Comparative Management Accounting – Literature Review on Similarities and Differences Between Management Accounting in Germanic and Anglophone Countries pot

Comparative Management Accounting –
Literature Review on Similarities and Differences Between
Management Accounting in Germanic and Anglophone Countries

Andreas Hoffjan, Professor
WHU – Otto Beisheim School of Management, Vallendar

Pascal Nevries, Assistant Professor
WHU – Otto Beisheim School of Management, Vallendar

René Stienemann, Dipl Kfm.
cronos billing consulting GmbH, Muenster



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Comparative Management Accounting –
Literature Review on Similarities and Differences Between
Management Accounting in Germanic and Anglophone Countries

This paper compares management accounting practices in Germany, the UK and the USA and
reveals a range of differences and similarities. The most significant difference is in the use of
either the general-ledger concept or the two-circle system. Through following these varying
approaches, further differences arise, e.g., the total lack of imputed costs in the Anglo-Saxon
countries and different bases for calculated profits in Germany. German management
accounting exerts a stronger influence on management, because in the Anglo-Saxon countries
financial accounting figures are not regarded as being useful for internal decision making.
Thus management in Germany relies much more heavily on internal calculations provided by
management accounting. Management accountants in the USA and UK exert a much deeper
impact on operational matters and are involved in broader fields of activity than their German
counterparts. While Anglo-Saxon management accounting is also directed at shareholders,

German management accounting is addressed at internal target groups alone. Apart from
these differences, several important similarities could also be observed. Management
accountants in all three countries have reasonably similar objectives and goals. Among the
most important are the provision of information, participation in the management process and
attempts to ensure rational decision making by management. In general, a converging
approach in management accounting practice is observable.




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1. Introduction
The competitive environment in which companies operate is steadily becoming more
challenging and demanding. Major corporate take-overs increase the demand for more
sophisticated and advanced management accounting information in order to react
appropriately to external market pressures. Multinational companies have to cope regularly
with various different institutional environments, management practices, and cultural
(mis)understandings between the respective countries.
While, in this context, the field of financial accounting has already attracted considerable
attention from the academic world at a comparative international level, the area of internal
management accounting has largely been limited to approaches focussing only on individual
countries. These approaches have been analysed thoroughly by national academic researchers
and, as a consequence, influenced practices in other countries. However, in order to initiate a
debate on the subject and to highlight best practices, as well as innovations and inefficiencies
in the management accounting world, a sophisticated comparison, drawing on the differences
and similarities between the observed countries, has only recently been conducted in the
management accounting literature.
Furthermore, “different labels, in different languages, are used to refer to management
accounting around the world” (IFAC, 1998: 84). The relatively young discipline of
comparative management accounting attempts to fill this gap in management accounting

research, by determining the degree of diffusion of applied concepts and practices in different
countries. Divergences should be analysed in order to learn from other language areas and to
understand the approaches used.
The present paper analyses the different characteristics of management accounting in
Germany, the United Kingdom (U.K.) and the United States of America (U.S.A.). The
intention of this paper is to highlight the differences between the observed countries and the
effects they induce.


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The paper is organized as follows. First, we explain the choice of the selected countries
and the methodology used. Section 3 then introduces the general concept of comparative
management accounting. Based on the terminological specification of nationally diverging
definitions of management accounting labels, the following section 4 describes and compares
the main aspects and characteristics of management accounting in Germany, the U.S.A. and
the U.K. Finally, section 5 summarizes the findings.


2. Methodology
The present study concentrates on Germany, the U.K. and the U.S.A. These countries
have been selected due to various reasons. For a start, the U.S.A. is the world’s leading
economic power and thus of fundamental significance with respect to management
accounting. Many countries have been and still are influenced by new developments in
American management accounting (SHERIDAN, 1995: p. 293). Therefore, the inclusion of the
U.S.A. is considered essential in this comparative study. To a lesser degree, this also applies
to the UK. Furthermore both, the U.S.A. and the U.K., continuously influence management
accounting developments in other countries, because English is the dominant language in the
world of business (PISTONI and ZONI, 2000: 311). In addition, it is often claimed that
management accounting has its roots in the U.S.A. and has influenced accounting practices
and developments in German management accounting (Otto, 2000: 25).

Secondly, Germany and the U.K., although having seemingly different management
accounting structures and institutions, are among the dominant countries in Europe with
respect to management accounting importance (BLAKE ET AL., 2000: 123). In this context,
many studies have revealed a significant impact of German management accounting on
several other countries in the world (KEYS and MERWE, 1999: 2; BLAKE ET.AL., 2000: 123).
Because the U.S.A. and U.K. can be assumed as being fairly similar due to the common
language, similar financial accounting orientation and the cultural proximity (CARR and


