Diffusion of Management Accounting Practices in Gulf Cooperation Council Countries* PREM LAL JOSHI, University of Bahrain WAYNE G. BREMSER, Villanova University ASHUTOSH DESHMUKH, Pennsylvania State University–Erie RAJESH KUMAR, Institute of Management Technology, Dubai ABSTRACT This study examines how management accounting practices (MAPs) have been adopted and diffused by publicly listed firms in the Gulf Cooperation Council (GCC) countries. The results of our survey show that the adoption rates for MAPs in the area of cost management and strategy are low while those in the area of per- formance measurement are moderate. Overall, the respondents favorably perceived their success in implementing MAPs. Power and politics, not economic (or cost–benefit) reasons, were considered to be the most influential reasons for nonadoption of MAPs. The results provide partial support to the view that there is a global convergence of management accounting system designs and ideas and also indicate that the role of cultural differences is diminishing over time. Keywords Management accounting practices; Balanced scorecard; Activity-based costing; Nonfinancial performance measures DIFFUSION DES PRATIQUES DE COMPTABILITÉ DE MANAGEMENT DANS LES ÉTATS MEMBRES DU CONSEIL DE COOPÉRATION DU GOLFE RÉSUMÉ Les auteurs examinent comment les pratiques de comptabilite´ de management (PrCM) ont e´ te´ adopte´ es et diffuse´ es par les socie´ te´ scote´ es dans les E´ tats arabes membres du Conseil de coope´ ration du Golfe (CCG). Les re´ sultats de leur sondage montrent que les coefficients d’adoption des PrCM dans le domaine de la gestion strate´ gique des couˆ ts sont faibles, alors qu’ils sont mode´ re´ s dans le domaine de la mesure de la performance. Dans l’ensemble, les re´ pondants ont une perception positive de leur succe` s dans la mise en œuvre des PrCM. Les motifs de non- adoption des PrCM juge´ s les plus de´ terminants se rapportent au pouvoir et a` la politique et ne sont pas d’ordre e´ conomique (ou lie´ s au rapport couˆ ts-avantages). Les re´ sultats appuient partiellement le point de vue selon lequel il y aurait convergence a` l’e´ chelle mondiale dans la conception des syste` mes de comptabilite´ de management et dans les ide´ es qui s’y rattachent ; ils re´ ve` lent e´ galement que le roˆ le des diffe´ rences culturelles s’atte´ nue avec le temps. * The authors would like to thank the two anonymous reviewers for their helpful comments. AP Vol. 10 No. 1 — PC Vol. 10, no 1 (2011) pages 23–53 ª CAAA /ACPC doi:10.1111/j.1911-3838.2011.00018.x 24 ACCOUNTING PERSPECTIVES / PERSPECTIVES COMPTABLES Mots clés : comptabilite´ par activite´ s, indicateurs de performance non financiers, pratiques de comptabilite´ de management, tableau de bord e´ quilibre´ Traditional management accounting models have evolved with innovations such as Activity Based Costing (ABC), Activity Based Management (ABM), and Strategic Management Accounting (SMA). Researchers have pointed out that these innova- tions have altered the processes of planning, controlling, and decision making in business organizations. In the 1970s, management accounting research focused on economics-based mathematical models. A variety of theories and methodological approaches to study management accounting practices (MAPs) were developed in the 1980s and 1990s by extending the theoretical domain from economics to organizational and social theory. The current research streams exhibit a wide range of theoretical diver- sity. Researchers have drawn on disparate disciplines such as economics, organiza- tion theory, sociology, social theory, politics, and social anthropology to analyze and synthesize managerial accounting issues (Bjo¨ rnenak and Olson, 1999; Water- house and Tiessen, 1978; Yi and Tayles, 2009; Scapens and Bromwich, 2010; Askar- any, Smith, and Yazdifar, 2007). In the developed countries, there is evidence of changes in MAPs. Libby and Waterhouse (1996) find that on average 31 percent of the management accounting systems in the sample organizations changed during the period 1991–1993. The components of management accounting and control systems that support decision– making and control changed more frequently than components that support plan- ning, directing, or product costing. Burns (2000) also notes that considerable changes have taken place in accounting systems and practices. However, the author states that these changes are in the uses of management accounting rather than changes in management accounting systems and techniques. Scapens (2006) pro- vides a perspective on the evolution of MAPs. In a developing country study, Joshi (2001) examined accounting practices of 60 large- and medium-sized manufacturing companies in India and found that the adoption rate of MAPs had been