MANAGEMENT ACCOUNTING IN SAUDI ARABIA: A - theses

292 Pages·2008·11.27 MB·English

MANAGEMENT ACCOUNTING IN SAUDI ARABIA:
A COMPARATWE ANALYSIS OF SAUDI AND
WESTERN APPROACHES
BY
MAJBOUR J . ALNAMRI
BSc (Accounting)
MSc (Accounting)
This dissertation is submitted in fulfilment
of the degree of Doctor of Philosophy in
Accounting
(c3
Copyright , M . Alnamri
Accounting Division
School of Business Management
University of Newcastle Upon Tyne
NEWCASTLE UNIVERSITY LIBRARY
092 52869 1
Tiss L5C2..
ACKNOWLEDGEMENTS
I would like to express my sincere gratitude to Professor A. R. Appleyard under
whose supervision this project was conducted. His interest, cooperation , encouragement
and direction are gratefully and proudly acknowledged.
Special thanks to Dr Muhia AL-Din Tarabzouni former Chairman , Accounting
Department , King Abdul-Aziz University for his moral support and sincere advice.
I am grateful for the cooperation of the executives and chief accountants of the participating
companies.
I am indebted to the government of Saudi Arabia represented by King AbdulAziz
University for the financial support I received.
Last but not least I extend my thanks to my parents and family for instilling in me
a desire and love for learning from my early childhood which have served as sources of
endless energy that have propelled me through it all . I also thank my wife Nylah for her
patience.
II
TABLE OF CONTENTS
PAGE
Acknowledgements n
List of Tables ix
List of Figures ix
A k... x
1tDSW4CL
Part I: - INTRODUCTION AND THE RESEARCH IN
PERSPECTIVE

Chapter (1) Introduction 1

1.1 Introduction 1

1.2 Accounting and Economic Development 3

1.3 The Business Environment of Saudi Arabia 8
1.4 An Overview of the Major Characteristics of the Participating

Companies 11

1.5 The Significance of the Study 14

1.6 The Objectives of the Study 17

Chapter (2) Literature Review 19

2.1 Introduction ------- --------- 19

2.2 Management Accounting in the Developed 19
and Developing countries

2.2.1 What is the difference? 20

2.2.2 Why is it different? ----------- 23
2.2.3 Should the gap be bridged and if so , can the gap be

bridged? ----------------------------------- 28
III
2.3 Management Accounting Theory vs.
Practice in the Developed Countries. ------------------- 34
2.4 Management Accounting and the New flexible
Manufacturing Environment -------------------- 40
Chapter (3) The Conceptual Framework of the Research --------42
3.1 Research Methodology ------------------------- 42
3.2 Conceptual Development -- ----------------- 45
3.3 The Schweikart Model ------------------- 46
3.4 The Research Model ---------------------------- 48
3.5 Operational Objectives of the Research -- -- 51
3.5.1 The degree of sophistication of
management accounting techniques ---- - 51
3.5.2 The role of the controllership function -- 51
3.5.3 The Organizational Characteristics --------- 53
3.5.4 The nature of the developing country's environment 67
3.5.5 Management philosophy ----------- - 70
Chapter (4) Methodology of the Research --------------------73
4.1 Research Design and Data Analysis -------------------- 73
4.2 Contingency Theory and Specific Control
ofSystematic Factors --------------------------- 76
4.3 Selecting the Jndustry to Study --------------------- 78
4.3.1 Criteria for sample selection ------------------------ 79
iv
4.4 Data Collection 80

4.4.1 Persons Interviewed ---------------- 80

4.4.2 Data Collectionlnstrument 81

4.4.3 The Main Interview Phase 83

4.5 Structure of the Study 85
Part IL :- ACCOUNTING AND MANAGEMENT CONTROL
TECHNOLOGY
Chapter (5) The Degree of Sophistication of

Management Accounting Techniques 89

5.1 Introduction 89

5.2 Budgeting Systems 90

5.2.1 Budget Revisions 90

5.2.2 Control Reports 92

5.2.3 flexible Budget 94

5.3 Standard Costing and Variance Analysis 95

5.4 CostingSystems 99

5.5 Performance Measurement 100

5.6 Capital Budgeting 102

5.7 The Internal Audit Function 104

5.8 QuantitativeMethods -------------------- 105

5.9 Computerization ---------------------- 107

5.10 Similarities and Differences 109
Chapter (6 ) The Role of the Controllership Function ------------113
6.1 TheLiterature -------------- ---------------------- 113
6.2 The Managerial Use of Accounting Data ---------------- 116
V
6.2.1 Score-card and Attention Directing---------- 116