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TOMKINS,1998: 215-6; HOFFJAN and WÖMPENER, 2006: 238), in this paper, both countries
will be treated commonly as ‘Anglo-Saxon’ or ‘Anglophone’ countries, if nothing else is
stated to the contrary.
As comparative management accounting is a relatively young discipline, there are few
studies dealing with this topic (BLAKE ET AL., 2000: 122). In order to provide an overview of
the state of the art in comparative management accounting, the following literature review
identifies current research streams and future research questions. The first step is to develop a
framework for classifying the relevant literature.
The few studies published so far in this field of research do not claim to be representative
of comparative management accounting in general, and also vary with respect to objectives,
timeframe and methodological approaches (STOFFEL, 1995: 1). Nevertheless, some general
tendencies with respect to functional aspects of management accounting can be identified and
will be discussed in this paper.
STOFFEL’s (1995) study is one of the first to concentrate at length on controllership on an
international level. In his comparative work, STOFFEL analysed controllership in Germany, the
U.S.A. and France.
On a broader inter-country scale, BHIMANI (1996) focussed on differences and similarities
in management accounting in Europe. However, BHIMANI merely collected and published
nation-specific results from eleven European studies without explicitly stressing the
differences and similarities in detail. A similar study from LIZCANO (1996) deals with

comparative management accounting in Latin America.
More recent empirical studies focussing explicitly on the comparative element of
management accounting can be found in AHRENS (1997; 1999), OTTO (2000), ZIRKLER
(2002), JONES and LUTHER (2004) and HOFFJAN and WÖMPENER (2006).
In order to obtain an overview of the relevant comparative management accounting
literature analysed in this paper, the studies were grouped into six different categories as
presented in Figure 1:


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[Include Figure 1 here]

The categories are ordered with decreasing relevance to our selected countries and
comparative management accounting in general. Following this categorisation, all papers in
the first group cover the countries Germany, the U.S.A. and / or U.K. and deal simultaneously
with comparative management accounting. In the literature review, 30 papers could be
included in the first category. The second group includes papers that deal with national
management accounting from the respective countries. Although not dealing explicitly with
comparative management accounting, these papers are nevertheless useful for a deeper
analysis. Because they represent the characteristics and particularities of the specific
countries, these papers can be compared to one another.
In the third category, aspects closely related to management accounting are discussed
from the respective country perspective. Topics such as culture do not deal explicitly with
management accounting, but nevertheless have a direct or indirect influence on different
perceptions of accounting in the various countries.
In the fourth category, the comparative element is highlighted again, although these
papers do not deal explicitly with the countries that form the focus of this paper. This
category is included, due to potential cross-references from other countries. If it is possible to
observe how management accounting differs or converges between other countries,
meaningful comparisons could possibly be made.

The fifth and sixth categories are included in this categorisation for reasons of
completeness, but are not considered as sufficiently relevant to merit further examination.


3. Principles of comparative management accounting
3.1. Comparative management accounting


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Comparative management accounting compares management practices and principles
between countries and cultures in order to initiate discussion, to highlight best practices,
innovations and inefficiencies in management accounting. Managers can also achieve
competitive advantages by applying innovative management accounting techniques from
other countries or cultures (AMAT ET AL., 1999: 20). Additionally, comparative management
accounting aims at guiding techniques and practices towards convergence (HOFFJAN and
WÖMPENER, 2006: 241).

3.2. Management accounting versus controlling
Terms like management accounting or controlling are neither equally used nor understood
in all countries (AMAT ET AL., 1999: 19). In Germany for instance, the label management
accountant is not commonly applied as a description of the occupation – neither in the
English term nor the German translation (SHERIDAN, 1995: 1; BIRKET 1998: 487).
In order to compare the work of management accountants in the three countries,
equivalences for the corresponding Anglophone meanings must be found. In this respect,
German controlling is generally viewed as similar to the Anglophone management
accounting in the relevant academic literature (SHERIDAN, 1995: 1; OTTO 2000: 38; WILLSON
ET AL
., 2003: 5; KÜPPER, 2005: 6). The discussion of controlling-related problems and
innovations in Anglophone journals like Management Accounting Research, Management
Accounting Quarterly or Advances in Management Accounting can be regarded as an

indication of the terminological proximity of German controlling and Anglo-Saxon
management accounting (KÜPPER, 2005: 6).
Although there is not such a demand for theoretical definitions in the U.S.A. that are
comparable to those used in Germany (Otto, 2000: 25), the following chapter tries to examine
whether deeper differences are identifiable from an initial view of the definition and
terminology of both terms.



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3.2.1. Management accounting terminology and definitions in the U.S. and the U.K.
In the Anglophone literature, it is evident that various terms are used for management
accounting. Labels like ‘internal accounting’, ‘enterprise reporting’ and ‘managerial
accounting’ are widely used as synonyms for management accounting (ZIRKLER, 2002: 17).
Given these different labels that are used for the same basic concept, AMAT ET AL. (1999: 19)
also observed that “the term management accounting implies different meanings across
national boundaries”. In general, two different perceptions of the scope of management
accounting can be observed in the relevant Anglo-Saxon literature (MUSSNIG, 1996: 13).
The first perspective defines management accounting from a narrow point of view, such
that the term refers mainly to internal cost accounting and internal calculations (MUSSNIG,
1996: 13; HORVÁTH, 2003: 79).
A second, much broader perspective is more common in the Anglo-Saxon countries.
According to the NATIONAL ASSOCIATION OF ACCOUNTANTS (1981: 4)

management
accounting is defined as:

“[…] the process of identification, measurement, accumulation, analysis, preparation,
interpretation, and communication of financial information used by management to plan,
evaluate, and control within an organization and to assure appropriate use of and

accountability for its resources. Management accounting also comprises the preparation of
financial reports for non-management groups such as shareholders, creditors, regulatory
agencies, and tax authorities.”

