Managerial Accounting Tools: The UAE Telecommunications Sector

NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.

NB: All your data is kept safe from the public.

Abstract

Managerial accounting is a key organizational activity that defines the quality of financial information and serves as a basis for the formulation and implementation of the strategic goals of a company. Rapidly changing conditions of the business environment and the need to analyze a large amount and scope of data have led to the transformation of the traditional managerial accounting frameworks.

Many managerial accounting tools have been developed and gradually adopted by major players in their fields in order to respond to the changing demands of the market. The purpose of the research proposal is to outline a research project that will assess the prevalence of managerial accounting tools and methods used in the UAE telecommunications sector in order to determine the preferred approach to accounting in the country’s organizations.

To achieve this aim, a series of open-ended, unstructured interviews will be conducted with experienced managers from management accounting divisions of leading telecommunications companies of the UAE: Etisalat and du. The expected outcomes of the research project are to analyze the existing tools and methods used by managerial accountants of the UAE telecommunications sector and determine the most frequently used approaches to managerial accounting. The researcher expects that ABC and ABM are the managerial accounting tools of choice for the telecommunications sector of the country.

Introduction

The last several decades saw a major shift in consumer preferences resulting in the increase of the amount and scope of data that must be produced and processed by management accounting. Therefore, these changes have affected not only companies’ manufacturing processes but also led to the transformation of management accounting strategies in order to accommodate the increased complexity of economic relations (Yalcin, 2012). Financial activities of the companies engaged in the production of goods and services have become even more complicated as globalization has facilitated the creation of complex supply chains and a full-scale expansion of capital across national borders.

The increase in the amount and scope of accounting information has forced many companies to adopt new accounting practices in order to better manage their cost and in a new, competitive environment. As a result, strategic management, strategic management accounting, and strategic cost management, among others, have emerged. Furthermore, in an attempt to retain and strengthen their competitive edge, big and medium-sized companies have started adopting new management accounting practices that include, but are not limited, to “planning and budgeting, costing systems, performance evaluation, decision-making, and strategic analysis” (Yalcin, 2012, p. 96).

However, the rate of adoption has not been even: some companies have not been willing to give up traditional accounting techniques such as “standard costing and variance analysis” (Sulaiman, Nazli, & Alwi, 2004, p. 493).

The aim of this research proposal is to outline a research project that will explore management accounting tools and methods used in the UAE telecommunications sector in order to determine the preferred approach to managerial accounting in the country’s organizations.

Managerial Accounting

Managerial or management accounting can be defined as “a profession that involves partnering I management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy” (Davis & Davis, 2014, p. 3). In other words, managerial accounting is the process of generating information that can be used by managers during their decision-making activities. In this context, it is clear that managerial accounting serves no other purpose than adding value to an organization by facilitating strategic management efforts of a business and supporting operational alignment across all its levels (Davis & Davis, 2014; Zheng, 2012).

Managerial accountants are professionals specializing in the use of managerial accounting tools for the purpose of value creation. It should be mentioned that the role of managerial accounting has drastically transformed over the last several decades (Ghanbari & Vaseli, 2015; Zheng, 2012). While in the past, managerial accounting specialists were organized in a separate department and were physically removed from managers who used their reports, now they comprise operating departments along with decision-makers who rely on their valuable information and insight (Davis & Davis, 2014).

Before proceeding with the discussion of managerial accounting, it is important to distinguish it from financial accounting. Whereas the former is concerned with the generation of information for internal use by managers within an organization, the latter refers to “reporting financial information to external parties, such as stockholders, creditors, and regulators” (Garrison, Noreen, & Brewer, 2012, p. 2).

Managerial Accounting Tools and Efficiency Maximization

The UAE organizations have a wide range of objectives that often overlap, thereby making it impossible to develop a uniform framework of management accounting that would work for all companies. Managerial accounting tools and methods seek to support companies in meeting those objectives. Profit maximization is one of the key functions of managerial tools that fall into the category of scientific management (Ghanbari & Vaseli, 2015).

