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International comparisons of professional training in management accounting: The case of Canada and the United States
International Comparisons of Professional Training in Management Accounting: The Case of Canada and the United States
Vairam Arunachalam Carol Lawrence
The successful management of transnational organizations requires the design of organizational control systems that take into account contingencies relevant to the various environments in which organizational subunits operate. One such contingency is that of education and professional training of decision makers. This article investigates the extent to which a common body of knowledge (CBOK) f or management accounting professionals can be identified and the degree to which such a CBOK varies across countries. To this end, a comparison is made of the professional certification programs for management accountants in two countries, Canada and the United States. Underlying commonalities and dfferences are discussed in the context of cultural~economic/pohtical differences. Particular attention is given to Mexico as a participant in the North American Free Trade Agreement.
INTRODUCTION The current trend toward greater integration of economic activity in North America, as exemplified by the North American Free Trade Agreement (NAFTA), presents a significant opportunity for multinational companies. Porter (1989) maintains that such global competition can provide the motivating force needed to reinvigorate American industry. These benefits will only be realized, however, if multinational organizations can successfully handle the critical task of integrating organizational subunits which have evolved in diverse national environments. One important part of this task, in which management accountants may be expected to play a key role, is the design of organizational control systems. Journal of International Accounting Auditing & Taxation, 3(2):251-270 All rights of reproduction Copyright @ 1994 by JAI Press, Inc. Vairam Arunachalam and Carol Lawrence l School of Accountancy, 312 Middlebush Hall, Columbia, MO 65211.
ISSN: 1061-9518 in any form reserved.
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In this process, management accountants will increasingly find themselves interacting with their peers from other countries. A basic premise underlying this article is that such interaction is facilitated, and implementation of control systems in multinational organizations enhanced, by an understanding of national differences in the training and professional development of management accountants. Accordingly, the study presents a detailed analysis of professional certification programs for management accountants in two countries, Canada and the United States, and examines the implications for Mexico, which currently does not have a separate certification program for management accountants. This comparative analysis provides an assessment of the extent to which a common body of knowledge (CBOK) for management accounting professionals can be identified, and the degree to which such a CBOK varies across countries. Regional Integration in North America The choice of countries for this study was motivated by several factors. As Schiff (1986) points out, the Institute of Management Accountants in the United States and the Society of Management Accountants in Canada are among the most sophisticated professional bodies for management accountants in the world. Accordingly, an understanding of the professional certification programs of these organizations may serve as a model for management accountants in other countries who wish to establish similar programs. This is particularly relevant for Mexico, which currently does not have a separate certification program for management accountants. Rather, the contador public0 (analogous to the Certified Public Accountant or Chartered Accountant designation) is conferred on all university graduates with accounting degrees. Global competition and the crucial role of international trade are driving the economies of the United States, Canada, and Mexico toward greater integration (Taylor, 1991). While increasing interaction among the three countries may be inevitable, differences between the countries are substantial and must be understood if potential benefits from interaction are to be realized. Increasingly, as management accountants are called upon to design and implement organizational control systems for this culturally diverse environment, understanding of educational and national differences will be essential. Contribution
of the Research
The results of this research can be of interest in several ways. First, the evidence provided in this study can assist professional organizations in the development of reciprocity provisions across countries. Also, an understanding of the Canadian and U.S. professional certification programs can provide guidance to Mexican accountants if they should desire to establish a certification
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program. Second, by analyzing the professional certification programs and examination content in the two countries, this study provides insight into areas of commonality and difference in the requisite knowledge base for management accounting, as perceived by the two professional societies: the Society of Management Accountants (SMA) in Canada and the Institute of Management Accountants (IMA) in the United States. Third, through reference to Lander and Reinstein (1987) this study also identifies the extent to which the content of the certification exams is aligned with the perceptions of management accounting professionals regarding the importance of various topics. Fourth, much has been written about the increasing globalization of economic activity and the need for harmonization of accounting standards. Activity of organizations such as the International Accounting Standards Committee, the International Federation of Accountants, the Confederation of Asian and Pacific Accountants, the Federation des Experts Comptables Europeens, and the Interamerican Accounting Association attest to the growing interest in international aspects of accounting practice. This study addresses a gap in this literature by documenting existing professional certification programs for management accountants in two countries. CONCEPTUALBACKGROUND Professional certification programs such as the Certified Management Accountant (CMA) exemplify certain quality standards and play a pivotal role in defining the scope of education and knowledge required for management accountants. By investigating differences and similarities in CMA programs across countries, this study assesses the influence of professional education and training on the knowledge base required for effective practice of the management accounting function. A premise underlying this investigation is that professional education and training, which both define and are defined by managers’ assumptions, beliefs, values, and expectations, help delimit the opportunity set of control measures from which organizations select those deemed suitable for implementation. In a recent survey of the organizational science literature, Adler and Doktor (1989) identify two competing research streams: the convergence school and the divergence school. The convergence school would predict that since management principles are culture-independent and universal, control systems can be generic. By implication, management accounting systems in diverse cultural environments can be very similar and the same body of knowledge would be needed by management accountants in all countries. In contrast, the divergence school of thought would predict that cultural differences will lead to variation in expectations about interactions of individuals within the firm and variation in attitudes about the appropriateness of alternative control
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methods. An example of the divergence view is Farmer and Richman’s (1964) international study of managerial efficiency, which identified four types of external constraints: (1) educational, (2) sociological, (3) political/ legal, and (4) economic. By analyzing similarities and differences in the professional training of management accountants in two countries, this study provides evidence on the extent of cross-national variation in technical training. These differences are then analyzed to develop expectations about the linkages between national differences, the education of management accountants, and the design of organizational control systems in multinational organizations, with special emphasis on Mexico because of its role as a third party to NAFTA.
PROFESSIONAL CERTIFICATION PROGRAMS The comparison of the Canadian and U.S. professional certification programs is presented in three parts. This section compares the two CMA programs with reference to their overall professional requirements and exam organization. The second part of the analysis, presented in the following section, compares exam content, using a modified version of the listing compiled by Lander and Reinstein in their 1987 survey of management accounting professionals. The third part of the analysis, in the following section, interprets differences in the certification programs using Hofstede’s research findings on the influence of national culture on work-related attitudes (1984, 1991). This approach to comparing exam content and interpreting differences contributes a framework that can be used by researchers for further comparisons in the area of international management accounting. ProfessionalOversight In Canada, the Society of Management Accountants (SMA) is the central professional body. Administration of the professional certification program is carried out at the provincial level, which creates the potential for variation in requirements in different provinces. In the United States, the Institute of Certified Management Accountants (ICMA) administers the CMA program nationwide. CMAs are required to be members of the Institute of Management Accountants (IMA). As this organization is national in scope, candidates for certification in all states face the same requirements. The general procedure for candidates in both countries who wish to be certified is to obtain the requisite educational background, pass the necessary exam(s), and complete a period of practical experience. Table 1 presents a comprehensive comparison of the overall professional certification requirements of the two countries on several dimensions. Information regarding
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TABLE 1 Overall Professional Frameworks Dimension
Canada
1. Professional Oversight
Society of Management Accountants (SMA); administration at the provincial level
2. Initial Enrollment
Pass an Entrance Exam taken through SMA and, in some provinces, obtain equivalent of university business or commerce degree with an accounting emphasis
Requirements
3. Experience
United States Institute of Certified Management Accountants (ICMA) l
IMA membership Baccalaureate degree from an accredited institution or l Hold a CPA or comparable professional qualification
l
Two years experience in operational and managerial settings preapproved by the society and taken as part of the Accreditation requirement (this includes Professional Program requirement and experience requirements)
Two years or equivalentg professional experience in recognized management accounting settings
l
Complete Professional Program portion of Accreditation Requirement (11 independent study sessions, 5 group sessions, and 3 residential sessions) l Complete experience requirements
Meet initial enrollment requirements
Pass CMA final exam and meet experience requirements
Pass CMA exam and meet experience requirements
6. Separate Ethics Test
No, incorporated in group session portion of professional program requirement
No, incorporated
7. Continuing
Varies by jurisdiction
90 hours in each 3-year period subesequent to passing the exam
Requirements
4. Pre-exam Requirements
5. Certification Requirements
Professional Education
-
(CPU
in test
these dimensions was obtained from the respective professional bodies of the two countries. The overall professional requirements with reference to enrollment, educational requirements, experience, certification, and continuing professional education requirements are discussed below. Initial Enrollment and Education In Canada, candidates need to meet a preprofessional includes passing an entrance exam and, in some provinces,
requirement which either obtaining the
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equivalent of a baccalaureate degree in accounting or completing necessary courses through full- or part-time university business degree studies. A unique aspect of the Canadian program is that candidates are also required to pass an entrance exam designed to test the content of the preprofessional requirement and to ensure that all candidates possess the necessary knowledge base to enter the professional program phase. Prior to taking the Final Examination, Canadian CMA students are required to complete an extensive formal professional program comprised of 11 independent study sessions, five one-day group sessions, and three three-day residential sessions presented over a twoyear period.’ In the United States, in contrast, there is no formal entrance requirement or structured study program. A candidate who has a baccalaureate degree in any field, is in senior standing at a university, or holds a CPA certificate or other comparable professional qualification may register to take the examination on any of the semi-annual examination dates at any point after initial enrollment as a member in the IMA. Experience and Certification Requirements Both countries impose an experience requirement on CMA candidates, although the details differ. In Canada, candidates are required to complete a two-year period of operational and managerial experience in organizations and functions approved by the respective provincial societies. Approval of the offices in which they will undergo training must be obtained in advance from the provincial society. Upon satisfying the experience requirement, candidates are eligible to write the final CMA exam. Successful candidates are provided with the CMA designation. In order to retain their certification, the CMA must meet continuing education requirements which vary by jurisdiction. In the United States the required experience in managerial settings may be obtained either before or after the exam is taken. Experience requirements in most jurisdictions generally are reviewed ex post, although guidelines are in place regarding the nature of experience considered acceptable. After passing the exam and fulfilling the experience requirement, candidates are eligible for the CMA certificate, provided they comply with the code of conduct and are members of the IMA. The IMA requires that CMAs attend 90 hours of continuing professional education is each three-year period to retain their certification. In summary, the main difference between the professional certification programs in Canada and the United States is the Canadian requirement of an entrance exam and formal study program. Education and experience requirements are quite similar, although in the United States the approval of the experience is done on an ex post basis, which introduces a degree of uncertainty for the candidates. The group study experience in Canada provides a more socially integrative experience, in contrast to the highly individual approach in the United States.
