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Application of cost management accounting model in construction enterprises in Vietnam
Posted date 16/01/2018
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Posted date 16/01/2018
1.560 view
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Cost management accounting is an extremely important tool in the management of production activities and strategic planning of managers. However, due to many objective and subjective reasons, cost management accounting in Vietnamese construction enterprises has not received due attention.
Dr. Le The Anh
Dai Nam University
Dai Nam University
Cost management accounting is an extremely important tool in the management of production activities and strategic planning of managers. However, due to many objective and subjective reasons, cost management accounting in Vietnamese construction enterprises has not received due attention. Enterprises are very confused in building a model to collect, process, analyze and provide flexible and effective information to managers. That has significantly affected the quality of management decisions, limiting the competitiveness of enterprises when participating in the international construction market. Therefore, construction enterprises are in great need of a simple and basic cost management accounting model to provide effective information to managers.
Keywords: Management accounting, Cost management accounting, Accounting model
1. Current status of applying cost management accounting model in construction enterprises
Construction enterprises often produce according to orders, the price and quality of the project have been determined in advance, so the nature of the goods of traffic construction products is not clear. Each product has its own characteristics in terms of structure, production process and technology, and construction location, which greatly affects the establishment of the process of providing accounting information, especially cost management accounting.
Through a survey, 97% of enterprises use information from the main accountant to synthesize and provide information on construction costs, only 3% of construction enterprises have a cost management accounting organization. These enterprises use a combined model to synthesize and provide information on construction costs.
The combined model is the combination of the cost management accounting system with the financial accounting system in the same unified accounting system of the general accounting apparatus and general accounting work. In this model, there is no division between cost management accounting and financial accounting, but there is a division of tasks for accounting departments. Accountants in the departments perform both the work of cost management accounting and the work of financial accounting at the same time. Implementing this model will help businesses save on the cost of operating the accounting system, but the efficiency will not be high because cost management accounting may not comply with the principles prescribed by accounting law like financial accounting, so if implemented on the same system, it will be difficult to implement.
2. Building a cost management accounting model in Vietnamese construction enterprises
Based on empirical research of Vietnamese construction enterprises, the mixed model is suitable and effective. The mixed cost management accounting model will collect, process and provide complete and timely information to managers. This model is summarized in the following diagram:
Keywords: Management accounting, Cost management accounting, Accounting model
1. Current status of applying cost management accounting model in construction enterprises
Construction enterprises often produce according to orders, the price and quality of the project have been determined in advance, so the nature of the goods of traffic construction products is not clear. Each product has its own characteristics in terms of structure, production process and technology, and construction location, which greatly affects the establishment of the process of providing accounting information, especially cost management accounting.
Through a survey, 97% of enterprises use information from the main accountant to synthesize and provide information on construction costs, only 3% of construction enterprises have a cost management accounting organization. These enterprises use a combined model to synthesize and provide information on construction costs.
The combined model is the combination of the cost management accounting system with the financial accounting system in the same unified accounting system of the general accounting apparatus and general accounting work. In this model, there is no division between cost management accounting and financial accounting, but there is a division of tasks for accounting departments. Accountants in the departments perform both the work of cost management accounting and the work of financial accounting at the same time. Implementing this model will help businesses save on the cost of operating the accounting system, but the efficiency will not be high because cost management accounting may not comply with the principles prescribed by accounting law like financial accounting, so if implemented on the same system, it will be difficult to implement.
2. Building a cost management accounting model in Vietnamese construction enterprises
Based on empirical research of Vietnamese construction enterprises, the mixed model is suitable and effective. The mixed cost management accounting model will collect, process and provide complete and timely information to managers. This model is summarized in the following diagram:
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According to this model, cost management accounting is a part of business accounting. This model will promote the inspection and supervision functions of accounting more comprehensively and effectively. The accounting system of a construction enterprise includes two parts: Financial accounting and cost management accounting, which will save operating costs but still ensure the effectiveness of the information function. Accounting information will be processed as follows:
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(1) The construction team establishes a detailed construction schedule and plan and submits it to the planning department for monitoring as a basis for acceptance and payment and to the accounting department as a basis for advance payment. Periodically, the team accountant establishes a list of documents for expenses incurred at the construction site and submits it to the accounting department via the online system. Information on the progress and detailed construction plan provided by the team accountant is provided to the site command board to manage daily construction activities;
(2) Periodically, the accounting department compares the volume with the planning department to control the status of advances and advance payments of the construction team;
(3) The accounting department shall advance capital to the construction team according to plan;
(4) When the project is completed, the construction team will prepare a final settlement table of the contracted costs with the accounting department and the planning department.