Another function of management accounting methods is planning, which refers to the assignment of responsibilities and operational goals and falls into the category of management principles. Accounting management methods and tools also used to identify and correct subpar performance across all organizational levels (Abdel-Kader & Luther, 2008). It is important to remember that a combination of accounting management methods creates “an unbiased system of performance evaluation, in which personal desires are removed due to objectivity of the system” (Ghanbari & Vaseli, 2015, p. 1913). Another role of managerial accounting is the distribution of knowledge within an organization in order to ensure that costs and benefits of actions can be measured and compared.

The UAE Telecommunications Sector

The UAE telecommunications sector is one of the strongest and most developed industries in the Arab world (Flevy, n.d.). It quickly expands because of the growth in infrastructure and consumer purchasing power. The sector has evolved due to changing technology use patterns: the demand for voice services is not growing as fast as that for data services.

The country’s telecommunications needs are served by two operators: Etisalat and du (TRA, 2015). Even though several other companies such as Star Satellite Communications, Al Yah Satellite Services Company PJSC, and Media Zone Intaj FZ LLC, among others, were granted licenses to provide telecommunications services, their impact on the industry is yet to be seen. A report issued by telecommunications regulatory authority (TRA) of the UAE shows that in the period from 2013 to 2014 the number of fixed lines increased by 18, 000 (TRA, 2015). Total fixed telephony revenues have grown by almost 6 percent during the same period (TRA, 2015).

The number of total active mobile subscriptions “increased by 4.6 percent between 2013 and 2014” (TRA, 2015, p. 3), thereby making the mobile penetration rate almost 200 percent. The report also shows that “the percentage of internet subscribers using fiber technology increased by 14.7 percent” (TRA, 2015, p. 3) in the same period. As of 2014, the UAE had 88 percent of internet users connected via fiber lines (TRA, 2015).

Only managers from Etisalat and du were invited to participate in the research because the impact of other telecommunications operators on the industry is almost nonexistent.

Knowledge Management in Accounting

In order to better understand the preferred approach to managerial accounting in the UAE organizations, it is necessary to consider how the country’s managers use knowledge when making decisions associated with planning, investment, and resource allocation among others. Knowledge management refers to deliberate and comprehensive gathering, organizing, and analysis of information (Mubarak, 2013). Knowledge management is an integral part of accounting management decision-making process.

Knowledge management plays a key role in the utilization of managerial accounting tools in the UAE. The country is an emerging economy that has many giant companies with billions of dollars in revenues. For example, a telecommunication giant, Etisalat, had 20 billion worth of total assets as of 2011 (Mubarak, 2013). Another company specializing in real estate, Emmar, reported having 17.3 billion dollars in total assets in 2011 (Mubarak, 2013). Due to the fact that the UAE telecommunications, construction, and retail industries expand their activities abroad, the country is badly in need of knowledge management that can support its managerial accounting.

A study on the role of knowledge management in management accounting in the UAE indicates that decision-makers in big organizations “do not differentiate between information and knowledge” (Mubarak, 2013, p. 1).

Furthermore, the results of the study show that all companies located in the country have reliable tools for data gathering. Another finding of the study is that there are substantial differences in data collection methods between industries. This means that information used for making different managerial choices is strictly specific to those choices.

Furthermore, the study shows that unlike insurance and education sectors of the country’s economy, hotel and leisure sectors are the most flexible in their use of managerial accounting tools. The UAE’s industries are different in their choice of both financial and non-financial information and how it is used in the decision-making process (Mubarak, 2013). According to Mubarak (2013), the differences depend on whether a decision is strategic or operational and specificity of information.

Managerial Accounting Tools in the UAE

ABC

According to Behery, Jabeen, and Parakandi (2014), numerous fast-growth small-to-medium organizations in the UAE have adopted ABC in order to effectively respond to challenges of the ever-changing organizational environment. ABC is being used as a tool for “understanding product and customer cost and profitability based on the production or performing processes” (Wen-Cheng, 2012, p. 13). Therefore, the instrument has often been utilized in the sphere of strategic decision-making to inform pricing, outsourcing, and process improvement activities.