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TABLE 2 Examination Organization Dimension
Canada
United States
1. Exam Structure
CMA Entrance Exam Two papers covering: 1. Management Accounting Area 2. Financial Accounting Area 3. Management Studies
CMA Exam 1. Economics, Finance and Management 2. Financial Accounting and Reporting 3. Management Reporting, Analysis, and Behavioral Issues 4. Decision Analysis and Information Systems
CMA Final Exam Case examination designed to test only the studies in the professional program 2.
Exam Format: Duration
l
Entrance Exam: 4 hours per paper Final Exam: 4 hours
Four hours per section
l
Weights
Entrance Exam: 100 marks per paper Final Exam: 1 paper, counts 45% toward candidate evaluation
100 points per section
l
Types of Questions
Entrance Exam: comprehensive case (2530%) smaller cases (4555%), problems (20-30s) Final Exam: case
Essays, problems, choice
3. Passing Conditions
Entrance Exam: minimum score of 60% Final Exam: l Need to pass 11 independent study sessions, 5 group sessions, 3 residential sessions, and final exam (weighted 20%, lo%, 25%, and 45% respectively as part of the Professional Program) l Numerical evaluations are assigned to the above components, but final standings are reported as pass with distinction, pass, or fail
l
Minimum score of 70% on each section l Passing by parts allowed
4. Exam Frequency
Entrance Exam: once a year (June) Final Exam: once a year (June)
Twice a year (June and December)
Professional
multiple
Examinations
Table 2 compares the examination organization of the two countries on the dimensions of (1) structure and format, and (2) passing conditions and frequency. A major difference between the two programs is the fact that there are two exams in the Canadian CMA program: the entrance exam in the preprofessional stage and the final exam in the professional program stage. The
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entrance exam is a comprehensive testing of the preprofessional education requirement and covers three areas: management accounting, financial accounting, and management studies. The exam consists of two papers and is made up of a comprehensive case, smaller cases, and problems. The final exam is a case examination designed to test only the studies of the combined independent study sessions, group sessions, and residential sessions which comprise the professional program. The case format and qualitative nature of the final exam are unique to Canada. The CMA exam in the United States consists of four parts: (1) economics, finance, and management; (2) financial accounting and reporting; (3) management reporting, analysis, and behavioral issues; and (4) decision analysis and information systems. A sizable proportion of the exam (approximately 25%) is in the form of multiple-choice questions, while the remainder of the exam is made up of problems and short essays. In its breadth of coverage, this exam is more similar to the Canadian entrance exam than to the final exam taken by Canadian candidates for the CMA certification. In Canada, a passing grade on the entrance exam is 60%. The independent study sessions consist of selected readings from professional, academic, and management journals. A variety of assignments require candidates to apply concepts to their own organizations, resulting in a closer integration of the training into the work experience of the candidate. Evaluation in the group sessions and residential sessions, most of which review, reinforce, and integrate material from the independent study sessions, is based on candidate participation. Results on final standing are based on a weighting of the final exam and the individual, group, and residential study sessions. This multimethod approach has the potential to contribute to a more diverse evaluation of each CMA candidate in Canada, in contrast to the United States where the written exam is the only basis for the evaluation of candidates.
COMMONBODYOFKNOWLEDGE A detailed review of the published syllabi for the Canadian and U.S. CMA exams was conducted using Lander and Reinstein’s CBOK listing. In Lander and Reinstein’s (1987) study (hereafter referred to as L-R), management accounting professionals were presented with a detailed listing of topics and asked to rate the importance of each item. Subjects in the L-R survey were 521 management accounting professionals selected at random from the IMA membership. In the current study, the entire L-R listing was used for the analysis of exam content, although some minor modifications were required to reconcile differences in organization between the L-R listing and the exam syllabi.2 Using the framework of Figure 1, a summary analysis of the exam syllabi and the L-R listing is presented in the Appendix. This framework is limited in its
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Lander & Reinstein (L-R)
Regions of the Diagram: 1. Items covered on both exams and in L-R Survey listing, the CBOK. 2. Items covered on Canadian exam only. 3. L-R Survey items covered on Canadian exam. 4. Items covered on U.S. exam only. 5. L-R Survey items covered on U.S. exam. 6. Items covered on both exams but not in L-R Survey listing. 7. L-R Survey items not covered on either exam.
Figure 1.
A Framework
for the Comparison
of Examination
Content
applicability to a small number of programs and/or countries; future comparisons could include the Venn diagram framework, but the L-R listing would not be necessary. The Common Body of Knowledge Framework Seven areas of commonalities and differences can be identified, represented by the seven regions of Figure 1. Region 1 includes topical areas identified as important by the respondents to the L-R survey and covered by the professional examinations in both countries. This region appears to constitute an acknowledged CBOK which is consistent across the two countries and is reflected in both exams as well as L-R’s survey of management accounting professionals. Items in this area include: (1) basic budgeting issues, including cost-volume-profit analysis and discounted cash flow techniques of capital budgeting; (2) financial statement analysis; (3) issues pertinent to decentralized
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organizations, including transfer pricing, performance measurement, and evaluation; (4) product costing; (5) pricing; (6) decision theory and operational decision analysis; and (7) information systems. The broad area of quantitative methods also falls in this region, as do the specific topics of linear programming, probability theory, statistical analysis, and sampling, although these items received fairly low importance ratings from respondents to the L-R survey. Items in Region 6 appear on both exams but did not appear on the L-R listing. The inconsistency with L-R’s results may indicate different perceptions of their respondents (who were management accounting professionals) and the individuals who prepare the examinations. U.S.-Canadian
Comparison
Within topical areas covered by both the U.S. and Canadian exams, there are distinct differences in emphasis, as can be seen through a comparison of the items in Regions 2 and 3 (covered on the Canadian exam but not the U.S.), and Regions 4 and 5 (on the U.S. exam but not the Canadian). Whereas both exams include some coverage of control issues in decentralized organizations, the U.S. exam contains greater detail on various methods of evaluating segment performance, while only the Canadian exam addresses the integration of foreign operations. The Canadian exam includes much more extensive coverage of general management topics such as tactical and operational planning. In the area of decision making, the U.S. exam places a heavier emphasis on the theoretical aspects of decision making and decision theory. The Canadian exam goes into greater detail on dealing with uncertainty, which is consistent with the exam’s treatment of capital budgeting, which also recognizes the impact of uncertainty. The Canadian exam alone addresses issues relevant to group decision making, such as participation and group behavior. There is a sharp contrast in auditing coverage, with the U.S. exam emphasizing external financial audits and the Canadian exam focusing exclusively on internal auditing. The Canadian exam is unique in its coverage of topics relevant to nonmanufacturing entities, including control issues in service organizations and both control and financial reporting issues in notfor-profit organizations. While both exams include coverage of tax issues, the U.S. exam focuses exclusively on corporations while the Canadian exam includes individuals, partnerships, and other organizational contexts. A similar pattern is evident in the coverage of regulation, where the U.S. exam focuses on the impact of regulation on business while the Canadian exam addresses the actual content of contract law and tort law. One of the most dramatic differences between the two exams is in the area of information systems, where, despite some overlap in topical coverage, the two exams take very different approaches. The Canadian exam emphasizes the entire systems area more heavily than the U.S. exam and tends to look at systems
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in more holistic terms (e.g., management information systems that support a variety of business functions) along with organizational issues such as the management of information systems and the organizational impact of accounting information systems. In contrast, the U.S. exam focuses more narrowly on accounting information systems and emphasizes control and auditing issues. The Canadian exam also incorporates more detailed coverage of the entire systems life cycle and of technical platforms (e.g., database systems, programming). Although the U.S. syllabus mentions artificial intelligence, decision support systems, and expert systems, a review of recent exams reveals the coverage of these areas to be extremely limited. These topics do not appear on either the Canadian exam or the L-R listing. Exam Coverage versus Survey Responses A particularly interesting area of the framework is Region 6, which includes items covered on both exams but not listed as important by respondents to the L-R survey. This area includes theoretical items such as the objectives of financial reporting, the conceptual framework of accounting, limitations of financial statement information, and broader strategic issues such as dividend policy, use of leverage, responsibility accounting, and strategic planning. Several of the topics which fall in this region are behavioral in nature, such as behavioral issues in decentralized organizations, leadership styles, and incentive systems. General management concepts, which do not appear in the L-R listing, receive extensive coverage on both exams. A unique aspect of the exams is coverage of the regulatory environment of business, including the accounting standards-setting process and related institutions. Several systems topics are covered on the two exams but are not in the L-R listing, including systems controls and decision support systems. Other items which fall in Region 6 of the framework include working capital management, cost of capital, decision making under uncertainty, relevant cost concepts, and variance analysis. Both exams recognize recent changes in the manufacturing environment and include questions on just-in-time production and activity-based costing. None of these items appears in the L-R listing. Another area of difference is in the coverage of ethical issues. The introduction to the syllabus for the U.S. exam notes that candidates may expect any part of the exam to include questions on the ethical responsibilities of management accountants. In Canada, ethical issues are addressed in the fifth group session of the professional program. The L-R listing does not make any reference to ethics. Due to recent highly publicized fraud cases and the increasing frequency of articles on ethical issues in professional journals, we might expect greater awareness of ethical issues now than in 1987 when the L-R survey was conducted (see, e.g., “Ethics in Corporate America,” 1990).