In this definition, which is characteristic of management accounting in the Anglo-Saxon
countries (M
USSNIG, 1996: 13; Zirkler, 2002: 18) and will therefore be used in this paper, a
clear focus on financial information becomes apparent. Furthermore, it is noteworthy that the
definition includes non-management reporting for taxation and regulatory purposes as part of
management accounting (M
USSNIG, 1996: 13). Management accounting is therefore an


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integral part of the management process. It can be regarded as an umbrella term for the
general managerial process of planning, evaluating and controlling, as well as of reporting.
Another label which is commonly applied in both the U.S.A. and U.K., is the term
controller. WILLSON ET AL. (2003: 11) observe that, for the chief accounting officer (CAO)
especially in large companies, “the most common title used is controller”. Although the label
controller can therefore be regarded as widespread in the Anglo-Saxon countries, its
application is commonly reserved as a description of the highest-ranking management
accountant in the corporation, rather than for all management accountants. The authors also
acknowledge that, while various titles can be applied to the position of the CAO, the title
controller may be an unfortunate one, because it emphasises the aspect of ‘control’ more than
other also relevant responsibilities like reporting, management and planning.
The label controlling also raises some important issues. While the term controller is
commonly applied as stated above, controlling is only used as a description of the leadership
process of the final stage in the managerial decision making process (STOFFEL, 1995: 9;
KÜPPER, 2005: 6). Therefore, controlling and controller are only similar with respect to the
origin of the term in the Anglo-American countries, but not at the conceptual level

(SIEGWART, 1982: 98; STOFFEL, 1995: 10).
This difficulty concerning the job description of the controller is quite often referred to in
the Anglo-Saxon literature. ”The modern controller does not do any controlling in terms of
line authority except in his own department“ (HORNGREN ET AL. 2005: 13; STOFFEL, 1995:
10).
Finally, the term ‘controllership’ rather than controlling most often characterises the field
of activity of the controller or management accountant in the Anglo-Saxon countries (OTTO,
2000: 26).

3.2.2. Management accounting terminology and definitions in Germany


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In contrast to the Anglophone label ‘management accounting’, business managers in
Germany generally use the term ‘controlling’ as a description of the field of activity of
management accountants (BIRKET, 1998: 487; AHRENS and CHAPMAN 2000: 482; KÜPPER,
2005: 3 4f). In this context, controlling describes the relatively young discipline of
‘Betriebswirtschaftslehre’ (business administration). Contrary to the purely practical approach
in the U.S.A. and U.K., the basics of controlling have been developed within the academic
literature (SCHERRER, 1996: 100; AHRENS and CHAPMAN 2000: 482; JONES and LUTHER 2004:
4; KÜPPER, 2005: 6) and its definitions and interpretations are characterized by its great
variety and diversity. A widely-accepted definition of controlling in the German literature has,
therefore, not been so far discernible until the present (FREIDANK, 1993: 400).
Nevertheless, it can be observed that the majority of definitions focus on the decision-
support function (BERENS ET AL., 1995: 144), the coordinative function (HORVÁTH, 2003:
148-9; KÜPPER, 2005: 5) or define controlling as safeguarding managerial rationality (WEBER,
2004: 47).
While controlling concentrates more on internal accounting matters, in the Anglo-Saxon
countries, management accounting includes internal as well as external accounting aspects
and can be seen as a general term for accounting as a whole (MUSSNIG, 1996: 13).

Comparing controlling with management accounting definitions, it can therefore be
argued that, on the one hand, management accounting is defined and understood in a
functional broader context, whereas controlling definitions, on the other hand, are comparably
characterised by their greater universality (e.g. WEBER, 2004: 48).
Despite this broader scope of management accounting, some similarities are evident. All
definitions cover the aspect that the responsibility of management accountants or controller’s
is to support managers with relevant information so as to promote objective and fair decision-
making.



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3.3. Determinants of and influences on differences between management accounting
processes
To analyse why and how management accounting differs between countries, it is
important to concentrate on the main determinants and key drivers that lead to such
variations. The most frequently-stated influence factor held responsible for differences in
management accounting is culture (CHOW ET AL., 1991: 209-10; Chow et al., 1999: 441).
Other factors such as academic and institutional background, as well as the economic
situation of the particular country, can have an impact on diverging management accounting
systems (PISTONI and ZONI, 2000: 285; SHIELDS, 1998: 505-6).

