The effect of different organizational and contingency variables
on the fulfilment of a risk management role by management
accountants
Sander Douma
16 June 2017
Master thesis
MSc. Organizational and Management Control
Faculty of Economics and Business
University of Groningen
The Netherlands
s.douma.3@student.rug.nl
Student number: 1999028
Abstract
Previous research suggests that risk management is an emerging new role for management accountants, next to the traditional bookkeeping role and the business partner role. This study examines the risk management role of management accountants working in the Netherlands. Organizational and contingency factors like technology, strategy, organizational structure, industry influence and external environment are often identified as determinants of the extent to which management accountants fulfil their roles. The literature suggests that there is usually some overlap between the two common roles and the emerging risk management role. Therefore, this research examines whether the determinants of the bookkeeping and business partner role also influence the extent to which management accountants fulfil a risk management role. The evidence shows that most of the factors indeed influence the risk management role. Technology turns out to positively influence the fulfilment of a risk management role in most of the cases. However, human knowledge remains very important for risk management. Furthermore, some extent of decentralization turns out to positively influence the risk management role of management accountants. Moreover, it is interesting to see that public organizations face relatively little rules with regard to risk management and that similar public organizations show big differences with regard to their risk management activities. Finally, the impact of the factors strategy, dependencies between groups and external environment on the fulfilment of a risk management role is mixed. This study acts as an explorative guide with regard to risk management and management accounting and provides several areas for future research.
Keywords: risk management role, management accountant, contingency theory, firm resources,
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Table of contents
1. Introduction……….4
2. Literature review………...6
2.1 Roles of the management accountant: bookkeeping role, support role and risk management role……….………...6
2.2 Contingency theory and firm resources……….………....8
2.2.1 Technology………..……….9
2.2.2 Strategy………10
2.3 Organizational structure and the risk management role……..………...11
2.4 External environment and the risk management role………...12
2.5 Industry influence, regulations and the risk management role………...13
3. Research methodology………....14
3.1 Sample………....………..14
3.2 Development of interview questions...………...15
4. Results………...16
4.1 Risk management role of management accountants……….16
4.2 Firm resources……….17
4.2.1 Technology………..17
4.2.2 Strategy….………...18
4.3 Organizational structure………...19
4.3.1 Decentralization………...19
4.3.2 Interdependencies between groups………..19
4.4 External environment………..20
4.5 Industry and regulations………..20
5. Discussion………...25
5.1 Conclusions with regard to different determinants of the risk management role of management accountants ………...25
5.2 Contributions to literature………..…….………...28
5.3 Practical implications………...28
5.4 Limitations and future research………....29
References………...31
Appendix I: Interview guide………...37
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1. Introduction
Management accountants often fulfil different roles within their organizations. Two specific roles are usually mentioned in the literature, namely: a support role and a control role (Ten Rouwelaar, 2006). The support role focuses on supporting overall decision-making which means that the management accountant is a business partner. The control role is the traditional role of delivering accurate information. The management accountant is more a bookkeeper here. However, next to these two roles that controllers face, a new third role seems to emerge (Chang et al., 2014). It concerns a risk management role here. Risk management has become more and more important during the last years as a consequence of various scandals and bankruptcies which were the result of poor risk management (Dionne, 2013). The goal of risk management is to create a common framework that allows organizations to deal with uncertainty and risk (Stulz, 2003). Risk practices can vary from more basic risk activities to more sophisticated risk frameworks like enterprise risk management (ERM). ERM is a kind of risk management that is increasingly adopted by organizations nowadays and is a risk framework to effectively and systematically execute internal control in order to reach certain objectives (COSO, 2004). It concerns organizational objectives in several categories, namely: strategy, operations, reporting and compliance. The current literature is not yet that developed with regard to the risk management role that controllers face. Therefore, it is not completely clear what the current role of controllers is, concerning risk management in their organizations. This research will elaborate on this. It will be examined whether Dutch controllers face a risk management role next to the two other roles which are often mentioned in literature.
Furthermore, there is limited empirical evidence for the influence of different factors on the fulfilment of a risk management role by management accountants. As risk management activities become more important nowadays and management accountants seem to play an important role in this, it is important to know more about this specific role. Numerous studies focused on the effect of different factors on the fulfilment of the two roles mentioned above, namely the traditional control role and the business partner role. The existing management accounting literature often examines different organizational characteristics for explaining the different roles that management accountants fulfil. Factors that are often mentioned as determinants of the management accountant’s roles are organizational structure, interdependencies among business units and decentralization (Ten Rouwelaar, 2006). Furthermore, the industry in which a firm is active is usually a determinant of the management accounting function as well, together with the corresponding industry specific regulations (Chang et al., 2014). Despite this existing academic literature, the effect of those organizational variables on the execution of a risk management role is not yet widely examined. It could be expected that those factors influence the fulfilment of a risk role either, as risk management has usually some relatedness to the two other roles (Ernst & Young, 2010). This study will elaborate on this and examine the effect of organizational characteristics on the fulfilment of a risk management role.
