60 Int. J. Managerial and Financial Accounting, Vol. 6, No.

1, 2014

An empirical study of the drivers of management

accounting innovation: a UAE perspective

Sawsan Saadi Halbouni*

Department of Accounting,
College of Business Administration,
University of Sharjah,
P.O. Box 27272, Room 135 – W5 Building, UAE
E-mail: sawsanhalb@sharjah.ac.ae
*Corresponding author

Mohamed Abdalla Nour

Department of Management Information Systems,
College of Business Administration,
University of Sharjah,
P.O. Box 27272, Sharjah, UAE
E-mail: mnour@sharjah.ac.ae

Abstract: This paper investigated management accounting innovation in the

UAE to add to the current literature on external and contextual factors
influencing management accounting sophistication in a developing country
context. The paper conducted a survey of 138 practicing management accounts
in the United Arab Emirates (UAE) to determine from their perspectives factors
that drive innovation in management accounting. The study indicates that
traditional management accounting techniques are more practiced than
innovative ones. The findings also indicate that globalisation, information
technology, and firm size have a significant influence on management
accounting innovation, while other factors such as market forces and employee
qualifications do not have significant influence. The finding that information
technology is one of the key drivers of management accounting innovation
suggests more investments in information technologies to update management
accounting systems and practices, and more information technology training to
equip management accountants with advanced skills necessary to implement
innovative techniques.

Keywords: management accounting innovation; information technology; IT;

globalisation; management accounting change; United Arab Emirates; UAE;
accounting information systems; AIS; economic forces; traditional
management accounting; managerial and financial accounting.

Reference to this paper should be made as follows: Halbouni, S.S. and

Nour, M.A. (2014) ‘An empirical study of the drivers of management
accounting innovation: a UAE perspective’, Int. J. Managerial and Financial
Accounting, Vol. 6, No. 1, pp.60–86.

Biographical notes: Sawsan Saadi Halbouni is an Assistant Professor in the

Department of Accounting at the University of Sharjah, UAE. She has a PhD
from University of Manchester, UK and MSc from Jordan University, Jordan.
She has extensive practical experience in the harmonisation of accounting

Copyright © 2014 Inderscience Enterprises Ltd.

 An empirical study of the drivers of management accounting innovation 61

practices, corporate governance and agency cost, fraud detection, management

accounting and financial reporting, the role of culture and accounting practices
and accounting and developing countries. Her research interests include social
responsibility and environmental disclosures, audit quality and fraud detection.
She has published in such journals as Emerging Markets Finance and Trade,
Corporate Ownership and Control Journal, International Journal of
Commerce and Management, Journal of International Finance Studies,
International Journal of Accounting, Auditing and Performance Evaluation,
Journal of Economics and Administrative Sciences and Jordan Journal of
Business Administration.

Mohamed Abdalla Nour is an Assistant Professor of Information Systems at the

University of Sharjah, UAE, having previously held academic appointments at
the University of Central Arkansas, USA and the United Arab Emirate
University, UAE. He received his MBA from Miami University, Ohio, USA
and PhD in Information Systems from Kent State University, Ohio, USA. His
current research interests include data warehousing and data mining,
e-commerce and e-government, enterprise information systems, and
information privacy. He has published in such journals as Government
Information Quarterly, Information Systems Management, Information and
Management, International Journal of Business Information Systems,
International Journal of Enterprise Information Systems, and European
Journal of Operational Research.

1 Introduction

Increased competition, technological change, globalisation and uncertain business

conditions have directed the attention on management accounting system (MAS)
innovation and put significant pressure on the management of the enterprise to
make informed business decisions and maximise their company’s financial performance
(Garg et al., 2003; Kaplan, 1986; Naranjo-Gil et al., 2009). Failure to rely on
appropriate accounting information may lead to ineffective resource management
and a gradual decline in organisational performance (Mat et al., 2010). Therefore,
managerial needs for rich and relevant information for decision making, planning and
control have led to the development of new practices and designs of management
control systems in a large number of companies around the world (Bhimani, 2002;
Langfield-Smith, 1997).
Management accounting innovation is conceptualised as either the introduction of a
new system or the redesign of an existing one (Abernethy and Bouwes, 2005).
Management accounting innovation has also been defined as the adoption of management
accounting techniques or tools that are new to the adopting organisation (Naranjo-Gil
et al., 2009). Management accounting innovations have been developed as a response to
the changing nature of operations and competition (Hamel and Prahalad, 1994; Hayes
et al., 1988). Innovative management practices are not restricted to production processes,
but also to restructuring work practices and developing new planning and control systems
(Yang et al., 2006).
Garg et al. (2003) argued that the decision to adopt the innovative management
accounting tools and techniques is attributed to the economic forces and internal resource
capabilities as well as to the difficulties involved with changing familiar practices.
62 S.S. Halbouni and M.A. Nour

Naranjo-Gil et al. (2009) added that organisational and environmental contingencies

determine the degree to which organisations will benefit from implementing innovative
MAS and assumed that the decision to innovate reflects a rational trade-off between the
expected costs and benefits.
The main objective of this survey is to investigate management accountants’
perceptions towards innovative management accounting in the United Arab Emirates
(UAE). This study will provide insight into

1 whether management accountants perceived that management accounting practices

have been changed

2 to what extent traditional and innovative management accounting techniques are

currently practiced

3 what factors have shaped, and currently influence, management accounting

innovation in the UAE

4 whether UAE management accountants need IT skills to enable them to use the
innovative techniques.

