Introduction
Management accounting practices, by definition, are systems put in place by firms to generate information for reporting, budgeting, and controlling accounting services such as cost, performance measurements, etc., and applied in making managerial decisions (Al Sharara et al., 2020, Langfied-Smith & Hilton, 1995). Sunami (2003) also accounts management accounting as being managerial centered, or accounting relating to management functions. In the housing industry, especially the real estate sector, the business environment has witnessed tremendous changes in its managerial accounting practices. It is prudent to look into the advances and innovations in systems that increase organizational performance and profitability to improve the collection of helpful information for planning and formulating effective managerial decisions.
Accounting services are crucial in the real estate business for their applications in maintaining monetary records that bear on the future. That is why management practices in this service are essential in a real estate business. Management accounting maintains and runs necessary administrative functions in marketing and customer relationships. It is not just enough to coordinate strategies in these avenues; management accountants must also maximize profits and ensure businesses survive modern competitive markets. These can be through reducing operational expenditure, improving customer service and relations, etc. The real estate industry is not immune to complex challenges, as discussed herein, some that have long-term ramifications for the business. Therefore, a focus on management accounting practices suffices in presenting the best practice in the industry for other managers to emulate.
With the increase in consumer demands, market conditions, and market volatility (as evidenced during the corona pandemic), the need for managerial accounting has increased, and as such, they need reliable data (PWC, 2019). Here is where management accounting practices and systems come in handy. When addressing management accounting in the real estate industry, property managers and management companies rely on reports that can attract and maintain serious real estate investors and use the data to show trends that clients might find helpful over time. Since housing is also a critical aspect of social and spatial equity, as provided by (Fields & Rogers, 2017), the impacts of digital technologies and other practices in the residential and private real estate industry need a close study. Investors are also vested in the role and application of best management accounting systems and technologies, with reports showing that global venture capital funding in real estate technology companies grew to 65% between 2012 and 2017 and amounted to £8.5 billion in 2017 (Barbiroglio 2018, cited in Shaw, 2018). Factoring in the drastic losses the real estate faced in the wake of the pandemic, McKinsey reports that the subsequent recovery phase for many industries and markets will be digital (McKinsey & Company, 2020).
The purpose of this paper is to understand how management accounting systems have changed in recent times, with a particular emphasis on the effects of the Coronavirus pandemic on management accounting practices. Apart from these changes, the discourse and arguments of this paper will also assess the influence of broader structures (social, political, financial, and economic) and how the strictures caused have contributed to the changes in M.A. practices. Therefore, the contents of this paper will aggregate findings from the housing industry and, through an interpretive approach, contribute to the existing literature of M.A. practices in the Real Estate industry. It is worth noting that few researchers have looked into the reasons for changes in M.A. practices, so this paper will also fill that gap. To do so, the research will consider different case studies that have applied suggested changes and, in so doing, open a new path for other M.A. managers to follow. The following section will include a literature review, then tracked by study research methodology.
LITERATURE REVIEW
For firms to be more profitable and compete favorably in the market, they have to introduce specific changes in their systems that match the demands of their internal and external environments (Sharma, 2011). Management accounting practices play an essential role in organizational processes, and as such, management accountants serve as integral strategic partners in management teams. Their roles would be to add value by organizing activities, people, and resources to meet its goals and targets (Al Sharari, 2018). As earlier stated, organizations need to make changes in their systems whenever necessary. To do so, a diversity of influences have to be analyzed to make changes. In its organizational context, accounting is implicated by factors such as intensity of market competition, level of qualification of accounting staff, advancements in production technologies, and even organization size (Nair & Nian, 2017). Therefore, to fully understand innovations, it is imperative to identify how institutional political, moral, or technical issues have prompted innovations in the MAC (Miller and O’leary, 1990). From this understanding, the institutional theory is the primary theoretical approach appropriate for studying innovations and changes in Management accounting (MAC).