ABC helps to identify the interactions between products costs, and activities and assign indirect costs in a more effective manner that can be achieved with the help of traditional accounting tools (Jankala & Silvola, 2012).

According to Jankala and Silvola (2012), even small UAE firms increasingly rely on the instrument to achieve better cost efficiency. It must, however, be borne in mind that ABC is not perfectly suitable for assigning some types of indirect costs such as employees’ salaries and managerial expenses; therefore, the tool has been chiefly applied in the manufacturing sector. The use of the managerial accounting instrument in the manufacturing sector has quickly gained a widespread acceptance because it allows producing nearly-true costs, thereby justifying its application in “target costing, product costing, product line profitability analysis, customer profitability analysis and service pricing” (Investopedia, n.d.). Nonetheless, the instrument has been successfully used by international airlines from the UAE and other countries from Europe, North America, Latin America and Asia (Wen-Cheng, 2012).

A study on the use of ABC by 38 international airlines shows that proper application of the instrument can be more effective that the use of traditional accounting tools (Wen-Cheng, 2012). The study compared the use of ABC for two basic airline activities—provision of services and transactions accounting—between different airline carriers. The findings of the study suggest that the carriers such as the UAE-based Air Arabia and Etihad Airways, which relied on ABC, were more up to 27 percent more efficient in all areas of cost estimation than their counterparts that used traditional accounting methods (Wen-Cheng, 2012). Even though the instrument cannot provide a universal solution for all managerial decisions, it can offer a close cost estimation.

As has been mentioned above, ABC has been primarily used in the manufacturing sector; however, service organizations are applying it for optimizing their costs.

Cost Assignment

The extant literature suggests that the organizations utilize the following elements of ABC cost-assignment methodology: “resources, resources drivers, activity, activity drivers, and cost object” (Hardan & Shatnawi, 2013, p. 51). Resources are economic elements that are necessary for the performance of certain activities. Resources include, but are not limited to, salaries travel, rent utilities, supplies, and materials. Resources drivers is a factor of ABC that helps to link resources with activities. In case of rent, this component is being used to “trace a portion of the cost of operating the facilities to the activity” (Hardan & Shatnawi, 2013, p. 51).

Activities is another element of ABC that is being used by the telecommunications operators to measure work performed in a company and trace it to costs. Activity drivers help to link resources with activities and represent the intensity of demand for activities in respect to cost objects. The cost driver is a factor that can be traced to the consumption of resources. Managers of organizations use cost drivers to assign activity cost pools to their companies’ services.

Cost Structure

Cost structure in both small-and large-scale companies is divided into direct and indirect costs. The direct costs include calls, messages, data services, interconnection cost, revenue sharing, content costs, and network labor costs among others. Indirect cost items include, but are not limited to, amortization, rents, network labor costs, and utilities (Hardan & Shatnawi, 2013).

ABM

Another powerful managerial accounting tool for performance measurement that has being adopted by the UAE’s fast-growing enterprises is ABM (Behery et al., 2014). ABM refers to the use of ABC information in order to “support organizational strategy, improve operations, and manage costs” (Hilton & Platt, 2014 p. 182). ABM system can be pictured as a two-dimensional model in which vertical dimension represents the cost assignment viewpoint and horizontal dimension represents the process viewpoint.

The costs of product or services are assigned along the vertical dimension of the model in a two-stage process: assignment or resource costs to pools of activity an assignment of activity costs to cost units (Hilton & Platt, 2014). The process view dimension of the model entails activity analysis, which includes identification of a company’s activities. However, this dimension of ABC also presupposes the recognition of root causes of these activities and linkages between them. From this point of view, it is clear that activities as the focal point of the instrument.

ABM can be used to identify activities and costs that do not add to the overall value of a company, its products, or services. There are two types of non-value-added activities: activities that are not necessary and should be dispensed with and activities that are necessary but are conducted in an inefficient manner and can be improved (Hilton & Platt, 2014).

