THE IMPACT OF DEPARTMENTAL INTERDEPENDENCE AND
ORGANIZATION STRUCTURE ON MANAGEMENT ACCOUNTING
PRACTICES (EVIDENCE FROM MANUFACTURING SECTOR OF
PAKISTAN)
1
KHURRAM ASHFAQ, 2RUI ZHANG, 3ABDUL WAHEED, 4SOHAIL YOUNUS
1
Jiangxi University Of Finance & Economics Nanchang, China,
Jiangxi University Of Finance & Economics Nanchang, China,
3
Government College University Faisalabad, Pakistan,
4
University of Sargodha Mandi Baha Uddin Campus, Pakistan.
E-mail: [email protected]
2
Abstract- The purpose of this study is to determine impact of departmental interdependence and organization structure on
the management accounting practices in the textiles and cements sectors companies which are listed in Karachi Stock
Exchange (KSE-100 index) in Pakistan. In this study the independent variable is departmental interdependence which is
measured by sequential dependence and reciprocal dependence and organization structure which are measured by sub
variables such as (behavior formalization, department size, complexity, decentralization and unit grouping). To find the
usage level of management accounting practices 38 management accounting practices are used and these are also divided
into four stages according to its properties.
The regression model is used to test empirical data collected from a questionnaire which are filled by the head of accountant
of textiles and cement sector companies. The response rate is 64%. The questionnaire is adopted by two different papers. The
results indicate that sub variables of organization structure such as behavior formalization, department size, complexity and
decentralization has significant impact on the selection of management accounting practices but the unit grouping and
departmental interdependence was not supported by the data. So, these results provide some useful recommendations for the
managers to consider these factors while designing an effective management accounting system. This study also establishes
the basis for future research in this area.
Keywords- Departmental Interdependence, Behavior Formalization, Decentralization, Management Accounting Practices
Etc.
can be viewed as a system in different structural
characteristics.
Departmental interdependence means that for the
completion of their task which departments depends
on the other department. Interdependence are always
used in manufacturing process or their relevant
branches, in three type of interdependence pool
dependence is no favorable for manufacturing firm
because it is no suitable and expensive, so reciprocal
and sequential dependence are used in manufacturing
firm because these are most suitable and favorable for
all manufacturing firm. The organization’s structure
is strongly related to the control strategy of
accounting (Bruns and Waterhouse, 1975; Merchant,
1985). The researcher has empirically explored that
whether department interdependent and organization
structure are significantly impacted by sophistication
levels of management accounting practices. To
esteem the importance and usage of management
accounting technique, the researcher will also do
comparative analysis between the textiles and cement
sectors in managerial functions. The researcher will
also conclude the wider use of advanced management
accounting techniques in textiles and cements sectors
by the managers.
Textiles and cement sector is the largest sectors in
Pakistan and their management and their control is
very complicated for the management so these are
those sectors in which management accounting
practices is used at high level. So the previous study
I. INTRODUCTION
Management accounting is technique that presents the
different levels of management accounting
information that enable to perform the various
functions of planning, controlling and decision
making more professionally. Different types of
policies are formulated with the help of management
accounting system. Managerial accounting system is
applicable to many activities for the managers.
Management accounting is used for the development
of various strategies by Managers. To estimate the
performance of workers, decisions make and for
achieving goals management accounting practices
can also be used. The prices of different products can
also be decided by managers by using of management
accounting practices whether to continue selling
particular products and whether to stop its sale. There
is very strict competition in the economy of our
market.
