The Management Accounting Needs of Small Enterprises And the Role of Small Accounting ...

348 Pages·2017·8.05 MB·English

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The Management Accounting Needs of Small
Enterprises And the Role of Small Accounting
Practices.
Thesis
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Tripathi, Vandana M. (2017). The Management Accounting Needs of Small Enterprises And the Role of Small
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The Management Accounting Needs of Small Enterprises
And the Role of Small Accounting Practices

Vandana M. Tripathi

The Open University Business School
Department of Accounting and Finance

Thesis submitted for the Degree of Doctor of Philosophy
At the Open University

31st August 2016

Abstract
Management accounting research has previously focused mostly on large firms rather than
SMEs despite the significance of SMEs in the UK economy. The high failure rate of small
enterprises in the UK points to the need to increase their financial robustness. Small
accounting practices (SAPs) would seem to provide a possible alternative source of
management accounting information for businesses too small to afford in-house
accountants, but the literature over thirty years suggests that this approach has not been
adopted. The sparse research in this area has proposed disparate reasons for the limited use
of SAPs, without providing a definitive explanation. The intractability of the barriers to the
use of SAPs for the provision of management accounting information points to a mismatch
between management accounting theory, which tends to be based on neo-classical
economics, and the approach used in practice in small firms and SAPs.
The research investigates these barriers, assessing the extent to which owner-managers
carry out management accounting in small enterprises despite the opportunity costs
involved and explores the reasons behind their tendency not to seek management
accounting services from SAPs. It also evaluates the potential of SAPs to provide
management accounting services and the reasons limiting their promotion. The research
draws on a critical realist perspective using qualitative, multiple case studies involving
semi-structured interviews to examine the degree to which neo-classical economic theory,
old institutional economics and new institutional sociology can explain how the barriers
have arisen and why they have remained. The findings expand existing research on
management accounting by bringing into focus the interaction between actors and their
structural context in small firms and SAPs, demonstrating how that shapes management
accounting practices, particularly with regard to the barriers to the greater use of SAPs.
Acknowledgements
I would like to thank my supervisor, Dr Michael Lucas for giving me the opportunity to
undertake this PhD at the Open University and for providing me with valuable advice,
guidance and support without which I would not have been able to complete the PhD. I
would also like to thank my supervisors Dr Michael Oliver and Dr Sardar Ahmed for their
support and guidance.
This thesis is dedicated to my parents, Mukund and Jaishree Tripathi, my uncle Dr Krishna
Tripathi (PhD in Organic Chemistry) and my husband Hugh McConnel.
Contents
Chapter 1 – Introduction to the Research
1.1.0 The Purpose of the Research ................................................................................ 1
1.2.0 The Structure of the Thesis .................................................................................. 2
1.3.0 Conclusion............................................................................................................ 4
Chapter 2 – Literature Review Part 1: The Rationale for the Research
2.1.0 Introduction .......................................................................................................... 5
2.2.0 The Economic and Social Role of SMEs ............................................................. 5
2.3.0 Positioning the Research onto Small Enterprises ................................................. 9
2.3.1 Identifying the Gap ............................................................................... 19
2.4.0 The Research Question ...................................................................................... 24
2.5.0 The Contribution of the Research ...................................................................... 25
2.6.0 The Research Methodology ............................................................................... 26
2.7.0 An Ex Ante Approach ........................................................................................ 27
2.8.0 Conclusion.......................................................................................................... 28
Chapter 3 – Literature Review Part 2
3.1.0 Introduction ........................................................................................................ 29
3.2.0 The Different Roles of Management Accounting .............................................. 30
3.2.1 The Instrumental Rational Role ............................................................ 30
3.2.2 The Symbolic Role ............................................................................... 31
3.2.3 Management Accounting, Ambiguity
and the Unpredictability of Business Outcomes .................... 32
3.3.0 Neo-classical Economic Theory ........................................................................ 36
3.3.1 The Limitations of Neo-classical Economic Theory ............................ 41
3.3.2 The Applicability of
Neo-classical Economic Theory to the Research .................. 42
3.4.0 The Applicability of Psychological Approaches to the Research ...................... 44
3.5.0 Structuration Theory .......................................................................................... 46
3.5.1 Introduction ........................................................................................... 46
3.5.2 The Introduction of a Duality Perspective into Accounting Research ...... 47
3.5.3 The Limitations of Structuration Theory .............................................. 48
3.5.4 Structuration Theory as a Precursor ...................................................... 49