3.3.1. Culture as an influence factor in management accounting
Culture can be defined as a “system of collectively held values” (HOFSTEDE, 1991: 5). In
this context, the cultural framework of HOFSTEDE is commonly applied by management
accounting researchers to explain the variations between different nations and their cultures
(CARR and TOMKINS, 1998: 217). HOFSTEDE (2001: 373-4) developed the familiar five
dimensions of power distance, uncertainty avoidance, individualism vs. collectivism,
masculinity vs. femininity and long versus short-term orientation. Using this framework, it
can be argued that, for instance, Japanese business managers are characterised by more

organisational commitment than their American colleagues, due to a lower tendency towards
individualism (CARR and TOMKINS, 1998: 218).
In the economic literature, special attention is also paid to the differences in financial
culture. While, on the one hand, it is commonly stated that the Anglo-Saxon world is more
shareholder and stock-market driven, on the other hand, many scholars do in fact refer to the
German financial culture as more stakeholder driven (SHERIDAN, 1995: 290).
Culture can therefore explain national differences in management accounting. However,
whenever culture is quoted as an influence-factor on management accounting, it is important
not to treat this complex field too simplistically (HARRISON and MCKINNON, 1999: 483).


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Moreover, because this paper focuses on the characteristics and consequences of these
differences, rather than on their cultural causes, these studies are only considered peripherally.

3.3.2. Education, occupation and management accounting institutes as influence factors
The respective educational and institutional situation also varies between the analysed
countries and should be included in the comparative framework. While both in the U.K. and
U.S.A., management accounting is based on a professional environment (AHRENS and
CHAPMAN, 2000: 480; JONES and LUTHER, 2004: 4), management accounting in Germany can
be characterised more as a discipline taught at university than a fully-fledged profession
(SHERIDAN, 1995: 289; AHRENS and CHAPMAN, 2000: 482).
Furthermore, institutional bodies like the Chartered Institute of Management Accountants
(CIMA) and the Institute of Management Accountants (IMA) represent the interests of
management accountants in the Anglo-Saxon countries. Conversely, German management
accounting is highly educationally oriented (Jones and Luther 2004: 3) and there is no well-
established institutional environment. Although not all studies explicitly compare German
with Anglo-Saxon management accounting institutions, all studies nevertheless mention
either the highly sophisticated management accounting profession in the U.S.A. and the U.K.,
or stress the minimal institutional background in Germany. Therefore, the analysed literature

generally concurs with the statement that professional institutions for management accounting
are more sophisticated in the Anglo-Saxon countries than in Germany.
Consequently, German developments in management accounting are mostly based on
new ideas and concepts from academics, whereas Anglophone scholars have a reputation for
focussing much more on practical research (AHRENS and CHAPMAN, 1999: 42).
There are also differences between Germany and the U.K. with respect to the type of
qualification of accountants that they acquire before applying for a job in accounting. The
occupational biographies of management accountants highlight the fact that the main route
into the profession of management accounting is achieved via a university degree (AHRENS


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and CHAPMAN, 2000: 480-1). However, while in Germany, it is almost mandatory for
management accountants to have graduated in ‘controlling’ or at least some other field within
‘Betriebswirtschaftslehre’, AHRENS and CHAPMAN (2000: 480) found that “all but one
practitioner” in Britain had graduated in a subject that was not relevant to business or
economics.
It can therefore be noted that education in German management accounting is
predominantly acquired by means of an university degree in economics, whereas accountants
in the U.K. are predominantly trained and qualified on the job.

3.3.3. Economic background as an influence factor
In terms of economic background, fluctuations continuously influence and affect different
countries in different ways (GOLDSTEIN, 1995: 719-20). The economic situation in a particular
country can influence the management accounting practices in that country, as well as in other
countries (BLAKE ET AL., 2000: 123). If, for example, one country has to cope with high levels
of inflation, management accountants must consider these circumstances (BLAKE ET AL.,
1998: 56). In addition, if a country is dominated by the economic power of another country,
management accountants will inevitably adopt the latter’s practices; although with varying
degrees of responsiveness.

4. Comparison of relevant management accounting concepts
4.1. Responsibilities and objectives of management accounting
4.1.1. Objectives and target groups of management accounting
In contrast to Germany, management accounting practices in Anglo-Saxon countries also
include, by definition, the provision of financial reports for non-management groups like
shareholders, creditors and tax authorities. Consequently, one could assume that both the
target groups and the objectives of management accounting differ between these countries.


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According to the NATIONAL ASSOCIATION OF ACCOUNTING (1982: 24) in the U.S., the
objectives of management accounting include ‘providing of information’ and ‘participating in
the management process’. Analysing these objectives further, it becomes apparent that there
are many similarities to the German understanding of management accounting objectives. In
Germany, the aim of management accounting is commonly described as that of ensuring
rational managerial decision making as well as safeguarding the processes of controlling,
planning and governing (AMSHOFF, 1993: 216; MACHARZINA, 2003: 393; WEBER, 2004: 29-
30; KÜPPER, 2005: 11). Furthermore, it can be stated that all management accountants pursue
the company goal of profit maximisation as well as that of supporting the management.
Therefore, despite a broader field of management accounting target groups in Anglo-
Saxon countries compared to Germany, it can be argued that management accountants in the
observed countries share similar goals and objectives.

