Skip to main content
SpringerLink
Log in

A simulation analysis of interactions among intended biases in costing systems and their effects on the accuracy of decision-influencing information

  • Original Paper
  • Published:
Central European Journal of Operations Research Aims and scope Submit manuscript

Abstract

On the one hand, management accounting systems increase in complexity, and the frequency and intensity of use of the provided information for decision-making are rising. On the other hand, there is evidence that the provided information is inaccurate, which in most cases incurs economic costs. This paper analyzes the impact of biases in raw accounting data on the accuracy of the provided decision-influencing information. The simulation study presents results concerning single and multiple biases which are intendedly entered into traditional costing systems. The presented results give insights into interactions among biases and indicate that multiple input biases do not necessarily affect the information quality negatively. Surprisingly, in some setups interactions among biases lead to a mitigation or even a compensation among themselves. Furthermore, the findings can constitute the basis for generating efficient organizational data quality policies, i.e., results indicate where (not) to tolerate biases and how to prioritize actions regarding information quality with respect to accuracy and cost of accuracy.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3

Similar content being viewed by others

References

  • Arya A, Glover J, Sunder S (1998) Earnings management and the revelation principle. Rev Acc Stud 3(1):7–34

    Article  Google Scholar 

  • Babad YM, Balachandran BV (1993) Cost driver optimization in activity-based costing. Acc Rev 68(3): 563–575

    Google Scholar 

  • Baiman S, Lewis BL (1989) An experiment testing the behavioral equivalence of strategically equivalent employment contracts. J Acc Res 27(1):1–20

    Article  Google Scholar 

  • Ballou D, Madnick S, Wang R (2003) Special section: assuring information quality. J Manag Inf Syst 20(3):9–11

    Google Scholar 

  • Banham R (2002) Reality budgeting. CIO Insight 17:43

    Google Scholar 

  • Barefield RM (1970) A model of forecast biasing behavior. Acc Rev 45(3):490–501

    Google Scholar 

  • Biros DP, George JF, Zmud GW (2002) Inducing sensitivity to deception in order to improve decision making performance: a field study. MIS Q 26(2):65–65

    Article  Google Scholar 

  • Bouwens J, Abernethy MA (2000) The consequences of customization on management accounting system design. Acc Org Soc 25(3):221–241

    Article  Google Scholar 

  • Brignall S (1997) A contingent rationale for cost system design in services. Manag Acc Res 8(3):325–346

    Article  Google Scholar 

  • Bruns JWJ, McKinnon SM (1993) Information and managers: a field study. J Manag Acc Res 5:84–108

    Google Scholar 

  • Burns J, Scapens RW (2000) Conceptualizing management accounting change: an institutional framework. Manag Acc Res 11(1):3–25

    Article  Google Scholar 

  • Cassia L, Paleari S, Redondi R (2005) Management accounting systems and organisational structure. Small Bus Econ 25(4):373–391

    Article  Google Scholar 

  • Chenhall RH (2003) Management control systems design within its organizational context: findings from contingency-based research and directions for the future. Acc Org Soc 28(2–3):127–168

    Article  Google Scholar 

  • Chong VK (1996) Management accounting systems, task uncertainty and managerial performance: a research note. Acc Org Soc 21(5):415–421

    Article  Google Scholar 

  • Christensen J (2010) Accounting errors and errors of accounting. Acc Rev 85(6):1827–1838

    Article  Google Scholar 

  • Christensen J, Demski J (1997) Product costing in the presence of endogenous subcost functions. Rev Acc Stud 2(1):65–87

    Article  Google Scholar 

  • Cooper R, Kaplan RS (1988) Measure costs right: make the right decision. Harv Bus Rev 66(5):96–103

    Google Scholar 

  • Crossman PT (1958) The nature of management accounting. Acc Rev 33(2):222

    Google Scholar 

  • Datar S, Gupta M (1994) Aggregation, specification and measurement errors in product costing. Acc Rev 69(4):567–591

    Google Scholar 

  • Davis JP, Eisenhardt KM, Bingham CB (2007) Developing theory through simulation methods. Acad Manag Rev 32(2):480–499

    Article  Google Scholar 

  • Dechow P, Ge W, Schrand C (2010) Understanding earnings quality: a review of the proxies, their determinants and their consequences. J Acc Econ 50(2–3):344–401

    Article  Google Scholar 

  • Demski JS, Feltham GA (1976) Cost determination. A conceptual approach. Iowa State University Press, Ames

    Google Scholar 

  • Drury C, Tayles M (1995) Issues arising from surveys of management accounting practice. Manag Acc Res 6(3):267–280

    Article  Google Scholar 

  • Dye RA (1988) Earnings management in an overlapping generations model. J Acc Res 26(2):195–235

    Article  Google Scholar 

  • Ezzamel M, Lilley S, Willmott H (1996) The view from the top: Senior executives’ perceptions of change management practices in UK companies. BRIT J Manage 7(2):155–168

    Google Scholar 

  • Feltham GA (1968) The value of information. Acc Rev 43(4):684–696

    Google Scholar 

  • Fox HW (1961) Statistical error concepts related to accounting. Acc Rev 36(2):282

    Google Scholar 

  • Garg A, Ghosh D, Hudick J, Nowacki C (2003) Roles and practices in management accounting today. Strateg Financ 85(1):30–35

    Google Scholar 

  • Gilbert N (1995) Simulation: an emergent perspective. http://alife.ccp14.ac.uk/cress/research/simsoc/tutorial.html. Accessed 05 Oct 2010

