In today’s competitive business world, one of the significant goals for most of the organizations is to be famous for responsible management. In order to get success and to have good reputation in market, the organization must be involved in activities of responsible management. Responsible management is relevant to all stages of strategies process. When a company is involved in strategic responsible management then this helps the firm in gaining competitive advantage. In this way, there is a need of understanding responsible management in order to gain better results. In order to integrate CSR in strategies of business, there is a need of getting involved in process of continuous learning, improving and controlling. Responsible management within a company is applicable with different perspectives like human resource, accounting, marketing and information system etc, but in this essay one of the major responsible management challenge with perspective of accounting has been analyzed. Accounting is one of the most important departments of any organization. There is a need of responsibility managing all the operations of accounting within an organization. One of the major issues that is faced by Severn Trent PLC is regarding ethical issues that management of company faces while dealing with responsible management with accounting perspective (Hill, Jones and Schilling, 2014).
In order to analyze responsible management in an organization, it is significant to analyze strategic management of an organization. The responsible management is strongly linked with overall strategic management of an organization. In an organization there are different departments with having different activities and operations. Strategic management deals with making effective strategies for ensuring success and fulfilling objectives of company. Strategy in an organization is linked with ways of accomplishing set aims and objectives of company. This includes ways through which the competitors can be defeated. It has been stated by Chandler (1962) that strategy involves different activities for allocating resources needed for achieving objectives. Porter considered strategy as something that helps an organization for gaining competitive advantage, so it has much importance in case of responsible management. Similar to other companies, Severn Trent PLC has also made some strategies for ensuring effective responsible management within all activities of company. It has set some rules and standards for ensuring better performance as compared to its competitors. In case of accounting, strategic management is very important in order to ensure that all data is recorded accurately. According to resource based view of strategy, there is a need to develop and utilize some resources of organization in a way through which it can gain competitive advantage (Asif et al, 2014).
In the end of 1970s Mintzberg challenged the traditional view of strategy who stated that strategy plays a vital role in effective responsible management (Mintzberg, 1978). He stated that practically strategy comes from top management and then transmits to whole organization. As a result of this, the practical strategy is precisely made as original strategy.
In Strategic Management Accounting framework, the word accounting indicates to managerial or internal accounting, which is linked with the arrangement of information of accounts to administration for various perspectives. Cost accounting has a deeply supplied the function of financial management with data required for corresponding purposes and stock valuation. Management accounting, being slightly more modern development, gives a wide variety of information to different functions of management, as suits its prolonged traditional status as strong common perspective to management (Dashtbayaz, Mohammadi and Mohammadi, 2014). Similarly, information of management control comprising of managerial compensation, measurements of cross-company performance and intra-company transactions. Generally this type of information comes in the range of quantitative, at a single supreme completely equivalent with solid figures linked with financial reporting and accounting, however, in during some information of management control an alleviation of this calculation is apparent. Generally, ‘counting’ is most likely the stock in transaction of what perhaps entitled traditional management accounting (Ward, 2012).
In any company, one of the major suppliers of information regarding business is management accounting. The accounting and finance department with Severn Trent PLC helps the firm in gaining required information and also in building its reputation. The financial information of company is responsible for increasing or reducing the image of company. The accountants working within Severn Trent PLC have efficiently used different rules and regulations for managing and controlling all financial and accounts information. The accounting is a tool that is used by management for different internal processes of business, so it is highly influenced by manager who controls or manages all operations (Zimmerman and Yahya-Zadeh, 2011). The information given by accountants is for both internal and external users, so for Severn Trent PLC, it is very important to manage them ethically. The management of Severn Trent PLC is facing ethical issues as challenge of responsible management with accounting perspective. It is a big challenge for management of Severn Trent PLC to ensure that financial managers or accountants follow ethical standards while managing all accounting information of firm. An accountant working in organization must be loyal and unbiased with ethical standards while analyzing financial records of an organization. In company, an accountant has to face various ethical issues while controlling financial data but there is a need of remaining continuously vigilant for reducing the probability of having manipulation in financial data by accountant or financial manager, that could results in ethical violations (Henderson et al, 2013).
Bebbington et al (2014) stated that it is compulsory for organizations to give accurate and original information in financial statements which can be utilized by users and other stakeholders for assessing the performance and for making economic decisions. It might be assumed by users of Severn Trent that financial information provided by accountants is accurate for the purpose. The accounting standards help in ensuring that information is produced consistently according to the set standards and rules that ensure its reliability. In Severn Trent, the management often faces challenge regarding distortion of communications between organization and shareholders due to performance and activities of accountants who try to manipulate the financial information being communicated. This kind of distortion is known as creative accounting in which the accountant brings changes in financial data for the benefit of himself or whole organization. Creative accounting is a kind of unethical practice in which income and expenses of company are recorded wrongly for gaining economic benefits but only for short term (Brandão et al, 2013).