4.1.2. Long-term versus short-term goals
A widely-discussed question in comparative management accounting literature is whether
Anglo-Saxon countries like the U.S. or the U.K. are short-term oriented, whereas countries
like Germany and Japan are possibly more long-term oriented with respect to their business
decisions (SHERIDAN, 1995: 290; AHRENS, 1997: 557-8; CARR and TOMKINS, 1998: 217)
The dominance for managerial decision making of stock markets in London or New York

is often stated as a key argument for this short-term orientation of Anglo-Saxon managers
(SHERIDAN, 1995: 290).
In addition to economic reasons, cultural background is also often cited as a reason for the
differences between these countries. Many scholars refer to the cultural model of HOFSTEDE
(2001) for an explanation for the short-term vs. long-term orientation (SHERIDAN, 1995: 290;
COATES ET AL., 1995: 132).
Drawing on empirical findings in the literature, management accountants from the U.K.
consider themselves to be under high pressure to achieve short-term oriented goals, in contrast


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to their colleagues in Germany (AHRENS, 1996: 149-50). Similar results can be found in the
comparative study of COATES ET AL. (1995: 127), according to which German managers are
longer-term in their thinking than their U.K. and U.S. counterparts. Finally, according to the
empirical study of CARR and TOMKINS (1998: 220), company payback periods are also shorter
in the Anglo-Saxon countries than in Germany. The majority of research discussed above,
thus agree on the short-term orientation of Anglo-Saxon countries in contrast to the long-term
orientation in Germany (COATES ET AL. 1995: 132; SHERIDAN, 1995: 290; AHRENS, 1997:
557-8; CARR AND TOMKINS, 1998: 217). The findings from the literature are summarised in
Figure 2:
[Include Figure 2 here]

Despite this apparent consensus in the literature, an excessively undifferentiated analysis
of these stereotypes must be criticised, because of a lack of questioning the reasons behind
and the implications of these assumptions (AHRENS, 1997: 558). HOROVITZ (1978), for
instance, found no significant differences between long-term planning in the U.K. and
Germany. In his comparative study, he found that the same percentage of chief executives in
Germany and the U.K. use long-range plans (HOROVITZ, 1978: 100). In a long-term
orientation index developed by HOFSTEDE (2001), Germany is also ranked as only slightly
more long-term oriented than the U.S.A. and the U.K. (HOFSTEDE, 2001: 356).

Furthermore, assuming a convergence of management accounting practices as observed
by the majority of scholars, a growing similarity of the instruments used for both long-term
and short term business-orientations is identifiable as well (COATES ET AL., 1995: 131).

4.1.3. Management accounting versus financial accounting
Creditor protection and the principle of prudence are historically strongly emphasised in
German accounting. Hence, stringent regulations concerning the reported content to outsiders


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of the company can be observed in Germany (BAETGE ET AL., 2002: 112). Consequently,
financial accountants are driven by statutory requirements, particularly with respect to the
(German) legal and commercial codes and the tax regime (JONES and LUTHER, 2004: 13).
Their task is to emphasise legal requirements, rather than economic needs inside the
company. Financial accounting is directed formally at the state, and not primarily towards
shareholders, as in Anglophone countries.
Consequently, external reports from financial accounting are sometimes considered as
“not relevant to management decision making” in Germany (JONES and LUTHER, 2004: 13),
probably leading to a denial that financial accounting is a bone fide component of
management (ibid.).
Furthermore, Anglo-Saxon management accounting does not operate with imputed costs
such as opportunity costs for managing owners, as is common in German management
accounting (ZIRKLER, 2002: 23; MESSNER, 2003: 262). Anglophone accounting figures are
based on the same business values that are used in financial accounting. Due to imputed costs,
profits calculated in financial accounts normally differ from those calculated in the
management accounting system in Germany (BAETGE ET AL., 2002: 565-6). Managers in
Germany still emphasise that the numbers reported in the financial statements are not relevant
for internal decision-making purposes.
Because the data reported by financial accountants is based on the protection of
stakeholders and is not relevant for supporting managerial decisions, financial accounting is

separate from controlling. The former is responsible for reporting to the state, taxation
authorities and other stakeholders such as creditors. The latter concentrates on entrepreneurial
or managerial efforts in order to fulfil managerial needs for relevant decision support (KEYS
and MERWE, 1999: 7; JONES and LUTHER, 2004: 14).
In Anglo-Saxon countries, management accounting and financial accounting are also
treated as two separate fields of accounting activity. However, comparing the degree of
separation, it can be observed that a much clearer split between financial and management


17
accounting is prevalent in Germany than in the U.S. or the U.K. (JONES and LUTHER, 2004:
13). Indeed, this has already been stated in the definition of management accounting from the
NATIONAL ASSOCIATION OF ACCOUNTANTS (1981). Management accounting in the U.S.A. or
the U.K. not only operates with the same data base as for financial accounting, but a clear
division of financial and management accounting of the occupational level as in Germany, is
also uncommon.