6.2.2 Problem solving 120

6.2.2.1 The Pricing Decisions 120

6.2.2.2 The Production Decisions 122

6.2.2.3 The Investment Decisions -. 126

6.3 The Role of the Controller in Management Decisions - 132
ifi :-
Part MANAGERIAL . PERSONAL. ORGANAZATIONAL. AND
ENVIRONMENTAL CHARACTERISTICS AND THE USE OF
ACCOUNTING INFORMATION.
Chapter (7) Management Philosophy, Style and Personal
Characteristics, and the Degree of Sophistication

of Management Accounting Techniques 143

7.1 TheLiterature 143
7.2 Relative Importance Placed by Top Management on

Various Organizational Devices ---------------- - 147
7.2.1 Management Emphasis on Planning, Budgeting

and Capital Expenditure Systems 147
7.2.2 Management emphasis on Non-financial

Organizational Devices 149

7.3 Management Philosophy and Budgeting 154

7.4 Committee Management 161

7.5 Communication and Coordination 163

7.6 Personal Characteristics 167

7.6.1 Manager's Attitude Towards Accounting 167

7.6.2 Locusofcontrol 168
vi
Chapter (8) Organizational Characteristics and the Degree
of Sophistication of Management Accounting

'F echniques 171

8.1 TheLiterature --------------------- 171

8.2 The Organizational Structure 174

8.2.1 Differentiation and Integration 175

8.2.2 Interdependency 177
8.2.3 The Degree of Centralization , Standardization and

Formalization 180

8.3 The Organizational Size 183

8.4 The Organizational Technology 185

8.5 The Organizational Environment 186

8.6 The Organizational Goals 190

8.7 The Organizational Age and Ownership ----- - 191

8.8 Commentaries and Conclusions 193
Chapter (9) The Major Characteristics of the National

Environmentof Saudi Arabia ----------------------- 196

9.1 Introduction 196

9.2 Economic environment 197

9.3 Social and Cultural factors --------------------- 199

9.4 Political and Legal Structur 202

9.5 Accounting education ------------------- 203
9.5.1 General Overview of the Accounting Education

inSaudiArabia------------------------ 203

9.5.2 Number and Qualifications of Accountants 207
9.5.3 Western Accountants and Managers Views

andPerceptions. ------------ - 213
VII
Chapter (10) Summary and Conclusions - 218

10.1 Summary -------------------------------------------- 220

10.2 Conclusions ------- ----------- 228
10.3 Review of the Study and Recommendations for

FutureResearch. ------------------------ 232

Bibliograghy------------------------------- 234

Appendix A: - Characteristics of participating companies. - 253

Appendix B : - Interview Guidelines and Questionaires . -___ 257
VIII
LIST OF TABLES
Page
Table 5.1 Areasof budgets prepared. ---------------------- 91
Table 5.2 Typeof variances computed. --------------------- 98
Table 5.3 Capital expenditure techniques in use .-------------- 103
Table 5.4 Quantitativemethods in use ------------------------ 106
Table 5.5 Financial activities perfonned by computer ------- 108
Table 6.1 Controllers views regarding the managerial use of accounting - 130
Table 6.2 The role of the controller in management decisions 135
Table 7.1 Management emphasis on planning budgeting and capital
expendituresystems .------------------------- 148
Table 7.2 Management emphasis on non -financial organisational devices - 150
Table 9.1 Number and qualifications of accountants . ------- 208
Table A-i Characteristics of participating companies . -------- 256
LIST OF FIGURES
Figure 3.1 The Schwaikart model. -------- 47
Figure3.2 The research model ------------------------------ ------ 50
Figure 3.3 Thomson's measure of interdependency ------------ 59
ix
ABSTRACT
The purpose of this study is to investigate the similarities and differences in
management accounting practices between the Saudi owned and managed companies
and the joint venture companies located in Saudi Arabia . The investigation included the
degree of sophistication of management accounting systems , the managerial use of
accounting and the role of accountants in decision making and control.
In the first part the background characteristics of the research in perspective is
provided .Along with a general overview of the literature ,the development of the
research themes are presented.
The second part of the research is concerned with the similarities and differences
between the participating companies regarding the degree of sophistication of the
accounting system the managerial use of accounting and the role of acountants in
decision making and control . This part is descriptive and no attempt is made to explain
why such similarities or differences have occuiied . However , the results of the
investigation indicate that the western joint venture companies have a more
sophisticated accounting system and their accountants have a greater role to play in
decision making and control . In addition ,the managers of the joiit venture companies
rely more on accounting information in decision making and control compared to their
Saudi counterparts.
The third part is devoted to provide an explanation of the reasons behind the
differences in management accounting practices between the participating companies.
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