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accountants play an important role with regard to the development and use of control systems. Woods (2007) examined risk management systems in organizations and the relationship with contingency factors. The researcher concluded that contingency variables like external environment, technology, strategy and organizational size significantly impact the design and operational details of the risk management system. Organizations constantly have to adapt their systems to changes in contingencies in order to perform optimally (Chenhall, 2003). Uncertainty increases more and more nowadays and management accountants have to deal with this. Consequently, risk management becomes more complex at the same time. Given the link between contingency factors and risk management, this research examines the relationship between different contingency factors and the risk management role that management accountants face.
It is examined to what extent management accountants are actually fulfilling a risk management role. Management accountants usually fulfil multiple roles and activities simultaneously which could lead to problems to fulfil the roles in a proper way (Ernst & Young, 2010). As different organizational and contingency factors influence the fulfilment of management accounting roles, it is important to know how those factors influence the risk management role. If top management knows the effect of different organizational and contingency factors on risk management they can adjust their policies and the internal organization in order to make the risk management function more efficient.
This research focuses on the risk management role that Dutch controllers fulfil. The research method is qualitative and is conducted in the Netherlands. Several interviews are conducted with management accountants working for organizations in the financial and public sector in order to give an overview of the risk management activities of management accountants in these industries. The sample consists of a water authority, a province, municipalities, local banks and an insurance company. This sample is chosen because the academic literature with regard to the public sector, risk management and management accounting is very limited. Furthermore, risk management literature usually focuses on the financial sector. However, the relationship between risk management and management accountants is not well researched yet. Consequently, this research tries to shed light on both the public sector and the financial sector. It will be examined whether management controllers fulfil a third role concerning risk management, as is suggested in recent research. The relationship between different organizational variables and a risk management role will be examined, as well as the link between some contingency variables and the risk management role. Therefore, a framework of both organizational factors and factors regarding a company’s environment and business will be used. Consequently, the research question that will be addressed is:
- What is the effect of organizational and contingency factors on the fulfilment of a risk management role by
management accountants?
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acts as a starting point on which future studies can build, both in a quantitative and qualitative way.
This study is structured in the following way. First a literature review is provided, based on relevant management accounting literature. Several propositions are developed on which the remaining of the research is based. Furthermore, the research methodology is described, followed by the results of the study. Finally, a discussion section with conclusions, recommendations, limitations and areas for future research is provided.
2. Literature review
This part will focus on describing the relevant literature for this research. Several important concepts are defined and explained by using existing literature. Furthermore, different propositions will be developed and presented in order to answer the main research question.
2.1 Roles of the management accountant: bookkeeping role, support role and risk management role.
A management accountant is often defined as a person who supports and advises the management of an organization with the realization of their different goals (Anthony & Young, 2004; De Loo et al., 2006). Management accountants usually play a number of roles within an organization at the same time. The roles that are most often mentioned in the literature are the one of bookkeeping and supporting management with decision-making. The bookkeeping role focuses on scorekeeping and control-type issues which is seen as the traditional management accounting role (Lambert and Sponem, 2012). The focus with this role is on financial reports and the management accounting control system within an organization (Ten Rouwelaar, 2007). An advantage of this role is that the management accountant is relatively independent in the organization and that conflicts of interest are minimized. A big disadvantage is that the management accountant could be seen as an ‘’outsider’’ by other personnel and stakeholders (Sathe, 1984).
Next to this, the support function is more seen as a function that concerns delivering relevant information to managers for decision-making (Friedman and Lyne, 2001; Granlund and Lukka, 1998). Management accountants assist managers with planning and controlling activities but also with motivating people from the whole organization (Swagerman, 2003). It is mentioned that it is more expected nowadays that a management accountant fulfils a business partner role in an organization. A reason for this is that organizations face more complex environments and have to deal with more uncertainty in the current business world (Burns and Scapens, 2000; Vaivio, 2006). Therefore, business managers need new and different information compared to the past, in order to deal with this uncertainty. The result is that management accountants become more central in the organization they work for and often become a key member of the management team. Compared to the traditional controlling role, the management accountant is more business oriented here instead of an ‘’outsider’’ (Sathe, 1984).