Research Objectives and Questions

The aim of this study is to explore management accounting tools and methods used in the UAE telecommunications sector in order to determine the preferred approach to managerial accounting in organizations. Despite the importance of the topic, very few studies have investigated the adoption of novel managerial accounting tools by the UAE companies (Dik, 2011). Therefore, the study aims to eliminate a paucity of research.

The following hypotheses were developed:

H1: The level of complexity of management accounting tools used in the UAE telecommunications sector has a positive correlation with an operator’s size
H2: Managers of telecommunications companies in the UAE rely on long-term budgeting and planning tools.

Research Methodology

Qualitative research was chosen in order to gain meaningful insights into the use of management accounting tools and methods by the country’s managers. This method of inquiry relies on the situational understanding of phenomena; therefore, it will allow gaining a holistic understanding of managerial accounting in a natural practice context. The researcher decided not to use a survey as a research method because the UAE is known for a low response rate to electronic mailing questionnaires (Dik, 2011). Therefore, the data will be gathered with the help of open-ended, in-depth interviews. The respondents will be provided with open-ended questions that prompted them to answer in their own words. The following questions will be asked during interviews:

Q1: What managerial accounting tools and methods are used within your organization?
Q2: What is the role of managerial accounting tools and methods in your organization?

These questions will allow the inquirer to identify interesting ideas that will emerge during the interview and explore them through the discussion. In addition to the two major, open-ended questions all interviewees will also be presented with other questions aimed at revealing relevant information about study participants and their companies. These questions can be divided into three groups: company profile, interviewee profile, and company structure.

Company profile questions will elicit additional information about a company. Interviewee profile questions will elicit facts and details about the study participants’ position and responsibilities, training, and professional certifications among others. Company structure questions will provide the researcher with information about management accounting departments and their place in organizational hierarchies.

Data Collection

The data will be collected from accounting managers working in the UAE telecommunications companies—Etisalat and du. All interviews will be recorded and transcribed verbatim. Transcriptions will be send to the participants of the study for feedback. Ten interviews will be conducted: two face to face interviews and eight telephone interviews. The duration of the interviews will vary according to the time that will be provided by the participants and will range from 10 to 50 minutes. The following criteria will be used for selecting interviewees:

An interviewee should have a position in managerial accounting division of one of the two major telecommunications companies of the UAE.
An interview should have a minimum of 5 years’ experience using managerial accounting tools and methods.

Data Analysis

During the process of data analysis text from articles and interview transcripts will be carefully examined and categorized. The categories will be united by similar meaning and help to conduct subjective interpretation though the identification of themes and patterns. Linkages between categories and text segments will be established during the analysis.

Expected Results

Base on the analysis of the extant literature on the topic it is safe to assume that the interviews will reveal that the use of contemporary management accounting tools is limited in the telecommunications industry of the UAE. The following management accounting practices are expected to be identified as the most common for the industry: “budgeting for planning, budgeting for controlling costs, performance evaluation based on financial measures and product profitability analysis” (Abdel-Kader & Luther, 2006, 350).

The participants of the study are most likely to rely on activity-based costing (ABC), economic value added (EVA), balanced scorecard (BSC), activity-based budgeting (ABB), cost-volume-profit (CVP) analysis, and activity-based management (ABM) to aid their decision-making process. The researcher expects that out of the six managerial accounting tools and methods that are frequently used by the UAE managers, ABC and ABM will be identified as the most popular instruments in the UAE telecommunications industry.

The UAE telecommunications industry is a fast-growing sector that requires the use of innovative managerial accounting tools and methods. The industry’s environment demands the companies to use the cost accounting tools to accomplish cost efficiency without reducing the quality of provided services. Taking into consideration the fact that the industry is subject to rapid innovations, the companies need to exert more efforts to control their profitability margins.

Therefore, the researcher expects Etisalat and du to use of ABC and ABM systems for improving their financial performance. The adoption of these instruments is justified by the rising competitive pressures as wells as “the information needs of commercial departments” (Major, 2014, p. 29) of the operators. The tools will provide managers of the companies with sound economic information for supporting their pricing, outsourcing, and investment decisions among others.

