Management Accounting's Bigotry of Low Expectations

• DOI: http://doi.org/10.1002/jcaf.22105
• Published date: 01 November 2015
• Author: Tom Pryor
• Date: 01 November 2015

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© 2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22105

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Management Accounting’s

BigotryofLow Expectations

Tom Pryor

It is common to hear the

questions, “What do you

want to be when you grow

up?” and “What are your career

plans after graduation?” What

is unheard of is the response,

“I want to be a management

accountant.”

“98% of financial execu-

tives still believe their manage-

ment accounting information

stinks, but only 20% plan

on doing anything about it.”

This message from a March

2015 speech by Jeff Thomp-

son, President and CEO of

the Institute of Management

Accountants (IMA), sheds

light on why few aspire to a

career in management account-

ing. Thompson’s remarks ref-

erenced the findings of a 2012

survey by B. Douglas Clinton,

CMA, CPA, PhD, and Larry

R. White, CMA, CFM, CPA,

CGFM. Clinton and White

said their 2012 survey findings

mirrored those of a 2003 IMA/

Ernst & Young survey. Nine

years passed with no signifi-

cant improvement.

“Willful ignorance” is the

root cause of the survey results,

according to Doug Hicks,CPA.

Doug, an early adopter of

activity‐based cost manage-

ment (ABM/ABC) in the

1990s, was in the audience for

Mr.Thompson’s speech. Hicks

wrote in his June 2015 blog that

after 30 years of widespread

warnings about the danger of

using traditional accounting

information to support busi-

ness decisions, both C‐suite

users of cost information and

the accountants who provide

it show clear signs of “willful

ignorance.” Willful ignorance

is defined as “the practice or

act of intentional and blatant

avoidance, disregard or dis-

agreement with facts, empiri-

cal evidence and well‐founded

arguments because they oppose

or contradict your own existing

personal beliefs.”

Are there improved man-

agement accounting methods

that CEO’s, CFO’s, control-

lers, and management accoun-

tants willfully ignore? Yes.

At the forefront of the list

of improved management

accounting methods is ABM/

ABC. ABM/ABC is based on

the simple principle “activities

consume costs and products

consume activities.” The

following are three unseen,

overlooked, or ignored facts:

• ABM/ABC has been

proved and approved as

superior to traditional

labor and overhead cost

allocation methods for

product and service cost-

ing. Companies such as

United Parcel Service

(UPS), Charles Schwab,

and Xu Ji Electric Co. Ltd

in China use ABM/ABC

for improved decision

making.

• Health care systems know

the reimbursement rate for

an appendectomy, but few

know the cost of doing

one. Harvard professors

Robert S. Kaplan and

Michael E. Porter pub-

lished case study findings

in the Harvard Business

Review, September 2011,

that time‐driven ABC is

accurately calculating the

cost of delivering health

care.

• Peter Drucker, the father

of modern manage-

ment, encouraged senior