This paper makes three contributions to the recent literature on management accounting
innovation. First, it specifically sheds light on respondents’ perceptions towards the
application of innovative management accounting in an emerging nation, UAE.
Most empirical evidence in this area originates from research in developed countries
(Baines and Lanfield-Smith, 2003; Burns et al., 1999; Fullerton and McWatters,
2004; Laitinen, 2006; Smith et al., 2005). However, very limited research has taken place
about the factors that influence management accounting innovation in the Arab
Countries. Secondly, the study presents more evidence about factors that provide
incentive for innovation, and factors that may restrict the willingness to adopt the best
practices. Thirdly, UAE has become an international financial hub and the public
accounting profession there has expanded its scope of competencies. Moreover,
companies in the UAE appear to keep the costs of their products and services competitive
through adopting cost management practices (Joshi et al., 2011). Thus, this study
provides an insight on how UAE companies are reacting to the changing competitive
environment. Finally, this paper is a response to recent calls by Gerdin (2005), Tillema
(2005), and Abdel-Kader and Luther (2008) for additional research to improve our
understanding of organisational and environmental factors influencing management
accounting sophistication and consequently support the efforts towards convergence of
MAS design.
The results of this study will not only contribute to the literature with a better
understanding of management accounting innovation in a developing country context, but
also provide a useful guideline to organisations to make decisions in light of the current
changing conditions.
The paper is organised as follows. Section 2 presents literature review and hypotheses
development. Section 3 discusses the research methodology. Section 4 presents the
empirical results and analysis. Section 5 includes discussion and implications, followed
by Section 6 that includes the research conclusion, limitations, and directions for future
research.
 An empirical study of the drivers of management accounting innovation 63

2 Literature review and hypotheses development

2.1 Management accounting innovation

Management accounting innovation have affected the whole process of management
accounting and have shifted the focus from a simple ‘naïve’ role of cost determination
and financial control, to a ‘sophisticated’ role of creating value through improved
deployment of resources (Abdel-Kader and Luther, 2008). Yazdifar et al. (2012) view
management accounting innovation not only as alteration to procedures, but also as
alteration to the day-to-day practices, activities, attitudes, roles and responsibilities of the
members of the organisation. Management accounting innovations are not restricted to
the production process, but also includes innovative approaches to restructuring work
practices and developing new planning and control systems (Yang et al., 2006). A rich
variety in changes in organisational structures and processes adds to the crucial need for
management accounting practices to be opened for innovation (Lukka and Shields, 1999).
Yazdifar et al. (2012) consider such changes as necessary for any organisation to be able
to adapt to what is going on in its own environment. Quattrone and Hopper (2001, p.407)
consider organisational change to have taken place “when the entity becomes something
else”. According to them:
“Organizations ‘change’ when they transform their structure and operations; or
management control systems ‘change’ when a new information system, such as
ERP, is implemented; or cost accounting systems ‘change’ when cost allocation
bases are redefined from direct labour hours to activities.”
Firms have recently been experiencing significant changes in their organisational
structures, processes, and strategies in response to increased competition from
deregulation, globalisation and new technology for communications, operation and
measurement (Lukka and Shields, 1999). Managerial accounting techniques and practices
have changed in response to the challenges of global competition, international markets,
technological advances, and complexity of business (Rezaee et al., 1995). A firm adopts
an accounting innovation where there is a champion for the innovation and where the
firm perceives a relevant advantage (Preda and Watts, 2004). Emsley et al. (2006) added
that the introduction of an organisational innovation such as total quality management to
enhance employee empowerment requires innovation in MAS to assure the quality
related information is provided to those empowered employees. When a company does
implement best practices, the primary motivators are cost savings, greater efficiency, and
better control over cost (Garg et al., 2003), which in turn are driven by the need to
compete in an increasingly competitive world economy (Lippolis and Romanazzi, 2005).
Ghani et al. (2010) found that Balanced Scorecard (BSC) is an effective performance
measurement tool in performance improvement.
Uncertainty and risk resulting from the change in environments create a demand for
management accounting innovation in the form of non-financial measures (Vaivio, 1999).
Rinsum and Hartmann (2011) pointed out that financial measures increase data
manipulation and myopia, while non-financial measures, instead, reduce myopia, in spite
of the absence of its direct effect. Chow et al. (1996) and Van der Stede (2000) added that
myopia is reflected in the managers’ short term decision to undertake investments only
when they generate immediate financial returns instead of better projects with more
distant payoffs. According to Graham et al. (2005) and Leone and Rock (2002), the
64 S.S. Halbouni and M.A. Nour

managers’ attempt to improve financial performance relative to the budget target as it is

reported by the accounting system rather than their true underlying performance, is a kind
of performance data manipulation.
Ma and Tayles (2009) and Bhimani and Langfield-Smith 2007) argued that the
efficient functioning of customer-related and competitor-related practices rely heavily on
non-financial measures, where the conventional management accounting operations tend
to be financially oriented and paying more emphases to historical financial evaluation
(Seal, 2001).
Preda and Watts (2004) argued that shareholder value (SHV) has attracted interest as
an accounting innovation, under the guise of value-based management (VPM). Joshi
et al. (2011) defined SHV as the market value of the shares and other hybrid instruments
that could be converted to shares.
Durant (1999) pointed out that the economic value added (EVA) has changed the way
managers run the business. According to him, EVA works as a measure of both value and
performance. EVA works as a performance measure when it forces organisations to make
the creation of SHV as the first priority. Under this approach, stiff charges are incurred
for the use of capital. According to Duran, EVA helps focus company’s concentration on
improving the net cash return on invested cash.
The UAE, as an emerging economy, has an increasingly open policy toward
international trade and markets, and is facing all of the competitive challenges presented
by globalisation, information technology (IT), and other contextual factors. This arguably
makes innovation in management accounting and other control systems a competitive
imperative (Joshi et al., 2011). In light of the above discussion, it is hypothesised that:
H1 Management accounting practices have been changed in the UAE.

2.2 Current UAE management accounting practices

Traditionally, management accounting functions have been centralised and directed
towards inner processes of firms such as giving more attention to the cooperation with the
production people (Granlund and Lukka, 1998b). Ma and Tayles (2009) suggest that the
conventional management accounting operations tend to be predominately financially
oriented, paying more emphases to historical financial evaluation. Hoque (2005) argues
that traditional performance measures, which focus mainly on financial criteria such as
return on investment and net earnings, are narrow in focus, incomplete, and historical in
nature.
Traditional cost accounting and management control practices are unlikely to provide
useful indicators for managing contemporary firm’s manufacturing operations [Kaplan,
(1986), p.174]. Traditional accounting systems follow conservative accounting rules
(Rinsum and Hartmann, 2011). Kaplan (1986) adds that traditional measurement systems
will imperfectly reflect the dramatic increase in manufacturing efficiency and
effectiveness that occurs when firms achieve total quality control, Just-in-Time inventory
systems, and computer-integrated manufacturing processes. Rezaee et al. (1995) found
that the innovative accounting techniques are appropriate for manufacturing firms in
Asia, while some of the traditional techniques are more appropriate for the labour
oriented manufacturing environment. Fullerton and McWatters (2004) found that the
adoption of management accounting innovations still varies widely across enterprises and
sectors and that many enterprises do not use innovative MAS despite their apparent
 An empirical study of the drivers of management accounting innovation 65

technical superiority. To investigate the extent to which innovative management

accounting techniques are practiced in relation to traditional ones in the UAE, the second
research hypothesis is represented as follows:
H2 Innovative management accounting practices are significantly more practiced than
traditional ones.