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prove their stakeholders that the company is running smoothly. Especially enterprise risk management (ERM) is more and more adopted by companies (Hoyt and Liebenberg, 2011). This type of risk management captures all kinds of risks a firm faces, or the risk management of everything (Power, 2004; COSO, 2004). ERM focuses on maintaining internal control, in order to achieve different organizational objectives. Despite the increased use of sophisticated risk management frameworks like ERM the focus of this research is on general risk management practices. The reason for this is that a lot of firms in the Netherlands do not yet use the more sophisticated risk management frameworks (Paape and Speklé, 2012). Organizations face more uncertainty nowadays. The environment is changing quickly and firms need to adjust to this in order to remain competitive. As a consequence, firms need to deal with a broad scope of risks. This scope comprises operational risks, reputational risks and strategic risks (Soin and Collier, 2013). The Basel Committee for Banking Supervision (BIS) defines operational risk as: ‘’the risk of losses resulting from inadequate or failed internal processes, people and systems or from external events’’ (Basel Committee on Banking Supervision, 2005). Reputational risks become more important lately. These risks are also known as secondary risks (Power, 2004). This means that this kind of risk is the effect of another activity. For instance, a small regulatory fine causes a big reputational impact which leads to significant drops in sales. Reputational damage is very harmful to a firm as it is difficult to regain the trust of customers again. Therefore, this kind of risk is very important. Strategic risk is more on the top-level of an organization. It has to do with the strategic moves that an organization makes and the corresponding variability in returns that are the result of this (Baird and Thomas, 1985). All these risks need to be taken into account in order to perform an effective risk management function. Management accounting systems often provide information in order to respond to environmental changes (Gordon and Narayanan, 1984). These systems provide also information that enables an organization to identify risks and consequently to start the risk management process. Management accountants are often in charge of the information derived from the accounting systems. Therefore, it is not a surprise that Chang et al. (2014) concluded that risk management could be seen as a new role for management accountants.
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therefore relatively limited. It shows that there are still big gaps to fill with regard to this specific research area. This research will build on the conclusion of Chang et al. (2014) that risk management could be seen as a new role of management accountants. It will be examined whether this is also the case in the Netherlands and the determinants of this risk management role form the main focus. The fulfiment of the risk management role will be measured by looking at the risk management activities that management accountants actually fulfil.
2.2 Contingency theory and firm resources
This research elaborates on the contingency theory. The theory states that organizations constantly need to adapt to their internal and external environment (Gordon and Narayanan, 1984). Given that every organization is unique in its kind, there are numerous contingency variables mentioned in the existing literature. This research uses a number of contingency variables that are used in relevant management accounting researches. Chenhall (2003) described the fit between management control systems and the organizational context and mentioned a number of important contingency variables. The external environment, technology, size, structure, strategy and national culture comprise those variables. Furthermore, Woods (2007) examined the relationship between risk management systems of organizations and contingency variables. It was concluded that the external environment, technology, strategy and size significantly impact the design of a risk management system. However, it is not known what the effect is of certain variables on the risk management activities of management accountants. Consequently, the interplay between risk management and management accounting and control practices is still a relatively unexplored area. That is the main focus of this study. Management accountants generally use the control systems intensively. Therefore, it can be expected that the mentioned contingency variables have an important impact upon the practices of management accountants. However, the literature is still relatively limited with regard to the exact effect of those contingencies on the roles management accountants usually have. Consequently, this research will shed light on the relationship between different contingency factors and the risk management role that management accountants face.
Firm resources and the risk management role
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(Mosakowski, 1993). Consequently, risk management systems are more likely to be invested in. The following parts will elaborate on this.
