The Contingency Theory of Management Accounting

The contingency theory, or approach, to management accounting is that no universal accounting system exists for all companies in the business environment, according to AllBusiness.com. Accordingly, business owners and managers must create a system designed around their company's organizational structure.

Identification

A management accounting system reports financial information internally to business owners and managers. This information allows for performance analysis, production output decisions and budget comparisons, among other things. Management accounting does not typically follow national accounting standards, making the system customizable.

Significance

Management and Accounting Web states, "One popular view of contingency theory is that the structure of an organization depends on the company's technology and environment." Under this view, the structure of the organization dictates the effectiveness of managerial processes and management accounting systems.

Considerations

Business owners and managers should understand that the contingency theory is just that, a theory. While it can help companies design their management accounting information workflow, another system may exist that offers better or more applicable tools for the management accounting process.

References

• AllBusiness.com: Toward Contingency Theory of Performance Measurement
• Management and Accounting Web: Towards a Descriptive Theory of Management Accounting