Dysfunctional Behavior in Accounting

BEHAVIORAL ACCOUNTING HOMEWORK
NAMA : HANS JONNI NIM : A 311 10 268
2012
DYSFUNCTIONAL BEHAVIOR IN MANAGEMENT CONTROL SYSTEMS

There are various forms of dysfunctional behaviors that can occur in an organization but with one common and underlying objective: to use the rules and procedures to ones advantage. Hirst (1983, 596) considers dysfunctional behavior to be translated in rigid bureaucratic behavior, strategic behavior, resistance and invalid data reporting. But, a more thorough description of the forms of dysfunctional behavior, as reviewed by Birnberg et al. (1983), can be listed as follows: Smoothing The subordinate utilizes the information system to his/her benefit by altering the pre-planned free flow of data without altering the actual activities of the organization (Ronen & Sadan, 1981). The most common example would be the booking of sales/expenses achieved/incurred in the current period to subsequent periods. Biasing & Focusing The manager has flexibility over the various indicators or types of information he/she can report. Biasing would imply selecting the one(s) suiting best the circumstances and more favorable to the manager. Such situations usually exist when managers are being required to provide estimates of future events12 (Birnberg et al., 1983, 121). This is very much related to the idea of focusing, since the attention of superiors is being diverted to specific, and more positive, elements of a system. Filtering - According to Read (1962), filtering occurs when information is withheld because the subordinate thinks that this could be used by his/her superior to hinder the subordinates personal goals (e.g. career progression). This was later confirmed by OReilly & Roberts (1974) study. Birnberg et al. (1983) also classify the delaying of reports, over-presentation (to cause information overload) or overaggregation as a form of filtering. Illegal Acts or Falsification Such dysfunctional behaviors may include forgery of documents and reports i.e. existing information is intentionally altered to satisfy
HANS JONNI [A 311 10 268]
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2012
required norms and variances. Examples of studies that have documented such practices are Mars (1982), Vaughn (1983) and Simon & Eitzen (1986). These two broad categories of dysfunctional behaviors (information manipulations and gaming) identified above may not necessarily contain all the types of dysfunctional behaviors14. Nor do these practices actually operate in isolation of one another15. Managers may thus be engaged into gaming and manipulation at different levels of combination. Therefore, a methodological problem has been to determine how to operationalize the concept of dysfunctional behavior. Indeed, Hirst (1983, 603) and Merchant (1990, 298) note the difficulties in obtaining honest responses, given the sensitive and illicit nature of dysfunctional behavior. In this respect, Hirst (1983) used surrogate measures such as tension and social withdrawal (viewed in terms of subordinate-superior relations) to capture dysfunctional behavior but eventually suggests the use of case study approaches for future research. On the other hand, Merchant (1990), Jaworski and Young (1992) and Chow et al. (1996) used various constructs to measure dysfunctional behavior. Appendix 1 provides a summary of the various questions used by these earlier studies and their respective Cronbach-Alpha statistics. It was noted that measures used by Jaworski and Young (1992) do overlap between the different categories and types of dysfunctional behavior in contrast to the measures used by Merchant (1990) and Chow et al. (1996) i.e. the latter studies attempt to distinguish between strategic information manipulations (manipulation of performance measures) and gaming (short-term orientation). Also, and despite earlier arguments to avoid direct sensitive measurements (e.g. Hirst, 1983 and Otley, 1978), the questions relating to data manipulation (in Merchant, 1990) were unambiguous and may have resulted in nonresponses16. Finally, direct questions involving specific and detailed dysfunctional practices (e.g. shifting funds between accounts to avoid budget overruns) may elicit respondents to provide ethically motivated attitudes rather than generating a measure the incidence (or extent) of dysfunctional behavior.
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DYSFUNCTIONAL BEHAVIOR IN COST AND MANAGEMENT ACCOUNTING

Poor morale on the part of managers is the root cause of most of the disadvantages suffered by a system of budgetary control. Unless adequate attention is given to the behavioral factors and the right atmosphere is created in which the system can flourish, the efficiency of the system may be seriously impaired. Applying budgets without adequate participation, setting standards which are not attainable, reporting exceptions as though they are failures, and fixing responsibility without control, will certainly lead to resentment and distrust on the part of managers within the budgeting system, Being human they will act to defeat what they consider to be a system which disadvantages them, and may link the budget accountant with this action if they consider him to be an adversary, a critic or an investigator. Dysfunctional behavior manifests itself in a variety of ways. 1. Line managers faced with the threat of adverse variances will adopt a defensive attitude to avoid responsibility. They may build in slack by increasing their expenditure estimates when the budget is drafted, so that their department is cushioned against adverse condition, variances disclosed are usually favorable. 2. A manager may conceal some expected advantage when budget forecasts are made or may delay some profitable activity until it can be used to offset the effect of other losses. 3. A manager who is worried by adverse variances may avoid taking risk: in escaping criticism he or she also forfeits to the business the chance of large profits. 4. Managers who expect their budget to be cut will automatically enlarge their forecast of expected costs. If the costs prove lower than anticipated, they will be entrusted with a greater expenditure budget than they require to run their department efficiently. As the year-end approaches, and they have not spent as much as was expected, in order to escape discovery they will then spend up to the padded budget on items which are not really required. 5. It is not unknown for managers who are pressured by unattainable budgets to falsify information in order to beat the budget. 6. If pressure is put on a manager it will spoil atmosphere of teamwork and coordination in the business, as a pressured manager may try to pass pressure back up
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the organization by rejecting the budget or the standards imposed by it, or conversely may form a group bond with the employees under his control to express their resentment.
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BEHAVIORAL ACCOUNTING HOMEWORK

NAMA : HANS JONNI NIM : A 311 10 268

DYSFUNCTIONAL BEHAVIOR IN MANAGEMENT CONTROL SYSTEMS

HANS JONNI [A 311 10 268]

BEHAVIORAL ACCOUNTING HOMEWORK

HANS JONNI [A 311 10 268]

BEHAVIORAL ACCOUNTING HOMEWORK

DYSFUNCTIONAL BEHAVIOR IN COST AND MANAGEMENT ACCOUNTING

HANS JONNI [A 311 10 268]

BEHAVIORAL ACCOUNTING HOMEWORK

HANS JONNI [A 311 10 268]

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