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Many items listed by respondents to the L-R survey do not appear on either exam (Region 7 of the framework). For the most part, these are procedural, technical items in contrast to the more conceptual focus of the exams. For example, the exams cover the purposes of budgeting while the L-R listing includes more procedural aspects of budgeting such as inflation adjustments in operating budgets. In the area of product costing, the L-R listing includes many highly detailed items, such as specific transfer pricing methods, which do not appear on either exam syllabus. In the area of financial accounting, the exams emphasize conceptual and theoretical issues while the L-R listing emphasizes more technical items such as inflation accounting, foreign exchange transactions, and warranties. The survey respondents’ emphasis on technical detail is also apparent in the area of economics, where they identified economic forecasting and economic statistics as important. None of these detailed items are listed in the exam syllabi, which focus more generally on basic economic concepts. In summary, the analysis reveals a consensus on the importance of the broad areas of product costing, budgeting, capital budgeting, information systems, quantitative methods, and financial accounting. Both exams include some coverage of ethical issues and new manufacturing techniques, although these did not appear in the L-R listing. The exams also tend to emphasize conceptual and behavioral issues, while the L-R listing is much more focused on technical, procedural items. The analysis also identifies six areas of differences between the Canadian and U.S. exams. First, Canada’s coverage of management topics and organizational theory is broader in that it addresses topics including tactical/operational planning, marketing/ operations management, and managing change. Second, Canadian coverage of some entity operation topics is broader than the U.S. coverage; this includes accounting for business combinations, contract and tort law, tax planning, and corporate as well as individual and partnership taxation. Third, the U.S. coverage of multinational economics and issues in decentralized organizations is more detailed, particularly with regard to the measurement and evaluation of segment performance in decentralized organizations. Fourth, Canada takes a more expansive view of information systems, whereas the United States considers the area primarily from an accounting perspective. F$th, the United States covers both external and internal auditing whereas Canada focuses on internal auditing. Sixth, Canada includes an emphasis on service and not-forprofit organizations in its coverage of both budgeting and financial accounting. One consistent trend in the exam content is the broader, more comprehensive approach of the Canadian exam. This approach is closer to the British educational tradition of “the ideal manager or administrator as a classically educated and widely cultured person, who, because of his or her breadth of knowledge and general understanding of how the world works, will be able to cope with any situation-the ‘gifted amateur”’ (Pugh, 1984, p.62).
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DISCUSSION An interesting issue is the extent to which the CBOK identified by this study, on the basis of the U.S.-Canadian comparison, may be generalizable to other countries. Extrapolating experience across different cultures should be done with care since the validity of such extensions can be affected by variations in cultural characteristics, economic conditions, and sociopolitical environments. Through a graphical analysis, Hofstede (1984) identifies a distinct cluster of countries with relatively low values on the two dimensions of power distance3 and uncertainty avoidance.4 This cluster includes both Canada and the United States and is referred to as the Anglo-Scandinavian cluster. Cultural characteristics of this group include acceptance of conflict in organizations as natural, low emotional resistance to change, high willingness to take risk, and a strong motivation for achievement. In these cultures, organizational decision making may be highly decentralized and managers are expected to be most comfortable with organizational types where structure is implicit rather than formal. Because these cultures have several areas of similarity in contrast to other groups of countries, it is expected that research results would most readily transfer to other countries within this cluster, which includes Australia, New Zealand, Norway, the Netherlands, and South Africa as well as Canada and the United States. In contrast to this cluster is one characterized by both high power distance and high uncertainty avoidance. This cluster, referred to as the Latin cluster, includes Mexico as well as Colombia, Chile, Peru, Portugal, and Venezuela. The high power distance’scores for these countries suggests that organizational decision making will be highly centralized. A preference for clearly defined hierarchical structures and top-down decision making will exist and participative budgeting will be rarely used. Savage (1969), in a survey of Mexican controllers, financial managers, educators, and public accountants, reported that the use of participative budgeting was not widespread and the use of budgets to motivate managers was not common practice. Savage also found that traditional resistance to delegation of authority in Mexican firms had weakened and decentralization of authority had increased greatly. Frucot and Shearon (1991) examined the effect of cultural differences on the relationship between individual locus of control, budgetary participation, and Mexican managerial performance/ satisfaction. They found significant results in domestic-owned firms but not in foreign-owned firms, suggesting a “cultural interface” in ownership that affects budgetary participation. Mexico as well as other countries in the Latin cluster have relatively high uncertainty avoidance scores in contrast to the Anglo-Scandinavian cluster, which has lower uncertainty avoidance scores. Accordingly, Canadian and U.S. firms that are considering expanding into Mexico, or professionals from Canada and the United States who want to work in Mexico, should be aware of the traits which Hofstede suggests typify cultures with a high degree of
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uncertainty avoidance. These traits include emotional resistance to change, respect for seniority, aversion to risk-taking, less emphasis on individual advancement, a desire for clearly defined hierarchical structure in organizations, and a preference for clear, unambiguous requirements/ instructions. Based on Mexico’s relatively higher uncertainty avoidance score, Mexican firms might also be expected to place heavy emphasis on long range planning and capital budgeting. However, Savage (1969) found that only a small percentage of Mexican firms used long-range planning or conducted systematic analysis of capital expenditures. Economic conditions in Mexico have been highly uncertain, with rapidly growing and changing markets, highly volatile prices, extreme inflationary pressures, and government policies alternatively emphasizing nationalization and privatization. Under such conditions, longrange planning is problematic at best, and the lack of long-range planning by Mexican firms may be due as much to economic conditions as cultural influences. The impact of economic conditions on management accounting is evidenced in other ways as well. Prior to the 1950s many Mexican industries enjoyed captive, growing markets and were protected from competition by governmental policies. Consequently, high margins were assured and such techniques as estimation of cost behavior (fixed versus variable), cost-volumeprofit analysis, and profit planning were not commonly used. In Hofstede’s study, the greatest difference between Canada and the United States was found on the dimension of individualism. The United States had the highest individualism score of the 39 countries studied (90) while Canada’s score was somewhat lower (80). Hofstede found that in high individualism countries, employees were more strategic or calculating in their relationship with their organizations, placed greater emphasis on autonomy, and considered individual decisions “better” than group decisions. In contrast, in lower individualism countries, workers felt a moral obligation to their companies, valued job security more, preferred group to individual decision making, and considered the pursuit of individual goals without concern for others to be inappropriate. The group-oriented nature of the professional program in Canada is consistent with Canada’s lower emphasis on individualism. Furthermore, given Canada’s lower individualism score relative to the United States, it is not surprising that the Canadian exam covers group behavior and the U.S. exam does not. It is expected that a greater emphasis on group behavior would be found in countries with even lower individualism scores, such as Mexico, which had an individualism score of 30. CONCLUSION The analysis of professional certification programs accountants in Canada and the United States has identified
for management certain knowledge
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items which appear to constitute a core CBOK, as well as country-specific aspects of professional training. Topical areas recognized as important in both countries include basic budgeting, cost-volume-profit analysis and discounted cash flow techniques, financial statement analysis, product costing, pricing, decision theory/ analysis, information systems, and decentralization concepts such as transfer pricing and divisional performance measurement. These items may be considered to constitute an acknowledged CBOK for management accounting. Differences in the professional examinations do exist. The Canadian exam takes a broader approach to information systems while the U.S. exam more narrowly focuses on accounting information systems and control issues. While the U.S. exam covers both internal and external auditing, the Canadian coverage is limited to internal auditing. The Canadian exam emphasizes group behavior and accounting for service industries and not-for-profit entities, while neither of these topics appears in the syllabus for the U.S. exam. In addition to enhancing the mutual understanding of management accounting certification in Canada and the United States, these findings have implications for professional certification in Mexico. As Mexico currently does not have a professional certification program, knowledge of programs in the other countries can provide guidance if Mexican management accountants should choose to develop such a program in the future. The Canadian model of professional development, with its emphasis on group study and preapproved experience requirements, may be more readily adapted to the Mexican environment than the more individualistic U.S. model for two reasons. First, the Mexican educational environment follows the European tradition (as does Canada’s), and second, Mexico is characterized by Hofstede as a high uncertainty avoidance, low individualism country. Overall, the results of this research suggest that similarities in the professional development of management accountants are present. However, despite the high degree of similarity between the cultural, political, and social environments in Canada and the United States, important differences have been identified. As the differences between Mexico and the United States, or between Mexico and Canada, are even more striking, great care will be required in adapting professional certification programs from the United States or Canada for use in Mexico. Particular attention should be devoted to situations where management techniques developed in the United States or Canada may not be as effective in Mexico. For example, control and performance measurement issues in decentralized organizations receive substantial coverage on both the U.S. and Canadian exams. In Mexico’s high power distance culture, it is expected that decision making in organizations will be highly centralized. If division managers have little autonomy in Mexico, issues pertaining to decentralized organizations such as responsibility accounting and divisional performance measurement may therefore have less relevance. The educational delivery of certain management techniques such as participative budgeting also cannot be transplanted across
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borders without careful consideration of individualism and national differences in the way that employees interact with superiors and subordinates. In order to facilitate an integration of management accounting practice as well as the development of an updated CBOK across countries, further research is needed. Acknowledgment: The authors gratefully acknowledge the assistance Richard Michalski of the Society of Management Accountants of Canada.