(5) The accounting department updates the accounting software system based on the documents submitted by the construction teams. From the database on the software, the accountant will extract appropriate data to create reports according to the administrator's request. The information from this report is compiled and analyzed by experts to provide consulting information for the administrator to make decisions. At the end of the period, the accountant compiles information to create a Financial Reporting system according to the prescribed accounting regime.
3. Necessary conditions for applying cost management accounting model in Vietnamese construction enterprises
To effectively operate the management accounting model in Vietnamese transport construction enterprises as above, it requires initiative from within the enterprise, support from training units and the State.
Firstly, for state management agencies. The State needs to issue accounting policies to separate the scope of reflection of management accounting along with documents guiding the implementation of management accounting in enterprises. In order to orient enterprises to see the importance of implementing management accounting for their enterprises. Currently, legal documents on management accounting only stop at Accounting Law No. 88/2015/QH13 issued on November 20, 2015 by introducing the concept of management accounting and only Circular 53/2006/TT-BTC guiding management accounting for enterprises. The content of Circular 53/2006 provides detailed guidance for financial accounting rather than guiding the construction and development of management accounting in enterprises according to its true nature. Therefore, in order for management accounting in enterprises in general and construction enterprises in particular to play its role in providing useful information for making production and business decisions, the State needs to continue to improve guidance documents to help enterprises build appropriate and useful management accounting for their operations. The State only needs to describe the overall picture so that each type of enterprise can study and apply it appropriately to the actual situation in their enterprise. The State should also not bind and interfere too deeply in the technical operations of cost management accounting of enterprises because management accounting information is internal to the enterprise.
Second, for the Vietnam Accounting Association. Building and operating a cost management accounting system in enterprises is an opportunity to enhance the position of the association. Therefore, the Vietnam Accounting Association needs to create conditions to support enterprises in organizing and implementing cost management accounting. The Association can organize training courses for business leaders to realize the role of providing information of management accounting so that they can change their perception, change their working style and make decisions based on their feelings and experiences. The Association organizes professional and advanced professional courses for management accountants in enterprises, and organizes exams to grant management accounting certificates and provide this high-quality human resource.
Third , for training facilities for human resources in management accounting. Training facilities need to conduct surveys of actual production and business activities of enterprises to improve the training program and methods of management accounting in the direction of practice and practical application. With the financial accounting training program, training facilities have developed a curriculum according to the accounting regime issued by the Ministry of Finance, so the basic knowledge trained is the same. However, due to the flexible nature of cost management accounting along with the practical experience as well as the teaching experience of lecturers at training facilities, the training quality is very different. Therefore, training facilities need to research and find solutions to build a training model that combines theory and practice, between training facilities and enterprises. Training facilities need to build a cost management accounting practice room. The practice room will be taught by highly qualified teachers with practical experience in enterprises for students to practice with real situations. The initiative in renewing the training program of training institutions is an important basis for students to promote their proactive role, scientific thinking skills and apply the knowledge they have learned into practice.
4. Solution to apply cost management accounting model in Vietnamese construction enterprises
Firstly, raise awareness of business administrators about cost management accounting . Enterprises need to raise awareness and management level for business administrators. Business administrators need to proactively make requests and use cost management accounting information in production and business operations.
Second, perfect the production process . Traffic construction enterprises need to perfect the production and business technology process, establish a production and business management system, and orient the development of a management system to serve as a basis for establishing, orienting the design, and building a cost management accounting model for the enterprise.
Third, organization of the apparatus . Enterprises need to organize and rearrange the enterprise accounting apparatus in the direction of combining the cost management accounting department and financial accounting in the same accounting apparatus. Assign clear functions and tasks to each accounting staff. Arrange qualified staff to be in charge of accounting work in the construction team. Establish and strengthen the relationship between the accounting department and other departments in the enterprise to facilitate the collection of information for management accounting. However, in order to keep management accounting information confidential, enterprises need to arrange a separate office and other support tools for this department.
Fourth, training and recruitment policies . Enterprises need to develop a retraining policy as well as improve professional skills in management accounting for the enterprise's accounting staff. Retraining is conducted by experts in cost management accounting to equip the enterprise's staff with the latest updated knowledge. At the same time, traffic construction enterprises also need to develop specific criteria for cost management accounting when posting recruitment notices. Newly recruited employees need to be trained in cost management accounting skills and processes at the enterprise.
