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Van der Merwe, A. 2007. Management accounting philosophy I: Gaping holes in our foundation. Cost Management (May/June): 5-11.

Summary by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida

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The purpose of this article is to highlight the extent of the problem with the foundation of management accounting. In this paper Van der Merwe argues that the current state of management accounting is contradictory, confusing, and often absurd.

Understanding the Problem

First, the management accounting principle of causality is currently applied inconsistently. For example, in lean accounting, causality is deemphasized and the concept of a flow-path becomes the overriding principle. Second, the various management accounting modeling assumption relationships (i.e., throughput accounting, variable costing, lean accounting, traditional full costing, activity-based costing, and resource consumption accounting) produce contradictory results. In addition, management accounting concepts are subject to incongruent treatment. For example, according to Van der Merwe, the idea that the cost behavior concepts of fixed and variable are synonymous with the decision support concepts of avoidable and unavoidable is commonplace. The area of decision support has the greatest potential for inconsistency since the various management accounting approaches view the same decision in different ways. This is illustrated with a product mix example where different approaches produce different decisions, i.e., where the decision is based on either throughput or variable costs. The main problem is that contradictions and inconsistencies frequently result when the various management accounting approaches are applied because the underlying fundamentals are interpreted differently. What is needed is a set of disciplined fundamentals that all in the profession can subscribe to that will serve as a foundation for learning and communication.

Getting Help from Philosophy

Two of the laws of logic can be used to reveal the problem and to develop a solution. These include the law of non-contradiction and the law of rational inference. The law of non-contradiction is emphasized in this paper, while the law of rational inference is emphasized in part II1 of this three part series.

The law of non-contradiction states that two contradictory statements cannot be true at the same time and in the same sense. This law of logic is the basis for the search for underlying principles and it reveals that the prevailing view that there is no single correct approach to management accounting is fatally flawed. He refers to this view as relativism, i.e. "there is no absolute truth". When applied to management accounting, relativism is the idea that a number of different approaches to management accounting can all be simultaneously valid and correct. However, this relativist view refutes the existence of truth and violates the law of non-contradiction. Thus, the law of non-contradiction reveals the root cause of the problem with the foundation of management accounting. It also indicates the path towards finding a solution.

The relativist view creates several problems for management accounting including the following:

1. It holds management accounting in a state of ambiguity, confusion, and frustration,

2. if there is no truth, there is no basis for evaluating the various theories and approaches to management accounting,

3. frequent bias by those with vested interest in a particular approach causes arguments that range from factual statements to character assassination,

4. if there is no truth, there is no lie,

5. real progress is difficult since there is no underlying basis for critical thinking,

6. no common frame of reference makes it difficult to communicate with managers and others looking in from the outside (e.g., students and prospective students),

7. no convincing case can be made for the value of management accounting to the enterprise.

As a reality check one might argue that the world is not that simple, an absolutely accurate cost number is impossible to determine, but the reality of imprecision is not a valid argument against the need for truth. Van der Merwe notes that other objections can be raised to what he proposes, but although our understanding of an existing truth can change, the underlying truth does not change.

In part II of the series Van der Merwe proposes two principles to serve as the cornerstone of management accounting's restoration. These include 1) causality and 2) analogy.

In part III2 Van der Merwe recommends an evaluation framework to critically evaluate some of the assertions related to the prevailing approaches to management accounting.



1 Van der Merwe, A. 2007. Management accounting philosophy II: The cornerstones of restoration. Cost Management (September/October): 26-33. (Summary).

2 Van der Merwe, A. 2007. Management accounting philosophy III: The management accounting evaluation framework. Cost Management (November/December): 20-29. (Summary).

Other related summaries:

Covaleski, M. and M. Aiken. 1986. Accounting theories of organizations: Some preliminary considerations. Accounting, Organizations and Society 11(4-5): 297-319. (Summary).

Macy, G. and V. Arunachalam 1995. Management accounting systems and contingency theory: In Search of effective systems. Advances in Management Accounting (4): 63-86. (Summary).

Tiessen, P. and J. H. Waterhouse. 1983. Towards a descriptive theory of management accounting. Accounting, Organizations and Society 8(2-3): 251-267. (Summary).

White, L. A., A. Van der Merwe, B. D. Clinton, G. Cokins, C. Thomas, K. Templin and J. Huntzinger. 2012. Conceptual Framework for Managerial Costing: Draft Report of the IMA Managerial Costing Conceptual Framework Task Force. IMA. (Summary).