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The article by Halbouni and Hassan (2012) that is titled “The Domination of Financial Accounting on Managerial Accounting Information: An Empirical Investigation in the UAE” is devoted to the topic of the relationship between financial accounting (FA) and managerial accounting (MA).
The authors describe the theoretical debate around this issue to determine the position of their paper. The primary goal of the authors is to explore the relationship between FA and MA as perceived by the UAE accountants. The specifics of the UAE business environment that the authors mentioned include the usage of IFRS and the rapid evolution in an outward-oriented system.
The authors review prior literature (the debate over the topic that is described below). They pay particular attention to the claim of MA dependence and FA dominance. They point out that the results are not positive for MA: its orientation grows short-term, which makes it less suitable for making decisions. The authors also point out that a number of empirical studies found no proof for this claim, but it is still rather persistent.
The research of Halbouni and Hassan (2012) includes the results of a 29-question survey based on the study by Joseph et al. and distributed among 126 UAE companies in 2009. The survey was meant to determine the opinion of managerial and financial accountants on the issue of FA dominance; the usable number of questionnaires amounted to 89. Apart from that, the authors analyzed the context of the UAE business to define the influence that it exerts on the development and tendencies in the UAE accounting.
They conclude that this context is more favorable towards FA, even though MA is also being developed. The results of the survey indicated that the majority of the respondents appear to consider MA to be influenced by the requirements set for the FA. They also described earnings per share as the most important information for both internal and external accounting. Apart from that, they show that the influence of external auditors on the business is also significant.
The respondents do not consider it to be a negative factor, though. At the same time, 56% of respondents tend to believe that MA is the primary source of managerial decisions. Besides, the majority of respondents (55%) tended to agree that MA fits the needs of management decision-making.
The authors point out that the context of UAE (where FA importance is highlighted) could contribute to the perception of FA domination in the UAE. The authors conclude by the suggestion that future research should focus on the mutual influence of the two accounting types.
The main keywords of the topic are, obviously, managerial (management) and financial accounting. The article is intended for a prepared reader, and the authors do not spell out these definitions. According to Heisinger (2008), FA is the type of accounting that focuses on “providing historical financial information to external users” (p. 7).
This definition highlights the main differences between FA and MA: the latter is meant for internal users to facilitate the managerial decisions. The rest of the features of the phenomena result from this discrepancy of purpose. In fact, the two types of accounting can also be called internal and external, which describes their nature.
Halbouni and Hassan (2012) refer to the theoretical debate that has been revolving around the topic. They point out that MA has been attracting more attention in scientific circles, which is explained by the changes in the modern business environment. At the same time, they state that many researchers, who worked at the end of the previous century and the beginning of the new one, doubt the importance of MA.
Halbouni and Hassan (2012) mention Bhimani, Anderson, Alam, Adler, and some others (p. 307). According to Halbouni and Hassan (2012), many of these doubts follow the claim of Johnson and Kaplan, according to which FA had a significant influence on MA. At the same time, this claim was also criticized (the authors mention Porter, Akers, Hopper, Scapens, and others). Halbouni and Hassan (2012) assume that the differences between the studies make it difficult to compare their results.
Halbouni and Hassan (2012) enter this debate with the article, and they state its position very clearly, as it is demonstrated above. They point out that the paper was created in order to examine and review the claim of Johnson and Kaplan about the diminishing importance of MA. They hope to analyze it within the context of a developing country (the UAE). In the end, Halbouni and Hassan (2012) state that their paper proves this claim and contradicts the results of the studies by “Hopper et al., Joseph et al. and Scapens et al.” (p. 306).
Indeed, as Halbouni and Hassan (2012) or Richardson (2002) point out, the scientists of the previous century doubted in the significance of MA. In the new century, however, the suggestion of integrating the two types of accounting is being advocated, for example, in Jermakowicz and Gornik-Tomaszewski (2006) or Taipaleenmäki and Ikäheimo (2013). Hemmer and Labro (2008) insist that the two phenomena are closely interrelated and demonstrate the utilization of an integrated system for better managerial decisions.
The work of Montondon and Butler (2011) consists of an attempt at integrating the two phenomena by using them both for a strategic plan during a case study. The tendency is not all-encompassing. For example, Pilcher and Dean (2009) point out that the introduction of international accounting standards influences the managerial practices in a negative way making them downplayed.
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The modern studies that are mentioned above tend to claim that academic literature draws too harsh a line between MA and FA; for example, see Hemmer and Labro (2008). Indeed, in modern accounting academic literature, FA and MA are often described in contrast, which could be explained by the needs of the students.
For example, the works by Needles, Powers, and Crosson (2013), as well as Heisinger (2008), mostly focus on contrasting MA and FA. At the same time, Griffin (2009) describes accounting as a system that consists of the two elements. Similarly, Needles and Crosson (2010), point out that MA and FA are “closely interrelated” (p. 737). In other words, it may be suggested that nowadays the tendency towards integrating the two types of accounting can be seen.
Impact and the Outcomes for the UAE
The study of Halbouni and Hassan (2012) is devoted to the perception of FA donation in UAE, which is why the results of the article are of particular importance for the country. The article demonstrates that at least 50% of the respondents (who are supposed to be knowledgeable in this respect) consider MA to be of vast importance for the company’s decision-making. This fact contradicts to the lack of MA encouragement in the UAE that Halbouni and Hassan (2012) describe.
From the analysis of the relevant theoretical debate, it follows that the two types of accounting are mutually interconnected and can be integrated for the benefit of a company. Halbouni and Hassan (2012) state that FA domination leads to MA neglect in the UAE. From the article, it follows that more attention should be paid to the development of MA and its practices in the UAE on the business and government levels.
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