactanalysis, (d) hypotheses testing results.4.1. Management representativesFifty (50) nos. of higher level management representativeswere pooled from six banks for the study of ManagementAccounting Techniques. Table 2 shows the sampledescriptive.Table 2 : Demographic characteristics of ManagementRepresentativeAttributesGenderAge ub AttributesMaleFemale41-5051-abovePost GraduateM.Phil/ PhDNepal BankRastriya BanijyaNepal Investment bankStandard CharteredNabil BankHimalayan Bank1-56-1112-1819 and aboveCEOTop level officersNumbersPercentage 0816.0816.01122.012.02346.01938.0714.012.04998.0N 50Out of the total respondents, 48 nos. (96%) of therespondents were male and 2 nos. (4%) were female. Therewere 48 nos. (96%) are under the age-group of 51 years andabove and 2 nos. (4%) were under the age group of 41-50years. Majority of the respondents falls within the categoryof Master‟s level with 48 nos. (96 %) representations, 2 nos.(4%) in M. Phil/PhD level. At the time of study, therespondents working banks were Himalayan Bank Limited11 nos. (22%), NABIL Bank 8 nos. (16%), Nepal BankLimited 6 nos. (12%), Nepal Investment Bank Ltd. 8 nos.Volume 1 Issue 5, November 2017www.ijarp.org73
International Journal of Advanced Research and PublicationsISSN: 2456-9992(16%), Rastriya Banijya Bank 9 nos. (18%) and StandardChartered Bank 8 nos. (16%). Similarly, the managementrepresentatives have varying working experience. Out of thetotal respondents, 23 nos. (38%) were 6-11 years ofexperience, 19 nos. (38%) of 12-18 years, 7 nos. (14%) of 19years and 1 no. (2%) of 1-5 years. Out of the totalmanagement representatives, 49 nos. (98%) were the toplevel officers and only 1 no. (2%) was CEO of the banks.4.2. Management accounting system in Nepalesecommercial banksThis part of study has an outlook on the perception of topmanagement of commercial banks towards how theyperceive the importance of Management Accounting SystemTools in their banking system. So, in this section it isattempted to explore the significance regarding ManagementAccounting System Tools in Commercial Banks. Thesemanagement representative perceive the importance of themanagement accounting system tools in their respectivebanks. The exploration is based on the twenty-three (23)preset management accounting system tools. It is ranked intheir mean score. The determination of the tools that majorlyperceived important by the management representative hasconsidered on the Mean factor which would be statisticallysignificant at Mean Test Value 2, 95% C.I, that means themanagement accounting system tools are significantsignified the perception and have a greater impact at theirmanagement accounting system. Similarly, recalling theranking was done with the highest to lowest scores in adistribution. The reliability analysis was done for the presenttools questionnaire construction consistency of responses toitems. The Cronbach‟s alpha coefficient comes to α (0.865)on item 23 and N 50, which is higher than 0.5. As it can bederived from table 4.33, the results indicated the importanceof management accounting system tools significant. Thetools representing the highest ranks with significant p valueare considered up separately and presented for maybeknowing the range would help on understanding theperception of management representative on managementaccounting system tools. The detail is presented in table4.33. After arranging data, the determined values in higherside are: Budgetary control (2.80, SD .495, t 11.431, 49,p .001); Ratio Analysis (2.80, SD .452, t 12.522, 49,p .001); Cash flow statement analysis (2.74, SD .527,t 9.925, 49, p .001); CVP Analysis (2.60, SD .639,t 6.641, 49, p .001); and SWOT Analysis (2.46, SD .613,t 5.305, 49, p .001). Therefore, Budgetary control, Cashflow statement analysis, CVP Analysis, Variance analysis,Competitors Analysis, Inter firm comparison, Total QualityManagement and Process Reengineering are importantmanagement accounting system tools. This is aligned withthe following studies [13], [14], [15], [16] and [17] in whichbudgetary control, variance analysis, CVP analysis, fundflow analysis, cash flow analysis, activity based costing,TQM,TOC, business process reengineering, kaizen costing,segment reporting ,responsibility accounting, standardcosting, target costing, balance scorecard, inter firmcomparison, JIT ,bench marking, variable and absorptioncosting, competitions analysis, opportunity costing, SWOTanalysis and ratio