2.2.1 Technology
A factor whose importance is increasing is technology. Information technology could be defined as a set of tools and processes used to collect, process and present information (Henderson and Venkatraman, 1993). Technology plays an important role in the current business world. The management accounting field is also heavily influenced by this variable nowadays (Kaplan and Atkinson, 2015). Information technology turns out to be a critical factor for a finance department to carry out multiple roles simultaneously and in an effective way (Hope, 2006). Technologies enable management accounting systems to further develop and to become more integrated with the organization. This integration becomes more and more advanced with the introduction of sophisticated integrated information systems. Integrated systems like enterprise resource planning (ERP) lead to a change of the management accounting function (Scapens and Jazayeri, 2003). Organizations are provided with more forward looking information and the roles of management accountants are widened. These systems usually lead to more efficiency and an improved overall performance of the organization. A technological up-to-date management accounting system will result in an improved risk management system as well. Namely, management accountants use the accounting systems in order to obtain information with regard to the identification, control and mitigation of risks. Sophisticated integrated systems can increase reporting quality, flexibility, accuracy and data standardization and therefore can positively influence the success of the whole accounting and finance function (Grabski et al., 2011; Vakalfotis et al., 2011). A critical point is that management accountants are dependent on the top management of a firm with regard to the adoption of sophisticated technologies for their accounting systems. It turns out that policy makers usually invest in the proper information systems if they perceive a necessary need for it (Gordon and Narayanan, 1984). However, the investment in more sophisticated information systems is more likely if firms have sufficient financial resources internally or access to external finance. Namely, investments in those information systems are usually high (Benaroch, 2002). Larger firms often have more access to internal and external finance in order to invest in accounting systems compared to their smaller counterparts (Hudson et al., 2001). Therefore, it is more likely that large firms have sophisticated accounting systems which enables management accountants to derive relevant information. SMEs generally lack the financial resources to invest in more sophisticated information systems (Garengo et al., 2005). Consequently, their management accounting systems are usually less developed. As a consequence, the risk management is also more likely to be less sophisticated. It can be concluded that firms need to have access to finance in order to invest in information systems and to keep them up-to-date with the latest market developments. If this is the case, management accountants can clearly benefit from technological improvements to the accounting systems of the organization they work for. The management accountants have improved access to risk related information and are better able to fulfil a risk management role. Therefore, the following proposition could be developed:
Proposition 1: Technological improvement to accounting systems is positively related to the
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2.2.2 Strategy
Strategy is often mentioned as a highly relevant contingency variable. However, strategy is a bit different than other contingency variables, as it is not really an element of context (Chenhall, 2003). It is more a means by which the management of an organization can react to the external environment and the corresponding threats that influence the operations of the firm. Strategy could be defined as ‘’the link a firm makes between its internal resources and skills and the opportunities and risks created by its external environment’’ (Grant, 1991). The focus is on the long-term behaviour of a firm and the attainment of its goals (Mintzberg, 1978). It is important that organizations have clear strategies in order to remain competitive and to react quickly to changes. This increases the overall viability of a firm (Grant, 1991). The literature on strategy is very intense. Different classifications of strategies followed by organizations to differentiate themselves exist. An often followed classification is the one from Miles and Snow (1986) who classify the strategy of a firm as a prospector, defender, analyser or reactor. A prospector is more progressive and actively tries to differentiate themselves from competitors by being innovative and up-to-date with the latest market developments. Defenders usually protect their current market and maintain stable growth. An analyser focuses on moderate growth and innovation while a reactor has no clear strategy and only reacts to changes in the market.
Management accountants traditionally do not have direct influence on the strategy setting of a corporation. However, their roles include more and more a so called business partner function. This means that management expects management accountants to support them with decision-making (Siegel et al., 2003). In this way, management accountants can inform management about urgent issues and make them aware of the directions a firm should go. They are more and more expected to use their financial knowledge to help management with identifying opportunities for overall organizational growth (Mellon et al., 2012). Management accountants could focus on both improving the execution of already existing strategies and on developing new strategies (Howell, 2006). It can be expected that firms with a progressive strategy focused at being competitive and innovative face more risk compared to firms that are reacting and defensive. Namely, progressive firms try to target new markets and to develop new products. The likelihood of failure with regard to those activities is usually relatively high (Martin and Scott, 2000). Therefore, there is a lot of uncertainty related to acting progressive. Consequently, risk management becomes very important. Furthermore, given the uncertainty it is hard to standardize processes in risk management systems. People like management accountants are very important to fulfil risk management activities in this situation. After considering this argument it can be concluded that a progressive strategy is positively related to the fulfilment of a risk management role. Furthermore, firms that follow a progressive strategy perform usually better compared to defenders (Gordon and Narayanan, 1984). Consequently, an increased firm performance leads to the availability of more resources which could be used to invest in technological improvements of the accounting systems and to attract qualified financial staff. Therefore, it could be concluded that management accountants are expected to be better able to fulfil a risk management if the firm has a clear progressive strategy. The following proposition could be developed:
Proposition 2: A progressive strategy is positively related to the fulfilment of a risk management
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2.3 Organizational structure and the risk management role
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way in case their organization is more decentralized. Consequently, the following proposition could be derived:
Proposition 3a: Decentralization is positively related to the fulfilment of a risk management role
by management accountants.
