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... method makes it highly unlikely that the old mistakes will be repeated and it also encourages participants to promote alternative ideas. There is also a so-called Activity Based Management (ABM), which is mostly used by large companies. Its not a secret that traditional management focuses on eliminating unnecessary costs by applying the easiest solution principle. ABM is much different because it deals with a root of the problem instead of trying to lessen the costs; it strives to make works that consumes these costs, more efficient. ABM uses a systematic approach, when the influence of irrational factors on policy making is minimized.
In my opinion, itd benefit Wal-Mart immensely if ABM was to be used as the main method of increasing companys efficiency, as whole. One of the reasons for Wal-Mart to be considered as not very commercially flexible is the fact that its middle-level managers are oriented on accomplishing short-term improvements. Very often Wal-Mart managers use intuition as the main analyzing tool, which, of course, cannot prove to be beneficial in the long run. Only using a systematic approach to cost control measures can correct this situation.
ABM is very progressive scientific theory, which can bring an immediate efficiency increase, if properly applied. As practice shows, large companies that stick to old-fashioned business psychology, are very reluctant to use ABM on its premises. Wal-Mart is a good example of such company. It tries to come up with better income figures by cutting workers wages. Nevertheless, it slowly loses the competition to Costco, where personnel entry salary is the highest in American retail industry. Costco provides its employees with healthcare and dental plans and it also encourages its middle-level managers to make an important business decisions, which guarantees Costco's commercial flexibility.
I think that we cant deny that there are a certain barriers on the way of implementation of ABM, but these barriers are mostly of mental nature. It is highly unlikely to expect from 60 years old manager any willingness to disturb his brain cells too much, in order to find better business solutions. If average age of Costco's managers is 37 years, in Wal-Mart its 50 years. It appears that best way to overcome such barriers would be firing at least 50 % of all middle-level managers in Wal-Mart and hiring new ones, whod be willing to try new things.
The role of the Controller here appears to be consultative. He will have to provide a financial analysis to the top management, but his influence on decision-making is going to be limited, since there are other issues involved that are out of his competence. (4) No commercial enterprise, whatever profitable it might be, can attribute less attention towards accounting then it truly deserves. Besides providing a figures, upon which the further companys development strategy can based, accounting enables company to function as the subject of law, which entitles it with certain rights and responsibilities. Failure, on the part of Senior Financial Officers to conduct accounting, according with demands of the law, will often result that such company will close down. Every kid in America now knows the story of Enron's bankruptcy.
It seems to be incomprehensible that before December 2001 this company was thought to be among the most stable commercial enterprises in USA. In year 2001 Enron's sales exceeded $ 100 billion, which was more then the GNP worth of all Eastern European countries taken together for the same year. This company had 21. 000 employees throughout the world with Forbes magazine naming it as the most innovative company for five consecutive years. Yet, after the allegations of corruption within Enron began to appear, its stock went down to as low as 30 cents a share, within a matter of one year. Such steep stock plummeting was unknown to U. S.
financial history up until now. The only comparable example to this in modern times is crush of Bre-X stock in Canada, due to its shady manipulations with results of core samples analysis, which lead to companys stock being traded at $ 60 per share, while it was actually worthless. In both cases, companys executives intentionally withheld the vital information about its financial operations and accounting practices to artificially maintain the aura of respectability over their company, thus insuring a continuous flow of investments from unsuspecting citizens. This shows us that accounting practices within company needs to be audited on permanent basis. There used to be allegations that Mal-Marts accounting is being impacted with corruption. At present time, there are 40 lawsuits pursued against company, on the part if its former employees.
About 70 % of them have to do with the fact that Wal-Mart managers tried to intentionally lower the insurance benefits to those who got injured at work, while performing their duties. Accounting information in Wal-Mart is used for decision making, just like in any other company. Financial managers main task is to prevent companys financial balance, at the end of every year, from possessing a negative said. There are many different ways to insure that, although Wal-Mart Senior Financial Officers are trying to avoid taking unnecessary risks at all costs, even in situations when this could really benefit the company.