analysis tools are outlined.Table 3 :Descriptive statistics of ranking of significancemanagement accounting system toolsTest Value 2ToolsBudgetary controlRatio AnalysisCash flow statementanalysisCVP AnalysisSWOT AnalysisVariance analysisCompetitors AnalysisInter firmcomparisonTotal yaccountingKaizen costingStandard costingActivity basedcostingSegment ReportingTarget costingOpportunity costingAttribute costingJust in Time(JIT)Life cycle costingBalance score cardVariable &absorptioncostingTheory .42749.5671.60.639-4.42749.534MeanSDtdf4.3. Ranking of currently using management accountingsystem toolsGetting a more refined depiction, the uses of managementaccounting system tools are also explored. While, exploringthe combination of preset twenty-three (23) set ofmanagement accounting system tools, the managementrepresentatives had emphasized on five (5) set ofmanagement accounting system tools as significantly used intheir respective banks. It is ranked in their mean score. Thedetermination of the tools that majorly used by the bankspresently has considered on the Mean factor which would bestatistically significant at Mean Test Value 2, 95% C.I, thatmeans the management accounting system tools are used inthe banks. This part of study has an outlook on the use ofmanagement accounting system tools in commercial banks inNepal. Similarly, recalling the ranking was done with thehighest to lowest scores in a distribution with significantly tvalue. After arranging data, the following managementaccounting system tools are used in these commercial banksof Nepal: Budgetary control(2.70, SD .462, t 10.693, 49,p .001), Cash flow statement analysis (2.70, SD .505,t 9.800, 49, p .001), Ratio Analysis (2.60, SD .534,t 7.937, 49, p .001), Varianceanalysis (2.56,SD .501t 7.897, 49, p .001) and CVP Analysis(2.54,SD .503, t 7.584, 49, p .001).The detail scores arepresented in table 3. Therefore, budgetary control, Cash flowstatement analysis, Ratio Analysis, Variance analysis andCVP Analysis are the management accounting system toolsthat are currently used by these commercial banks of Nepal.This is aligned with the following studies [2], [14], [15],[16], [17] and [18] in which budgetary control, varianceVolume 1 Issue 5, November 2017www.ijarp.org74
International Journal of Advanced Research and PublicationsISSN: 2456-9992analysis, CVP analysis, fund flow analysis, cash flowanalysis, activity based costing, TQM, TOC, businessprocess reengineering, kaizen costing, segment reporting,responsibility accounting, standard costing, target costing,balance scorecard, inter firm comparison, JIT, benchmarking, variable and absorption costing, competitorsanalysis, opportunity costing, SWOT analysis and ratioanalysis tools are outlined.Table 4 : Descriptive Statistics of Ranking of currently usingmanagement accounting system toolsManagementaccounting systemToolsBudgetary controlCash flowstatement analysisRatio AnalysisVariance analysisCVP AnalysisInter firmcomparisonSWOT AnalysisCompetitorsAnalysisActivity untingKaizen costingOpportunity costingTotal QualityManagementSegment ReportingTarget costingBalance score cardAttribute costingStandard costingLife cycle costingVariable &absorption costingTheory ofConstraintsJust in TimeTest Value 2MeanSD2.70.46210.69349Sig. counting system tool in Nepalese commercial banks.Thereafter, they use other management accounting systemtools also in such rankings; Cash flow statement analysis,ratio analysis, variance analysis and CVP analysis. Sinceglobalization, liberalization, privatization, modernization andcompetition are the five pillars for strengthening the financialsector, these concepts should be adhered to all the time indeveloping strategy for Nepalese commercial banks. Thesedimensions have opened Nepalese banking industry towardsa greater competition and application of ManagementAccounting System towards formulating and implementingorganizational strategy, to create a significant comprehensiveorganizational performance. The main role of ManagementAccounting System is to provide useful informat
Ltd. Kathmandu (1986), Standard Chartered Ltd. Kathmandu (1986), and Himalayan Bank Ltd. Kathmandu (1993). However, one bank ADB was a pseudo commercial bank; hence it was not considered for the study. Keeping in view the objectives of this study both primary and secondary sources of data have been used in this study. The sources for primary .
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