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3.6.0 Institutional Theories ......................................................................................... 51
3.6.1 New Institutional Economics ............................................................... 53
3.6.1.1 Introduction ........................................................................... 53
3.6.1.2 Agency Theory ...................................................................... 54
3.6.1.3 Transaction Cost Economics ................................................. 55
3.6.1.4 The Applicability of NIE to the Research ............................. 56
3.6.2 Old Institutional Economics (OIE) ....................................................... 58
3.6.2.1 Routines and Institutions ....................................................... 62
3.6.2.2 Burns and Scapens’s Framework .......................................... 63
3.6.2.3 Old Institutional Economics, Stasis and Change ................... 65
3.6.2.4 Triggering the Agent to Change an Institution ...................... 67
3.6.2.5 Old Institutional Economics
– Filling the Neo-classical Gap ................. 68
3.6.2.6 The Limitations of Old Institutional Economics ................... 71
3.6.3 New Institutional Sociology (NIS) ....................................................... 73
3.6.3.1 Coercive Isomorphism .......................................................... 75
3.6.3.2 Mimetic Isomorphism ........................................................... 76
3.6.3.3 Normative Isomorphism ........................................................ 77
3.6.3.4 The Limitations of NIS .......................................................... 78
3.7.0 The Relevance to the Research of the Theoretical Frameworks Considered .... 80
3.8.0 Conclusions of the Literature Review ............................................................... 82
Chapter 4 – Research Design and Methodology
4.1.0 Introduction ........................................................................................................ 87
4.2.0 Ontological and Epistemological Assumptions ................................................. 87
4.2.1 Positivism ............................................................................................. 87
4.2.2 Interpretivism ....................................................................................... 89
4.2.3 Critical Realism .................................................................................... 90
4.2.3.1 The Limitations of Critical Realism ...................................... 93
4.2.3.2 The Choice of Research Framework ..................................... 94
4.2.3.3 The Applicability of Critical Realism to the Research .......... 95
4.3.0 The Choice of Research Design ........................................................................ 96
4.3.1 Qualitative and Quantitative Research ................................................. 96
4.3.2 Perspectives in Qualitative Research .................................................... 97
4.3.3 Explanatory and Exploratory Research .............................................. 100
4.3.4 The Appropriateness of Case Studies to the Research ....................... 100
4.3.4.1 Internal Validity .................................................................. 102
4.3.4.2 External Validity ................................................................. 103
4.3.4.3 Reliability ............................................................................ 104
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4.4.0 Data Collection Methods .................................................................................. 104
4.4.1 Consideration of the Applicability of Discourse,
Conversation and Content Analysis to the Research ........... 104
4.4.2 Semi-Structured Interviews ................................................................ 106
4.4.3 Sampling ............................................................................................. 107
4.5.0 Data Analysis ................................................................................................... 109
4.5.1 Thematic Analysis of the Interview Data ........................................... 109
4.5.2 Qualitative Data Analysis using NVivo Software .............................. 112
4.6.0 Ethical Considerations ..................................................................................... 112
4.7.0 Conclusion........................................................................................................ 113
Chapter 5 – Case Analysis: Rad Publishing
5.1.0 Introduction ...................................................................................................... 114
5.2.0 The Firm’s Background ................................................................................... 114
5.3.0 Evidence of Small Enterprise Status ................................................................ 115
5.4.0 The Background of Key Actors ....................................................................... 115
5.5.0 The Approach to External Accountants ........................................................... 115
5.6.0 The Use of Management Accounting .............................................................. 115
5.7.0 Evidence Regarding the Cost-Benefit for Small Enterprises of Obtaining
Management Accounting Information from External Accountants.... 119
5.8.0 Evidence as to Whether Carrying Out
Management Accounting Internally Generates Extra Insight ............. 121
5.9.0 Evidence as to Whether Accountants Fail to
Promote Management Accounting Services Sufficiently ................... 123
5.10.0 Evidence as to Whether SAPs Lack Business Understanding and Skills ........ 124
5.11.0 Conclusion........................................................................................................ 124
Chapter 6 – Case Analysis: Quality Engraving
6.1.0 Introduction ...................................................................................................... 127
6.2.0 The Firm’s Background ................................................................................... 127
6.3.0 Evidence of Small Enterprise Status ................................................................ 127
6.4.0 The Background of Key Actors ....................................................................... 128