2.3 Factors that influence innovation in management accounting

There is still a considerable amount of debate about what factors influence the speed of
the change in management accounting practices (Wu and Boateng, 2010). Top
management will implement new MAS if they believe that these systems will improve
the performance of the firm (Abernethy and Bouwens, 2005). Research into
organisational innovation has examined several factors, including production and IT,
competition, organisational size and structure, organisation processes, interorganisational
relationships, strategy, education, administrative and social controls, legislation, financial
markets, environmental uncertainty, and national and organisational culture as factors
influencing and shaping management accounting practices (Baines and Langfield-Smith,
2003; Chapman, 1997; Chenhall and Langfield-Smith, 1998; Dent, 1996; Dibrell and
Miller, 2002; Emsley et al., 2006; Fisher, 1995; Granlund and Lukka, 1998a; Libby and
Waterhouse, 1996; Shields, 1995, 1997; Williams and Seaman, 2001).

Figure 1 Research model

Globalization

H3

Information
Technology
H4
(IT)

H5
Economic
forces

Change in
management
H6 accounting
Management
qualification

H7

Company size

Many of the developing countries are struggling to cope with ominous influences and
pressures brought by external forces, such as globalisation and IT; and internal pressure,
such as legislation, market forces, etc. Joshi et al. (2011) suggest that the increasing level
66 S.S. Halbouni and M.A. Nour

of competition, opening up of economies, new joint ventures, foreign direct investment,

technological change and customer focus in the Gulf Cooperation Council (GCC)
countries are forcing companies in those countries to adopt innovative management
techniques. The UAE in particular has chosen to pursue an aggressive move towards
industrialisation and an open policy on immigrant workers, attracting highly trained IT
professionals who are playing a pivotal role in the continuous market and economic
transformation. Thus, business enterprises in the UAE are facing pressures to innovate
their business and management accounting practices to survive. The current study
examined five factors, as shown in Figure 1: globalisation and IT as external factors, and
economic forces, management qualification and company size, as contextual factors.
These five factors are postulated to influence the adoption of innovative management
accounting.

2.3.1 Globalisation and management accounting practices

Due to increased globalisation, there is much more awareness of cultural differences and
similarities at the national level (Lukka and Shields, 1999). Globalisation has influenced
external environments and affected the internal operations of an organisation as well as
their management accounting practices (Abdel-Kader and Luther, 2008; Arena and
Azzone, 2005; Baines and Langfield-Smith, 2003; Laitinen, 2011; Libby and
Waterhouse, 1996; Mat et al., 2010; Nixon and Burns, 2005; Pollanen and
Abdel-Maksoud, 2010; Scapens, 2000; Xydias-Lobo et al., 2004). Globalisation brings in
new technology and makes a country open to a greater competition (Kassim et al., 2003;
Porporato, 2013). Increased competition, accompanied with and underpinned by fast
technological development, has affected many aspects of the industrial sector
(Abdel-Kader and Luther, 2008). Waweru et al. (2004) pointed out that globalisation has
exposed companies in developing countries to severe competition, which has created a
great demand for quality and timely information, and hence a need for innovation in their
MAS.
Waweru et al. (2004) added that the increase in global competition and the changes in
IT were two main drivers affecting management accounting change in South Africa.
Joshi et al. (2011) pointed out that due to globalisation and increased international
business competition companies in the GCC adopted cost-management accounting
practices to keep the costs of their products and services competitive. We postulate that in
the UAE a similar situation exists, where globalisation is posited to drive the change and
innovation in management accounting. Hence our third hypothesis is stated as follows:
H3 Globalisation significantly drives the change in management accounting in the
UAE.

2.3.2 IT and management accounting practices

IT and computerisation have led to an improvement in the flow and quality of
management accounting information across the organisation – improving its usefulness,
timeliness, accuracy, and relevance (Efendi et al., 2006; Granlund and Mouritsen, 2003;
Huber, 1990; Lippolis and Romanazzi, 2005; O’Mahony and Doran, 2008; Shin, 2001).
The new accounting techniques have been designed to take advantage of modern
technologies to support management processes to meet the challenges of global
competition (Abdel-Kader and Luther, 2008). Swenson (1995) argued that the adoption
 An empirical study of the drivers of management accounting innovation 67

of IT provides more accurate cost data needed to make appropriate strategic decisions
about the product mix, outsourcing, pricing strategies, process improvement, and the
evaluation of business process performance. Sori (2009) added that automated accounting
information systems (AIS) speed up the process to generate financial statements and
overcome human weaknesses in data processing. Similarly, Innes and Mitchell (1990)
indicated that production automation may lead to an establishment of machine and
equipment related performance measures. Business organisations in the UAE have taken
advantage of modern technologies to support many aspects of their business activities,
leading us to propose the following hypothesis:
H4 IT significantly drives the change in management accounting in the UAE.

2.3.3 Economic forces and management accounting practices

Abdel-Kader and Luther (2008) pointed out that firms that face high levels of customer
power are at a greater risk and may have more incentive to use sophisticated management
accounting practices to improve their control and decision making processes. Extant
literature suggests that customers have become more demanding and insisting on high
quality products at competitive prices (Agndal and Nilson, 2009; Bromwich and
Bhimani, 1994; Waweru et al., 2004), creating a need to an increased focus on product
quality and better customer service to retain competitiveness. Joshi et al. (2011) indicated
that there is a growing awareness among companies in the GCC towards the importance
of social needs, customer preferences, competitors’ practices, and new management
techniques. Thus, in the UAE we expect that such economic forces are driving changes in
many operational and management aspects of the UAE business organisations. Based on
the above discussion, we propose the following hypothesis:
H5 Economic forces significantly drive the change in management accounting in the
UAE.