4.1.4. Fields of activity for management accountants
Comparing the fields of activity for which management accountants are responsible,
internal cost management is regularly identified as being one of the main functions of
management accountants in all observed countries (MUSSNIG, 1996: 13-14; ZIRKLER, 2002:
17). This is backed up by empirical findings, that internal cost management is relevant for
65% of German controllers and for 91% of the interviewed U.S. management accountants
(STOFFEL, 1995: 156).
While this common ground for activities may not be surprising, many studies dealing
with U.S. accounting show that management accountants agree with the definition of the
NATIONAL ASSOCIATION OF ACCOUNTANTS (1981), which is responsible for financial
management activities like reporting to investors and creditors or dealing with tax authorities
(STOFFEL, 1995: 83).
The key results from STOFFEL concerning the fields of activity of German and U.S.

management accountants, are presented in Figure 3.
[Include Figure 3 here]

With respect to these findings and in conformity with the studies mentioned above,
financial accounting plays a dominant role for U.S. management accountants, with 97% being
responsible for external accounting matters. Conversely, in Germany, financial accounting is
considered to be relevant for only 21% of management accountants (ZIENER, 1985: 23-4).


18
This is the most significant difference that can be identified between German and Anglo-
Saxon management accounting activities.
German controlling is far more detached from cost accounting matters than Anglo-Saxon
management accounting. This again becomes apparent in the relevance of accounts
receivable, for which 66% of U.S. management accountants are responsible, compared to 9%
in Germany.
Management accountants in both countries ultimately agree that budgeting and internal
reporting are important aspects of management accounting – in contrast to the field of internal
auditing, which is uniformly regarded as being rather less relevant for daily work. However,
despite this low circulation of internal auditing, the comparison reveals that it is still more
frequently integrated into Anglo-Saxon management accounting than into German
management accounting (ZIENER 1985, p. 23-4). In Germany, internal auditing can be
described as operating closely together with the German controller, but not necessary as being
integrated into the controlling department itself (HORVÁTH, 2003: 811; STOFFEL, 1995: 93).
By contrast, internal auditing is regarded as a potential activity for management accountants
in the U.S.A. (HABERLAND, 1970: 2182).
Further differences with German und U.S. management accounting can be found in the
appropriate insurance of the corporation’s assets or the responsibility for computer services
(HABERLAND, 1970: 2184; STOFFEL, 1995: 113-14; WILLSON ET AL., 2003: 4). Normally,
neither of these two fields of activity is assigned to German controlling (STOFFEL, 1995: 93).

Finally, because the fields of activity are positively correlated with the numbers of
employees working in a company, these results are only representative for corporations above
certain levels of size (Otto, 2000: 273). Therefore, it is evident that, in smaller firms, the
management accountant is responsible for a broader range of activities in all observed
countries (WILLSON ET AL., 2003: 14).

4.2. Management accounting systems and instruments


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Management accounting systems are intended to satisfy managers’ needs and to motivate
and assist them in achieving “their organizational objectives in a timely, efficient, and
effective manner” (KAPLAN and ATKINSON, 1998: 1). In this context, management accounting
systems must fulfil other requirements than those of financial accounting systems. Concerning
the former, data relevance is regarded as one of the main aspects, whereas the data used for
financial accounting systems is characterised primarily by objectivity and auditability.

4.2.1. General ledger versus two circle system
The handling of data used for external and internal accounting needs is handled in
different ways in the observed countries. As in Germany, management and financial
accounting are separated to a high degree (as stated above), and the systems of management
and financial accounting are also separated by the use of a ‘two circle’ concept. That is, two
different accounting circles apply to internal and external accounting (Messner, 2003: 249).
At first glance, there is a dividing line between financial accounting and management
accounting in the U.S.A. and the U.K., due to the different activites and accounting goals.
Contrary to Germany, proximity between internal and external accounting can nevertheless be
observed in the sense that no two completely separated data bases are used in the Anglo-
Saxon countries (KAHLE, 2003, p. 775). More specifically, a common data base named
‘general ledger’ is commonly applied (KAHLE, 2003: 775).
While this general ledger system is widely accepted at an international level, the two-

circle or dual cost system is still the most commonly used in Germany. Financial and cost
systems are run independently in Germany, “with a reconciliation module provided to
articulate between the two sets of statements at the end of the year when financial statements
are prepared” (KAPLAN and ATKINSON, 1998: 8). In the following discussion, both the
characteristics, consequences and differences that arise due to this variation will be discussed.
The general ledger system can be described as an integrated system that includes all
accounts in the financial statements. The key characteristic of this system is that the two


