The Evolution Of Accounting And Business 1950 To 1995

Evolution of Management Accounting

The Evolution of Accounting and Business 1950 to 1995

Throughout the period of 1950 to 1995, the DuPont Model of Return on Equity was widely used by US Corporations. F. Donaldson Brown, and electrical engineer who joined DuPont in 1914 in their Treasury department developed the model. The model, often presented as a flow chart, is: Return on Assets = Net Profit Margin times Total Assets Turnover. A simple enough formula, but accurately collecting the financial data is the basic challenge of management account that continues today.

Activity-based costing was first clearly defined in 1987 by Robert S. Kaplan and W. Bruns as a chapter in their book Accounting and Management: A Field Study Perspective. They initially focused on manufacturing industry where increasing technology and productivity improvements have reduced the relative proportion of the direct costs of labor and materials, but have increased relative proportion of indirect costs. For example increased automation has reduced labor, which is a direct cost, but has increased depreciation, which is an indirect cost. The challenge has been to more precisely allocate indirect costs.

Peter F. Drucker (November 19, 1909–November 11, 2005) was a writer, management consultant, and self-described “social ecologist.”[1] Widely considered to be the father of “modern management,”

Several ideas run through most of Drucker's writings:

• Decentralization and simplification. Drucker discounted the command and control model and asserted that companies work best when they are decentralized. According to Drucker, corporations tend to produce too many products, hire employees they don't need (when a better solution would be outsourcing), and expand into economic sectors that they should avoid.

• A profound skepticism of macroeconomic theory. Drucker contended that economists of all schools fail to explain significant aspects of modern economies.

• Respect of the worker. Drucker believed that employees are assets and not liabilities. He taught that knowledge workers are the essential ingredients of the modern economy.

• A belief in what he called "the sickness of government." Drucker made nonpartisan claims that government is often unable or unwilling to provide new services that people need or want, though he believed that this condition is not inherent to democracy.

• The need for "planned abandonment." Businesses and governments have a natural human tendency to cling to "yesterday's successes" rather than seeing when they are no longer useful.

• The need for community. Early in his career, Drucker predicted the "end of economic man" and advocated the creation of a "plant community" where individuals' social needs could be met.