2.3.4 Employee qualification and management accounting practices

Yang et al. (2006) argued that knowledge is one of the most important determinants of
business success. Kaplan (1995), Evans and Ashworth (1996), Cooper (1996), Yang et al.
(2006) and Wouters and Roijmans (2011) argued that in the current environment
management accountants need to become proactive business consultants, skilled in the
design and implementation of appropriate cost management systems, and eager to
participate in business decision processes. Wu and Boateng (2010) and Rikhardsson et al.
(2012) found that employee qualification is a key factor in the adoption of new
management accounting practices. They argued that a high level of employee
qualification and knowledge reduces the resistance to change and creates a better
understanding for the need to change MAS and practices. We hypothesise that better
qualified UAE management accountants will have a stronger tendency to accept the need
to change practices to respond to increased competitive pressures. In light of the above
discussion, it is hypothesised that:
H6 Level of management accountant’s qualification significantly drives the change in
management accounting in the UAE.
68 S.S. Halbouni and M.A. Nour

2.3.5 Firm size and management accounting practices

Firm size is an important factor affecting the changes designed to improve the company’s
performance (Askarany et al., 2012; Boateng and Glaister, 2002; Drury and Tayles, 1994;
Hoque and James, 2000; Innes and Mitchell, 1995; Pan and Li, 2000; Smith et al., 1989).
Large companies have a larger network of communications channels and infrastructures
to adopt the most effective communication channels (Nassar et al., 2011). Large
companies tend to have access to knowledge and adequate resources to develop and
adopt new management accounting techniques; i.e., they have a better access to both
human and financial resources required for modifying, upgrading or replacing existing
systems than small firms (Abdel-Kader and Luther, 2008; Innes and Mitchell, 1995;
Waweru et al., 2004). Haldma and Lââts (2002) argued that company size affect the
sophistication level of cost accounting and budgeting systems. This relationship is
expected to apply in the UAE, where company size is posited to directly influence the
extent of innovation in management accounting practices. Based on this discussion, it is
hypothesised that:
H7 Company size significantly drives the change in management accounting in the
UAE.

2.3.6 The effect of moderating demographic and organisational variables on the

change in management accounting practices
O’Connor et al. (2004) and Yang et al. (2006) suggest that demographic and
organisational variables such as exchange listing, enterprise age, gender, education,
position, and tenure may influence respondent’s perceptions towards management
accounting change. Naranjo-Gil et al. (2009) found that MAS innovation depends on the
age, tenure and educational background of the CFO. The eighth main research hypothesis
posits that organisational characteristics such as business type, listing status and
demographic variables such as gender, age, years of post qualification and years with
present employers have a significant effect on the respondents’ perception towards the
change in management accounting. To explore this suggestion, we propose the following
main hypothesis:
H8 Organisation and respondents’ background significantly drive the change in
management accounting in the UAE.

3 Research design and data collection

3.1 Research instrument

We adapted an instrument originally used by Xydias-Lobo et al. (2004) to collect the data
used for this study. The questionnaire was modified and restructured into four parts, with
a total of 46 questions, and based on a five-point Likert scale. The first part consisted
of eight questions covering the organisation and the respondents’ background.
Organisational variables included company size (number of employees), business type,
and stock exchange status. The respondents’ background variables included gender, age,
qualification, years of post-qualification experience, and years with present employers.
 An empirical study of the drivers of management accounting innovation 69

These variables were intended for exploring any mediating effects on the respondents’
views and experiences.
The second part includes three questions to measure the respondents’ perceptions
towards the change in management accounting practices in the UAE. The third part
includes 16 questions to measure the extent to which both traditional and innovative
management accounting techniques are currently practiced by management accountants
in the UAE.
1 eight questions were used to measure the extent to which traditional management
accounting techniques are practiced
2 other eight questions to measure the extent use of innovative techniques.
The fourth part includes nine questions to measure the respondents’ perceptions towards
external and contextual factors expected to influence management accounting practices
innovation:
1 three questions to measure the impact of globalisation and competition
2 three question to measure the effect of IT

3 three questions to measure the influence of economic conditions.

Finally, the fourth part includes ten questions about IT skill requirements for
management accountants in the UAE in order to provide valuable decision support.

3.2 Research sample and technique

The research sample for this study was collected through a survey of management
accountants working in the UAE. A total of 300 questionnaires were originally
distributed, and roughly 138 useable responses were returned, with a response rate of
46%. Data analysis was conducted via structural equation modelling (SEM) techniques,
using the WarpPLS software (version 3.0). SPSS (version 19) was used to compute
descriptive analyses, T-test and ANOVA tests for differences in responses.

3.3 Characteristics of respondents

Descriptive statistics covering organisation background, company size, business type, and
stock exchange listing are presented on Table 1. Also reported on the same table are
summary statistics about the respondents, including sex, age, qualification, years of past
qualification experience and years with present employer.
As revealed by Table 1, the research sample provides a reasonable representation of
various sectors and industries as the companies included represented a variety of industry
types, with some companies diversified into numerous sub-industries. Large companies
(those with greater than one thousand employees), medium size companies (greater than
one hundred and less than one thousand employees), as well as small companies (less
than a hundred employees) were all included. Most respondents in the sample (28%)
were from contracting and oil companies (others) and the majority are from unlisted
companies (75%).
 70
A Organisational background Small Medium Large
Company size Total 1–100 101–1,000 Over 1,000 Table 1
118 34 39 45
100% 29% 33% 38%
Business type Total Manufacturing Bank and insurance Retail Service Government Others
137 20 18 20 14 27 38
100% 14.5% 13% 14.5% 10.2% 18% 28%
Stock exchange listed? Total Yes No
No. cases 126 32 94
Percentage 100% 25% 75%
B Personal background
S.S. Halbouni and M.A. Nour

Sex Total Male Female

138 114 24
100% 82.6% 17.4%
Age Total 18–25 26–35 36–45 46–55 Over 56
136 6 59 40 22 9
100% 4% 43% 29% 16% 7%
Qualification Total Diploma Bachelor degree Higher degree
138 18 94 26
Information on organisations and respondents’ background

100% 13% 68% 19%

Years of post qualification experience Total <5 5–10 > 10
No. cases 138 30 34 74
Percentage 100% 21% 25% 54%
Years with present employers Total <5 5–10 > 10
No. cases 138 63 30 45
Percentage 100% 46% 22% 33%
 An empirical study of the drivers of management accounting innovation 71

As shown on Table 1, summary statistics about the individual characteristics of

respondents indicate that 82.6% of the respondents are male, and the vast majority (87%)
of them had the bachelor degree as a minimum qualification. Additionally, the table
indicates that 79% of the respondents had more than five years of post qualification
experience, and (46%) had been with the present employer for less than five years. As
can be gleaned from Table 1, the research sample represents a reasonable spread over all
sizes of companies, business type, years with present employer and years of experience.
The findings should therefore be seen as unbiased and reliable.