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APPENDIX: EXAMINATION CONTENT Subject Areas By Examination
Canada
Part Number
United States
Auditing and Internal Control Operational Auditing Procedures l Internal Auditing: objectives, scope, and reports l lnternal Auditing: professional standards and procedures l Internal Auditing: theory and techniques l External Audit Services l External Auditing: professional standards and procedures l Auditor-Management Responsibilities l Audit Reports l
Budgeting Budgeting Concepts and Behavioral Implications Cost-Volume-Profit Analysis Multi-product Cost-Volume-Profit analysis Flexible Budgeting Forecasting Cash Flow Inflation Adjustments in Operating Budget Learning Curve Impact on Operating Budget Control in Not-for-profit and Service Organizations Working Capital Management Capital Budgeting Discounted and Nondiscounted Cash Flow Techniques Capital Structure Cost of Capital Dividend Policy Financial Institutions and Markets Sensitivity Analysis Capital Budgeting Under Uncertainty Mergers and Acquisitions Economics Macroeconomics, Microeconomics, and Multinational l Economic Forecasting, Economic Statistics
l
Economics
3
1
0
0
(continued)
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Appendix (continued) Subject Areas By Examination
Part Number
EDP and Information Systems Nature of AIS Aritificial Intelligence, Expert Systems Database Systems Decision Support Systems Systems Controls, Security Measures EDP Auditing Systems Development Process Organizational Impact of AIS Management of Information Systems Financial, Marketing/ Purchasing, Production/ Office Automation Programming, Processing Environments
. . . . . . . . . . . .
United States
0
4 4
0 1 1 1
0
Personnel
Systems
Ethics Financial Accounting. Conceptual Framework of Accounting Financial Statements and Analysis Reporting Standards and Procedures Standard-setting Process and Institutions Accounting Cycles Inflation Accounting Foreign E:xchange Transactions Warranties Methods of Accounting for Business Combinations Financial Statements of Not-for-profit organizations
. . . . . . . . . .
General Management Human R.esource Management and Leadership Management Theory Strategic Planning Tactical Planning, Operational Planning Marketing Management, Operations Management Managing, Change Issues in Decentralized Organizations Contribution Approach to Cost Allocation l Segment Determination and Reporting l Performance Measurement and Evaluation -Residual Income for Segment Performance -Return on Investment for Performance Measurement -Contribution Approach for Segment Performance Measurement -Allocating Costs to Responsibility Centers -Line of Business Reporting l
Canada
1 1 1 1 3 3
: 4 4 4 0
4 0 0 0
GS-3
All
2 2 2 2 2
2 2 2 2
0
0
0
0
1
0
2 2
2 2
3 3 3 3 3 3
1
2 1 0 0 0 0 0
0
1 1 3 0 0 0
3 3 3 3 3 3 3 3
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AUDITING
& TAXATION,
(continued)
Subject Areas By Examination Part Number
Canada
Issues in Decentralized Organizations (continued) Responsibility Accounting l Transfer Pricing l Behavioral Issues l Integration of Foreign Operations
0
Operational Decision Analysis and Decision Theory Decison-making Analysis and Uncertainty l Pricing l Sensitivity Analysis of Pricing Models l Relevant Cost Concepts
4
l
4 0
4
Behavior 1
l
I and Corporate and Theories Behavior
3 3 1 3
Goals
Product Costing, Cost Accumulation Job Order and Process Costing Absorption and Direct Costing Activity-based Costing Project Costing Hybrid Costing Systems Normal Costing Cost Allocation Standard Costs and Variance Analysis Variance Investigation Decision Production Environment Just-in-Time l Automated Manufacturing
United States
3 3 3
l
Organizational Theory and Motivation Theories l Communication l Incentive Systems l Alignment of Individual t Organizational Structure l Participation and Group
1994
3(2)
3 3 3 0 0 0
3 3 3
IS-I 1
l
Systems
Quantitative Methods Linear Programming l Statistical Analysis and Sampling 0 Simulations l Modeling: Economic Order Quantity, l Regression Analysis l
CPM, PERT
3 0
4 4 4 4 4
(continued)
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Training
Appendix (continued) Subject Areas By Examination
Part Number
Regulatory Environment of Business Government Regulation l Legal Forms of Business l Impact on Business of External Factors l Contract Law, Tort Law l
Taxes Tax Considerations in Operational and Investment l Corporations l Individual, Partnerships, Other Entities l Tax Planning
l
Notes:
Decision Analysis
Canada
United States
2 3 2 3
1 1 1
2 2 2 2
0
4 2 0 0
“0” indicates omitted in exam syllabus. A number indicates the examination part in which a topic is primarily covered. Canadian examination content is with reference to the preprofessional program; in cases where a topic is covered primarily in the professional program, it is referenced to the independent study (IS), group study (GS), or residential study (RS) session in which it is covered. U.S. examination content is referenced to one of the four parts in which a topic is primarily contained.
NOTES The SMA is currently revising its professional program content. The revised program is expected to be completed later in 1994. The review of Canadian exam content is based on the preprofessional syllabus and study sessions in the professional program which extend and/ or introduce topics to the candidate. Power distance refers to the way a society deals with the basic issue of inequity in the distribution of prestige, wealth, and power. Uncertainty avoidance reflects the extent to which a cultural group feels comfortable with uncertainty about the future, and the means used to deal with uncertainty, such as law or technology. See Hofstede (1991) for a more detailed discussion of the various dimensions.
REFERENCES
Adler,
N.J., and R. Doktor. 1989. From the atlantic to the pacific century: Cross-cultural management reviewed. In Chimezie A.B. Osigweh (ed.), Organizational Science Abroad (pp. 305326). New York: Plenum. Ethics in Corporate America. 1990. Management Accounting June (special issue). Farmer, R.N , and B.M. Richman. 1964. A model for research in comparative management. California Management Review (Winter): 55-68. Frucot, V., and W.T. Shearon. 1991. Budgetary participation, locus of control, and Mexican managerial performance and job satisfaction. The Accounting Review (January): 80-99. Hofstede, G. 1984. CuitureS Consequences, International Differences in Work-Related Values. London: Sage. Hofstede, G. 1991. Cultures and Organizations: Software of the Mind. New York: McGrawHill.
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Lander, G.H., and A. Reinstein. 1987. Identifying acommon body of knowledge for management accounting. Issues In Accounting Education (Fall): 264-280. Porter, M. 1989. Eke Competitive Advantage of Nations. New York: The Free Press. Pugh, D. 1984. Organization Theory. London: Penguin. Savage, A.H. 1969. Management accounting in Mexico. Management Accounting 50(4): 45-51. Schiff, J.B. 1986. Management accounting practices statement promulgation: An international perspective. International Journal ofAccounting Education and Research 22( 1, Fall): 119134. Taylor, C.R. 1991. North America: The new competitive space. Conference Board Report No. 960. New York: Conference Board.
