This paper proposes a conceptual framework for teaching management accounting. The framework is rooted in distinguishing organizations from markets and draws on the fast-developing field of “organizational economics.” Market clearing prices, infinitely divisible commodities, and regime of private property rights are three aspects that can theoretically characterize market transactions. This paper argues for conceptualizing the subject matter of management accounting as a response to the relative absence of these aspects of market transactions within organizations. Specifically, management accounting procedures can be classified as instruments that: coordinate the demand and supply of resources in the absence of prices; measure resource consumption given indivisibilities in the cost function; and control resource use when the ownership of assets is separated from its control. This conceptual framework not only lends intellectual coherence to the subject matter of management accounting but also permits its diverse topics to be arranged in a logically articulated manner.

Introduction

This paper proposes a conceptual framework for teaching management accounting. About twenty years ago, Vangermeersch (1997, p. 45) complained that “management accounting seems to be a free-standing phenomenon without a deep philosophical basis (that) would facilitate the teaching of cost/management accounting.” Responding to his call, there have been many attempts over the intervening years to specify frameworks for and redefinitions of management accounting. This ongoing effort to think through the foundations of management accounting is also linked to renewed attempts to professionalize the field. Section 1 of this paper surveys the relevant scholarly and professional literature to show how the proposed conceptual framework offers a meaningful contribution to it. Section 2 selectively examines the literature on “organizational economics” to draw out those aspects that can illuminate the field of management accounting. The analyses of organizations are a vibrant and growing area of economics (Gibbons & Roberts, 2013), and it is the distinction between markets and organizations that constitutes the bedrock of organizational economics. In particular, it will be argued in Section 3 that three theoretically assumed features of market exchanges—market clearing prices, infinitely divisible commodities, and private property rights—can serve to conceptually delineate markets from organizations as contrasting modes of organizing economic transactions. In Section 4, the typical toolkit of management accounting is logically derived from the foregoing dimensional analysis of organizations. Within organizations, managerial decisions, rather than prices, fundamentally influence the allocation of resources. Moreover, unlike markets, organizations are not only marked by the separation of ownership and control but also by the presence of indivisible or lumpy resources. The toolkit of management accounting can be linked to, or even more strongly, logically derived from, these features of organizations. Specifically, whereas coordination tools, as exemplified by budgets, are needed to replace the missing price mechanism, control tools such as variances, and costing tools such as activity-based costing (ABC), are necessitated by the absence within organizations of private property and divisible resources, respectively. A coherent grouping of specific topics is presented in Section 5 of this paper. It is shown that most of the topics discussed in management accounting textbooks can be classified within the proposed tripartite toolkit and a case is made for a grouping of topics whose order unfolds in an articulated manner.