Management accounting innovations for the rationalization of resources

Research design

The framework of the innovation: cost accounting based on budgetary reporting

Evaluating the innovation: reassessing the usefulness of accrual and cash accounting for decision-making

Conclusions

References

ABSTRACT

Management accounting can be a useful tool in austerity government because it produces information about the costs of public services and can be used for informed decisionmaking. Spanish local governments are required to submit data on the cost of their services to central government, which publishes this information online. The calculation of costs is based on budgetary cash accounting instead of accrual accounting; therefore cash accounting is being used for decision-making and accrual accounting has no role in this process. This paper critically analyses the innovation from three perspectives: the use assigned to the cost information in the legal framework; the opinion of academics and experts; and the perception of professionals about the usefulness of the information produced with the new system.

Management accounting innovations for the rationalization of resources

Ansari and Euske (1987, p. 553) describe three alternative theoretical perspectives on the use of accounting data in organizations: . Technical-rational, which is driven by considerations of efficiency. . Socio-political, which aims to the pursuit of power and influence. . Institutional, which stems from the need to present an appropriate face for the world to see. The three perspectives have some overlap and can coexist because different individuals use the data differently. In the first perspective, the main use for external users will be resource allocation and accountability, while for internal users the main role will be measuring technical efficiency. The socio-political perspective puts the emphasis on the use of accounting to rationalize and justify actions to members while, according to the institutional perspective, the information is selected and presented because this is expected by the external constituencies. As pointed out by Ansari and Euske (1987), in public sector organizations, the distinction between internal and external information is difficult to maintain in practice, considering that internal information is public property (Ansari & Euske, 1987). This helps in understanding why the design of cost systems is determined by the information needs of external stakeholders relatively more than in private sector organizations (Schoute & Budding, 2017). The reforms introduced under the umbrella of New Public Management in the public sector emphasized the use of accounting data for the technical-rational perspective as a tool for modernizing and rationalizing public sector services (Lapsley, 1999). Performance measurement tools have been introduced, although they have not always had a positive impact in performance and effectiveness (Arnaboldi et al., 2015). One of the techniques used is management and cost accounting, and in particular the activity-based costing system (ABC), which has been considered a desirable option to provide the necessary information in public administrations (Goddard & Simm, 2017), although its implementation has some difficulties and challenges (Oseifuah, 2014). In the public sector, the adoption of accounting technologies is triggered mainly by legislation and in response to external demands (Lapsley & Wright, 2004). This is especially the case in countries with a legalistic administrative tradition, as in Spain, where management accounting has been designed by central government as a rationalization tool. This contrasts with the situation in private sector organizations, where management accounting systems have often been developed by internal users.

This study presents an analysis of a biogas engine-powered cogeneration system using four different thermoeconomic methods. The most important parameter is the thermoeconomic cost of work produced by the gas engine for each method. The aim is to compare the results obtained from each of those methods. The first method is the exergetic cost theory, which introduced the exergetic cost concept to the thermoeconomic field for the first time. An incidence matrix is defined to show the interaction of flows and components within the system. Exergetic cost theory defines the main rules and delivers a result of 110.065$/h for the work produced by the gas engine. A second method, modified productive structure analysis, is applied to the system and cost balance equations are formed for each component. Exergy destruction is clearly defined and tabulated. At the end of the analysis, the cost of gas engine work was found to be 85.536$/h. A third new method described in published literature, Wonergy, is used to determine both the cost of work and the heat utilized in the cogeneration system. Wonergy gives the same thermoeconomic cost for the components which help to produce work. The smallest value obtained was 72.5$/h. The fourth method, SPECO (specific exergy cost), was the final analytical method used on the system. It defines fuel and product rules to obtain auxiliary equations. The thermoeconomic cost of work produced from the gas engine was determined to be 141$/h which was the highest value obtained in comparison to the others.