Interdependencies between different groups mean that different functions within a company are dependent on each other and cannot optimally perform without the input of each other (Chang et al., 2014). Zoni and Merchant (2007) state that greater operating dependencies lead to greater involvement of management accountants in the area of non-traditional roles. In case dependencies are large, more intensive financial knowledge is needed as cost assignment issues become more relevant and difficult. As a consequence, management accountants become more important and their expertise is needed to provide relevant financial information. There is little known about the specific relationship between interdependencies and the fulfilment of a risk management role by management accountants. It is reasonable to expect that management accountants are dependent on other groups for the delivery of risk related information. Namely, risk management systems are usually filled with data by other people than the management accountants themselves. Management accountants use the information for proper risk management. Consequently, the management of an organization is dependent on this risk management output for issues like strategy setting and overall decision-making (Straub and Welke, 1998). In case there are dependencies between different functions it is more likely that there is high cooperation in order to make the risk management activities as efficient as possible (Hart, 2008). Namely, the functioning of the whole organization depends on this. Furthermore, if management accountants are dependent on other staff to fill the risk management system with data, it is more likely that they support them and indicate what is important in order to make the fulfilment of their own risk management activities more optimal. Therefore, the following proposition could be derived:
Proposition 3b: Interdependencies between different groups are positively related to the
fulfilment of a risk management role by management accountants. 2.4 External environment and the risk management role
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complex, risky and unpredictable (Chenhall, 2003). In case of more environmental uncertainty the probability of adverse risk events increases (Subramaniam et al., 2011). Consequently, risk management practices are also likely to be more intensive. Furthermore, uncertainty makes it hard to standardize risk management activities in systems. Therefore, management accountants remain important for the fulfilment of a risk management role. Moreover, given the increased importance of risk management for the organization it could be expected that a firm provides the responsible management accountant with sufficient time and resources to fulfil the risk management role. Therefore, the following proposition could be derived:
Proposition 4: A more uncertain external environment is positively related to the fulfilment of a
risk management role by management accountants.
2.5 Industry influence, regulations and the risk management role
Industry usually has an influence on the management accounting function. It turns out that there are differences between firms operating in different industries with regard to their management accounting function (ICAEW, 2011). Studies mainly focus on firms that are active in the financial sector. This is not very surprising, given that the economic crisis and several financial scandals lead financial institutions to adopt better risk management programs by means of strict regulations (Saunders and Cornett, 2014). Chang et al. (2014) examined the influence of industry on the finance function of organizations and found an important difference between the different industries. A positive relationship was found between firms operating in the financial sector and the importance placed on reporting, compliance, and internal control/risk management as a role of management accountants. However, the study focuses on a broad control role of management accountants, in which risk management is only a small part. Therefore, the exact influence on risk management as a specific role of management accountants is not totally clear.
This research focuses on both firms operating in the financial sector as on firms that are active in the public sector. It is interesting to examine whether management accountants fulfil a risk management role in a different way given the industry they are active in. Zoni and Merchant (2007) state that risk management is a core activity in the financial sector given the nature of the business activities. On the other hand, the importance of risk management turns out to increase for other sectors as well, given a more uncertain external environment and more demanding stakeholders nowadays (Olson and Wu, 2015). The release of Basel II resulted in strong incentives for financial institutions to adopt risk management systems, as it may help to reduce capital requirements. Strict regulations usually lead to more pressure on risk management which suggests a positive relationship between regulations and the fulfilment of a risk management role (Bessis, 2011). Furthermore, firms in the financial sector usually have more developed risk management systems compared to firms active in the public sector (Paape and Speklé, 2012). Consequently, it is reasonable to expect that management accountants active in the financial sector are able to fulfil a risk management role in a more efficient way compared to their counterparts working in the public sector. Therefore, the following proposition could be developed:
Proposition 5: Management accountants working in the financial sector are better able to fulfil a
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An overview of the different propositions and the literature that is used can be found in the following table:
3. Research methodology
This part will deal with research method related factors. A description of the used sample is provided. Furthermore, the factors that are relevant for this research are highlighted and linked to the development of questions for the interviews.
3.1 Sample
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order to perform and to convince stakeholders of the legitimacy of their activities. The academic literature with regard to risk management is very narrow especially for the public sector. Public organizations are responsible for social money which leads to the expectation that risk management is important given the need to legitimize the activities to the society. Therefore, public organizations are also added to this research in order to examine risk management activities for those organizations and the interplay with management accountants. The sample consists of fifteen management accountants working for a province, a water authority, an insurance company, municipalities and local banks. The local banks belong to the same organization. It gives an overview of the risk management activities of management accountants working for banks. However, it is highly questionable whether the results are generalizable to other banks and different financial institutions.
3.2 Development of interview questions
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organization faced organizational changes in the past. Organizational change usually refers to a response to external factors in order to make the organization up-to-date and competitive (Chang et al., 2014). Therefore, this is a proxy for uncertainty arising from the external environment. Companies in the public sector usually do not face competition from other companies. Therefore, the factor organizational change will only be used for those companies. Industry influences the management accounting function (ICAEW, 2011). The specific industry is studied by looking whether the organization is active in the public sector or in the financial sector. The public sector comprises municipalities, conservancies and provinces etc. Banks and insurance companies are firms that are active in the financial sector and that are important for this study. Questions relate to the extent organizations in different sectors have to deal with strict risk regulations or with the demands of stakeholders and whether this influences the fulfilment of the risk management role (Zoni and Merchant, 2007; Lam, 2014).
