Critiques of Conventional Accounting

Question 1

Limitations of Profit

Answer 1

1) Backward looking measure. (it is calculated after the fact; yearly, semi-annually or monthly)
2) Emphasises short-term goals (it may hinder the implementation of improvement systems which stress profits initially) Managers under pressure to meet short term profit goals reduce expenditure on long term investments.
3) Ignores Risk (it does not tell you much about different types and risk levels)
4) Is subject to manipulation (e.g. valuation policies using historical costs, fair value, etc., depreciation methods using straight line or declining balance methods)
5) Ignores cost of capital

Question 2

Other ways to asses financial performance of a firm

Answer 2

Market value of the company (If available (an external measure and is less likely to be manipulated by managers. It reflects the future potential of the company), but influenced by many other factors. 
Cash Flow (Is less likely to be manipulated than profit. But remember the inverse relation between profitability and liquidity)  

Other solutions e.g. Balance Scorecard, economic value added, etc.

Question 3

Johnson and Kaplan (1987)

Answer 3

Globalisation - Increased competition - Changes in customer demands and Preferences - Rapid progress in product development - Fluctuations in exchange rate & Raw material prices

More customised products - Shorter product life cycle - Increased overheads - Increased automation and new production and operation systems.

Customer related information - Non financial information - Forward looking information - Different costing systems

Question 4

Conventional MAS

Answer 4

Absorption Costing: (Labour inputs are used to allocate overheads decreased and overheads increased)
Standard Costing: (Allows waste and the associated variance analysis may encourage overproduction)
Variable costing (Ignores the increasing fixed overheads)
Financial measures (Short-term focus, lagging indicators)
Traditional Budgeting (May include waster prevent continuous improvement and encourage "gaming")

Question 5

New MAS

Answer 5

Balanced Scorecard
Life Cycle Costing 
ABC 
Target Costing 
Lean Accounting
Supply Chain Accounting

Question 6

MAS

Answer 6

Provide Timely Information and accurate efforts to control costs to measure and improve production process (J&K 1987)