Management Accounting professor Victor Maas’ work includes research into how the way information is presented influences judgment and decision-making. Maas, who since March of this year heads the Accounting Section of the Amsterdam Business School, also experiences this himself: ‘We’re human, we are limited in our capacity to handle information.’
‘Being head of the section, one gets around forty Excel spreadsheets with hundreds of columns every two months. How are you going to handle that? Without realising it, a management accountant can have a huge impact on decision-making, simply by changing the order of the tabs, or by writing negative figures in red. The place where information is shown has an impact on whether people notice it or not’, Maas explains in his office at the UvA.
Since August last year, the 39-year-old Maas is back at his alma mater UvA after having spent 3.5 years at the Erasmus School of Economics in Rotterdam. Maas graduated cum laude in economics in 2001, after which he decided to focus his PhD research on management accounting. ‘I’m much more interested in how human cooperation can be organised than in the question of whether the figures that are published by a company to be accountable towards stakeholders are right or not. In that first area, all kinds of mechanisms play a role.’
The management accountant has to be the ‘business conscience of the organisation’, Maas argues. He denounces the traditional role of head bookkeeper who ‘just’ organises the figures. ‘That naive, agnostic point of view “I don’t decide, I just supply the information” is a problem. There is no such thing as neutral information!’
Numerical information is increasingly being supplied automatically, and the knowledge about behavioural economics has increased enormously the past few decades. According to Maas, the average management accountant is insufficiently aware that figures are only valuable because they enable people to make decisions based on them.
In his opinion, it is the management accountant’s task to provide an understanding of the significance of the figures as the result of human actions and vice versa; the way numerical information is shown stimulates management in certain ways. ‘The way costs are allocated and to which department has a huge impact on decision-making. Finally, the management accountant must indicate from a business economics perspective what makes most sense for a company, and to nudge decision-making in that direction.’
The top management levels within corporate circles have come to realise that, says Maas. They are increasingly looking for people who understand that figures and results have an impact on the processes and vice versa, and who take that into account. He nevertheless sees management accountants within companies of all sizes and in all sectors still drop the ball because they fail to tap into the growing knowledge of the way people make decisions when setting up and fine-tuning their planning and control systems. ‘It’s guesswork. And that has consequences.’
Research by Maas and colleagues which is still under review seems to suggest that when managers are evaluating employees’ performance they are being influenced – among other things - by the degree of bonus transparency. ‘When compensation is being made public and is based upon accurate information, the range of ratings is larger.’
If a manager is unable to clearly explain his decisions because he does not
have the necessary data, he will be tempted to play it safe - which leads to
compression of ratings and relatively high assessments. Maas: ‘We suspect that
managers are mostly trying to avoid a hassle when evaluating performance.…
Brilliant staff will get less praise than when accurate information is available
and transparency is high.’ A possible result: top performing employees operating
in an environment with little bonus transparency and information accuracy will
A logical presentation of the performance criteria, for example using a balanced scorecard, also diminishes managers’ tendency to provide ratings that are relatively favourable (leniency bias) and compressed (centrality bias), other research in which Maas was involved shows. Hence, the management auditors’ choices regarding the way performance is being evaluated, has a huge impact.
External auditors who check companies’ books also seem to (unconsciously) allow themselves to be affected by the audit method being used, according to research co-authored by Maas. Use of a disclosure checklist, for example, appears to influence the auditors’ mindset. Once all the items on the list have been checked off, the auditor seems to be in a less critical state of mind, which induces a pro-client bias. As a result, an auditor hired by management is more likely to deem an aggressive accounting methods acceptable than if no list is being used. This does not happen when the audit committee is the client. Maas: ‘The audit committee is more independent than management. If the audit committee is the client, the auditor seems inclined to take a more critical stance.’
Although having the auditor being paid by a third party rather than by the company whose books are being audited might improve objectivity, Maas does not consider it a magic bullet. He is not worried, however: ‘Finally, there will always be the market. If investors no longer trust the auditors’ judgement, they will not buy shares. That provides an incentive to companies to make sure auditors can do their job well.’
According to Maas, management accounting is subject to a very different kind of threat. ‘In order to survive as a profession, something has to change. People are being trained too technically; for example, psychology is not included at all in the curriculum of the post-doctoral controller programme.’
This has to change, says Maas, who also teaches. In his view, the only way management accounting can survive as an academic discipline is by including insights from psychology and behavioural economics in the curriculum. He sees countless research opportunities; there are plenty of unanswered questions regarding the way knowledge about the human psyche can be of benefit to management accountants’ work.
Besides the psychological aspect, a solid quantitative basis is also increasingly important ‘The profession becomes more and more complicated. The management accountants’ added value increasingly lies in being able to explain and to help management make decisions. There is more and more data available, and the accountant must be able to handle that.’