Institution theory postulates that the survival of an organization depends on how the business conforms to existing social standards of an acceptable practice to attain maximum progress (Sharma, 2011). The further analysis explains that there are three types of institutional theory; New Institutional economics (NIE), New Institutional Sociology (NIS), and old institutional economics (OIE) (Scapens, 2012). From this stratification, NIE and NIS study how external economics and institutional social and political pressures affect the structure of an organization and its practices. The OIE focuses on how institutions within the organizations shape specific management accounting solutions. The difference between NIS and OIE is that OIE seeks to explain why people within organizations behave in a given way and why economic behaviors are within the organization (Scapens, 2012, p. 405). Applying the institution theory in the study of management accounting practice changes and innovations is essential because it explains the elements of stability. Organizations can easily monitor ways of thinking that affect performance, new trends in management systems, internal and external pressures. In this regard, it is essential to highlight internal, external forces that have prompted changes in management accounting practices.
The international financial reporting standards (IFRS) are responsible for setting accounting rules for financial statements that companies should follow during reporting of financial statements. They are consistent throughout different markets, reflect transparency and integrity, and are easily comparable. However, applying IFRS standards in management accounting to harmonize accounting does not always yield the best output in accounting. Some researchers have evidenced how IFRS “gold standards” invite unintended economic consequences (Bruggemann et al., 2013), possibly due to differences in economic regimes of different countries. Either way, the main is to specify the details needed to harmonize the reporting of accounting data. Therefore, IFRS infrastructure has a potential effect on management accounting practices as it was evidenced to affect private companies (under foreign listed companies) in the Czech Republic (Procházka, 2017). The research will also make inferences to the implications of existing financial modulators such as IFRS and the IASB frameworks on the management of accounting information as they serve to ensure a wide range of management accounting activities, as there are certain aspects of business practice for which IFRS have set mandatory rules to be followed by real estate companies.
Under the IFRS regulations, real estate businesses will have to comply with these standards. Frist of all all, Standards, Navigator and IAS 8 codes and Accounting Policies (2021) maintains that companies in the Real estate industry report on financial position, statement of change in equity, statement of comprehensive income ,and cash flow statements. These regulations are to be applied to all accounting activities, and in so doing IFRS can influence major components of financial statements such as balance sheet, and every organization will have to follow these statutes under country law and IFRS. Furthermore, a statement of income can be changed to take the form or be put in a profit and loss statement. Moreover, it can also be reported as a statement of other income wth information on equioment and property. On the othe hand, directives on Statement of change in equity requires companies to document the difference in company’s earnings or profit for any given financial year. Companies will also report on Statement of cash flow which are the summaries of financial transactions in any given period or time. Statements of cash flow separates cash flows into different operations, investments, finances. In addition to these basic reports, the real estate company must summarize its accounting policies, providing complete information to show the changes in the profit and loss.
Another area of considerable effect on management accountability in the real estate industry is innovation and technology. Accounting information systems have often depended on how global markets respond to increasing accounting software packages (Wabner et al., 2011). Technological changes have also been shown to affect estate agents’ practices in housing transactions (Dunning et al., 2018). In this report, Dunning and his colleagues demonstrate how new forms of technology have affected estate agency practices dynamics between buyers, market intermediates, and vendors due to the increased online activity from customers. As a result, management accounting practices have also evolved, as Askarany (2015) listed. Some of the most popular management accounting techniques in this regard include Activity Based Costing (ABC), Balanced Scorecard (BSC), Strategic Management Accounting (SMA), among others (Askarany, 2015, p. 5)
With the rapid growth in real estate industry, it is imperative for companies to keep up with their technology by upgrading to the lates versions and best software that can enable them compete favorably and assist in management accounting process. The value of top-level, cutting edge software can not be underwritten, as it easily captures financial transactions, tracks the, and transmits them to necessary destinations for interpretation and thus, for positive and effective managerial decisions. It also allows management accountants to prepare reports from the financial transactions even faster, automatically and efficiently. This way, appropriate software saves the company time, resources, and in the long run potential customers. However, poor maintenance can drag companies years back, and so it is important for managemet accountants to practice best policies in how these programs, human and physical resources are preserved. Bad records are common in the real estate business which should not be the case as its an industry that wields powerful investors. Poor maintenance is costly, particularly when taxes are being filed and being audited, it’s essential that even the smallest receipts are accounted for.