Moser and Martin (2012) stated that ethical issue is an issue or an opportunity needed by a person for selecting among different actions that have to be analyzed critically. This has helped us in understanding an ethical problem when it has been stated that there is an ethical dimension of a conduct if there is an involvement of dishonesty, injustice or unfairness. Severn Trent PLC has two ways of perception regarding ethical problems faced by managers. Different ethical issues are faced by managers of Severn Trent PLC and these problems are combined in accordance with various levels of occurring. Managers of Severn Trent PLC have to face ethical problems at individual, organization, professional and global level. In addition to this, Severn Trent PLC is facing challenge of responsible management regarding facing conflict between interest of overall organization and individual interest of accountants or managers. The company faces difficulty when a conflict arises between individual interest of managers and overall strategies of organization. The ethical issues arise when accountants working in Severn Trent PLC do wrong recording of data and information. This results in manipulation of all financial results that affect the reputation of business. The company also makes strategies of business by considering all financial information, so due to wrong and manipulated data, the strategies are not made effectively and this affects the performance of business (Needles, Powers and Crosson, 2012).
The accountants working in Severn Trent PLC have to face high pressure from top management to create financial statements. In organization the ethical problems for these accountants is regarding maintenance of true recording of assets, liabilities, incomes and expenses without putting pressure on them by top management. The financial managers who do not work ethically can easily manipulate financial accounts of company to depict wrong picture of organization. The management of Severn Trent PLC has to consider this fact that this can result in temporary prosperity of company but due to wrong financial recording the company can rapidly experience downfall when the fraud would be discovered by Securities and Exchange Commission. So, this is a major challenge regarding responsible management due to which company might get short term benefit but this will lead to many major issues on long term basis (Halse and Honey, 2014).
An ethical dilemma might be faced by an accountant regarding keeping records. This is a duty of all accountants working in Severn Trent PLC to inform about these violations. This can cause trouble for organization that if SEC checks and evaluates this kind of unethical practice within the company, then accounting scandal can be made against the company. This is a major challenge in responsible management of Severn Trent PLC. The company will have to bear much financial as well as human resource loss because most of the employees would leave the organization after this. The criminal prosecution also has to be faced by top manager and other executive (Hall, 2012).
In organization, responsible management plays a very important role but, there are some ethical challenges that must be considered deeply while managing all operations of organization. In accounting, when there comes greed to earn more money then, accountant or financial manager of Severn Trent PLC might try to use unfair means for showing more sales and lesser costs in order to have high profits. The company has to face this challenge of having greediness in accountants of firm. The accountant will always make best efforts for living a better life and acquiring more possessions in order to ensure that he or she is ethical in his or her practices but this will result in falsified accounting statements. An accountant might keep his eyes more on his personal account than company’s account, so this would cause violations in financial accounts. In order to have better reputation of company through responsible management, it is very important to consider ethical issues in accounting. The company has to ensure that all information and data given in financial accounts are accurate and true (Romney et al, 2012).
In addition to self interest and desire of accountant, there is also a chance that an executive of Severn Trent PLC might ask a financial manager or accountant for omitting or leaving out some financial figures from financial statements due to which reputation of company would be reduced. Another challenge regarding responsible management is omission of some figures by accountants. This is not completely an unethical practice because in this case accountant does not directly manipulate financial records. But, there is a need of having ethically vigilant accountant for ensuring no manipulation and falsification of accounts (Johnson et al, 2012).
Because of the deficiency of transparency of mission given by a function that is single-valued objected, organizations accepting stakeholder-theory inefficiency, dispute, confusion which might result in competitive failure. Severn Trent PLC should best utilize insufficient assets to earn maximum profit at cost of bearable impact of society. None of the stakeholder group of Severn Trent PLC should be favoured as compared to any other. Managers are required to tie to implement the rules of government, required to prevent fraud and respects the customs of ethics/culture. To which degree company communicates with the social system is significant decision; any insufficient engagement may result in failure. Shutdown of Shell enterprise in Nigeria is an example, where companies failed to sustain stability and committed in political battle at its business-prospect cost. Severn Trent PLC CSR obligation should be limited to meeting just the major social and economical privileges of its business-view (Gond et al, 2012).
