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The Role of Accountants in Decision-Making in Lebanese Firms

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Journal of Modern Accounting and Auditing, ISSN February 2014, Vol. 10, No. 2, D DAVID PUBLISHING The Role of Accountants in Decision-Making in Lebanese Firms Pierre Al Khoury, Marwan
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Journal of Modern Accounting and Auditing, ISSN February 2014, Vol. 10, No. 2, D DAVID PUBLISHING The Role of Accountants in Decision-Making in Lebanese Firms Pierre Al Khoury, Marwan Al Kotob, Batoul Al Mohammad, Dima Shamsedeen, Hanan El Khodr, Hibatullah El Bsat, Rania El Khatib, Yasmina Chaar Rafik Hariri University, Mechref, Lebanon The issue of accountants role in decision-making has been the center of attention of lots of studies in the last decade but never did it get the adequate coverage in Lebanon. This paper studies to what extent accountants are involved in the managerial decision-making in Lebanon. Two hundred experienced accountants from all over the country were randomly selected for a questionnaire survey. This survey provides evidence as to what factors contribute to the variance of influence accountants have in managerial decision-making. The results from the questionnaires varied, but we conclude that accountants involvement in new product development (NPD), the skills that accountants have, their role in the financial analysis of the firm, and how much the firm they work for encourages them to advice on business decisions affect the degree of contribution an accountant has to decision-making. The findings of this research could be used as a reference to help in understanding the role of accounting in Lebanon by various firms and organizations. Keywords: accounting, decision-making, skills, new product development (NPD), executive information system (EIS) Introduction Accountants have a very important role in decision-making, especially when related to investments. Mainly, accountants are involved in the explanation of financial statements, preparation of budgets, identification of measurable outcomes, and any other quantifiable information and statement (Rawlinson & Tanner, 1989). By providing the necessary quantitative information about the business, including financial statements and other forms of quantitative evidence, accountants show an important role in taking relevant decisions (Gray, Bebbington, & Walters, 1993). Although many agree on the important role of accountants in decision-making, certain studies show a certain lack of involvement by accountants. Although quantifiable information is important for decision-making, accountants are not engaged in it because of the absence of appropriate techniques. They are not perceived as having a positive contribution to make to decision-making, unless the contribution is to legitimize decisions arrived at through a political process (Bowerman & Hutchinson, 1998, p. 75). Pierre Al-Khoury, chairman, Management Studies Department, Rafik Hariri University. Marwan Al Kotob, research assistant, Department of Business and Financial Studies, Rafik Hariri University. Batoul Al Mohammad, Accounting Graduate, Rafik Hariri University. Dima Shamsedeen, Accounting and Finance Graduate, Rafik Hariri University. Hanan El Khodr, Accounting and Finance Graduate, Rafik Hariri University. Hibatullah El Bsat, Accounting and Finance Graduate, Rafik Hariri University. Rania El Khatib, Accounting and Finance Graduate, Rafik Hariri University. Yasmina Chaar, Accounting and Finance Graduate, Rafik Hariri University. 156 THE ROLE OF ACCOUNTANTS IN DECISION-MAKING IN LEBANESE FIRMS Literature Review Kaplan (1984) claimed that the development of management accounting was too isolated from the other disciplines and was thus losing its importance in the organizational structure, yet today this description no longer seems appropriate (Chenhall & Euske, 2007; Rowe, Birnberg, & Shields, 2008, p. 33). Actually, according to Cravens and Guilding (2001), the last two decades have shown a renaissance in management accounting. A large number of critics and practitioners say that modern accountants are playing a major and important role in the decision-making process (Fern & Tipgos, 1988; Oliver, 1991; Bhimani & Keshtvarz, 1999; Nyamori, Perera, & Lawrence, 2001; Rowe et al., 2008). In addition to that, evidence shows that the involvement of management accountants in decision-making processes will as well lead to more efficient and effective decisions (Scott & Tiessen, 1999; Rowe et al., 2008). Moreover, previous evidence reveals that: The active involvement and participation of managerial accounts in this decision-making processes contributes to more effective decisions (Scott & Tiessen, 1999; Rowe et al., 2008) and therefore, this greater involvement in strategic management will in turn lead to higher organizational performance. (Dixon, 1998, p. 31) In addition, this changing role of management accountants in different companies is contributing to changing their behaviors and their