A threat with software application in management accounting is that slight errors can be disastrous to operations and reputation of a company. With increased threat from cyber-crimes, the best practice sustains businesses while outdates software or human resources can be caught off guard with malicious software that can disrupt business financials by eradicating important files. having safe and secure software will ensure efficiency at its best to work through the company (Svobodova, 2016). Real estate companies can receive help from expert advisors, as they share essential resources when setting up management accounting resources for the business to follow. These advisors can outline the challenges faced in the company, helping the owners to create a specific responsibility that management accountants should follow. This professional advice ensures that owners capture all necessary financial information for better future decisions.
Under the institutional theory, external conditions affect the performance of companies, and the heaviest challenge for management accountants was the pandemic. According to the KPMG report, the pandemic affected the global economy, with real estate facing potentially long-term consequences (Lego-Deiber, 2020). For example, the fair value measurement of real-estate assets became more challenging because valuations changed due to the uncertainty during the pandemic. In the wake of the pandemic, the International Accounting Standards Board (IASB) amended IFRS 16, resulting in rent concessions to ease their lessees from the burdens of the pandemic (Len Deiber, 2020). In the residential estate category, the pandemic increased demand for the RREs due to increased use as remote workplaces. During the pandemic, the Euro area behaved relatively stable due to increased savings and loan moratoria, but construction activity was reduced (Lo Duca, 2020). Housing construction resources are affected by inflation, rising house prices, location of construction, level of wages, among others (Gumenna-Derij, 2021)
Because of these conditions affecting the housing industry, management accounts play a crucial role in carrying out strategic options during the pandemic, which this research hopes to highlight. Reflecting on the institution theory, best management practice involves working through environmental scans and competitive analysis, internal and external analysis, and innovation opportunities from the market disruption. Furthermore, companies that do not consider their culture, evaluation, structure, and incentive systems challenge developing new ways of running things. An entrepreneurial spirit counts through the challenges of the pandemic, but more significant potential lies in the internal dynamics of management accountants.
Housing market situations vary from region to region and cities due to differentiation in development levels (Gumenna-Derij, 2021). That said, the literature review could not find a one-size-fits-all, even though some market conditions were experienced by the whole housing and real estate sector. From a management accounting perspective, regional development projects can determine the best management accounting practices that prioritize social protections while still considering the effects of the national economy (Alekseyenko, 2021). In a review of housing markets in the Euro area (Europe), Norway was the most expensive country for housing construction, averaging 4,043 €/m2 followed closely by the U.K. at 3, 753 £2. these figures show steady growth in constriction development, considering the U.K. had led the region for many years (Panorama of the residential markets in Europe)
METHODOLOGY
The methodology part describes methods applied during the research process, explaining steps taken to reach the findings. Of importance in the methodology section is to describe the procedures and techniques (research philosophy). Due to the theoretical nature of this research, and interpretive research approach was used to collect data for this research. The interpretive process involves reviewing existing literature on related topics and observing their links on specific issues and how they link to the primary research objectives (Urquhart & Fernandez, 2013). In this regard, the interpretive approach was used to understand how different companies and management accountants in the housing and real estate industry responded to internal and external issues such as technological demand, the coronavirus, and innovations in software for management accounting.
The interpretive approach places a lot of emphasis on understanding the issues at hand, reviewing interrelated studies, and showing how the complementary studies defend the research objectives. A descriptive approach was then used to discuss how different management practices responded to causative issues and gave a new perspective. The advantage of this method is that it is more straightforward as it does not need complex statistical inferences, interviews, or observations.
The sources of research articles used in this paper include peer-reviewed journals, websites, and softwares such as EBSCO, Science Direct, Elsevier, Emerald, Journal of Real Estate Management, Taylor and Francis, Springer Link, Management Accounting Research as well as renowned sources such as PWC and McKinsey & Company. This way, the synthesized information would be credible, thus solving for any internal and external validity. In the synthesizing process, exploration of different causes of change in management accounting practices formed the basis for the literature review. Additional literature from websites and company reports was used to confirm current management accounting and organizational changes.
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