The management of companies must be aware about
the competitiveness of the market; the companies
should need to have intent information for their better
performance. The mangers of manufacturing firm are
satisfied by using the advance management
accounting practices for the measurement of their
performance. Chenhall et al. (1998) found that
management accounting practices
Proceedings of 21st ISERD International Conference, Shanghai, China, 7th December 2015, ISBN: 978-93-85832-60-4
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The Impact of Departmental Interdependence and Organization Structure on Management Accounting Practices (Evidence From
Manufacturing Sector of Pakistan)
of Magdy Abdel-Kadera and Robert Luther (2007)
studied impact of firm characteristics on management
accounting practice. This development has resulted
these factors have a signification impact on the
management accounting practices. Alper and Erserim
(2012) study the impact of organizational culture,
firm’s characteristics and external environment of
firms on management accounting Practices. They
argued that how organizational culture such as
Centralization and Formalization and Perceived
Environmental
and
Uncertainty
Perceived
Competition Level affects the usage of management
accounting practices. This development has resulted
these factors have a signification impact on the
management accounting practices. One of the criteria
that the management accounting practices has impact
on firm’s characteristics, organizational structure etc,
and these leads to summarize the problem of this
study as follows:
1) Is there any impact of Departmental
independence on Management Accounting
Practices?
2) Is there any impact of organization structure on
Management Accounting Practices?
H1. There is an impact of departmental
interdependence
on
management
accounting
practices.
H2. There is an impact of behavior formation on
management accounting practices.
H3. There is an impact of department size on the
management accounting practices.
H4. There is an impact of complexity on management
accounting practices.
H5. There is an impact of decentralization on
management accounting practices.
H6. There is an impact of unit grouping on
management accounting practices.
II. OBJECTIVE OF STUDY
IV. RESEARCH METHODOLOGY:
The basic objective of study is:
1) To determine which factor of organization
structure is more supportive in explanation the
variation between firms adopting different levels
of advancement of Management accounting
practices.
2) To determine the impact of departmental
interdependence on management accounting
practices.
In this study we are going to estimate the impact of
departmental interdependence and organization
structure on management accounting practices by
using the econometric technique such as
“Regression” and also by means of regression
analysis.
4.1 Population and sample
The population of the study is the event that includes
the firms of textiles sector and cement sectors which
are listed in Karachi Stock exchanges i.e. KSE-100
Index in Pakistan. A well structured questionnaire is
used for the collection of data. And there are 80 firm
in textiles sectors and 22 firms in cement sector
which are listed in Karachi Stock exchanges i.e. KSE100 Index in Pakistan.
4.2 Data collection
For collection of empirical data the Postal
questionnaires was used. The questionnaire was
adopted by two different papers the independent
variable is taken by the paper of Jonas Gerdin (2005)
and the dependent variable was taken by the paper of
Magdy Abdel-Kader and Robert Luther (2007). And
new questionnaires were made by both papers. The
questionnaires’ was filling up by the head of
accountant of the textiles sectors firms and cement
sectors firms.
4.3 Research Model
MAP = β0 + β1 (DI) + β2 (BF) + β3 (DS) + β4
(COMP) + β5 (DC) + β6 (UG) + μ
MAP = Management accounting practices
DI
= Departmental interdependence
III. THEORETICAL FRAMEWORK &
HYPOTHESIS DEVELOPMENT:
By reading through the above literature, it is evident
that many studies have been done with perspectives
of impact on the management accounting practices. It
is not obligatory for each theory that will give the
same results of impact on management accounting
practices. By looking at the impact on management
accounting practices, it has been confirmed from
above literature that most of the previous researches
went wrong due to various reasons. After discussing
the above literature it is found that a lot researches
had studied the impact of different factors on the
management accounting practices. Based on the
above facts, this study discusses the impact of
organization
structure
and
departmental
interdependence on management accounting practices
and also determines which factor of organization
structure is more supportive in explanation the
variation between firms adopting different levels of
advancement of Management accounting practices.
This type of research is very rare in Pakistan.
Proceedings of 21st ISERD International Conference, Shanghai, China, 7th December 2015, ISBN: 978-93-85832-60-4
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The Impact of Departmental Interdependence and Organization Structure on Management Accounting Practices (Evidence From
Manufacturing Sector of Pakistan)
BF
= Behavior formalization
US
= unit size
COMP = complexity
DC
= Decentralization
UG
= unit grouping
which shows the change in variation of independent
variable.