Introduction

In the analysis of the production processes of complex energy systems, the economic profitability and the productivity displayed in resource consumption should both be considered. Performing this analysis, thermodynamics enables us to calculate the efficiencies of the subcomponents that make up the system and determine the locations and amounts of system irreversibilities that occur in the process. However, thermodynamic analysis cannot assess the overall production process in an economic context. Thermoeconomic analysis, by contrast, is a combined discipline that directly assesses the cost of consumed resources, i.e., money and system irreversibilities, within the total production process. While a thermoeconomic analysis shows a variety of ways to use resources more effectively, it also describes the concept of monetary irreversible cost as the economic impact of inefficiency, and it aims to increase the cost efficiency of production processes. Thus, in a detailed thermoeconomic analysis, it becomes possible to understand the flows in the subcomponents and the entire production process, from the perspective of cost, from the raw material sources entering the system to the final products. Thermoeconomic methods are generally divided into two groups: cost accounting [1e5], and optimization techniques [6e12]. Cost accounting is the process of determining the total cost of the production per unit of each output of a thermal system, such as electricity, steam, hot water, chilled water, etc., while optimization methods are applied to finding the optimum design or optimum set of operation conditions. All initial investment and operating costs for establishing and operating a thermal system should be allocated to the final product. Principally, there are two costs that must be defined for each product: (i) Direct costs, which include the cost of resources and materials that are clearly attributable to the product cost throughout the production process, and (ii) Indirect costs. In a comprehensive thermoeconomic analysis, the aim of cost accounting is to establish a logical framework for evaluating the profitability, starting from the determination of the rational costs of the products, to organizing and evaluating the decisions made in accordance with this framework. Valero et al., in their initial work on exergetic cost accounting, developed the basic ideas of their thermoeconomic approach and presented a strong theoretical background. That study, which consisted of two parts, has been accepted as one of the pioneering studies in the thermoeconomic field. In the first part, they identified exergetic and thermoeconomic costs for a relatively simple thermal system and presented the basic conditions for conducting the thermoeconomic analysis of a more complex system [13]. In the second part, they developed the mathematical background for three different applications of the thermoeconomic analysis method described in the first part [14].

Twin-roll casting is an energy-efficient technology for the magnesium strip production consisting of casting and rolling combined in one process step. Producing magnesium strips in an adequate quality-price ratio requires the application of material flow cost accounting to identify hidden improvement potentials. In the following, a material flow cost accounting analysis is carried out for the twin-roll casting process of AZ31 twin-roll-cast strips. Based on the findings, inefficient process steps of the twin-roll casting process are to be revealed, and actions for cost reduction from the point of a stable process management are to be assessed. Overall, an economic process and efficient material consumption can be designed for twin-roll casting considering the strip property development.

Introduction
Value for money is an important criterion for the acceptance of magnesium components by Original Equipment Manufacturers for an industrial application. Beside external business process optimization in the context of supply chain quality individual process steps need to be further improved to achieve the required quality-price ratio [1]. Especially in case of the twin-roll casting technology for the production of magnesium strips [2] the detection of saving potentials is considerable challenging. Compared with other production routes it is an economic and resource-saving procedure combining casting and rolling in one process step [3, 4].To realize additional cost savings, hidden material and energy inefficiencies need to be detected deriving measures for improvement. Supporting transparency of material and energy consumptions and its environmental and financial consequences material flow cost accounting is a useful tool to identify concealed inefficiencies [5, 6]. Therefore, the objective of this paper is to carry out a material flow cost accounting analysis for the twin-roll casting of magnesium AZ31 twin-roll-cast strips at the pilot plant of the Institute of Metal Forming at the TU Bergakademie Freiberg [7]. For this purpose, the twin-roll casting process is initially briefly described. Building on this, the material flow cost accounting analysis is conducted enabling a detailed view of all material and energy flows during twin-roll casting via material flow models. In the next step, the identified energy and material flows are illustrated as Sankey diagram proportional to their mass and energy content. To identify weak points, cost drivers and optimization potentials a material flow cost matrix was developed, whose results will be evaluated in this paper. Based on the technology’s limitations appropriate improvement actions are proposed for further research.

Over the last three decades, rapid industrialization in China has generated an unprecedentedly high level of air pollution and associated health problems. Given that China accounts for one-fifth of the world population and suffers from severe air pollution, a comprehensive review of the indicators accounting for the health costs in relation to air pollution will benefit evidence-based and health-related environmental policy-making. This paper reviews the conventional static and the new dynamic approach adopted for air pollution-related health cost accounting in China and analyzes the difference between the two in estimating GDP loss. The advantages of adopting the dynamic approach for health cost accounting in China, with conditions guaranteeing its optimal performance are highlighted. Guidelines on how one can identify an appropriate approach for health cost accounting in China are put forward. Further, we outline and compare the globally-applicable and China-specific indicators adopted by different accounting methodologies, with their pros and cons being discussed. A comprehensive account of the available databases and methodologies for health cost accounting in China are outlined. Future directions to guide health cost accounting in China are provided. Our work provides valuable insights into future health cost accounting research in China. Our study has strengthen the view that the dynamic approach is comparatively more preferred than the static approach for health cost accounting in China, if more data is available to train the dynamic models and improve the robustness of the parameters employed. In addition, future dynamic model should address the socio-economic impacts, including benefits or losses of air pollution polices, to provide a more robust policy picture. Our work has laid the key principles and guidelines for selecting proper econometric approaches and parameters. We have also identified a proper estimation method for the Value of Life in China, and proposed the integration of engineering approaches, such as the use of deep learning and big data analysis for health cost accounting at the fine-grained level (city-district or sub-regional level). Our work has also identified the gap for more accurate health cost accounting at the fine-grained level in China, which will subsequently affect the quality of healthrelated air pollution policy decision-making at such levels, and the health-related quality of life of the citizens in China.