thinking patterns. It is argued that strategic accountants differ from their conventional counterparts in terms of the following characteristics (Oliver, 1991; Coad, 1996): First, conventional accountants are more practical in analyzing business issues and have the ability to relate them to financial and other strategic outcomes; second, they are market-oriented or are able to provide counsel to users (managers); third, they have a constant incentive to learn and accumulate knowledge; and finally, they are specialized by good communication skills in order to fulfill their cooperative role. The relationship between the accountant and the development of a new product has been always an issue of discussion among researchers. Finding a direct role for the accountant in the process of developing new products is not an easy task. Johne (1985) noted that the new product development (NPD) has been replaced as a line department that involves a cross-functional team approach. Bobrow and Shafer (1987) noticed a clear conflict between the finance function and the innovation of new products. They elaborated that the accountants strict rationales for spending, pricing to cover costs, and preparation of hard budgets may be in conflict with the preferences of product designers and the ambitious plans of marketing managers. Nixon and Innes (1997) believed that the NPD managers have started to ask for the assistance of cost engineers to help them in defending their proposals against accountants views. Di Benedetto (1999) asserted that under most situations, accountants are markedly omitted from NPD discussions despite their acknowledgment as to the shift towards the cross-functional teams in developing new products. In 2001, Rabino (2001) noted that the responsibility for developing new products has shifted from the traditional framework, which assumed the sole involvement of the product manager, to team work. On the other hand, Rabino (2001) stated that his review of literature has revealed just an ancillary role for accountants in such development teams. Hughes and Pierce (2006) concluded in their article, The Accountant s Contribution to New Product Development, that a more detailed relationship exists between the accountant and the NPD process. More specifically, they elaborated that the accountant contributes in various ways to the eight stages of NPD. Moreover, management accounting is considered by some to be too late, too aggregated, and too distorted to be relevant for decision-making involving planning and controlling (Johnson & Kaplan, 1987). However, THE ROLE OF ACCOUNTANTS IN DECISION-MAKING IN LEBANESE FIRMS 157 differences exist between independent and dependent companies when it comes to perceptions of management accountants. Accountants in dependent companies are under a constraint from the parent company, which makes them act according to different principles and norms than those in independent companies (Yazdifar, Askarany, & Askary, 2008). In the new millennium, management accountants in independent companies are more supportive of cost/financial control, working-capital and short-term finance management, productivity improvement, and managing IT than those in dependent companies. Nonetheless, the accountants in dependent companies lean more towards presenting/interpreting management accounts and strategic planning/decision-making (Yazdifar et al., 2008). Additionally, in family firms, management accounting plays a restricted role, due to the family s governance over the firm, compared to non-family firms (Lutz, Schraml, & Achleitner, 2010; Lutz & Schraml, 2012; Hiebl, 2012). Nevertheless, this constrained role of managerial accounting is limited to small- and middle-sized firms. Large family businesses depend on management accountants and tools as much as non-family businesses (Giovannoni, Maraghini, & Riccaboni, 2011). Using a quantitative method, Hiebl, Duller, and Feldbauer-Durstmüller (2012) examined if management accounting in family firms relies more on soft skills (including communication, teamwork, leadership, and change management) than in non-family firms, as well as if they perform in a more traditional way. However, studies did not prove the previous statement, but they indicated a significant role of management accountants in change management for family firms (Hiebl et al., 2012). Stambaugh and Carpenter (1992) have studied the role of accounting and accountants in the executive information system (EIS). EIS is a bunch of tools that are planned to aid an organization very carefully. It controls and monitors an organization s current status and position; it also assesses the growth of this organization towards achieving its goals and objectives (Fireworker & Zirkel, 1990). Ijiri (1967, p. 3) defined accounting as a system for communicating the economic events of an entity. This reflects the important role that accounting and accountants can give and how they supply significant data for executive decisions under different levels of uncertainty. As EIS is spreading widely and growing faster, accountants