20
different systems - financial accounting and management accounting - access a jointly-used
data base (OEHLER, 1997: 358; ZIRKLER, 2002: 19). While the same data is used for external
reporting as well as for internal decision support, both financial accounting and management
accounting therefore calculate with the same values and basics. Consequently, costs are
computed “based on aggregate, average allocations of manufacturing overhead, and control
procedures use monthly variances computed from general ledger financial accounts” (KAPLAN
and ATKINSON, 1998: 8).
Because the capital market now plays an important role for Anglo-Saxon companies,
external reporting to both shareholders and creditors can be regarded as very important for
corporations. Significantly more management accounting information is used for external
reporting in the U.S.A. than, for instance, in Germany (ZIRKLER, 2002: 16). Consequently, it
can be assumed that the general ledger system is dominated by financial accounting data
(ZIRKLER, 2002: 21).
A further significant difference from the German point of view, is the virtually non-
existence of imputed costs in Anglo-Saxon management accounting as mentioned above
(ZIRKLER, 2002: 21; MESSNER, 2003: 262). While imputed depreciation and interest are of
great importance in German management accounting (SCHERRER, 1996: 105), they rarely
appear in Anglophone management accounting theory and practice (ZIRKLER, 2002: 21;
JONES and LUTHER, 2004: 17; WEBER, 2004: 16).
The difference between costs and expenses is deemed very important in Germany. Profits

computed in the financial accounting system differ from those in the cost accounting system,
due to imputed costs such as depreciation or an opportunity cost for the managing owner
(CHRISTENSEN and WAGENHOFER, 1997: 255).
As a consequence, the potential scope for manipulation in the field of management
accounting is greater in Germany, with the use of imputed costs, compared to Anglo-Saxon
countries, which calculate solely with actual costs (K
ÜPPER, 1995: 24-5). The determination
of imputed depreciation or imputed management salary, for instance, offers a window of


21
opportunity for managers to justify a different level of profit to that presented in the external
reports (MESSNER, 2003: 264).
Similar to imputed costs, opportunity costs are uncommon in Anglo-American countries
(HORNGREN ET AL. 2003: 397-8). If required, these types of cost are calculated in special
calculations for particular purposes. Therefore, in contrast to Germany, a relatively high
percentage of diverse special analysis can be found in the general ledger system (ZIRKLER,
2002: 22). Finally, a spin-off of accounts payable and accounts receivable from the main
ledger into subsidiary ledgers is also typical for the general ledger system (OEHLER, 1997:
358; ZIRKLER, 2002: 22).
As a reason for the joint use of a common database, KAPLAN and ATKINSON (1998: 8)
state that at the beginning of the last century, “the high cost of information collecting,
processing, and reporting […] led companies to attempt to manage their internal operations
with the same information used to report to external constituencies”.
In Germany, the benefits of separating management and financial accounting data and
hence having an autonomous data base for internal calculations is regarded as more important
than the higher costs of keeping two sets of books. Although the demand for financial
information is taken into consideration in this system, many managers consider this
information alone as insufficient for running a company (CHRISTENSEN and WAGENHOFER,
1997: 255; KEYS and MERWE, 1999: 8). Moreover, the benefits are seen as the ability to

support managerial decisions without any additional calculations from data that is based
initially on the strict rules for external reporting. The disadvantages of additional costs for
collecting and maintaining separated data bases are currently reduced by state-of-the-art
software (KEYS and MERWE, 1999: 8).

4.2.2. Management accounting instruments
Management accounting instruments are among the key drivers of convergence in
management accounting. In the search for best practice, management accounting instruments


22
are easier to adopt than a new accounting system or a foreign culture. It can furthermore be
assumed that management accountants are familiar with the most common instruments of
management accounting. Therefore, although German and Anglo-Saxon managers approach
accounting from different directions, the instruments and tools can be assumed to be largely
similar, and specific management accounting techniques enjoy various degrees of popularity
in different countries (SHERIDAN, 1995: 291).
While Activity Based Costing (ABC), for instance, has attracted considerable attention in
the Anglo-Saxon countries since the mid-1980s, ABC is less commonly applied in Germany
(SCHERRER, 1996: 104; FRIEDL ET AL., 2005: 56). Comparing the application of ABC in
Germany, the U.K., or the U.S.A., it is evident that there are also different approaches to
ABC.
The classical ABC in the Anglo-Saxon countries links the overhead allocation to the
activities carried out to produce and sell a product. In Germany, an alternative approach,
“Prozesskostenrechnung” (process cost accounting), is applied more commonly and only
considers costs external to the manufacturing department (FRIEDL ET AL., 2005: 60). In this
respect, DAVIS and SWEETING (1991: 44-5) analysed the “use or planned use of cost
management techniques” in the U.K. and ranked ABC with an affirmation rate of 60% as
important for U.K. manufacturing enterprises. In Germany, FRANZ and KAJÜTER (2002: 579-
80) recently analysed the spread of ABC and found that only 47 % of large German firms

used ABC, and only half of these companies (48%) applied it regularly. In this context,
BHIMANI (1996: 103) observed that ABC seems to be particularly strong in the U.K. and
comparatively weak in Germany.
Contrary to the use of ABC, Grenzplankostenrechnung (flexible margin costing) can be
deemed one of the most important cost accounting tools for German companies (FRIEDL ET
AL
., 2005: 56). This concept focuses on contribution margins and variable costs, rather than
on full costing (as in ABC) and hence supports short-term decisions such as whether to accept
or reject an additional order.