Fifth, applying information technology to cost management accounting at enterprises . The application of information technology to accounting is considered a measure of the efficiency of business operations. Because accounting is an extremely effective financial management tool, the application of information technology is a powerful support tool for processing accounting data and preparing reports. Therefore, to apply the management accounting system in practice, business managers need to choose accounting processing software that can adapt to the characteristics of the enterprise and changes in state management requirements. When additional information is needed due to the manager's request, management accountants can exploit some management functions to provide information from this system. Accounting software must be fully designed with facilities to be able to generate necessary management reports. When purchasing or designing accounting software to provide internal information, administrators must meet two main requirements: the program design must ensure the authorization function and the confidentiality of information at each authorization level. However, in reality, no software can fully meet the requirements of administrators. New software meets the requirements of financial accounting. To set up management reports, accountants need to export data to Excel and combine it with additional information to create complete and flexible management reports.
5. Conclusion
In short, for the cost management accounting model to be successfully applied in construction enterprises, the recommendations need to be implemented synchronously. At the macro management level, it requires guidance from the state and specialized training management institutions so that enterprises can see the importance and effectiveness of applying cost management accounting. At the micro level, when managers realize the role of cost management accounting information, they will build a seamless information system within their enterprises, boldly improve and rearrange the accounting apparatus to suit the requirements of developing a market economy. The coordination between functional agencies and enterprises is an important basis for determining the success of applying the cost management accounting model to the production and business activities of Vietnamese construction enterprises. The applied model will be an extremely effective cost management tool in controlling costs, improving project quality, contributing to enhancing the competitiveness of the enterprise.
6. References:
1. Ministry of Finance, Circular 53/2006/TT-BTC, Guidance on applying management accounting regime in enterprises , dated June 12, 2006
2. Pham Quang (2002), Directions for building a management accounting reporting system and organizing its application in Vietnamese enterprises , National Economics University, Hanoi.
3. Atkinson, Kaplan & Young (2004), Management Accounting . Prentice Hall. Four Editions.
4. Cheryl L. Dunn & William E. McCarthy, The REA Accounting Model , https://msu.edu/user/mccarth4/DUNN&MC.htm .
5. Powers, M., Needles, B. and Crosson, S. (2010). Principles of financial and managerial accounting . Mason, Ohio: South-Western.
(2) Periodically, the accounting department compares the volume with the planning department to control the status of advances and advance payments of the construction team;
(3) The accounting department shall advance capital to the construction team according to plan;
(4) When the project is completed, the construction team will prepare a final settlement table of the contracted costs with the accounting department and the planning department.
(5) The accounting department updates the accounting software system based on the documents submitted by the construction teams. From the database on the software, the accountant will extract appropriate data to create reports according to the administrator's request. The information from this report is compiled and analyzed by experts to provide consulting information for the administrator to make decisions. At the end of the period, the accountant compiles information to create a Financial Reporting system according to the prescribed accounting regime.
3. Necessary conditions for applying cost management accounting model in Vietnamese construction enterprises
To effectively operate the management accounting model in Vietnamese transport construction enterprises as above, it requires initiative from within the enterprise, support from training units and the State.
Firstly, for state management agencies. The State needs to issue accounting policies to separate the scope of reflection of management accounting along with documents guiding the implementation of management accounting in enterprises. In order to orient enterprises to see the importance of implementing management accounting for their enterprises. Currently, legal documents on management accounting only stop at Accounting Law No. 88/2015/QH13 issued on November 20, 2015 by introducing the concept of management accounting and only Circular 53/2006/TT-BTC guiding management accounting for enterprises. The content of Circular 53/2006 provides detailed guidance for financial accounting rather than guiding the construction and development of management accounting in enterprises according to its true nature. Therefore, in order for management accounting in enterprises in general and construction enterprises in particular to play its role in providing useful information for making production and business decisions, the State needs to continue to improve guidance documents to help enterprises build appropriate and useful management accounting for their operations. The State only needs to describe the overall picture so that each type of enterprise can study and apply it appropriately to the actual situation in their enterprise. The State should also not bind and interfere too deeply in the technical operations of cost management accounting of enterprises because management accounting information is internal to the enterprise.
Second, for the Vietnam Accounting Association. Building and operating a cost management accounting system in enterprises is an opportunity to enhance the position of the association. Therefore, the Vietnam Accounting Association needs to create conditions to support enterprises in organizing and implementing cost management accounting. The Association can organize training courses for business leaders to realize the role of providing information of management accounting so that they can change their perception, change their working style and make decisions based on their feelings and experiences. The Association organizes professional and advanced professional courses for management accountants in enterprises, and organizes exams to grant management accounting certificates and provide this high-quality human resource.