4. Results
This section provides results from the conducted interviews. Some general results with regard to the risk management role of management accountants are given. The influence of the different organizational and contingency factors on the risk management role of management accountants will be provided and supported with quotes from the management accountants. Furthermore, a table is developed in order to give a clear overview of the results.
4.1 Risk management role of management accountants
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4.2 Firm resources 4.2.1 Technology
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technology also mention the importance of human knowledge for risk management. ‘’There will always be a grey area that cannot be covered with systems. Human knowledge is crucial here’’. Furthermore, four of the management accountants who do not see the advantages of technology work in the public sector and indicate that the investments are usually a big hurdle. ‘’There are numerous projects having priority with regard to that’’. The management accountant working for an insurance firm indicates that the company is highly willing to invest in technology but that it does not really impact his risk management activities. An important reason for this could be that the management accountant is mainly occupied with coordinating and monitoring the risk management activities and that the person is not directly working with the systems. The human aspect of risk management is very important for this role. After considering the results it can be concluded that access to financial capital is definitely important for firms in order to have more advanced risk management systems which consequently positively influence the fulfilment of a risk management role. The local banks and the insurance company have a lot of financial resources available because of their big size. The availability of finance enables the organizations to invest in technology. Public organizations have less financial capital and the willingness to invest in risk management systems is usually relatively low. Consequently, the risk management systems used in public organizations are more basic and the management accountants need to focus more on human resources to fulfil risk management tasks.
4.2.2 Strategy
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the results are very mixed and that different strategies have different effects on the risk management role of management accountants.
4.3 Organizational structure 4.3.1 Decentralization
Decentralization is expected to be positively related to the fulfilment of a risk management role by management accountants. Management accountants are more likely to influence the risk management function of an organization in case there is more decentralization (Granlund and Lukka, 1998). Six management accountants indicate that their organization is decentralized. Decentralization positively influences the fulfilment of risk management activities for four of those management accountants. ‘’The decentral structure results in employees who are aware of the risks. They have the feeling that they play an important role in the overall risk management process. This positively influences the risk management function’’. Two management accountants indicate that the decentral structure could be improved in order to improve risk management and two management accountants indicate that the decentral structure has no clear influence on their risk management role. The remaining seven management accountants indicate that their organization has a mix of a decentralized and centralized structure and that this structure positively influences their risk management activities. Most of the risk management policies of the local banks are centralized by the headquarters of the bank for instance. However, local banks also have freedom to decide on certain issues locally. ‘’ We certainly have autonomy to decide on risk related things locally, even if a lot of things are fixed and decided more central. This interplay positively influences our risk management role’’. It can be concluded that most of the organizations used in this study either have a decentralized structure or a combination of a central and decentral structure. In most of the cases the presence of some decentralization positively influences the risk management role of management accountants. In this research the underlying mechanism is usually that in case of some decentralization management accountants have more responsibility for the risk management process which leads to more involvement, more risk awareness and an increased overall risk management function. By being involved in the risk management process management accountants get more insight in the risk attitude of an organization which enables them to better fulfil a risk management role.
4.3.2 Interdependencies between groups
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this as well as the variety of activities. Finally, two management accountants perceive interdependencies as positive but indicate that there is room for improvement. ‘’Sometimes employees postpone their risk management activities. Eventually they finish it, but that’s only because it is something compulsory’’. It can be concluded that the results concerning interdependencies between groups are mixed.
4.4 External environment
A more uncertain external environment is expected to be positively related to the fulfilment of a risk management role by management accountants. The external environment is identified with competition intensity and forced reorganizations for private companies and for public companies only the factor forced reorganizations is used. Four management accountants state that competition will lead to less risk management in the future. Competition intensity can lead to cost cuttings which put a negative pressure on risk management. However, the quality of risk management needs to increase more and more according to those management accountants. ‘’The requirements for risk management become more strict. You need to be focused and quality is crucial’’. Two other management accountants state that competition does not really influence their risk management activities, but more the commercial activities. The exact effect of competition on the risk management role is therefore not completely clear. Given the small size of the sample it is difficult to draw a valid conclusion with regard to this factor. Seven management accountants mention that forced reorganizations positively influenced the fulfilment of risk management activities. ‘’The amount of tasks decreased because of reorganizations. The quality of risk management needs to be way higher however’’. Furthermore, ‘’external stakeholders more and more require us to have proper risk management, which means that the quality needs to increase’’. Therefore, the pressure to have sufficient risk management activities increases for several of the management accountants who are interviewed. Seven management accountants indicate that forced reorganizations did not impact their risk management activities while one management accountants states that no forced reorganization took place in the organization. ‘’Despite several reorganizations my risk management activities did not significantly change’’. It can be concluded that the results of effect of forced reorganizations on risk management activities of management accountants are mixed.