contribution towards executive decision-making is increasing (Stambaugh & Carpenter, 1992). Accountants are able to perform major roles in the implementation of EIS, where they have most of the needed skills such as guidance, planning, data providers and keepers, system developers, and project coordinators to monitor the responsibilities (Stambaugh & Carpenter, 1992). The knowledge of accountants in financial operations and transactions is of a high relevancy to understand the data and their qualities, where in EIS understanding and analyzing data is the key for significance (Pinella, 1991). Internal and external auditors are of critical importance to the EISs executive decisions ensuring and reviewing the quality of information (Stambaugh & Carpenter, 1992). Accountants are engaged in creating, collecting, maintaining, analyzing, or publishing information (Armstrong, 1990, p. 78). Burchell, Clubb, and Hopwood (1985) identified the four roles that accounting can be used for different types of decisions: an answer machine, an answer/learning machine, an ammunition machine, and a rationalization machine. Accountants are found to help and aid in many of these roles: single, complex decisions, and specifically when there are a multiple of contradictory goals (Stambaugh & Carpenter, 1992). Research Objective This paper presents a unique attempt in Lebanon which gives an opportunity and advantage as well as 158 THE ROLE OF ACCOUNTANTS IN DECISION-MAKING IN LEBANESE FIRMS insights into the implementation of accounting and character of accountants. It is the first time a research of such, in Lebanon and the Arab world, is conducted to study this topic to diverse types of businesses. Methodology Questionnaires were distributed throughout different regions in Lebanon. Enterprises ranging from banks, insurance, media, hotels, hospitals, universities, schools, non-governmental organizations (NGOs), transportation, rental, magazines, engineering companies, and many more were selected. Companies were chosen randomly conveying all types of businesses and specifically 196 accountants with reasonable experience with an age older than 25 were selected. The questionnaire is divided into two sections. The first section is based on a 5-point Likert scale (ranging from strongly agree to strongly disagree ), and the second section is formed of demographic questions used to collect information about attributes of the questionnaire s respondents. Frequency analysis, correlation statement, cross-tabs, and regression analysis are conducted using Statistical Package for Social Sciences IBM SPSS Statistics. Linear regression model is used to show the results of the study: Y n = α + β X (1) i= 1 i i where: Y = Dependent variable I, as an accountant, have a major role in decision-making ; α = Coefficients of the formula; X 1 = I am involved in the process of NPD ; X 2 = My skills help me to get involved in the decision process ; X 3 = I, as an accountant, play a role in the financial analysis in the firm s data ; X 4 = The firm encourages me to advice on business decisions ; X 5 = I have a major role in the implementation of EIS ; X 6 = I feel my role is highly dependent on the holding company directions ; X 7 = As an accountant, I can see the big picture of the firm s business in addition to my direct responsibilities ; X 8 = I rely on accounting information system within the firm to take most of my decisions ; X 9 = The company has adequate budget to train and develop accounting professionals. Frequency Analysis All demographic factors were distributed normally except for the three variables: type of the company, level of experience, and professional certificates. As for the type of the company, independent companies were found to be more than subsidiaries and the presence of a mother company is found to be responsible for taking the decisions on behalf of the subsidiary. As for the second variable, level of experience, most respondents were accountants who are of the younger generation, between 25 and 40 years old, since the accounting profession is ever growing and the need of new and young accountants is always on the list. As for the third variable, professional certificates, most of the respondents do not have professional certificates, since normally a minority of employees would be ready to apply for a professional certificate; it takes time and hard work. THE ROLE OF ACCOUNTANTS IN DECISION-MAKING IN LEBANESE FIRMS 159 Cross-tabs Analysis Table 1 showed that males hold higher degrees among accountants in Lebanese firms, which is due to the fact that males are able to work while continuing their higher education, while females find it hard because of marriage. Likewise, males have higher years of experience than females especially more than five years. Females tend to work till marriage, some either go to less fatigue part-time jobs or leave work totally to be free for their marital lives. Analysis has also shown that males have higher participation in the decision-making process than females. This either shows the discrimination against gender