In the variable of behavior formalization the value of
means is 2.4923.This average value is taken for the
measurement of variable which shows that employee
are full satisfied with their job description according
to their job work force, and the minimum value is 1
which shows that employee are not satisfied with
their job description according to their job work force
and maximum value is 3 that employee are full
satisfied with their job description according to their
job work force, and the SD is 0.53394 which shows
the change in variation of independent variable. In the
variable of unit grouping the value of means is
1.3692.This average value is taken for the
measurement of variable which shows that company
use functional structure, and the minimum value is 1
which shows that company use functional structure
and maximum value is 3 that company use combine
functional and product base structure, and the SD is
.67475 which shows the change in variation of
independent variable.
In the dependent variable of CDFC (stage one of
management accounting practices) the average means
value is 1.9354 which means that companies
frequently use the CDFC management accounting
practices. And minimum value is 1.20 and maximum
is 3.20 and standard deviation is 0.49511 shows the
change in CDFC. In the dependent variable of IPC
(stage two), the average means value is 2.2800 which
mean that companies some time use the IPC
management accounting practices. And minimum
value is 1.60 and maximum is 3.60 and standard
deviation is 0.49661 shows the change in IPC. In the
dependent variable of RWR (stage three the average
means value is 1.9462 which means that companies
frequently use the RWR management accounting
practices. And minimum value is 1.00 and maximum
is 3.25 and standard deviation is 0.58379 shows the
change in RWR. In the dependent variable of CV
(stage four) the average means value is 2.4574 which
mean that companies some time use the CV
management accounting practices. And minimum
value is 1.60 and maximum is 3.80 and standard
deviation is 0.50565 shows the change in CV.
5.3. Multiple regression analysis:
5.3.1. Impact of departmental interdependence on
the overall management accounting practices.
First, this model indicate that the F-test is statistically
insignificant because the p-value of independent
variable is greater than the alpha value such as (pvalue, 0.573 > 0.05), which shows the statistically
insignificancy of the model. The t-test value of
departmental interdependence is -0.569.
5.3.2. Impact of behavior formalization on the
overall management accounting practices.
First, this model indicate that the F-test is statistically
insignificant because the p-value of independent
variable is greater than the alpha value such as (pvalue, 0.178 > 0.05), which shows the statistically
V. DATA ANALYSIS:
5.1. Reliability Analysis:
The researcher research consist of primary study and
data is collected by a adopted questionnaires so
before applying the regression model first the
reliability test is applied to verify the reliability of
data. Reliability test is applied on all variables such as
depended and independent. As it is, the procedure
output has an overall raw alpha of .715 which is good
considering that .70 is the cutoff value for being
acceptable.
5.2. Descriptive Statistics:
In the variable of department interdependence the
value of means is 1.5385. This average value is taken
for the measurement of departmental variable which
shows that textile and cement firm use reciprocal
dependence then the sequential dependence and the
minimum value is 1 and maximum value is 2 and the
SD is 0.50240 which shows the change in variation of
independent variable. Department size is measure in
term of employees. In departmental size the value of
means is 1.6923.This average value is taken for the
measurement of department size variable which
shows that textile and cement firm has 126 to 250
employees and the minimum value is 1 which show
the department size is depend on 1 to 126 employees
and maximum value is 5 which means that
departmental size is depend on 501 to 626, and the
SD is 1.02961which shows the change in variation of
independent variable.
Two questions are asked from respondent about
complex. In the variable of complexity the value of
means is1.8000.This average value is taken for
measurement of the complexity variable which shows
that textile and cement firm has use 21 to 30 levels of
department and 11 to 20 jobs titles, and the minimum
value is 1 which shows that department level is
depends on 1 to 20 departments and jobs titles is 1 to
10 and maximum value is 4 shows that the
department level is 81 to 100 departments and 41 to
50 jobs titles, and the SD is .59817which shows the
change in variation of independent variable. Ten
questions are asked from respondent about
decentralization. In the variable of decentralization
the value of means is 2.1015.This average value is
taken for the measurement of variable which shows
all the decision are taken by meddle management in
the textile and cement, and the minimum value is
1.40 which shows decision are taken by CEO and
maximum value is 3.20 which shows that decision are
taken by individual level, and the SD is 1.02961
Proceedings of 21st ISERD International Conference, Shanghai, China, 7th December 2015, ISBN: 978-93-85832-60-4
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The Impact of Departmental Interdependence and Organization Structure on Management Accounting Practices (Evidence From
Manufacturing Sector of Pakistan)
insignificancy of the model. The t-test value of
behavior formalization is -1.372.