4 Survey results

4.1 Change in management accounting

Table 2 indicates that respondents did not believe that traditional management accounting
measures are still adequate in the 21st century (Q1, average less than 3), with 38.4%
recording a rating of 1 or 2 (strongly disagree or disagree). However, they did believe
that management accounting is currently in a state of change (Q2, with average greater
than 3) and will change significantly in the future (Q3, average is greater than 3) with
81.2% of them recording a rating of 4 or 5 (agree or strongly agree, respectively).
The test of differences in means was carried out to determine whether there is a
significant difference between the neutral value of 3 and the average of the items listed
above. The one sample t-test indicates that the mean value of the respondents’ views
about the current change in management accounting practices is significantly different
from 3 (t = 10.41, p = .000), and also significantly different from 3 is the mean value of
their views about the continuing change over the next five years (t = 13.86, p = .000).
However, the t-test does not show any significance for the adequacy of traditional
measures in the 21st century (t= -.954, p = .340). To have an overall perspective of
respondents’ views towards the change in management accounting practices in the UAE,
the overall average of 3.61, which is greater than 3 (t = 9.83, p = .000), indicates that the
first hypothesis will be accepted and a conclusion is that respondents believed that
management accounting practices have been changed and will continue to be changed in
the future.
Table 2 Change in management accounting practices in the UAE

Percentage Percentage
Item: n Mean SD rating rating t-value Sig.
1 or 2 4 or 5
1 Traditional accounting 138 2.89 1.33 38.4% 17.4% –.954 .340
measures remain adequate
for management accounting
in the 21st century
2 Management accounting is 138 3.83 .940 10.1% 35.5% 10.41 .000**
currently in a state of change.
3 Management accounting will 138 4.11 .937 5.8% 81.2% 13.86 .000**
change significantly over the
next five years.
Average 138 3.61 .724 9.83 .000**
Note: *Significant at the 0.05 level
72 S.S. Halbouni and M.A. Nour

4.2 Current management accounting practices in the UAE

To explore the extent to which traditional and innovative techniques are practiced by
management accountants in the UAE, and to answer the second research question,
respondents were asked to rate the extent of implementation for their firm on a
Likert-type rating scale: (5) to a very large extent, (4) to a large extent, (3) to don’t know,
(2) to some extent, and (1) not adopted. The group of questions are categorised under two
main categories. The first category includes eight questions to measure to what extent
traditional management accounting techniques are currently practiced, while the second
category includes other eight questions to measure to what extent innovative techniques
are currently being used. Table 3 shows the results.

Table 3 Current management accounting practices in the UAE

Traditional management Innovative management accounting

Mean SD Mean SD
accounting practices practices
1 Budgeting for planning 4.22 .968 Financial and non-financial 4.09 .927
and control performance evaluation
2 Variance analysis 3.98 .999 Customer satisfaction measurement 3.68 1.23
3 Return on investment 3.93 1.12 Economic value added (EVA) 3.63 1.25
measurement
4 The use of accounting 4.43 .875 Providing specialised 3.65 1.19
systems and financial reports/shareholder value
reporting (e.g., about growth possibilities) to
stockholders
5 Short term budgeting 3.94 1.11 Providing other non-standard 3.54 1.19
process reports for general use 1
6 Using traditional cost 3.86 1.19 Analysing and designing 3.72 1.21
accounting systems computerised accounting
information systems
7 Financial analysis 4.04 1.01 Trouble-shooting, revising, and 3.911 1.10
enhancing existing systems
8 Preparing reports for a 3.72 1.25 Managing and supervising 3.81 1.27
government agency accounting information systems
(e.g., labour statistics)
Overall traditional 4.03 .608 Overall innovative 3.81 .699

Table 3 indicates that both traditional and innovative management accounting techniques
are currently practiced by management accountants in the UAE, as demonstrated by the
overall mean value for each category. The results agree with those obtained by Mat et al.
(2010) and Lal Bhasin and Shaikh (2013) that both traditional and advanced management
accounting techniques appeared to be almost equally important. The table also indicates
that the accounting system is mainly used to prepare financial reports; the mean value is
the highest 4.43. The results here agree with Halbouni and Hassan (2012) finding that
financial reporting dominates managerial accounting information in the UAE. Likewise,
it shows that budgeting for planning and control is the traditional management accounting
technique most frequently used by the respondents; the mean value is 4.22, followed by
financial analysis, with a mean value of 4.04. The table also indicates that preparing
 An empirical study of the drivers of management accounting innovation 73

reports for government agencies is the lowest practiced accounting technique, with a
mean value of 3.72.
Table 3 shows that financial and non-financial performance evaluation is the
innovative management accounting technique currently practiced the most by UAE
management accountants, with a mean value of 4.09, followed by trouble-shooting,
revising, and enhancing existing systems, with a mean value of 3.911. The results here
confirm those obtained previously that respondents perceived management accounting in
a state of change and it will continue to be changed in the future. They also support the
arguments made by Seal (2001), Abdel-Kader and Luther (2008), and Mat et al. (2010)
that companies should use performance measurement systems incorporating all financial
and non-financial aspects to measure customer satisfaction and employee satisfaction to
achieve long term financial success and cope with significant changes in competitive
environments. Additionally, the table shows that providing other non-standard reports for
general use is the technique least frequently practiced by the respondents, with a mean
value of 3.54. Overall, it is shown that traditional accounting practices are more
frequently used than the innovative ones, with an overall mean of 4.03 compared to the
overall mean value of 3.81for the innovative techniques.
To determine whether a significant difference exists in the frequency of using
traditional and innovative accounting techniques, the Paired Samples Test was applied
and the results are shown on Table 4. The test results show a significant difference in the
frequency of using management accounting techniques between traditional and
innovative ones. As a conclusion it could be said that traditional management accounting
techniques are more significantly used than the innovative ones. The results obtained here
confirm Garg et al. (2003)’s finding that corporations have been less than eager to move
beyond traditional management accounting practices to the best practice. They also agree
with those obtained by Ainikkal (1993), Dick-Forde et al. (2007) and Yalcin (2012) that
conventional and traditional management accounting practices are more preferred in
practice than advanced techniques. Moreover, the results confirm Sulaiman et al. (2004)
finding that the use of traditional management accounting practices in Singapore,
Malaysia, China, India, and Turkey remain strong.
Table 4 Results for the paired samples test

Pair Hypothesis Mean Std. dev. t-value Sig.