rather slow. Anderson and Lanen (1999) studied MAPs in 14 Indian firms using a contingency-theory framework. They found that changes in MAPs were associated with shifts in the external environment. Luther and Longden (2001) showed significant changes in the perceived benefits derived from MAPs in South Africa. The purpose of this exploratory study is to extend the literature on diffusion of MAPs and management accounting changes by studying a cultural environment that is different from those studied in prior research. Using survey methodology, we report on the adoption of MAPs and perceived or self-reported success rates of such adoption in the Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Saudi Arabia, Oman, Qatar, and the United Arab Emirates). This study provides insights into MAPs used in the GCC countries, and the study findings are of AP Vol. 10 No. 1 — PC vol. 10, no 1 (2011) DIFFUSION OF ACCOUNTING MANAGEMENT PRACTICES 25 interest to firms operating in similar cultures and other developing countries. Our survey also investigates the reasons for nonadoption of the contemporary MAPs. Our results are somewhat similar to prior research studies. We also find some sup- port for the view that there is a global tendency for convergence of management accounting system designs and ideas and that the role of cultural differences is diminishing. The remainder of the paper is organized as follows: The next section provides the literature review for the research objectives and the MAPs used in our study. In the third section, we explain the research objectives and methodology. The fourth section presents and discusses the findings. Finally, we discuss conclusions of the study and implications for future research. LITERATURE REVIEW The faults in traditional management accounting techniques have been documented in the literature, for example, Cooper (1987), Kaplan (1984, 1986), and Johnson and Kaplan (1987). Consequently, new MAPs have emerged such as ABC, ABM, Balanced Scorecard (BSC), Life Cycle Costing (LCC), Economic Value Added (EVA), and Strategic Costing (SC). The literature on MAPs is extensive. The MAPs were developed in advanced economies of the West, especially in the United States and Europe. Management Accounting Innovations The growing realization of the limitations of traditional management accounting systems has led to the examination of multidimensional performance measurement practices. One of the major developments in the area of performance measurement systems during this period was BSC, which concentrates not only on financial per- formance measures but also on non-financial performance measures (NFPM) (Kap- lan and Norton, 1992). The scope of management accounting has moved toward effectiveness, control, market analysis, quality assessment, customer satisfaction, and competitive status management. Bjo¨ rnenak and Olson (1999) reviewed MAP diffusion, identifying the manage- ment accounting innovations of the 1980s and 1990s as follows: ABC, Activity Management (AM) and ABM, Local Information System (LS), BSC; LCC, Target Costing (TC); and SMA. Chenhall and Langfield-Smith (1998) summarized the most popular and mature MAPs in Australia as follows: Performance Measurement and BSC, ABC, Valued Added Concepts, Total Quality Management (TQM), Stra- tegic Management, Risk Management, Benchmarking, EVA, and TC. The study by Guilding, Cravens, and Tayles (2000) examined the SMA practices of New Zealand, the United Kingdom, and the United States. The results suggest fairly similar levels of SMA usage across these countries. Fullerton and McWatters (2004) focused on Just in Time (JIT), TQM, and Six Sigma and their relationship AP Vol. 10 No. 1 — PC vol. 10, no 1 (2011) 26 ACCOUNTING PERSPECTIVES / PERSPECTIVES COMPTABLES to both traditional and non-traditional cost accounting practices. Cinquini and Tenucci (2006) reported a 34 percent adoption rate for TC by Italian companies. Other studies have reported adoption rates for MAPs in varying institutional and country-specific settings, for example, Lukka and Granlund (1996), Abdel-Kader and Luther (2006), Nielsen, Melander, and Jacobsen (2008). Firm Characteristics Kellett and Sweeting (1991) suggested that the escalating speed of technological inno- vations requires study of subsequent innovations in administration systems, particu- larly in cost and management accounting techniques and practices. Drury and Tayles (1994) reported that adoption rates for MAPs are much higher in larger firms, partic- ularly for ABC. Innes and Mitchell (1995) concluded that high adopters of recently developed MAPs such as TC, ABC, and BSC have relatively greater resources. Hoque and James (2000) reported that the adoption of BSC depended on the size of the company. Joshi (2001) discussed