5.3.3. Impact of department size on the overall
management accounting practices.
First, this model indicate that the F-test is statistically
insignificant because the p-value of independent
variable is greater than the alpha value such as (pvalue, 0.867 > 0.05), which shows the statistically
insignificance of the model. The t-test value of
behavior formalization is -0.168.
5.3.4. Impact of complexity on the overall
management accounting practices.
First, this model indicate that the F-test is statistically
significant because the p-value of independent
variable is less than the alpha value such as (p-value,
0.016 < 0.05), which shows the statistically
significance of the model. The t-test value
of complexity is 2.532.
5.3.5. Impact of decentralization on the overall
management accounting practices.
First, this model indicate that the F-test is statistically
insignificant because the p -value of independent
variable is greater than the alpha value such as (pvalue, 0.415 > 0.05), which shows the statistically
insignificancy of the model. The t-test of
decentralization is -1.824. The coefficient
of decentralization is -0.118, its meaning that if 1
percent increases in decentralization; we may imagine
0.118 percent decrease in the use of management
accounting practices if holding all other variables
constant.
5.3.6. Impact of unit grouping on the overall
management accounting practices.
First, this model indicate that the F-test is statistically
insignificant because the p-value of independent
variable is greater than the alpha value such as (pvalue, 0.761 > 0.05) which shows the statistically
insignificancy of the model. The t-test value of unit
grouping is 0.307.
5.3.7. Impact of overall organization structure on
the overall management accounting practices
First, this model indicate that the F-test is statistically
significant because the p-value of independent
variable is less than the alpha value such as (p-value,
0.005 < 0.05), which shows the statistically
significance of the model. The t-test value
of complexity is 2.945. The result of this model
indicates clearly that the organization structure
significantly affects the choice of selection between
management accounting practices.
5.3.8. Combine impact of departmental
interdependence
and
overall
organization
structure on the overall management accounting
practices
In this model, the effect of all independent variables
is checked on the management accounting practices.
The result supports the hypothesis that organization
structure significantly affects the selection of
management accounting practices. However the
departmental interdependence is affecting the
management accounting practices but at an
insignificant level.
5.3.9. Combine impact of departmental
interdependence and organization structure on the
management accounting practices.
First the impact of departmental interdependence on
management accounting practices is calculated and
found our hypothesis H1 (There is an impact of
departmental interdependence on management
accounting practices) it is not support by data which
are collect by researcher so there is no impact on of
departmental interdependence on the management
accounting practices because the P-value greater than
the alpha value (p- value is 1.33>0.05) which means
that the departmental interdependence (H1) is
statistically insignificant. However in case of
organization structure, all the dimensions are
significantly affecting the management accounting
practices except unit grouping.
CONCLUSIONS
The purpose of this study was to explore the impact
of departmental interdependence and organizational
structure on management accounting practices. A
well structured questionnaire is used which is adopted
with the help of two different studies. These are filled
up by the head of accountant of textiles and cements
sectors firms. There are total 80 firms in textiles
sectors and 22 firms in cement sectors.
Regression model is used in this study. On the basis
of regression models, researcher concludes that
departmental interdependence has a no impact on the
management accounting practices in manufacturing
firms on Pakistan. Both the textiles or cement sector
use reciprocal or sequential dependence there is no
impact on the usage of management accounting
practices, and organizational structure has impact on
management accounting practices. Mostly firm use
the traditional management accounting practices or
some large scale firms which are the back bone of the
Pakistani firm such as textiles sectors firms and
cements sectors firms. These results have some
implication for manufacturing sector of Pakistan that
before the selection of management accounting
practices for different purpose, the firm’s
organization structure needs to be considered.

Proceedings of 21st ISERD International Conference, Shanghai, China, 7th December 2015, ISBN: 978-93-85832-60-4
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