Traditional practices-innovative practices H8 0.218 .512 3.632 0.001**
Note: *Significant at the 0.05 level

4.3 Contextual factors influencing management accounting innovation

To answer the third research question, the respondents were asked to indicate their views
on 12 elements using a scale of 1 (strongly disagree) to 5 (strongly agree) about factors
expected to drive the management accounting innovation in the UAE. The results are
shown on the following Tables 5–7. The summary of the results are shown on Table 8.

4.3.1 The influence of globalisation on management accounting innovation

Table 5 shows that 67.6% of the respondents believe that the globalisation of business
practices and trade has a positive influence on management accounting innovation, the
74 S.S. Halbouni and M.A. Nour

average is greater than 3. A larger percentage (80.2%) of the respondents perceived

increasing competition to have a stronger influence on management accounting
innovation than both globalisation and the introduction of e-commerce.
Table 5 also indicates that the overall average of the respondents perception towards
the effect of globalisation on management accounting innovation is greater than 3, with
the conclusion that globalisation has a strong effect on management accounting
innovation in the UAE.
Table 5 The effect of globalisation on management accounting practices innovation

Percentage Percentage
Item: n Mean SD
rating 1 or 2 rating 4 or 5
1 The globalisation of business 133 3.89 132 132 67.6%
practices/trade
2 Increasing competition 136 4.21 .952 5.1% 80.2%
3 The introduction of e-commerce 138 4.05 .930 8.75 76.9%
Average 132 4.04 .73

4.3.2 The influence of IT on management accounting innovation

With reference to the effect of IT on management accounting innovation, Table 6 shows
that respondents have a strong belief that advances in information and production
technology have a strong impact on management accounting innovation. The table
indicates that at least 71.5% of the respondents have a positive agreement towards the
effect of IT on management accounting innovation; the average of the three constructs is
greater than 3. Moreover, the table indicates that the overall average is 4.11. As a
conclusion, it could be said that management accountants perceived IT as a strong factor
influencing the innovation of management accounting in the UAE.
Table 6 The effect of IT on management accounting practices innovation

Percentage Percentage
Item: n Mean SD
rating 1 or 2 rating 4 or 5
1 Advances in information technology 137 4.36 .735 1.5% 89.8%
2 Advances in production technology 137 4.08 .948 7.3% 75.9%
3 Changing performance measures 137 3.90 .942 7.3% 71.5%
(e.g., benchmarking, KPIs, etc.)
Average 136 4.11 .676

4.3.3 The influence of economic forces on management accounting innovation

Table 7 shows that 76.8% of respondents perceived that emphasis on supplier
relationship has a strong influence on management accounting innovation. Moreover, the
table indicates that at least 73.7% of the respondents perceived that greater emphases on
customer relationship as well as product quality have influenced management accounting
innovation, the average for both constructs are greater than 3.
Table 7 also indicates that the overall average of the three constructs is greater than 3.
As a conclusion, it could be noted that management accountants in the UAE have a
 An empirical study of the drivers of management accounting innovation 75

strong belief that market forces have a significant effect on management accounting
innovation.
Table 7 The effect of economic forces on management accounting practices innovation

Percentage Percentage
Item: n Mean SD
rating 1 or 2 rating 4 or 5
1 Greater emphasis on customer 137 4.00 .106 9.5% 73.7%
relationships
2 Greater emphasis on supplier 138 4.02 .978 9.4% 76.8%
relationships
3 Higher quality requirement for 138 3.98 1.06 10.1% 73.9%
product/services
Average 137 4.00 .868

Table 8 summarises the overall averages and shows that respondents ranked IT as the
most influential factor influencing management accounting innovation. It also indicates
that globalisation was ranked as the second most influential factor, followed by company
size which was ranked as the least important driver behind the change in management
accounting practices in the UAE.
Table 8 A summary of the effect of contextual factors on management accounting
practices innovation

Rank Item n Mean SD

2 Globalisation 132 4.04 .73
1 IT 136 4.11 .68
3 Economic forces 137 4.00 .868
4 Management qualification 138 3.99 .77
5 Size 118 3.30 1.6
Management accounting change 137 3.97 .81

4.4 Structural equation model results

To test the research hypotheses (H3, H4, H5, H6, & H7), a path model was estimated from
our research model as shown on Figure 2. The Cronbach alpha was used as it is
considered the most prevalent metric in assessing reliability in management accounting
research as indicated by Brownell (1995). We computed the reliability estimate for all
constructs in the model. However, the Cronbach’s alpha related to the dependent variable
(change in management accounting practices) was originally only 38.1%, which is much
below the acceptable range. Therefore, one indicator item related to the adequacy of
traditional accounting measures for the 21st century was eliminated, and as a
consequence the change in management accounting practices was measured for the
purposes of hypotheses testing in terms of two items only. Table 9 presents the estimated
measures of reliability and validity. The results indicate that both measures of reliability
(composite reliability and Cronbach’s alpha) are within acceptable ranges (Fornell and
Larcker, 1981; Nunnally, 1978; Nunnally and Bernstein, 1994; Smith, 2003).
As Table 9 indicates, all the values of the average variance extracted (a measure of
discriminant and convergent validity) are above the threshold of 0.50 suggested by
76 S.S. Halbouni and M.A. Nour

Fornell and Larcker (1981). Variance inflation factors are commonly used to indicate the
presence of multicollinearity among the variables. Table 9 shows that the scores for the
full collinearity VIFs are all lower than 3.3 suggested for the absence of multicollinearity
in the model (Cenfetelli and Bassellier, 2009; Petter et al., 2007).
Table 9 Measures of reliability, validity, and collinearity

