Role of Management Accounting and Blockchain in Moving Businesses to the Revolutionary Circular Economy Model

Role of Management Accounting and Blockchain in Moving Businesses to the Revolutionary Circular Economy Model

Table of Contents

1. Introduction.
2. The concept of Management Accounting.
3. Changing role of Management Accounting.
4. Renewed interest in circular economy.
5. Advent of blockchain.
6. Use of blockchain in finance.
7. Conclusion.

1.Introduction

Economic growth and development are an aspiration/ambition for almost every individual, organisation, industry and nation (Nadeem et al. 2018). Scholars have highlighted that the current economic system has developed with no concern for the environment or little interest in recycling (Su et al. 2013). The last six decades have especially seen resource depletion at its highest, and unless we act proactively, our remaining days are simply a race for the resources that remain. Although the idea of the circular economy (CE) materialised about five decades ago and has gained popularity recently, it is believed that its roots cannot be traced back to any specific point in time (Webster, 2015). One way of characterising it would be to state that it is restorative and regenerative by design and aims to keep products, components, and materials at their highest utility and value at all times, distinguishing between technical and biological cycles (Ellen MacArthur Foundation 2015).

2.The concept of Management Accounting

International Federation of Accountants (1998) defines management accounting (MA) as a specialised field of accounting which focuses on information for managerial planning, evaluating, and controlling in organisations (Azudin & Mansor, 2017). Bromwich (1990) suggested that there was a need to release MA from the factory floor to allow it and to aid directly in meeting market challenges. In the last couple of decades, the changing role of MA has ensured it aids in strategic decision making and allowing firms to realise their true potential. Many researchers have reported the importance of MA knowledge, including Reid and Smith (2002), who are of the opinion that firms can gain access to financial and non- financial information to help improve their existing operations through the use of MA practices. A growing body of literature argues that an organisation’s management control needs to adapt as an organisation changes business model or strategy for the management control to be consistent with the organisation’s objectives and strategies (Svensson and Funck, 2019). Within MA, control encompasses planning, cybernetics, administrative and cultural controls as well as compensation systems, while decision making involves strategic and operational decisions (Malmi and Ikäheimo, 2003; Malmi and Brown, 2008).

3.Changing role of Management Accounting

Having said that, the digital economy has changed the role of management accounting in an irreversible way. A 2016 Deloitte report into Finance in a digital world, based on interview research, focused on technology disruptions that finance functions were experiencing. The report listed seven technologies that modern finance functions must have on their radar: cloud, process robotics, visualisation, advanced analytics, cognitive computing, in-memory computing and blockchain (CGMA, 2018a). Historically, the finance function’s mandate was to focus on organisational efficiencies and reduce operational costs. In many organisations, this focus has heralded lean operational processes, and now there is no more fat to trim (CGMA, 2018b). The finance function is not isolated anymore and in the future it will have to be more involved in developing solutions with the rest of the organisation.

Information technology (IT) has played and will play a major role in the development of accounting information systems (AIS) by providing “the push that drives accounting activities” (Vaassen and Hunton, 2009). Many organisations are implementing business intelligence & analytics (BI&A) technologies to support reporting and decision-making. Traditionally, MA is the primary support for decision-making and control in an organisation and as such, it has clear links to and can benefit from applying BI&A technologies (Rikhardssona and Yigitbasioglu, 2018). Even before Pacioli documented the double entry system of debits and credits (Payne, 2013), accountants tried to make sense of large volumes of business data, whether it came from a paper-based system, an early/legacy computer-based system, or a highly technical, all-encompassing enterprise system (Janvrin & Watson, 2017). The concepts of Big Data and BI&A have given birth to the idea of blockchain; a digital ledger of economic transactions that is fully public, continually updated by countless users, and considered impossible to corrupt. It is a list of continuous records in blocks (Carlozo, 2017).

4.Renewed intere