in the decision-making process, or is due to the fact that males have higher education degree and working experience than females. Table 1 Cross-tabs Analysis Variable Male Female Total Years of experience in accounting 5 years years years years More than 20 years Degree earned Secondary/vocational Bachelor Master Doctorate Role in decision-making process SA A N/U:NA D SD Total Notes. Males have more years of experience, higher degrees, and higher participation in the decision-making process than females. SA: strongly agree; A: agree; N/U: neutral; NA: not announced; D: disagree; SD: strongly disagree. Correlation Statistics show that there are nine variables considered to be of important significance. The variables I, as an accountant, have a major role in the decision-making process and I am involved in the process of NPD are highly correlated (significance of 0.000, positively correlated). This shows that the more the accountant s involvement in the NPD, the greater the role an accountant would have. In addition, the two positively correlated variables, which resulted in the significance of 0.000, are I, as an accountant, have a major role in the decision-making process and My skills help me to get involved in the decision process. This indicates that the higher the accountant s skills, the higher his/her influence on the decision-making process. Moreover, there is a high correlation between I, as an accountant, have a major role in the decision-making process and I have a major role in the implementation of EIS. Significance of 0.000 160 THE ROLE OF ACCOUNTANTS IN DECISION-MAKING IN LEBANESE FIRMS (positively correlated) demonstrates that the more roles the accountant plays in implementing the EIS, the more involvement the accountant has in managerial decision-making. Furthermore, I, as an accountant, have a major role in the decision-making process and I, as an accountant, play a role in the financial analysis of the firm s data have a high and positive correlation with a significance of The greater the role an accountant has in the financial analysis, the more the effect he/she would have on decision-making. In addition, I, as an accountant, have a major role in the decision-making process and I feel my role is highly dependent on the holding company directions are correlated with a significance of (positively correlated). The more the accountant s role is dependent on the parent company s directions, the more the accountant participates in the decision-making process. Additionally, the two highly correlated variables with a significance of (positively correlated) are I, as an accountant, have a major role in the decision-making process and The firm encourages me to advice on business decisions. The role of accountants in decision-making increases when the firm encourages the accountants to decide upon business decisions. Similarly, I, as an accountant, have a major role in the decision-making process has a high correlation with As an accountant, I can see the big picture of the firm s business in addition to my direct responsibilities of a significance of (positively correlated). The more the accountant is able to see the big picture of the firm, the more the accountant is involved in the decision-making process. Likewise, two significant correlated variables are I, as an accountant, have a major role in the decision-making process and I rely on the accounting information system within the firm to take most of my decisions with a significance of (positively correlated). The more the accountant relies on accounting information system, the bigger the accountant s role in decision-making. As a final point, I, as an accountant, have a major role in the decision-making process and The company has adequate budget to train and develop accounting professionals are highly correlated with a significance of (positively correlated). The company s ability to train and develop accounting professionals increases the probability to take part in decision-making. Regression Regression analysis is conducted to detect the effect of some independent variables over other dependent variables. Regression analysis is conducted to find the variables that affect the dependent variable I, as an accountant, have a major role in the decision-making process. A two-step method has been used. Enter method is first used showing that the coefficient of determination R square is 0.415, which means that 41.5% of the changes in the dependent variable are explained by the changes in the independent variables. Nevertheless, too many insignificant variables were found (level of significance above 0.05); therefore, the second method, stepwise method is applied which eliminated the irrelevant variables to keep on with the four most significant independent variables as predictors of the changes in the dependent variable. The four independent variables are as follows: (1) The firm encourages me to advice on business decisions; (2) I am involved in the NPD; (3) My skills help me to get involved in the
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