The theory of Stakeholder given by Preston and Donaldson in 1995 stresses on enough collaboration among every stakeholder in business-view, despite of merely the interest of shareholders during policy-making; it left with the extent of uncertainty about the emphasis of firm. The theory of stakeholder may politicize organizations, leaving its administrations authorized to practice their own inclinations in consuming the assets of organization. If one look at the previous CSR efforts of Severn Trent PLC, the CD and CA strategies were considered by the management of Severn Trent without any coordination with general public, it was top-town strategy where administration thought starting a school, for instance, would aid localities. No engagement from localities results in failure for the organization (Peters, Waples and Golden, 2014). It isn’t rationally possible to talk about increasing both profits and shares in market, it is impractical for administration to determine on R&D level, reductions of price, or advertising because they are confronted with the requirement to make market share and compromised profits. With administering a stakeholder-theory, clear-direction adequately leaves administration unexplainable for their supervision of company’s assets; this advances the exploitation of company’s insufficient assets for personal gain (Lamberti and Noci, 2012).
Unless a Severn Trent Plc is in a position to outlive, it will fail in fulfilling any of its interest holder’s objectives. Executives need to ensure impartiality while generating riches [value to equity holders] to the detriment of different interest holders in Severn Trent PLC. Corporate alterations might influence existing assets and the plans and procedures to which they are affiliated to. Equity holders, Finance providers, executives, workers and clients can all be influenced; and their relative authority and impact will demonstrate to have a huge impact. The authority and impact of the leader is very important. Strategy management accounting institutes the company’s reason of existence, carries out position-assessment, recognizes and scrutinizes conceivable choices, takes up the most suitable choice and appraises execution (Cuganesan, Dunford and Palmer, 2012).
Strategic management accounting is probing attentiveness toward all interest holders in its business-atmosphere, by utilizing contender analysis, client productivity assessment, equity holder value assessment and upper hand over competitors through cost-leadership. To be an effective firm it has to gain better comprehension of its business-scene and all interest holders, strategic management accounting assists towards this. Subsequently we could infer that strategic management accounting concentrates on all interest holders (Nixon and Burns, 2012).
Balanced scorecard could be utilized to adjust executive’s main goals with that of Severn Trent Plc so that partners' worries could be accounted for. BCS will interpret Severn Trent Plc’s vital mission [Focusing interest holder’s capital growth] into tangible exercises this guarantees the mission is passed on explicitly among all [internal] interest holders and they comprehended their obligation. Later BCS empowers administration to screen and assess execution against predefined goals. BCS likewise catches consumer loyalty. A firm which is claimed by shareholders should go for expanding profitability, along these lines improving equityholder’s worth. On the other hand if it emphasizes on a social obligations past its shareholder's advantage then executives maybe manhandling important rare asset in a wasteful manner, Jensen (in the same place). Government-firms [public-sector] might need to draw in social-improvement activities, yet over-importance of CSR-exercises for a private-part firm is unsafe for both civilization and firm. Subsequently just CSR of a firm is to upgrade its benefits (Seal and Ye, 2014). Executives must remember this while making vital long term choices. NPV as a investment assessment procedure and worth supplement to interest holders aims to build proprietors' riches, NPV could be better as a investment assessment strategy as it specifically identifies with the essential centre of business - a positive-NPV expands riches. NPV takes into consideration the greater part of the costs/advantages of speculation choices; represents the time value of money and the greater part of the significant money streams regardless of their event. Severn Trent Plc would have two distinctive categories of interest holders a) primary - shareholders, financial providers, and b) auxiliary - native groups/government. Constructing better bonds with primary interest holders improves shareholder-riches by aiding firms create elusive, profitable resources which guarantees upper hand, where NPV assumes crucial part. Feasible and consistent upper hand and nonstop productivity of firm relies on upon its capacity towards making and disseminating riches adequate for every primary interest holder category. Towards satisfying secondary interest holder’s value expansion, NPV is inappropriate, as it deals with just tangible, money related advantages. NPV can't be utilized to gauge immaterial, nonfinancial advantages towards which CSR activities are targeted (Nørreklit et al, 2012).