Vairam Arunachalam Carol Lawrence
The successful management of transnational organizations requires the design of organizational control systems that take into account contingencies relevant to the various environments in which organizational subunits operate. One such contingency is that of education and professional training of decision makers. This article investigates the extent to which a common body of knowledge (CBOK) f or management accounting professionals can be identified and the degree to which such a CBOK varies across countries. To this end, a comparison is made of the professional certification programs for management accountants in two countries, Canada and the United States. Underlying commonalities and dfferences are discussed in the context of cultural~economic/pohtical differences. Particular attention is given to Mexico as a participant in the North American Free Trade Agreement.
INTRODUCTION The current trend toward greater integration of economic activity in North America, as exemplified by the North American Free Trade Agreement (NAFTA), presents a significant opportunity for multinational companies. Porter (1989) maintains that such global competition can provide the motivating force needed to reinvigorate American industry. These benefits will only be realized, however, if multinational organizations can successfully handle the critical task of integrating organizational subunits which have evolved in diverse national environments. One important part of this task, in which management accountants may be expected to play a key role, is the design of organizational control systems. Journal of International Accounting Auditing & Taxation, 3(2):251-270 All rights of reproduction Copyright @ 1994 by JAI Press, Inc. Vairam Arunachalam and Carol Lawrence l School of Accountancy, 312 Middlebush Hall, Columbia, MO 65211.
ISSN: 1061-9518 in any form reserved.
University
of Missouri,
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In this process, management accountants will increasingly find themselves interacting with their peers from other countries. A basic premise underlying this article is that such interaction is facilitated, and implementation of control systems in multinational organizations enhanced, by an understanding of national differences in the training and professional development of management accountants. Accordingly, the study presents a detailed analysis of professional certification programs for management accountants in two countries, Canada and the United States, and examines the implications for Mexico, which currently does not have a separate certification program for management accountants. This comparative analysis provides an assessment of the extent to which a common body of knowledge (CBOK) for management accounting professionals can be identified, and the degree to which such a CBOK varies across countries. Regional Integration in North America The choice of countries for this study was motivated by several factors. As Schiff (1986) points out, the Institute of Management Accountants in the United States and the Society of Management Accountants in Canada are among the most sophisticated professional bodies for management accountants in the world. Accordingly, an understanding of the professional certification programs of these organizations may serve as a model for management accountants in other countries who wish to establish similar programs. This is particularly relevant for Mexico, which currently does not have a separate certification program for management accountants. Rather, the contador public0 (analogous to the Certified Public Accountant or Chartered Accountant designation) is conferred on all university graduates with accounting degrees. Global competition and the crucial role of international trade are driving the economies of the United States, Canada, and Mexico toward greater integration (Taylor, 1991). While increasing interaction among the three countries may be inevitable, differences between the countries are substantial and must be understood if potential benefits from interaction are to be realized. Increasingly, as management accountants are called upon to design and implement organizational control systems for this culturally diverse environment, understanding of educational and national differences will be essential. Contribution
of the Research
The results of this research can be of interest in several ways. First, the evidence provided in this study can assist professional organizations in the development of reciprocity provisions across countries. Also, an understanding of the Canadian and U.S. professional certification programs can provide guidance to Mexican accountants if they should desire to establish a certification
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program. Second, by analyzing the professional certification programs and examination content in the two countries, this study provides insight into areas of commonality and difference in the requisite knowledge base for management accounting, as perceived by the two professional societies: the Society of Management Accountants (SMA) in Canada and the Institute of Management Accountants (IMA) in the United States. Third, through reference to Lander and Reinstein (1987) this study also identifies the extent to which the content of the certification exams is aligned with the perceptions of management accounting professionals regarding the importance of various topics. Fourth, much has been written about the increasing globalization of economic activity and the need for harmonization of accounting standards. Activity of organizations such as the International Accounting Standards Committee, the International Federation of Accountants, the Confederation of Asian and Pacific Accountants, the Federation des Experts Comptables Europeens, and the Interamerican Accounting Association attest to the growing interest in international aspects of accounting practice. This study addresses a gap in this literature by documenting existing professional certification programs for management accountants in two countries. CONCEPTUALBACKGROUND Professional certification programs such as the Certified Management Accountant (CMA) exemplify certain quality standards and play a pivotal role in defining the scope of education and knowledge required for management accountants. By investigating differences and similarities in CMA programs across countries, this study assesses the influence of professional education and training on the knowledge base required for effective practice of the management accounting function. A premise underlying this investigation is that professional education and training, which both define and are defined by managers’ assumptions, beliefs, values, and expectations, help delimit the opportunity set of control measures from which organizations select those deemed suitable for implementation. In a recent survey of the organizational science literature, Adler and Doktor (1989) identify two competing research streams: the convergence school and the divergence school. The convergence school would predict that since management principles are culture-independent and universal, control systems can be generic. By implication, management accounting systems in diverse cultural environments can be very similar and the same body of knowledge would be needed by management accountants in all countries. In contrast, the divergence school of thought would predict that cultural differences will lead to variation in expectations about interactions of individuals within the firm and variation in attitudes about the appropriateness of alternative control
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methods. An example of the divergence view is Farmer and Richman’s (1964) international study of managerial efficiency, which identified four types of external constraints: (1) educational, (2) sociological, (3) political/ legal, and (4) economic. By analyzing similarities and differences in the professional training of management accountants in two countries, this study provides evidence on the extent of cross-national variation in technical training. These differences are then analyzed to develop expectations about the linkages between national differences, the education of management accountants, and the design of organizational control systems in multinational organizations, with special emphasis on Mexico because of its role as a third party to NAFTA.
PROFESSIONAL CERTIFICATION PROGRAMS The comparison of the Canadian and U.S. professional certification programs is presented in three parts. This section compares the two CMA programs with reference to their overall professional requirements and exam organization. The second part of the analysis, presented in the following section, compares exam content, using a modified version of the listing compiled by Lander and Reinstein in their 1987 survey of management accounting professionals. The third part of the analysis, in the following section, interprets differences in the certification programs using Hofstede’s research findings on the influence of national culture on work-related attitudes (1984, 1991). This approach to comparing exam content and interpreting differences contributes a framework that can be used by researchers for further comparisons in the area of international management accounting. ProfessionalOversight In Canada, the Society of Management Accountants (SMA) is the central professional body. Administration of the professional certification program is carried out at the provincial level, which creates the potential for variation in requirements in different provinces. In the United States, the Institute of Certified Management Accountants (ICMA) administers the CMA program nationwide. CMAs are required to be members of the Institute of Management Accountants (IMA). As this organization is national in scope, candidates for certification in all states face the same requirements. The general procedure for candidates in both countries who wish to be certified is to obtain the requisite educational background, pass the necessary exam(s), and complete a period of practical experience. Table 1 presents a comprehensive comparison of the overall professional certification requirements of the two countries on several dimensions. Information regarding
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TABLE 1 Overall Professional Frameworks Dimension
Canada
1. Professional Oversight
Society of Management Accountants (SMA); administration at the provincial level
2. Initial Enrollment
Pass an Entrance Exam taken through SMA and, in some provinces, obtain equivalent of university business or commerce degree with an accounting emphasis
Requirements
3. Experience
United States Institute of Certified Management Accountants (ICMA) l
IMA membership Baccalaureate degree from an accredited institution or l Hold a CPA or comparable professional qualification
l
Two years experience in operational and managerial settings preapproved by the society and taken as part of the Accreditation requirement (this includes Professional Program requirement and experience requirements)
Two years or equivalentg professional experience in recognized management accounting settings
l
Complete Professional Program portion of Accreditation Requirement (11 independent study sessions, 5 group sessions, and 3 residential sessions) l Complete experience requirements
Meet initial enrollment requirements
Pass CMA final exam and meet experience requirements
Pass CMA exam and meet experience requirements
6. Separate Ethics Test
No, incorporated in group session portion of professional program requirement
No, incorporated
7. Continuing
Varies by jurisdiction
90 hours in each 3-year period subesequent to passing the exam
Requirements
4. Pre-exam Requirements
5. Certification Requirements
Professional Education
-
(CPU
in test
these dimensions was obtained from the respective professional bodies of the two countries. The overall professional requirements with reference to enrollment, educational requirements, experience, certification, and continuing professional education requirements are discussed below. Initial Enrollment and Education In Canada, candidates need to meet a preprofessional includes passing an entrance exam and, in some provinces,
requirement which either obtaining the
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equivalent of a baccalaureate degree in accounting or completing necessary courses through full- or part-time university business degree studies. A unique aspect of the Canadian program is that candidates are also required to pass an entrance exam designed to test the content of the preprofessional requirement and to ensure that all candidates possess the necessary knowledge base to enter the professional program phase. Prior to taking the Final Examination, Canadian CMA students are required to complete an extensive formal professional program comprised of 11 independent study sessions, five one-day group sessions, and three three-day residential sessions presented over a twoyear period.’ In the United States, in contrast, there is no formal entrance requirement or structured study program. A candidate who has a baccalaureate degree in any field, is in senior standing at a university, or holds a CPA certificate or other comparable professional qualification may register to take the examination on any of the semi-annual examination dates at any point after initial enrollment as a member in the IMA. Experience and Certification Requirements Both countries impose an experience requirement on CMA candidates, although the details differ. In Canada, candidates are required to complete a two-year period of operational and managerial experience in organizations and functions approved by the respective provincial societies. Approval of the offices in which they will undergo training must be obtained in advance from the provincial society. Upon satisfying the experience requirement, candidates are eligible to write the final CMA exam. Successful candidates are provided with the CMA designation. In order to retain their certification, the CMA must meet continuing education requirements which vary by jurisdiction. In the United States the required experience in managerial settings may be obtained either before or after the exam is taken. Experience requirements in most jurisdictions generally are reviewed ex post, although guidelines are in place regarding the nature of experience considered acceptable. After passing the exam and fulfilling the experience requirement, candidates are eligible for the CMA certificate, provided they comply with the code of conduct and are members of the IMA. The IMA requires that CMAs attend 90 hours of continuing professional education is each three-year period to retain their certification. In summary, the main difference between the professional certification programs in Canada and the United States is the Canadian requirement of an entrance exam and formal study program. Education and experience requirements are quite similar, although in the United States the approval of the experience is done on an ex post basis, which introduces a degree of uncertainty for the candidates. The group study experience in Canada provides a more socially integrative experience, in contrast to the highly individual approach in the United States.