4.5 Industry and regulations
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5. Discussion
This section will discuss the main results by using relevant literature. Furthermore, the contributions of this research to literature will be highlighted. The limitations of this study will be mentioned as well as future research directions within this specific topic.
5.1 Conclusions with regard to different determinants of the risk management role of management accountants
The recent literature implies that risk management is emerging as a role of management accountants. However, there is still little known about this risk management role, especially in the Netherlands. This research shows that risk management is a very important role for management accountants in both the public and private sector. Most of the management accountants spend considerable time on risk management. Furthermore, the existing literature identified several determinants of the roles of management accountants. Organizational and contingency variables are the variables that are most often mentioned with regard to this. With the emerging risk management role of management accountants it is important to know which variables influence this specific role. This study addresses the determinants of the risk management role and links some of them with firm resources. Firm resources are believed to be of importance for the investments in accounting systems which positively influence the fulfilment of a risk management role. The study resulted in some interesting results.
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diversified portfolios which face more risks. However, the results of this study show mixed results. Both progressive and defensive strategies are found in practice to be related to a risk management role. A mix of both strategies is most often mentioned by management accountants and the consequent influence on risk management is mixed as well. A plausible argument for this could be that strategy is often perceived as very complex and a bit abstract (Gray, 1996). Management accountants could perceive strategies in different ways which gives numerous results. Future research needs to focus on this in order to give more detailed results.
The existing literature suggests that organizational structure can have an important influence on the management accounting function. Higher levels of decentralization and high levels of interdependencies between departments are believed to lead to greater levels of involvement of management accountants as a business partner (Zoni and Merchant, 2007). However, the impact on risk management activities is unclear. The results of this study show that at least some decentralization is needed in order to make risk management activities more efficient. Most of the structures are either decentralized or a mix of a centralized and a decentral structure. Mainly banks use this last type of structure. The central bank decides upon the main risk management activities but management accountants have some autonomy locally in order to design their own tasks. It could be concluded that it is important to involve the management accountants. Having a too centralized structure does not give the management accountants enough input in order to perform risk management activities in an optimal way. The findings with regard to interdependencies are rather mixed. A group of management accountants indicates that there are no or small interdependencies or that those interdependencies do not influence risk management while another group perceives interdependencies as positive with regard to their risk management role. Zoni and Merchant (2007) suggest that higher interdependencies lead to the need of more financial expertise leading to a business partner role of management accountants. The reasoning of the management accountants used for this study is different. Management accountants indicate that they are usually dependent on other financial personnel for the input of data in risk management systems. This dependency enables them to influence their behaviour and to make them risk aware which positively influences the overall risk management function. Furthermore, the employees have some responsibility and the feeling of being important for the organization. This is in line with findings of Drake et al. (2007) who state that empowered employees are more motivated to work. The banks use a risk system based on the three lines of defence. The interviewed bankers belong to the first line. Consequently, this line is controlled by a second line and a third line. There is some dependency on those lines. However, there are usually fair and open discussions which lead an extension of the risk management knowledge and an improvement of the overall risk management function. The same applies to the management accountant working for an insurance company. Dependencies make the risk management activities more complex but they also increase the variety of the activities. It could be concluded that in some cases dependencies can lead to knowledge sharing which positively influences the fulfilment of a risk management role.
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and the external environment that becomes increasingly more uncertain it is important to know what the interplay is between the two factors. The results of this study are very mixed with regard to the external environment. Competition intensity and forced reorganizations are used as a proxy for the external environment, which is in line with the research of Chang et al. (2014). Some management accountants indicate that competition intensity will negatively influence risk management in the future because cost cuttings lead to fewer resources available for risk management. This is in line with findings of Benaroch (2002) who states that investments in risk management are usually high. Other management accountants perceive no clear influence of competition intensity on their risk management role. The results do not confirm the expectations that more uncertainty positively influences the fulfilment of a risk management role (Subramaniam et al., 2011). The results with regard to forced reorganizations are mixed. A number of management accountants states that forced reorganizations positively influenced the fulfilment of their risk management activities while other management accountants did not perceive an effect on their risk management role. The mixed findings are in line with previous studies which reported both positive and negative results for the influence of the external environment on traditional management accounting roles (Zoni and Merchant, 2007; Byrne and Pierce, 2007). The literature review suggested that a more uncertain external environment resulted in more extensive risk management. The results show that a more uncertain environment usually leads to reorganizations and that management accountants need to fulfil risk management activities with fewer people. In most of the cases, the amount of risk management activities decreases because of standardization but the quality of the remaining activities needs to increase. The overall effect on the fulfilment of risk management activities is rather mixed.