Senior management receive the standard set of reports, which include analyses of management efficiency, taxation and compliance reports along with budget figures and financial forecasts that are based on available accounting data. Other managers receive potential risk reports, added value reports and cost / benefit analysis reports. Theyre meant to guide them through making executive decisions. Controllers role here is to coordinate all these different reports in such way that they are presented to top managers on orderly manner, along with Controllers commentaries. His task is to interpret these reports.
Id recommend Controller to be less engaged in actual accounting procedures. This would enable him to get a better prospective of what would make companys accounting practices more well-organized. (5) A system of effective internal controls guarantees safe and sound functioning of commercial institutions. They also insure that such institution will comply with laws and regulations. We can name the following internal control measures that are used by Wal-Mart managers: external auditing, risk assessment monthly reports and internal monitoring. Independent auditors, whose non-involvement in Wal-Mart commercial activities guarantees the accuracy of their auditing, provide company with external audit reports. The selected members of Wal-Mart top management conduct risk assessment reports on monthly basis.
These reports include the full range of factors that might affect companys competitiveness. Also, Wal-Mart practices the internal monitoring, when the performance quality of its employees is being evaluated on the principle of randomness. Such monitoring insures that most of the Wal-Mart employees are trying to maintain a high level of their performance at all times, since they never know when they are being monitored. The Wal-Marts board of directors is responsible for designing a new internal control measures and for maintaining the effectiveness of those that are being used at present time. Senior managers are responsible for implementation of these measures. The function of Controller is to provide the quality of applied measures.
This is done through selective analysis of them, when their effectiveness is evaluated by statistical improvement ratio. Such ratio is dependent on many objective factors and it allows Controller to take corrective action, if necessary. Such system of internal controls is far from being considered perfect, nevertheless it provides Wal-Mart top managers with effective tools to maintain companys operating efficiency on appropriate level. There is no doubt that the effectiveness of internal control measures wouldve been greatly increased, if more independent auditors were involved. At the same time, it could negatively affect companys functioning, since managers would be having less time to perform their primary duties. (6) The performance measures are always related to companys efficiency, as the generator of financial income. Still, they can be divided on quantitative or qualitative, financial or non-financial and absolute or relative.
Qualitative measures are clearly non-financial. Quantitative measures can be both financial and non-financial at the same time. But it would be a mistake to attach more or less importance to either of them. These measures should be applied in complex. In case of Wal-Mart, quantitative measures of key aspects of organization performance are financial ones. But also, such measures as customer service and customer satisfaction appear to have almost as much importance, as they are an independent variable and not the other way around.
The other crucial performance measures are: product quality, resource utilization and the rate of innovations. The overall companys competitiveness is directly dependent on them. We can calculate the rate of companys commercial success if we take in consideration such variables as efficiency, capacity and activity. Controller doesnt design criteria for performance measures, yet hes capable of calculating the coefficient of commercial effectiveness, even in cases when he deals with non-financial measures. It allows him to link together the cause and the consequence, thus enabling top managers to choose an appropriate marketing strategy. I would recommend that Wal-Mart executive officers pay more attention to non-financial performance measures, as it will enable their company to have better adjustment capability.
This would automatically lead to Wal-Marts managers being able to have a variety of options, while designing marketing strategy for their company. In my opinion, it is only the matter of time before Wal-Mart officials accept a progressive managing style only this can insure that this retail giants continuous expansion wont backfire. Bibliography: Cameras, J. (2002). Wal-Mart Stores Inc. : On Becoming the Worlds Largest Company Career Journal.
Retrieved Feb. 14, 2005 from web Framework for Internal Control Systems in Banking Organizations. (1998, Sep). Basle Committee on Banking Supervision. Retrieved Feb. 14, 2005 from web Lessons from the Enron Scandal. (2002, Mar. ) Markulla Center for Applied Ethics. Santa Clara University. Retrieved Feb. 14, 2005 from web Session 5: Financial and Management Accounting (2003) Net TOM. Retrieved Feb. 14, 2005 from web
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Research essay sample on Wal Mart Accounting Practices