Conclusion

Companies of different scale and function rely on different managerial accounting tools and methods for measuring their performance. With the growing complexity of fast-growth businesses traditional performance measuring systems (PMSs) have become exceedingly complicated and unsuitable for keeping track of changes in the organizational environment. Therefore, new managerial accounting tools have been developed.

The UAE telecommunications sector is one of the most quickly developing industries in the Arab world; therefore, in order to respond to the information and competitive pressures of the changing environment, Etisalat and du are likely to adopt many managerial accounting tools and methods. The existing literature on the topic suggests that managers working in the UAE companies use the following instruments: ABC, EVA, BSC, ABB, CVP analysis, and ABM to aid their decision-making process.

The expected outcomes of the research project are to analysis the existing tools and methods used by managerial accountants of the UAE telecommunications sector and determine the most frequently used approaches to managerial accounting. The researcher expects that ABC and ABM are the managerial accounting tools of choice for the telecommunications sector of the country. The use of these two tools by managers from other industries is justified by their ability to inform pricing, outsourcing, and process improvement activities. By utilizing ABM, mangers are able to identify non-value-added activities in order to improve or eliminate them.

References

Abdel-Kader, M., & Luther, R. (2006). Management accounting practices in the British food and drinks industry. British Food Journal, 108(5), 336-357.

Abdel-Kader, M., & Luther, R. (2008). The impact of firm characteristics on management accounting practices: A UK-based empirical analysis. The British Accounting Review, 40(1), 2-27.

Behery, M., Jabeen, F., & Parakandi, M. (2014). Adopting a contemporary performance management system: A fast-growth small-to-medium enterprise (FGSME) in the UAE. International Journal of Productivity and Performance Management, 63(1): 73-94.

Davis, C., & Davis, E. (2014). Managerial accounting (2^nd ed.). New York, NY: Wiley.

Dik, R. (2011). Arab management accounting systems under the influence of their culture (Unpublished doctoral dissertation). Dortmund University of Technology, Dortmund.

Flevy. (n.d.). Emirates telecommunications industry analysis: Opportunities & challenges—case of Du Telecom. Web.

Garrison, R., Noreen, E., & Brewer, P. (2012). Managerial accounting (14^th ed.). New York, NY: McGraw-Hill/Irwin.

Ghanbari, M., & Vaseli, S. (2015). The role of management accounting in the organization. International Research Journal of Applied and Basic Sciences, 9(11): 1912-1915.

Hardan, A., & Shatnawi, T. (2013). Impact of applying the ABC on improving the financial performance in telecom companies. International Journal of Business and Management, 8(12), 48-61.

Hilton, R., & Platt, D. (2014). Managerial accounting (10^th ed.). New York, NY: McGraw-Hill Education.

Investopedia. (n.d.). Activity-based costing – ABC. Web.

Jankala, S., & Silvola, H. (2012). Lagging effects of the use of activity-based costing on the financial performance of small firms. Journal of Small Business Management, 50(3), 498-523.

Major, M. (2014). Implementing activity-based costing in the telecommunications sector: A case study. Journal of Telecommunications System Management, 3(1), 19-29.

Mubarak, A. (2013). Knowledge management and management accounting-decision-experimental study. Journal of Organizational Knowledge Management, 13(1), 1-14.

Sulaiman, M. B., Nazli, N., & Alwi, N. (2004). Management accounting practices in selected Asian countries: A review of the literature. Managerial Auditing Journal, 19(4), 493-508.

TRA. (2015). UAE telecommunications sector developments & indicators, 2011-2014: 6^th annual sector review. Web.

Wen-Cheng, L. (2012). Financial performance and customer service: An examination using activity-based costing of 38 international airlines. Journal of Air Transport Management, 19(1), 13-15.

Yalcin, S. (2012). Adoption and benefits of management accounting practices: An inter-country comparison. Accounting in Europe, 9(1), 95-110.

Zheng, X. (2012). Management accounting practices in China: Current key problems and solutions. Social Research, 29(4), 91-98.

Click Here To Order Now!