Change in
Economic Management
Globalisation management
IT forces qualification Size
(GL) accounting
(EF) (MQ)
practices
Comp. reliability 0.804 0.814 0.876 0.858
Cronback’s alpha 0.633 0.655 0.787 0.669
AVE 0.579 0.595 0.702 0.751
Full collin VIF 1.428 1.508 1.253 1.143
No. of Items 3 3 3 1 1 2

Figure 2 SEM model estimates

Globalization

H3
β=0.22
(P=0.02**)
Information
Technology
H4 β=0.22
(IT)
(P=0.01**)

H5 β=0.01
Economic (P=0.47)
forces (EF)

Change in
β=0.06 management
Management H6 (P=0.25) accounting
qualification
(MQ) β=0.17 ARS=0.191
(P=0.03**)
H7

Company size

Notes: Path coefficient and the p-value

**Refer to significance at the 0.05 levels (two-tailed), respectively.
Displayed are path coefficients and p-values in brackets.
 An empirical study of the drivers of management accounting innovation 77

The estimated structural model is presented on Figure 2, which indicates the path
coefficient and the p-value for each hypothesised relationship. The five independent
variables, globalisation, IT, economic forces, management qualification, and company
size, collectively explained 19% of the variation in the dependent variable, change in
management accounting practices.
Table 10 Tests results for the change in management accounting practices

Independent variables Hypothesis Path coefficients Sig.

Globalisation H03 0.225 0.016**
Information technology H04 0.221 0.012**
Economic forces H05 –0.007 0.469
Management accountant’s qualification H06 –0.058 0.254
Size H07 0.167 0.025**
Notes: R2 = 0.192, *Significant at the 0.05 level.
Table 10 indicates that IT, globalisation, and company size are the three factors
significantly influencing management accounting innovation in the UAE
(p-value = < 0.05). Moreover, the table shows that neither economic forces, nor
management qualification have a significant effect on the change. As a conclusion, H3,
H4 and H7 must be accepted, while there is no enough evidence to accept both H5 and H6.

4.5 The effect of moderating institutional and demographic variables on

management accounting change
As indicated previously, many previous studies suggest that demographic and
institutional characteristics variables may influence respondents’ perceptions towards
management accounting change. For example, change (Ehab and Hussain, 2010) found
that the nature and the characteristics of an organisation strongly influence performance
measurement practices. To explore this suggestion, the ANOVA test was applied to test
the effect of organisational characteristics such as business type, listing status, in addition
to other personal factors such as gender, age, years of post qualification and years with
present employer, on the respondent’s perception towards the change in management
accounting.
The results indicate that gender is the only variable significantly influencing the
respondents attitudes towards the change in management accounting practices
(F-value 4.257, P = < .005), as shown on Table 11, whereas the other variables such as
business type, listing status, age, years of post qualification and years with present
employer have no impact on the change in management accounting practices. Therefore,
it could be said that there is no enough evidence to accept the eighth hypothesis except
that for the influence of gender on management accounting change.
The results obtained by this study agree with those obtained by Yang et al. (2006)
who argued that female accountants depend more heavily on accounting managers for
feedback and socialisation than male accountants. However, the results do not agree with
Yang et al. (2006) finding of significant effect of respondents’ position on management
accounting innovation in China.
78 S.S. Halbouni and M.A. Nour

Table 11 Results of ANOVA test of gender effect on accounting change

Pair Hypothesis Mean Std. dev. F-value Sig.

Business type H08 1.796 .105
Listing status H08 1.910 .114
Gender H08 4.257 .041**
Age H08 .856 .513
Years of post qualification H08 .343 .710
Years with present employer H08 .456 .635
Note: *Significant at the 0.05 level

4.6 IT skills required by UAE management accountants

The results of this study indicates that traditional management accounting techniques are
more practiced than innovative ones in spite of the high qualification level for UAE
management accountants. This could be attributed either to the fact that management
accountants are fully satisfied with the conventional techniques or to the lack of IT skills
needed to deal with innovative management accounting techniques. To answer the fourth
research question and to determine types of IT skills needed by management accountants
in the UAE, respondents were asked to express their perception towards the extent they
feel there is a need to be trained on a number of IT skills (starting from 1 – strongly not
needed, to 5 – strongly needed). The results are shown in Table 12.
Table 12 IT skills required by UAE management accountants

Mean SD t-value Sig.

1 Spreadsheeting 4.36 .911 17.48 .000**
2 Executive information systems/decision support systems 4.15 .978 13.68 .000**
3 Security and control of sensitive data 4.21 .973 14.57 .000**
4 Database design 4.04 1.138 10.63 .000**
5 ERP systems (e.g. SAP, oracle, business suite) 4.19 9.07 15.32 .000**
6 Database management software/data warehousing 4.00 1.04 11.21 .000**
7 Data mining software 3.61 1.11 6.46 .000**
8 Business intelligence (BI) 3.89 1.16 8.58 .000**
9 Web-based application 3.75 1.16 7.54 .000**
10 Emerging technologies (please specify.....) 3.80 121 6.86 .000**
Overall traditional 4.00 .723 14.16 .000**
Note: *Significant at the 0.05 level
As indicated on Table 12, the respondents expressed a definite need for skills on a wide
range of information systems, tools, and technologies. The respondents seemed to suggest
a lack of systematic organisational training regimes that could alleviate this skill gap.
This strong need for training to improve IT skills could explain the lower usage level of
innovative techniques practiced by management accountants in the UAE comparing with
the traditional ones. Table 12 also indicates that the overall average of the ten constructs
is greater than 3, (t = 14.16, p = .000). As a conclusion, it is to be noted that management
 An empirical study of the drivers of management accounting innovation 79

accountants in the UAE have a strong need for IT skills. These results support Argyris
and Kaplan (1994)’s arguments that successful introduction of innovative technical
initiatives within organisations requires education and training of those to be affected by
the initiative.