23
While another instrument such as budgeting is regarded as more or less equally important
for all management accountants (Sheridan, 1995: 291), instruments like discounted cash flow,
payback or internal rate of return are applied to varying degrees. COATES ET AL. (1995: 132)
found that management accounting instruments are used in terms of the financial goals and
orientation of a company and may therefore differ in their appliance and use.

4.3. Organisational integration of management accountants in the corporation
4.3.1. Hierarchical level of management accountants within the corporation
As analysed with respect to the definitions of management accounting,

as well as to the
activities presented above, management accountants deal with objectively fair and highly
relevant data within the corporation. Therefore, calls for a high hierarchical rank of
management accountants can be found in the management accounting literature in all
countries (HABERLAND, 1970: 2183; MACHARZINA 2003: 390).
Therefore, management accountants should operate at a relatively high organisational
position within the corporation and should be integrated sufficiently into the operational,
strategic and tactical planning of the corporation (MACHARZINA 2003, p. 390). Additionally,

securing the independence, neutrality and authority of the controller is considered important.
This could be maintained by positioning the accountant at least at the second hierarchical
level, or as part of the board of directors (HABERLAND, 1970: 2183; STOFFEL, 1995: 98). Such
demands for an influencial and responsible position within the company, as generally
proposed in the literature can to some extent be supported by empirical data.
In Germany, empirical studies conducted in the 1980s and 1990s were in line with the
above-mentioned statements and showed a dominance of controlling at the second
hierarchical level (SERFLING, 1992: 82). UEBELE (1981) and AMSHOFF (1993) found 54% and
60% respectively of controllers to be positioned at the second hierarchical level within the
corporation (U
EBELE, 1981: 31; AMSHOFF, 1993: 335). In the U.S.A. however, there are


24
hardly any recent empirical studies on the positioning of management accountants in the
hierarchy (STOFFEL, 1995: 103).
STOFFEL examined the hierarchical integration of German, U.S. and French management
accountants. According to his results as presented in Figure 4, 8 % of German management
accountants are classified at the first hierarchical level, 65 % at the second, 26 % at the third
and only 1 % at the fourth hierarchical level. By contrast, in U.S. corporations, no controller
can be found at the first level, 39 % at the second, 50 % at the third and 11% at the fourth
level.
[Include Figure 4 here]

Because most U.S. management accountants (50%) are currently assigned to the third
hierarchical level in this study, a generally lower positioning, compared to their colleagues in
Germany, could be assumed. However, before drawing any further conclusions from the
findings of the above study differences between the structures of large companies in the three
observed countries have to be taken into account.
In Germany, the law requires an organisational structure for public limited corporations

which is fairly distinct from the Anglo-Saxon board system. In contrast to the one-tier system
in the U.S.A. or U.K., German Public Limited Corporations are characterised by a
management board with at least three members. Therefore, the top level in German
corporations is by nature broader than in Anglo-Saxon corporations, whereas only the CEO
can generally be identified as representing the highest level of management. Consequently,
comparing the levels of hierarchical integration, it seems that a second hierarchical level in
the U.S. can be regarded as somewhat “higher” in the organisation than an equivalent position
in German corporations.
Therefore, despite the differences between German and Anglo-Saxon companies
identified above, it is evident that management accountants in Germany and the U.S.A. are
both ranked at a relatively similar level of influence and responsibility within the corporation.


25

4.3.2. Interrelations and connections to adjacent departments
Analysing the organisational integration of management accountants in the hierarchy of
the corporation, entails firstly, examining the name given to the department in which
management accountants work. This term can then be interpreted as an indicator of both the
activities and the interrelations within the company.
In German companies, the department in which management accountants are located is
nearly always labelled ‘controlling department’ or something similar which includes the term
“controlling”, such as ‘Betriebswirtschaft/Controlling’ (STOFFEL, 1995: 140). In the U.S.A.,
by contrast, the nomenclature can vary significantly. STOFFEL’s findings indicate that, 25 % of
the departments for management accountants are also called ‘Controller’s department’,
whereas 42 % are labelled ‘Finance Department’ and 28 % ‘Accounting Department’.
In the U.S.A., controllership remains closely interwoven and connected with financial
aspects. Moreover, the controller is often seen as a financial executive, who reports to the
CFO at the same hierarchical level as the treasurer (SIEGWART, 1982: 99; STOFFEL, 1995: 143;
WILLSON ET AL., 2003: 18).

An analysis of the situation in Germany reveals similar variations in the practical
environment (KÜPPER, 2005: 518). As a common denominator, controlling departments can
normally be observed at the same hierarchical level as finance departments. In contrast to the
U.S.A., this does not necessary include any interrelations between the departments
(SHERIDAN, 1995: 291).
This is supported by empirical findings, according to which 54 % of German controlling
departments have no organisational connection to financing, whereas such a strict separation
was evident in only 3 % of the U.S. corporations (STOFFEL, 1995: 144). Controlling can
therefore be found either at the same hierarchical level as the finance department, being an
administrative department supporting the head office, or in conformity with the Anglo-Saxon