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TABLE 2 Examination Organization Dimension
Canada
United States
1. Exam Structure
CMA Entrance Exam Two papers covering: 1. Management Accounting Area 2. Financial Accounting Area 3. Management Studies
CMA Exam 1. Economics, Finance and Management 2. Financial Accounting and Reporting 3. Management Reporting, Analysis, and Behavioral Issues 4. Decision Analysis and Information Systems
CMA Final Exam Case examination designed to test only the studies in the professional program 2.
Exam Format: Duration
l
Entrance Exam: 4 hours per paper Final Exam: 4 hours
Four hours per section
l
Weights
Entrance Exam: 100 marks per paper Final Exam: 1 paper, counts 45% toward candidate evaluation
100 points per section
l
Types of Questions
Entrance Exam: comprehensive case (2530%) smaller cases (4555%), problems (20-30s) Final Exam: case
Essays, problems, choice
3. Passing Conditions
Entrance Exam: minimum score of 60% Final Exam: l Need to pass 11 independent study sessions, 5 group sessions, 3 residential sessions, and final exam (weighted 20%, lo%, 25%, and 45% respectively as part of the Professional Program) l Numerical evaluations are assigned to the above components, but final standings are reported as pass with distinction, pass, or fail
l
Minimum score of 70% on each section l Passing by parts allowed
4. Exam Frequency
Entrance Exam: once a year (June) Final Exam: once a year (June)
Twice a year (June and December)
Professional
multiple
Examinations
Table 2 compares the examination organization of the two countries on the dimensions of (1) structure and format, and (2) passing conditions and frequency. A major difference between the two programs is the fact that there are two exams in the Canadian CMA program: the entrance exam in the preprofessional stage and the final exam in the professional program stage. The
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entrance exam is a comprehensive testing of the preprofessional education requirement and covers three areas: management accounting, financial accounting, and management studies. The exam consists of two papers and is made up of a comprehensive case, smaller cases, and problems. The final exam is a case examination designed to test only the studies of the combined independent study sessions, group sessions, and residential sessions which comprise the professional program. The case format and qualitative nature of the final exam are unique to Canada. The CMA exam in the United States consists of four parts: (1) economics, finance, and management; (2) financial accounting and reporting; (3) management reporting, analysis, and behavioral issues; and (4) decision analysis and information systems. A sizable proportion of the exam (approximately 25%) is in the form of multiple-choice questions, while the remainder of the exam is made up of problems and short essays. In its breadth of coverage, this exam is more similar to the Canadian entrance exam than to the final exam taken by Canadian candidates for the CMA certification. In Canada, a passing grade on the entrance exam is 60%. The independent study sessions consist of selected readings from professional, academic, and management journals. A variety of assignments require candidates to apply concepts to their own organizations, resulting in a closer integration of the training into the work experience of the candidate. Evaluation in the group sessions and residential sessions, most of which review, reinforce, and integrate material from the independent study sessions, is based on candidate participation. Results on final standing are based on a weighting of the final exam and the individual, group, and residential study sessions. This multimethod approach has the potential to contribute to a more diverse evaluation of each CMA candidate in Canada, in contrast to the United States where the written exam is the only basis for the evaluation of candidates.
COMMONBODYOFKNOWLEDGE A detailed review of the published syllabi for the Canadian and U.S. CMA exams was conducted using Lander and Reinstein’s CBOK listing. In Lander and Reinstein’s (1987) study (hereafter referred to as L-R), management accounting professionals were presented with a detailed listing of topics and asked to rate the importance of each item. Subjects in the L-R survey were 521 management accounting professionals selected at random from the IMA membership. In the current study, the entire L-R listing was used for the analysis of exam content, although some minor modifications were required to reconcile differences in organization between the L-R listing and the exam syllabi.2 Using the framework of Figure 1, a summary analysis of the exam syllabi and the L-R listing is presented in the Appendix. This framework is limited in its
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Lander & Reinstein (L-R)
Regions of the Diagram: 1. Items covered on both exams and in L-R Survey listing, the CBOK. 2. Items covered on Canadian exam only. 3. L-R Survey items covered on Canadian exam. 4. Items covered on U.S. exam only. 5. L-R Survey items covered on U.S. exam. 6. Items covered on both exams but not in L-R Survey listing. 7. L-R Survey items not covered on either exam.
Figure 1.
A Framework
for the Comparison
of Examination
Content
applicability to a small number of programs and/or countries; future comparisons could include the Venn diagram framework, but the L-R listing would not be necessary. The Common Body of Knowledge Framework Seven areas of commonalities and differences can be identified, represented by the seven regions of Figure 1. Region 1 includes topical areas identified as important by the respondents to the L-R survey and covered by the professional examinations in both countries. This region appears to constitute an acknowledged CBOK which is consistent across the two countries and is reflected in both exams as well as L-R’s survey of management accounting professionals. Items in this area include: (1) basic budgeting issues, including cost-volume-profit analysis and discounted cash flow techniques of capital budgeting; (2) financial statement analysis; (3) issues pertinent to decentralized
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organizations, including transfer pricing, performance measurement, and evaluation; (4) product costing; (5) pricing; (6) decision theory and operational decision analysis; and (7) information systems. The broad area of quantitative methods also falls in this region, as do the specific topics of linear programming, probability theory, statistical analysis, and sampling, although these items received fairly low importance ratings from respondents to the L-R survey. Items in Region 6 appear on both exams but did not appear on the L-R listing. The inconsistency with L-R’s results may indicate different perceptions of their respondents (who were management accounting professionals) and the individuals who prepare the examinations. U.S.-Canadian
Comparison
Within topical areas covered by both the U.S. and Canadian exams, there are distinct differences in emphasis, as can be seen through a comparison of the items in Regions 2 and 3 (covered on the Canadian exam but not the U.S.), and Regions 4 and 5 (on the U.S. exam but not the Canadian). Whereas both exams include some coverage of control issues in decentralized organizations, the U.S. exam contains greater detail on various methods of evaluating segment performance, while only the Canadian exam addresses the integration of foreign operations. The Canadian exam includes much more extensive coverage of general management topics such as tactical and operational planning. In the area of decision making, the U.S. exam places a heavier emphasis on the theoretical aspects of decision making and decision theory. The Canadian exam goes into greater detail on dealing with uncertainty, which is consistent with the exam’s treatment of capital budgeting, which also recognizes the impact of uncertainty. The Canadian exam alone addresses issues relevant to group decision making, such as participation and group behavior. There is a sharp contrast in auditing coverage, with the U.S. exam emphasizing external financial audits and the Canadian exam focusing exclusively on internal auditing. The Canadian exam is unique in its coverage of topics relevant to nonmanufacturing entities, including control issues in service organizations and both control and financial reporting issues in notfor-profit organizations. While both exams include coverage of tax issues, the U.S. exam focuses exclusively on corporations while the Canadian exam includes individuals, partnerships, and other organizational contexts. A similar pattern is evident in the coverage of regulation, where the U.S. exam focuses on the impact of regulation on business while the Canadian exam addresses the actual content of contract law and tort law. One of the most dramatic differences between the two exams is in the area of information systems, where, despite some overlap in topical coverage, the two exams take very different approaches. The Canadian exam emphasizes the entire systems area more heavily than the U.S. exam and tends to look at systems
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in more holistic terms (e.g., management information systems that support a variety of business functions) along with organizational issues such as the management of information systems and the organizational impact of accounting information systems. In contrast, the U.S. exam focuses more narrowly on accounting information systems and emphasizes control and auditing issues. The Canadian exam also incorporates more detailed coverage of the entire systems life cycle and of technical platforms (e.g., database systems, programming). Although the U.S. syllabus mentions artificial intelligence, decision support systems, and expert systems, a review of recent exams reveals the coverage of these areas to be extremely limited. These topics do not appear on either the Canadian exam or the L-R listing. Exam Coverage versus Survey Responses A particularly interesting area of the framework is Region 6, which includes items covered on both exams but not listed as important by respondents to the L-R survey. This area includes theoretical items such as the objectives of financial reporting, the conceptual framework of accounting, limitations of financial statement information, and broader strategic issues such as dividend policy, use of leverage, responsibility accounting, and strategic planning. Several of the topics which fall in this region are behavioral in nature, such as behavioral issues in decentralized organizations, leadership styles, and incentive systems. General management concepts, which do not appear in the L-R listing, receive extensive coverage on both exams. A unique aspect of the exams is coverage of the regulatory environment of business, including the accounting standards-setting process and related institutions. Several systems topics are covered on the two exams but are not in the L-R listing, including systems controls and decision support systems. Other items which fall in Region 6 of the framework include working capital management, cost of capital, decision making under uncertainty, relevant cost concepts, and variance analysis. Both exams recognize recent changes in the manufacturing environment and include questions on just-in-time production and activity-based costing. None of these items appears in the L-R listing. Another area of difference is in the coverage of ethical issues. The introduction to the syllabus for the U.S. exam notes that candidates may expect any part of the exam to include questions on the ethical responsibilities of management accountants. In Canada, ethical issues are addressed in the fifth group session of the professional program. The L-R listing does not make any reference to ethics. Due to recent highly publicized fraud cases and the increasing frequency of articles on ethical issues in professional journals, we might expect greater awareness of ethical issues now than in 1987 when the L-R survey was conducted (see, e.g., “Ethics in Corporate America,” 1990).