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compared to public organizations. The willingness of the local banks and the insurance company from the sample to invest in risk management systems is very high, which is in line with findings of Paape and Speklé (2012). On the contrary, public organizations prefer to spend public money on other things than financial functions. However, the difference in the use of systems does not lead to a clear difference between both groups with regard to the fulfilment of a risk management role.
5.2 Contributions to literature
This study contributes to the existing management accounting literature in different ways. The results of this research show that risk management is a very important role for management accountants in the Netherlands. Chang et al. (2014) suggested that risk management is emerging as a management accounting role next to the traditional bookkeeping role and the business partner role. However, risk management is part of a broader finance role in their study. This finance role consists of the components reporting, compliance and internal control/risk management. This study purely focuses on risk management activities. The research contributes to the contingency theory by linking different contingency variables to the risk management role of management accountants. It is shown that contingency variables are a determinant of the extent to which management accountants in the Netherlands fulfil a risk management role. Therefore, this study shows the applicability of contingency theory to the field of risk management. Furthermore, the factor firm resources is connected to a number of contingency variables and consequently risk management. The results show that there is interrelatedness between firm resources and certain contingency variables and that both variables influence the risk management activities of management accountants. Given that the existing research in the field of risk management and management accounting is limited, this is an interesting contribution. Moreover, the existing literature with regard to risk management generally focuses on the financial sector. This research focuses on both organizations in the financial sector as on organizations from the public sector. The results show that risk management is an important role for management accountants working for organizations in both the financial and the public sector. Therefore, the results are a proper contribution to literature by showing that risk management is also important for public firms.
5.3 Practical implications
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shows that most of the organizations have some extent of decentralization in their organizational structure and that this decentralization positively influences the risk management role of the researched management accountants. This is an interesting finding for managers. It turns out to be important to make management accountants and other employees risk aware and to give them some responsibilities with regard to risk management in order to optimize the risk management function. Involvement and empowerment could lead employees to have better insight in the risk management process which enables them to better perform their risk management activities. Finally, a last interesting finding relates to the risk management activities of management accountants working in the public sector. It is surprising to see that similar public organizations with similar product portfolios show relatively big differences with regard to capital buffers that the organizations hold to deal with risks. Although the public organizations face similar risk management rules and regulations. Governments could think of whether this is good given that public organizations can face serious financial distress in case unanticipated events take place.
5.4 Limitations and future research
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Furthermore, it could be that the people in the north have a different mind-set with regard to risks compared to people from other areas. It is not sure whether this really influences the risk management activities of management accountants. However, it should be taken into account. Finally, this research examines the influence of different factors on the risk management role of management accountants. However, the interaction between the different factors is not examined. It could be that certain factors positively or negatively influence each other which leads to a certain amount of risk management. A certain strategy could lead to a specific organizational structure for instance which consequently influences the risk management practices of management accountants. This is an important issue to take into account.
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Appendix I: Interview guide Common questions
1. How many employees work within your organization? 2. What is the risk management role that you have?
3. Is risk management a separate role for you or do you combine it with other controlling roles? If you combine it with other roles, what is the amount of time you spend on risk management approximately?
4. How is risk management integrated into your organization? To what extent do you have an influence on the design of the risk management function?
Technology
5. To what extent are your risk management systems up-to-date with technological improvements?
6. To what extent is your organization able to and willing to invest resources in technology? 7. What is the influence of technology on your risk management role?
Strategy
The literature uses numerous classifications of strategies that firms use. Two classifications that are widely used comprise a prospector and defender strategy. A prospector is more progressive and actively tries to differentiate themselves from competitors by being innovative and up-to-date with the latest market developments. Defenders usually protect their current market and maintain stable growth.
8. Would you classify the strategy of your firm as a prospector or a defender? Why do you choose this classification?
9. To what extent do you as a management accountant have an influence on the strategy of the company?
10. To what extent enables the current strategy you to perform a risk management role optimally? What could be improved in order to make your role more efficient?
Organizational structure
The literature usually describes organizational structure as being decentralized or centralized. In a highly decentralized structure a lot of responsibilities and major operating decisions are delegated to business unit level by the top management of a firm. On the other hand, a centralized structure is characterized by decision-making by the executive leadership of a company
11. How would you describe the structure within your organization in terms of centralization? Can you say something about your autonomy and participation in decision-making?
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13. To what extent are there interdependencies between your function and functions from other departments? Do other departments need your financial input or are you dependent on them?
14. How does this dependency influence the execution of your risk management role?
External environment
15. How do you experience competition intensity within your industry and how does this influence your risk management role?
16. To what extent did you experience organizational change due to environmental uncertainty during the last years?
17. What is the impact of organizational change on your risk management role?
Industry influence
18. What is the impact of industry specific rules and regulations on the risk management activities within your company?