From the above analysis, it can be concluded that responsible management is an effective way of gaining organizational objectives through formulating different business strategies. The responsible management is linked with all kinds of organizational activities like HR, Marketing, Information systems as well as accounting. From this essay, it has been analyzed that in order to gain success the top management of Severn Trent PLC must be efficient in dealing with various challenges of responsible management and ethical issues are one the major challenges faced by the firm. The accountants of company show sometimes unethical behaviours towards managing and recording the financial information. This leads to manipulation of business accounts that affect the overall operations of business. In order to deal with this challenge effectively the management should use different approaches like CSR exploitation, adjusting interests, balance score card method etc. This would help the firm in dealing with ethical issues effectively and to gain competitive advantage through company’s responsible management.
Asif, M., de Bruijn, E.J., Fisscher, O.A., Searcy, C. and Steenhuis, H.J., 2009. Process embedded design of integrated management systems.International Journal of Quality & Reliability Management, 26(3), pp.261-282.
Bebbington, J., Unerman, J. and O'Dwyer, B., 2014. Sustainability accounting and accountability. UK: Routledge.
Brandão, M., Levasseur, A., Kirschbaum, M.U., Weidema, B.P., Cowie, A.L., Jørgensen, S.V., Hauschild, M.Z., Pennington, D.W. and Chomkhamsri, K., 2013. Key issues and options in accounting for carbon sequestration and temporary storage in life cycle assessment and carbon footprinting. The International Journal of Life Cycle Assessment, 18(1), pp.230-240.
Cuganesan, S., Dunford, R. and Palmer, I., 2012. Strategic management accounting and strategy practices within a public sector agency.Management Accounting Research, 23(4), pp.245-260.
Dashtbayaz, M.L., Mohammadi, S. and Mohammadi, A., 2014. Strategic Management Accounting. Research Journal of Finance and Accounting, 5(23), pp.17-21.
Gond, J.P., Grubnic, S., Herzig, C. and Moon, J., 2012. Configuring management control systems: Theorizing the integration of strategy and sustainability. Management Accounting Research, 23(3), pp.205-223.
Hall, J., 2012. Accounting information systems. UK: Cengage Learning.
Halse, C. and Honey, A., 2014. Unraveling ethics: Illuminating the moral dilemmas of research ethics. Signs, 40(1).
Henderson, S., Peirson, G., Herbohn, K., Artiach, T. and Howieson, B., 2013. Issues in financial accounting. Pearson Higher Education AU.
Hill, C., Jones, G. and Schilling, M., 2014. Strategic management: theory: an integrated approach. ACengage Learning.
Johnson, E.N., Fleischman, G.M., Valentine, S. and Walker, K.B., 2012. Managers’ Ethical Evaluations of Earnings Management and Its Consequences*. Contemporary Accounting Research, 29(3), pp.910-927.
Lamberti, L. and Noci, G., 2012. The relationship between CSR and corporate strategy in medium?sized companies: evidence from Italy.Business Ethics: A European Review, 21(4), pp.402-416.
Mintzberg, H., 1978. Patterns in strategy formation. Management science,24(9), pp.934-948.
Moser, D.V. and Martin, P.R., 2012. A broader perspective on corporate social responsibility research in accounting. The Accounting Review, 87(3), pp.797-806.
Needles, B., Powers, M. and Crosson, S., 2012. Principles of accounting. Canada: Cengage Learning.
Nixon, B. and Burns, J., 2012. The paradox of strategic management accounting. Management Accounting Research, 23(4), pp.229-244.
Nørreklit, H., Nørreklit, L., Mitchell, F. and Bjørnenak, T., 2012. The rise of the balanced scorecard! Relevance regained?. Journal of Accounting & Organizational Change, 8(4), pp.490-510.
Seal, W. and Ye, L., 2014. The balanced scorecard and the construction of a management control discourse. Journal of Accounting & Organizational Change, 10(4), pp.466-485.
Ward, K., 2012. Strategic management accounting. Australia: Routledge.
Peters, R., Waples, E. and Golden, P., 2014. A Real Options Reasoning Approach to Corporate Social Responsibility (CSR): Integrating Real Option Sensemaking and CSR Orientation. Business and Society Review, 119(1), pp.61-93.
Romney, M., Steinbart, P., Mula, J., McNamara, R. and Tonkin, T., 2012.Accounting Information Systems Australasian Edition. UK: Pearson Higher Education AU.
Zadek, S., Evans, R. and Pruzan, P., 2013. Building corporate accountability: Emerging practice in social and ethical accounting and auditing. Routledge.
Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control. Issues in Accounting Education, 26(1), pp.258-259.
Get in touch with our dedicated team to discuss about your requirements in detail. We are here to help you our best in any way. If you are unsure about what you exactly need, please complete the short enquiry form below and we will get back to you with quote as soon as possible.