6.5.0 The Approach to External Accountants ........................................................... 128
6.6.0 The Use of Management Accounting .............................................................. 128
6.7.0 Evidence as to Whether Carrying Out Management
Accounting Internally Generates Extra Insight ................... 130
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6.8.0 Evidence as to Whether Owner-Managers Do their Own
Management Accounting to Protect Confidentiality .......................... 130
6.9.0 Evidence as to Whether Owner-Managers’ Lack of Financial
Literacy Inhibits the Adoption of Management Accounting .............. 131
6.10.0 Evidence as to Whether SAPs Lack Business Understanding and Skills ........ 132
6.11.0 Conclusion ....................................................................................................... 134
Chapter 7 – Case Analysis: Construction Engineering
7.1.0 Introduction ...................................................................................................... 136
7.2.0 The Firm’s Background ................................................................................... 136
7.3.0 Evidence of Small Enterprise Status ................................................................ 136
7.4.0 The Background of Key Actors ....................................................................... 136
7.5.0 The Approach to External Accountants ........................................................... 137
7.6.0 The Use of Management Accounting .............................................................. 137
7.7.0 Evidence as to Whether Carrying Out Management
Accounting Internally Generates Extra Insight .................................. 139
7.8.0 Evidence Regarding the Cost-Benefit for Small Enterprises of Obtaining
Management Accounting Information from External Accountants ... 140
7.9.0 Evidence as to whether Accountants Fail to
Promote Management Accounting Services Sufficiently ................... 142
7.10.0 Conclusion ....................................................................................................... 143
Chapter 8 – Case Analysis: Public Private Consulting
8.1.0 Introduction ...................................................................................................... 145
8.2.0 The Firm’s Background ................................................................................... 145
8.3.0 Evidence of Small Enterprise Status ................................................................ 145
8.4.0 The Background of Key Actors ....................................................................... 145
8.5.0 The Approach to External Accountants ........................................................... 146
8.6.0 The Use of Management Accounting .............................................................. 146
8.7.0 Evidence as to Whether Carrying Out Management
Accounting Internally Generates Extra Insight .................................. 148
8.8.0 Evidence as to Whether SAPs Lack Business Understanding ......................... 152
8.9.0 Evidence Regarding the Cost-Benefit for Small Enterprises of Obtaining
Management Accounting Information from External Accountants ... 153
8.10.0 Conclusion ....................................................................................................... 155
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Chapter 9 – Case Analysis: Bikes Co
9.1.0 Introduction ...................................................................................................... 157
9.2.0 The Firm’s Background ................................................................................... 157
9.3.0 Evidence of Small Enterprise Status ................................................................ 158
9.4.0 The Background of Key Actors ....................................................................... 158
9.5.0 The Approach to External Accountants ........................................................... 158
9.6.0 The Use of Management Accounting .............................................................. 159
9.7.0 Evidence Regarding the Cost-Benefit for Small Enterprises of Obtaining
Management Accounting Information from External Accountants.... 160
9.8.0 Evidence as to Whether SAPs Lack Business Understanding ......................... 163
9.9.0 Conclusion........................................................................................................ 164
Chapter 10 – Case Analysis: Micro Firms
10.1.0 Introduction ...................................................................................................... 166
10.2.0 Case A: Micro Firm – Management and Finance Consultant for SMEs ......... 166
A1. The Background of the Firm and the Key Actors ............................... 166
A2. Evidence of Small Enterprise Status ................................................... 167
A3. The Use of Management
Accounting and Approach to External Accountants ............ 167
10.3.0 Case B: Micro Firm – Management and Impact Consultant............................ 168
B1. The Background of the Firm and the Key Actors ............................... 168
B2. Evidence of Small Enterprise Status ................................................... 169
B3. The Use of Management
Accounting and Approach to External Accountants ............ 169
10.4.0 Case C: Micro Firm – Procurement Consultant ............................................... 171
C1. The Background of the Firm and the Key Actors ............................... 171
C2. Evidence of Small Enterprise Status ................................................... 171
C3. The Use of Management
Accounting and Approach to External Accountants ............ 171
10.5.0 General Conclusion over All Three Cases ....................................................... 173
Chapter 11 – Case Analysis: Zippy Accounting
11.1.0 Introduction ...................................................................................................... 174
11.2.0 The Firm’s Background ................................................................................... 174
11.3.0 The Respondent’s Background ........................................................................ 174
11.4.0 Evidence as to Whether SAPs Lack Business Understanding and Skills ........ 175
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