5 Discussion and implications

Business organisations today face a multitude of global and local forces that exert
tremendous pressure on the management of these organisations to carry out effective
decisions in order to respond to these forces. The UAE business environment is fraught
with such factors that include globalisation, IT and local market forces that render the
operating environment highly uncertain, reflecting on the managerial decisions and firm
performance. As the role of management accounting is to report on firm performance,
and aid managerial planning, decision making, and control, our study expected that these
forces would influence management accounting practices and would lead to new
innovative practices.
Our study findings support the view that many of these forces directly influence
management accounting innovation. In particular, our empirical analysis suggests that
management accounting practices have undergone some significant changes. The factors
that have been found to influence these changes include globalisation, IT, and firm size.
Globalisation, through its many manifestations, directly impacts managerial decisions
and actions, which in turn requires more accurate and timely information. Such
information may call for updated or innovative management accounting practices and
systems to provide. Moreover, IT enables management accounting innovation and, as
such, drives the changes that enhance or update management accounting practices.
Our results indicated that local economic forces, such as customer demands and
relationships, supplier relationships, regulatory frameworks, etc., did not have any
significant influence on management accounting innovation. This suggests that local
market forces do not present serious or significant pressure on the local business
organisations, as compared to global forces and competition. Similarly, the management
accountant’s qualifications were not found to have any significant effect on management
accounting innovation. This again suggests that either the respondents did not have any
significant variations in their qualifications, or just that qualification is irrelevant when it
comes to the need for management accounting innovation.
Business background variables, including business type and listing status, showed no
significant influence on management accounting innovation. Similarly, demographic
variables, such as age, years of post qualification, and years with current employer, all
showed no significant effect. However, only gender showed a significant influence on
management accounting innovation. This suggests that the two genders (male and
female) tend to view management accounting innovation differently.
Our results confirmed Granlund and Lukka (1998a), Kassim et al. (2003), Waweru
et al. (2004), and Mat et al. (2010) conclusions that global competition and IT were the
main contingent factors affecting the change in management accounting. The results also
agreed with those obtained by Mat et al. (2010). According to their study, as technology
becomes more advanced, the current management accounting techniques need to be
replaced with new ones that can cope with the change in production processes as well as
cost structure. Moreover, the results are also in agreement with claims made by Askarany
80 S.S. Halbouni and M.A. Nour

et al. (2007), Scapens (2000), Shields (1997, 1998), and Kassim et al. (2003) that the
changes in the business environment resulting from globalisation and IT affect the level
of competition which itself drives changes in organisation and management accounting.
However, the results do agree with Libby and Waterhouse (1996) finding that
competition did not significantly influence the change in MAS.
The results also support Abdel-Kader and Luther (2008), Waweru and Ulinna, (2008),
Wu and Boateng (2010) and Abdel-Maksoud (2011) finding that company size has a
strong impact on the change in management accounting. Moreover, the results agree with
Joshi et al. (2001) argument that large companies tend to have access to knowledge and
resources to implement new practices, while they do not agree with those obtained by
Ehab and Hussain (2010) about the effect of size on performance measurement practices.
However, the results of this study do not agree with those obtained by Wu and
Boateng (2010) and Naranjo-Gil et al. (2009) about the effect of employees’ qualification
on the adoption of new management accounting techniques. This could be attributed to
the strict hiring policy adopted in the UAE where institutions, especially private ones,
hire foreign experts and rely on their knowledge and experience to deal with uncertainties
(Joshi et al., 2011). Table 1 indicated that 86.9% of the respondents had at least a
bachelor degree in accounting/finance, while only 13% of them had a diploma certificate.
The results concerning the influence of market forces do not agree with those
obtained by Malmi (2001) and Mat et al. (2010). Their studies argued that customer
oriented aspects such as quality, flexibility, innovative products and dependability of
supply could be achieved through greater emphasis on organisational structure and
effective strategy.
Our empirical results suggest several theoretical implications. The findings suggest
that globalisation directly influences management accounting innovation, either through
global competition or through the influence of a widespread use of global innovative
practices. Global competition tends to raise the competitive bar to world standards, which
require significant organisational transformation to strategic market orientation.
Likewise, the influence of global innovative and best practices cannot be overstated. Both
will tend to put pressure on local business organisations to update their own management
accounting practices to be able to respond to the pressures of globalisation.
Our empirical results have also indicated that IT is a key driver of management
accounting innovation. The influence of IT is manifested arguably through the advanced
software systems and tools that are designed to use innovative management accounting
practices that are readily available for implementation and use. IT also drives the
proactive implementation of innovative practices by enabling the design and
implementation of such management accounting innovations.
As this study indicates, company size is a significant predictor of management
accounting innovation, suggesting that large companies are expected to have the
resources to update their accounting systems and use the latest management accounting
tools and practices. Moreover, large firms are also expected to be better aware of the
latest innovative practices and more exposed to global practices and competitors, both
represent pressures that require organisational responses in the form of updated
organisational processes and practices.
Our research findings also point to some important practical implications. First, local
UAE business organisations need to be cognisant of the myriad environmental factors
that drive the changes in their management accounting techniques and practices. These
factors should be monitored and targeted management accounting changes planned and
 An empirical study of the drivers of management accounting innovation 81

managed. Second, as this study suggests, one way to introduce management accounting
innovation is to invest in information technologies to update MAS and practices. Third,
the findings suggest there is a need for IT training to equip management accountants with
advanced skills necessary to implement and use innovative practices.

6 Conclusions

This study examined the influence of globalisation, IT, and contextual factors on
management accounting innovation. We conducted a survey of 138 practicing
management accountants in the UAE to determine from their perspective whether these
factors drive innovation in management accounting. Our results indicated that
globalisation, IT, and company size significantly influenced management accounting
innovation. Other factors, such market forces and employee qualifications, were found
have no significant influence on management accounting innovation.
The contributions of this paper include the finding that management accounting
practices in the UAE have been significantly affected by the forces of globalisation and
IT, leading to updated, innovative practices; that many other contextual factors, including
local market forces, company background variables, and accountant demographic
variables did not have significant effect on management accounting innovation.
Several limitations can be identified with this study. First, the survey did not consider
the effect of other organisational variables such as performance, structure, strategy,
foreign partner and industry type. Other environmental variables such as government,
law, politics, economics and culture can also be investigated. Second, the survey method
used precluded direct researcher-respondent communication and interaction. This
presents the possibility that the respondents could misinterpret the research questions.
Third, the findings from the quantitative study may not capture an in-depth understanding
of the subject phenomena. However, a different approach such as qualitative case study
research may shed further light on this issue.

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