Third , for training facilities for human resources in management accounting. Training facilities need to conduct surveys of actual production and business activities of enterprises to improve the training program and methods of management accounting in the direction of practice and practical application. With the financial accounting training program, training facilities have developed a curriculum according to the accounting regime issued by the Ministry of Finance, so the basic knowledge trained is the same. However, due to the flexible nature of cost management accounting along with the practical experience as well as the teaching experience of lecturers at training facilities, the training quality is very different. Therefore, training facilities need to research and find solutions to build a training model that combines theory and practice, between training facilities and enterprises. Training facilities need to build a cost management accounting practice room. The practice room will be taught by highly qualified teachers with practical experience in enterprises for students to practice with real situations. The initiative in renewing the training program of training institutions is an important basis for students to promote their proactive role, scientific thinking skills and apply the knowledge they have learned into practice.
4. Solution to apply cost management accounting model in Vietnamese construction enterprises
Firstly, raise awareness of business administrators about cost management accounting . Enterprises need to raise awareness and management level for business administrators. Business administrators need to proactively make requests and use cost management accounting information in production and business operations.
Second, perfect the production process . Traffic construction enterprises need to perfect the production and business technology process, establish a production and business management system, and orient the development of a management system to serve as a basis for establishing, orienting the design, and building a cost management accounting model for the enterprise.
Third, organization of the apparatus . Enterprises need to organize and rearrange the enterprise accounting apparatus in the direction of combining the cost management accounting department and financial accounting in the same accounting apparatus. Assign clear functions and tasks to each accounting staff. Arrange qualified staff to be in charge of accounting work in the construction team. Establish and strengthen the relationship between the accounting department and other departments in the enterprise to facilitate the collection of information for management accounting. However, in order to keep management accounting information confidential, enterprises need to arrange a separate office and other support tools for this department.
Fourth, training and recruitment policies . Enterprises need to develop a retraining policy as well as improve professional skills in management accounting for the enterprise's accounting staff. Retraining is conducted by experts in cost management accounting to equip the enterprise's staff with the latest updated knowledge. At the same time, traffic construction enterprises also need to develop specific criteria for cost management accounting when posting recruitment notices. Newly recruited employees need to be trained in cost management accounting skills and processes at the enterprise.
Fifth, applying information technology to cost management accounting at enterprises . The application of information technology to accounting is considered a measure of the efficiency of business operations. Because accounting is an extremely effective financial management tool, the application of information technology is a powerful support tool for processing accounting data and preparing reports. Therefore, to apply the management accounting system in practice, business managers need to choose accounting processing software that can adapt to the characteristics of the enterprise and changes in state management requirements. When additional information is needed due to the manager's request, management accountants can exploit some management functions to provide information from this system. Accounting software must be fully designed with facilities to be able to generate necessary management reports. When purchasing or designing accounting software to provide internal information, administrators must meet two main requirements: the program design must ensure the authorization function and the confidentiality of information at each authorization level. However, in reality, no software can fully meet the requirements of administrators. New software meets the requirements of financial accounting. To set up management reports, accountants need to export data to Excel and combine it with additional information to create complete and flexible management reports.
5. Conclusion
In short, for the cost management accounting model to be successfully applied in construction enterprises, the recommendations need to be implemented synchronously. At the macro management level, it requires guidance from the state and specialized training management institutions so that enterprises can see the importance and effectiveness of applying cost management accounting. At the micro level, when managers realize the role of cost management accounting information, they will build a seamless information system within their enterprises, boldly improve and rearrange the accounting apparatus to suit the requirements of developing a market economy. The coordination between functional agencies and enterprises is an important basis for determining the success of applying the cost management accounting model to the production and business activities of Vietnamese construction enterprises. The applied model will be an extremely effective cost management tool in controlling costs, improving project quality, contributing to enhancing the competitiveness of the enterprise.
6. References:
1. Ministry of Finance, Circular 53/2006/TT-BTC, Guidance on applying management accounting regime in enterprises , dated June 12, 2006
2. Pham Quang (2002), Directions for building a management accounting reporting system and organizing its application in Vietnamese enterprises , National Economics University, Hanoi.
3. Atkinson, Kaplan & Young (2004), Management Accounting . Prentice Hall. Four Editions.
4. Cheryl L. Dunn & William E. McCarthy, The REA Accounting Model , https://msu.edu/user/mccarth4/DUNN&MC.htm .
5. Powers, M., Needles, B. and Crosson, S. (2010). Principles of financial and managerial accounting . Mason, Ohio: South-Western.
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