Introduction

Over the last three decades, rapid industrialization in China has caused significant air pollution and health challenges (Diamond, 2005; Lagorio, 2010; Lim, 2007). The mean annual PM2.5 concentration in China’s major cities reported to be 43 μg/m3 , had exceeded 4 folds based on the threshold of 10 μg/m3 annual mean concentration set by the World Health Organization in 2017 (Chan and Danzon, 2005; MEEPRC, 2017). Serious air pollution has created severe health risks (Dockery and Pope, 1994; Dockery et al., 1992, 1989), raising increasing concerns in China (Wang, 2016). People’s quality of life has deteriorated continuously with increasing rates of morbidity and mortality. Pollution has also affected tourism negatively, and triggered people to move out of the polluted cities in China (Liang and Zhao, 2015). Against such background, quantification of air pollution-related health costs is needed for reviewing how much air pollution in China has costed the health of its own citizens, and how serious the problem is, before any sound and justifiable health-related environmental policy measures can be designed. Thompson et al. has conducted a quantitative study and suggested that the costs of United State’s carbon policies could be offset by 26% to 1050% due to air pollution control policies in the states that improve air quality and reduce health costs, indicating those policies are worthy of implementation (Thompson et al., 2014). Another study in China has shown that various polluted provinces in China should closely cooperate in order to minimize the regional health costs due to PM2.5 (Wu et al., 2017). Given that China hosts one-fifth of the world’s population and is a key contributor to global air pollution (Kaiman, 2013), The beneficiaries of developing reliable and precise health cost accounting methodologies for China’s air pollution will not be restricted to Chinese policy-makers, but also researchers who are interested in air pollution-related health policy studies globally (OECD, 2014).

The business environment in which today’s companies are inserted has undergone enormous changes over the last decades caused by deregulation, increased global competitiveness, reduced costs associated with information, demand for greater diversity of products, among others. The development of new technologies, essentially linked to automation and information systems, has led to significant advances, which have had repercussions on the various organizations that make up the business fabric, affecting virtually all the departments and their areas of intervention. Companies no longer compete locally only and have come to deal with competition from companies located on other continents, embedded in distinct realities and diverse business environments. These changes have forced these organizations to implement ever more sophisticated costing systems [3]. Important decision-making within an organization, such as the placing of new products on the market or the continuation or termination of the marketing of other products or services, as well as the design and definition of the selling price, will have to be supported by reliable information regarding to their industrial cost and profitability [4]. Customer satisfaction is a key prerequisite for the viability of companies and organizations. However, customer satisfaction must be ensured by meeting their expectations, but the selling price of the product will always have to be higher than its production cost. This is a requirement that companies can-not abdicate [5]. As a consequence of the profound changes that have taken place over the last few years, there is strong pressure in the organizations to increase productivity at reduced prices, so that to obtain a method of estimating the costs of the various products produced in the same company in a rigorously and accurately way has become a strategic objective [2]. However, the mere knowledge of the costs of a particular product may not be sufficient for a company to remain competitive. There is a need to constantly improve their processes by detailing how the various activities within the company are developed in order to increase efficiency and effectiveness, which will lead to more competitive and higher quality products and services [6]. On the other hand, the selection of the costing method more appropriate to the reality of each organization can be a complex task [7], and the misallocation of indirect fixed costs, as it occur in some traditional costing systems, leads to obtaining incorrect industrial costs and may lead to misallocated management decisions [8]. The Activity-Based Costing (ABC) method has been seen as a useful tool to achieve a costing system more efficient, since it identifies and analyses the production activities that lead to the product object of the cost [9].

