It is widely agreed that the business environment within which organisations operate affects management accounting systems used in these organisations (Amat, Carmona and Reborts, 1994; Hoque and Hopper, 1997; Bhimani, 1992; Anderson and Lanen, 1999; Haldma and Laats, 2002). This association is described as a cause effect relationship where any change in the business environment will cause change in management accounting systems (Kaplan, 1985; Wijewardena and De Zoysa, 1999).
It is also argued that the change in the broad business environment, such as growth of privatisation, deregulation of economy, liberalisation of market and increased competition, generally result in a change in the management accounting practices used by organisations operating in this environment (Anderson and Lanen, 1999; Jaruga and Ho, 2002; Baines and Langfield-Smith, 2003).
Using a contingency theory framework, this study examines the impact of the change in the Libyan economy as well as other organisation-specific factors on management accounting practices of 79 Libyan companies. A wide set of management accounting practices, related to different managerial functions including: costing, planning and control, short-term decision-making, investment appraisal, financial performance evaluation, competitive analysis and operational control, are examined. We provide evidence on changes in the management accounting practices as well as changes in the way of using these practices in companies from different sectors.
The paper contributes to the exiting management accounting literature in different ways. First, by investigating the issue of management accounting change in the developing economy context of Libya, which relies to a very great extent on oil industry as the main source of national revenues, and has experienced a reform process from a centrally planned towards a market-oriented mechanism, this study may add to the limited existing literature in this area especially in the emerging economies (Haldma and Laats, 2002).
Second, in addition to the broad environmental factors, such as privatisation, deregulation and competition that have affected the Libyan companies, this research considers other organisation-specific factors such as ownership, industry, size and several inter-organisational factors, such as dissatisfaction with the existing management accounting systems, availability of competent accountants, encouraging top management and change in production methods.
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The Impact of Business Environment on Management Accounting Practices: Libyan Evidence