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Many items listed by respondents to the L-R survey do not appear on either exam (Region 7 of the framework). For the most part, these are procedural, technical items in contrast to the more conceptual focus of the exams. For example, the exams cover the purposes of budgeting while the L-R listing includes more procedural aspects of budgeting such as inflation adjustments in operating budgets. In the area of product costing, the L-R listing includes many highly detailed items, such as specific transfer pricing methods, which do not appear on either exam syllabus. In the area of financial accounting, the exams emphasize conceptual and theoretical issues while the L-R listing emphasizes more technical items such as inflation accounting, foreign exchange transactions, and warranties. The survey respondents’ emphasis on technical detail is also apparent in the area of economics, where they identified economic forecasting and economic statistics as important. None of these detailed items are listed in the exam syllabi, which focus more generally on basic economic concepts. In summary, the analysis reveals a consensus on the importance of the broad areas of product costing, budgeting, capital budgeting, information systems, quantitative methods, and financial accounting. Both exams include some coverage of ethical issues and new manufacturing techniques, although these did not appear in the L-R listing. The exams also tend to emphasize conceptual and behavioral issues, while the L-R listing is much more focused on technical, procedural items. The analysis also identifies six areas of differences between the Canadian and U.S. exams. First, Canada’s coverage of management topics and organizational theory is broader in that it addresses topics including tactical/operational planning, marketing/ operations management, and managing change. Second, Canadian coverage of some entity operation topics is broader than the U.S. coverage; this includes accounting for business combinations, contract and tort law, tax planning, and corporate as well as individual and partnership taxation. Third, the U.S. coverage of multinational economics and issues in decentralized organizations is more detailed, particularly with regard to the measurement and evaluation of segment performance in decentralized organizations. Fourth, Canada takes a more expansive view of information systems, whereas the United States considers the area primarily from an accounting perspective. F$th, the United States covers both external and internal auditing whereas Canada focuses on internal auditing. Sixth, Canada includes an emphasis on service and not-forprofit organizations in its coverage of both budgeting and financial accounting. One consistent trend in the exam content is the broader, more comprehensive approach of the Canadian exam. This approach is closer to the British educational tradition of “the ideal manager or administrator as a classically educated and widely cultured person, who, because of his or her breadth of knowledge and general understanding of how the world works, will be able to cope with any situation-the ‘gifted amateur”’ (Pugh, 1984, p.62).
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DISCUSSION An interesting issue is the extent to which the CBOK identified by this study, on the basis of the U.S.-Canadian comparison, may be generalizable to other countries. Extrapolating experience across different cultures should be done with care since the validity of such extensions can be affected by variations in cultural characteristics, economic conditions, and sociopolitical environments. Through a graphical analysis, Hofstede (1984) identifies a distinct cluster of countries with relatively low values on the two dimensions of power distance3 and uncertainty avoidance.4 This cluster includes both Canada and the United States and is referred to as the Anglo-Scandinavian cluster. Cultural characteristics of this group include acceptance of conflict in organizations as natural, low emotional resistance to change, high willingness to take risk, and a strong motivation for achievement. In these cultures, organizational decision making may be highly decentralized and managers are expected to be most comfortable with organizational types where structure is implicit rather than formal. Because these cultures have several areas of similarity in contrast to other groups of countries, it is expected that research results would most readily transfer to other countries within this cluster, which includes Australia, New Zealand, Norway, the Netherlands, and South Africa as well as Canada and the United States. In contrast to this cluster is one characterized by both high power distance and high uncertainty avoidance. This cluster, referred to as the Latin cluster, includes Mexico as well as Colombia, Chile, Peru, Portugal, and Venezuela. The high power distance’scores for these countries suggests that organizational decision making will be highly centralized. A preference for clearly defined hierarchical structures and top-down decision making will exist and participative budgeting will be rarely used. Savage (1969), in a survey of Mexican controllers, financial managers, educators, and public accountants, reported that the use of participative budgeting was not widespread and the use of budgets to motivate managers was not common practice. Savage also found that traditional resistance to delegation of authority in Mexican firms had weakened and decentralization of authority had increased greatly. Frucot and Shearon (1991) examined the effect of cultural differences on the relationship between individual locus of control, budgetary participation, and Mexican managerial performance/ satisfaction. They found significant results in domestic-owned firms but not in foreign-owned firms, suggesting a “cultural interface” in ownership that affects budgetary participation. Mexico as well as other countries in the Latin cluster have relatively high uncertainty avoidance scores in contrast to the Anglo-Scandinavian cluster, which has lower uncertainty avoidance scores. Accordingly, Canadian and U.S. firms that are considering expanding into Mexico, or professionals from Canada and the United States who want to work in Mexico, should be aware of the traits which Hofstede suggests typify cultures with a high degree of
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uncertainty avoidance. These traits include emotional resistance to change, respect for seniority, aversion to risk-taking, less emphasis on individual advancement, a desire for clearly defined hierarchical structure in organizations, and a preference for clear, unambiguous requirements/ instructions. Based on Mexico’s relatively higher uncertainty avoidance score, Mexican firms might also be expected to place heavy emphasis on long range planning and capital budgeting. However, Savage (1969) found that only a small percentage of Mexican firms used long-range planning or conducted systematic analysis of capital expenditures. Economic conditions in Mexico have been highly uncertain, with rapidly growing and changing markets, highly volatile prices, extreme inflationary pressures, and government policies alternatively emphasizing nationalization and privatization. Under such conditions, longrange planning is problematic at best, and the lack of long-range planning by Mexican firms may be due as much to economic conditions as cultural influences. The impact of economic conditions on management accounting is evidenced in other ways as well. Prior to the 1950s many Mexican industries enjoyed captive, growing markets and were protected from competition by governmental policies. Consequently, high margins were assured and such techniques as estimation of cost behavior (fixed versus variable), cost-volumeprofit analysis, and profit planning were not commonly used. In Hofstede’s study, the greatest difference between Canada and the United States was found on the dimension of individualism. The United States had the highest individualism score of the 39 countries studied (90) while Canada’s score was somewhat lower (80). Hofstede found that in high individualism countries, employees were more strategic or calculating in their relationship with their organizations, placed greater emphasis on autonomy, and considered individual decisions “better” than group decisions. In contrast, in lower individualism countries, workers felt a moral obligation to their companies, valued job security more, preferred group to individual decision making, and considered the pursuit of individual goals without concern for others to be inappropriate. The group-oriented nature of the professional program in Canada is consistent with Canada’s lower emphasis on individualism. Furthermore, given Canada’s lower individualism score relative to the United States, it is not surprising that the Canadian exam covers group behavior and the U.S. exam does not. It is expected that a greater emphasis on group behavior would be found in countries with even lower individualism scores, such as Mexico, which had an individualism score of 30. CONCLUSION The analysis of professional certification programs accountants in Canada and the United States has identified
for management certain knowledge
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items which appear to constitute a core CBOK, as well as country-specific aspects of professional training. Topical areas recognized as important in both countries include basic budgeting, cost-volume-profit analysis and discounted cash flow techniques, financial statement analysis, product costing, pricing, decision theory/ analysis, information systems, and decentralization concepts such as transfer pricing and divisional performance measurement. These items may be considered to constitute an acknowledged CBOK for management accounting. Differences in the professional examinations do exist. The Canadian exam takes a broader approach to information systems while the U.S. exam more narrowly focuses on accounting information systems and control issues. While the U.S. exam covers both internal and external auditing, the Canadian coverage is limited to internal auditing. The Canadian exam emphasizes group behavior and accounting for service industries and not-for-profit entities, while neither of these topics appears in the syllabus for the U.S. exam. In addition to enhancing the mutual understanding of management accounting certification in Canada and the United States, these findings have implications for professional certification in Mexico. As Mexico currently does not have a professional certification program, knowledge of programs in the other countries can provide guidance if Mexican management accountants should choose to develop such a program in the future. The Canadian model of professional development, with its emphasis on group study and preapproved experience requirements, may be more readily adapted to the Mexican environment than the more individualistic U.S. model for two reasons. First, the Mexican educational environment follows the European tradition (as does Canada’s), and second, Mexico is characterized by Hofstede as a high uncertainty avoidance, low individualism country. Overall, the results of this research suggest that similarities in the professional development of management accountants are present. However, despite the high degree of similarity between the cultural, political, and social environments in Canada and the United States, important differences have been identified. As the differences between Mexico and the United States, or between Mexico and Canada, are even more striking, great care will be required in adapting professional certification programs from the United States or Canada for use in Mexico. Particular attention should be devoted to situations where management techniques developed in the United States or Canada may not be as effective in Mexico. For example, control and performance measurement issues in decentralized organizations receive substantial coverage on both the U.S. and Canadian exams. In Mexico’s high power distance culture, it is expected that decision making in organizations will be highly centralized. If division managers have little autonomy in Mexico, issues pertaining to decentralized organizations such as responsibility accounting and divisional performance measurement may therefore have less relevance. The educational delivery of certain management techniques such as participative budgeting also cannot be transplanted across
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borders without careful consideration of individualism and national differences in the way that employees interact with superiors and subordinates. In order to facilitate an integration of management accounting practice as well as the development of an updated CBOK across countries, further research is needed. Acknowledgment: The authors gratefully acknowledge the assistance Richard Michalski of the Society of Management Accountants of Canada.