A cost accounting system is defined as a systematic framework used by a firm to estimate the cost of their products for measuring their profitability (Drury, 2015; Bragg, 2001; Obara and Ukpai, 2001; Romney and Steinbart, 2011; Martin, 2014). As indicated in the interviews, in this study, cost accounting systems (CAS) include the simple cost of goods sold and an inventory valuation, a breakeven analysis, a full and variable costing analysis, variance analysis (VA) and activity-based costing (ABC). Relevant literature (Evans and Bellamy, 1995; Lucey, 1996; Upchurch 2002; Anthony and Govindarajan, 2004; Lucey, 2008) emphasise that a CAS can serve as an invaluable database for understanding the full cost of resources used. Research (Hansen et al., 2009; Kwan, 2011) indicates that companies which efficiently use CAS outperform, in terms of their global competiveness, those which do not. This paper explores how cultures and local characteristics have influenced CAS. Specifically, it follows current discourses in the literature (Nagirikandalage and Binsardi, 2015; Nagendrakumar et al., 2015; Yapa and Ukwatte 2015; Adhikari et al., 2013; Adhikari and Mellemvik, 2010; Subasinghe and Fonseka, 2009) concerning accounting changes and reforms in Sri Lanka. However, regarding cultural changes, studies by Lyn and Yu (2002) indicate that resistance to organisational changes has not been an issue for successful CAS implementation. That said, most of the earlier studies have been carried out in the manufacturing industry within a developed country context (Ismail and King, 2005; Al-Eqab and Ismail, 2011) and therefore, the findings may not be applicable in a developing country context. For example, if a developing country such as Sri Lanka is to adopt a developed country’s systems, the implementation of CAS may not be, arguably, optimal because a developing country such as Sri Lanka has less developed infrastructure such as a lower accounting literacy rate, inadequate costing systems, traditional processing, less advanced technology, poor infrastructure, low adoption of IT, economic imperfections and other social, political and cultural differentials (Lyn and Yu, 2002; Carvalho et al., 2012).

Fossil fuel-based energy model has caused serious environmental problems whereas wind power development has gradually become an important way to push low-carbon energy transition. However, with increased large-scale wind power being centrally connected to the grid and replacing traditional frequency regulation units, power systems with high wind power penetration are facing a severe frequency regulation issue. In addition, the high randomness and variation of wind power lead to frequent action of traditional frequency regulation units resulting in increased abrasion of the mechanical devices and reduced operating life. Therefore, it is urgent to develop a new frequency regulation method for power systems. The Li-ion ESS has flexibility and fast response characteristic, and large-scale application of Li-ion ESS has attracted extensive attention. However, current energy storage costs are relatively high and there is no effective frequency regulation compensation mechanism for ESSs in China. Therefore, the incentive for ESS to participate in power system frequency regulation has not been established. Consequently, some energy storage stations have not been fully utilized, resulting in a waste of resources. Accounting the cost of energy storage for frequency regulation is an important step for the development of energy-saving frequency regulation compensation strategy, which can help to promote the development of ESS to participate in the frequency regulation service market. Energy storage frequency regulation cost is related to not only the technology and economy of the ESS itself but also energy storage frequency regulation strategy, system frequency fluctuation characteristics etc. Previous researches have provided useful insights in these respects. The cost of ESS is closely related to its operating life which is affected by the operating conditions (charge-discharge power, depth of discharge) [1, 2] ambient temperature and other factors. The nominal life given by the manufacturers is the test result in a specific charge-discharge mode measured by the cycle chargedischarge time. When an ESS participates in grid frequency regulation, the charge-discharge mode will not be the same as the test conditions, resulting in the ESS operating life under frequency regulation mode being very different from the data given by manufacturers. Previous cost accounting method is based on the average cost of nominal life, which is very different from the actual cost. Therefore, it is an urgent need to develop a cost accounting method for frequency regulation of ESS considering the effect of life degradation.

China is one of the few countries in the world using coal as the primary source of energy, with 30% of coal production being used to generate power for domestic use. Moreover, the amount of coal-fired power generated in 2014 reached 5 trillion kWh in China, accounting for about 75% of the total power generated, which was higher than the international average of 28% (Dai, 2014). In recent years, China has committed to reducing the proportion of coal-fired power generation, but it continues to the main source of power generation due to the difficulty in developing nuclear power, hydropower, wind power, and solar power (Hou, 2015). Coal-fired power generation leads to serious environmental pollution, such as air pollution, water pollution, and noise pollution (Andrae and Edler, 2015; Cristobal et al., 2012; Rigotto, 2009; Song and Li, 2015; Zhou et al., 2013). Conducting environmental remediation to mitigate pollution requires huge costs. In addition, these environmental problems are associated with the entire process of coalfired power generation. Therefore, the environmental impact over the entire life cycle should be synthetically and scientifically analyzed to take specific measures for optimizing resources, controlling energy consumption, and reducing pollutant discharge, and eventually improving the economic, social, and environmental benefits derived from the coal-fired power generation industries (Buke and Kone, 2011; Li and Gibson, 2014; Marshall, 2005). As LCA is the most effective tool in environmental management, it can be used to comprehensively and scientifically analyze environmental impact from cradle to grave to determine the opportunities for mitigating environmental impact (Finkbeiner et al., 2006; Itsubo and Inaba, 2010; Itsubo et al., 2015). The purpose of an LCA of the coalfired power generation is to analyze the environmental impacts and advance relevant strategies to promote the sustainable development of coal-fired power generation (Lelek et al., 2016; Spath et al., 1999).