of
APPENDIX: EXAMINATION CONTENT Subject Areas By Examination
Canada
Part Number
United States
Auditing and Internal Control Operational Auditing Procedures l Internal Auditing: objectives, scope, and reports l lnternal Auditing: professional standards and procedures l Internal Auditing: theory and techniques l External Audit Services l External Auditing: professional standards and procedures l Auditor-Management Responsibilities l Audit Reports l
Budgeting Budgeting Concepts and Behavioral Implications Cost-Volume-Profit Analysis Multi-product Cost-Volume-Profit analysis Flexible Budgeting Forecasting Cash Flow Inflation Adjustments in Operating Budget Learning Curve Impact on Operating Budget Control in Not-for-profit and Service Organizations Working Capital Management Capital Budgeting Discounted and Nondiscounted Cash Flow Techniques Capital Structure Cost of Capital Dividend Policy Financial Institutions and Markets Sensitivity Analysis Capital Budgeting Under Uncertainty Mergers and Acquisitions Economics Macroeconomics, Microeconomics, and Multinational l Economic Forecasting, Economic Statistics
l
Economics
3
1
0
0
(continued)
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Appendix (continued) Subject Areas By Examination
Part Number
EDP and Information Systems Nature of AIS Aritificial Intelligence, Expert Systems Database Systems Decision Support Systems Systems Controls, Security Measures EDP Auditing Systems Development Process Organizational Impact of AIS Management of Information Systems Financial, Marketing/ Purchasing, Production/ Office Automation Programming, Processing Environments
. . . . . . . . . . . .
United States
0
4 4
0 1 1 1
0
Personnel
Systems
Ethics Financial Accounting. Conceptual Framework of Accounting Financial Statements and Analysis Reporting Standards and Procedures Standard-setting Process and Institutions Accounting Cycles Inflation Accounting Foreign E:xchange Transactions Warranties Methods of Accounting for Business Combinations Financial Statements of Not-for-profit organizations
. . . . . . . . . .
General Management Human R.esource Management and Leadership Management Theory Strategic Planning Tactical Planning, Operational Planning Marketing Management, Operations Management Managing, Change Issues in Decentralized Organizations Contribution Approach to Cost Allocation l Segment Determination and Reporting l Performance Measurement and Evaluation -Residual Income for Segment Performance -Return on Investment for Performance Measurement -Contribution Approach for Segment Performance Measurement -Allocating Costs to Responsibility Centers -Line of Business Reporting l
Canada
1 1 1 1 3 3
: 4 4 4 0
4 0 0 0
GS-3
All
2 2 2 2 2
2 2 2 2
0
0
0
0
1
0
2 2
2 2
3 3 3 3 3 3
1
2 1 0 0 0 0 0
0
1 1 3 0 0 0
3 3 3 3 3 3 3 3
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Subject Areas By Examination Part Number
Canada
Issues in Decentralized Organizations (continued) Responsibility Accounting l Transfer Pricing l Behavioral Issues l Integration of Foreign Operations
0
Operational Decision Analysis and Decision Theory Decison-making Analysis and Uncertainty l Pricing l Sensitivity Analysis of Pricing Models l Relevant Cost Concepts
4
l
4 0
4
Behavior 1
l
I and Corporate and Theories Behavior
3 3 1 3
Goals
Product Costing, Cost Accumulation Job Order and Process Costing Absorption and Direct Costing Activity-based Costing Project Costing Hybrid Costing Systems Normal Costing Cost Allocation Standard Costs and Variance Analysis Variance Investigation Decision Production Environment Just-in-Time l Automated Manufacturing
United States
3 3 3
l
Organizational Theory and Motivation Theories l Communication l Incentive Systems l Alignment of Individual t Organizational Structure l Participation and Group
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3 3 3 0 0 0
3 3 3
IS-I 1
l
Systems
Quantitative Methods Linear Programming l Statistical Analysis and Sampling 0 Simulations l Modeling: Economic Order Quantity, l Regression Analysis l
CPM, PERT
3 0
4 4 4 4 4
(continued)
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Training
Appendix (continued) Subject Areas By Examination
Part Number
Regulatory Environment of Business Government Regulation l Legal Forms of Business l Impact on Business of External Factors l Contract Law, Tort Law l
Taxes Tax Considerations in Operational and Investment l Corporations l Individual, Partnerships, Other Entities l Tax Planning
l
Notes:
Decision Analysis
Canada
United States
2 3 2 3
1 1 1
2 2 2 2
0
4 2 0 0
“0” indicates omitted in exam syllabus. A number indicates the examination part in which a topic is primarily covered. Canadian examination content is with reference to the preprofessional program; in cases where a topic is covered primarily in the professional program, it is referenced to the independent study (IS), group study (GS), or residential study (RS) session in which it is covered. U.S. examination content is referenced to one of the four parts in which a topic is primarily contained.
NOTES The SMA is currently revising its professional program content. The revised program is expected to be completed later in 1994. The review of Canadian exam content is based on the preprofessional syllabus and study sessions in the professional program which extend and/ or introduce topics to the candidate. Power distance refers to the way a society deals with the basic issue of inequity in the distribution of prestige, wealth, and power. Uncertainty avoidance reflects the extent to which a cultural group feels comfortable with uncertainty about the future, and the means used to deal with uncertainty, such as law or technology. See Hofstede (1991) for a more detailed discussion of the various dimensions.
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Adler,
N.J., and R. Doktor. 1989. From the atlantic to the pacific century: Cross-cultural management reviewed. In Chimezie A.B. Osigweh (ed.), Organizational Science Abroad (pp. 305326). New York: Plenum. Ethics in Corporate America. 1990. Management Accounting June (special issue). Farmer, R.N , and B.M. Richman. 1964. A model for research in comparative management. California Management Review (Winter): 55-68. Frucot, V., and W.T. Shearon. 1991. Budgetary participation, locus of control, and Mexican managerial performance and job satisfaction. The Accounting Review (January): 80-99. Hofstede, G. 1984. CuitureS Consequences, International Differences in Work-Related Values. London: Sage. Hofstede, G. 1991. Cultures and Organizations: Software of the Mind. New York: McGrawHill.
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Lander, G.H., and A. Reinstein. 1987. Identifying acommon body of knowledge for management accounting. Issues In Accounting Education (Fall): 264-280. Porter, M. 1989. Eke Competitive Advantage of Nations. New York: The Free Press. Pugh, D. 1984. Organization Theory. London: Penguin. Savage, A.H. 1969. Management accounting in Mexico. Management Accounting 50(4): 45-51. Schiff, J.B. 1986. Management accounting practices statement promulgation: An international perspective. International Journal ofAccounting Education and Research 22( 1, Fall): 119134. Taylor, C.R. 1991. North America: The new competitive space. Conference Board Report No. 960. New York: Conference Board.