  • Gupta M (1993) Heterogeneity issues in aggregated costing systems. J Manag Acc Res 5:180–212

    Google Scholar 

  • Harrell A, Harrison P (1994) An incentive to shirk, privately held information, and managers’ project evaluation decisions. Acc Org Soc 19(7):569–577

    Article  Google Scholar 

  • Healy PM, Wahlen JM (1999) A review of the earnings management literature and its implications for standard setting. Acc Horiz 13(4):365–383

    Article  Google Scholar 

  • Heidmann M, Schaffer U, Strahringer S (2008) Exploring the role of management accounting systems in strategic sensemaking. Inf Syst Manag 25(3):244–257

    Article  Google Scholar 

  • Hendry J (2002) The principal’s other problems: honest imcompetence and the specification of objectives. Acad Manag Rev 27(1):98–113

    Google Scholar 

  • Holmstrom B (1979) Moral hazard and observability. Bell J Econ 10(1):74–91

    Article  Google Scholar 

  • Holmstrom B, Milgrom P (1990) Regulating trage among agents. J Inst Theor Econ 146:85–105

    Google Scholar 

  • Homburg C (2001) A note on optimal cost driver selection in abc. Manag Acc Res 12(2):197–205

    Article  Google Scholar 

  • Horngren CT, Sundem GL, Stratton WO (2002) Introduction to management accounting, 12th edn. Prentice Hall, Upper Saddle River

  • Horngren CT, Bhimani A, Datar S, Foster G (2005) Management and cost accounting. Financial Times Prentice Hall, Harlow

    Google Scholar 

  • Hwang Y, Evans JH, Hegde VG (1993) Product cost bias and selection of an allocation base. J Manag Acc Res 5:213–242

    Google Scholar 

  • Jensen MC, Meckling WH (1994) The nature of man. J Appl Corp Financ 7(2):4–19

    Article  Google Scholar 

  • Kerlinger FN, Lee HB (2000) Foundations of behavioral research, 4th edn. Harcourt College Publ, Fort Worth

    Google Scholar 

  • Klein BD (2001) Detecting errors in data: clarification of the impact of base rate expectations and incentives. Omega 29(5):391–404

    Article  Google Scholar 

  • Labro E, Vanhoucke M (2007) A simulation analysis of interactions among errors in costing systems. Acc Rev 82(4):939–962

    Article  Google Scholar 

  • Labro E, Vanhoucke M (2008) Diversity in resource consumption patterns in costing system robustness to errors. Manag Sci 54(10):1715–1730

    Article  Google Scholar 

  • Lambert RA (2001) Contracting theory and accounting. J Acc Econ 32(1–3):3–87

    Article  Google Scholar 

  • Leitner S (2012) Interactions among biases in costing systems: a simulation approach. In: Teglio A, Alfarano S, Camacho-Guena E, Gilns-Vilar M (eds) Managing market complexity (Lecture Notes in Economics and Mathematical Systems), vol 662. Springer, Berlin, pp 209–220

  • Leitner S (2013) Information quality and management accounting, (Lecture Notes in Economics and Mathematical Systems), vol 664. Springer, Berlin

  • Lillrank P (2003) New research. The quality of information. Int J Qual Reliab Manag 20(6):691–703

    Article  Google Scholar 

  • Luft JL (1997) Fairness, ethics and the effect of management accounting on transaction costs. J Manag Acc Res 9:199–216

    Google Scholar 

  • Ma T, Nakamori Y (2005) Agent-based modeling on technological innovation as an evolutionary process. Eur J Oper Res 166(3):741–755

    Article  Google Scholar 

  • Madnick S, Wang R (1992) Introduction to the tdqm research program. http://web.mit.edu/tdqm/papers/92/92-01.html. Accessed 05 Sept 2010

  • Merchant KA, Shields MD (1993) When and why to measure costs less accurately to improve decision making. Acc Horiz 7(2):76–81

    Google Scholar 

  • Myerson R (1979) Incentive compatibility and the bargaining problem. Econometrica 47:61–74

    Article  Google Scholar 

  • North MJ, Macal CM (2007) Managing business complexity. Discovering strategic solutions with agent-based modeling and simulation. Oxford University Press, Oxford

    Google Scholar 

  • Orr K (1998) Data quality and systems theory. Commun ACM 41(2):66–71

    Article  Google Scholar 

  • Paradice DB, Fuerst WL (1991) An mis data quality methodology based on optimal error detection. J Inform Syst Spring:48–66

    Google Scholar 

  • Redman TC (1996) Data quality for the information age. Artech House, Boston

    Google Scholar 

  • Redman TC (1998) The impact of poor data quality on the typical enterprise. Commun ACM 41(2):79–82

    Article  Google Scholar 

  • Resnick M (1999) Turtles, termites and traffic jams. Explorations in massively parallel microworlds, 5th edn. Complex adaptive systems, MIT Press, Cambridge

  • Shim E, Sudit EF (1995) How manufacturers price products. Manag Acc 76(8):37–39

    Google Scholar 

  • Simon HA (1957) Administrative behavior. A study of decision-making processes in administrative organizations, 2nd edn. Free Pr., New York, NY

    Google Scholar 

  • Simon HA (1991) Organizations and markets. J Econ Perspect 5(2):25–44

    Article  Google Scholar 

  • Singer FA (1961) Management accounting. Acc Rev 36(1):112

    Google Scholar 

  • Sprinkle GB (2003) Perspectives on experimental research in managerial accounting. Acc Org Soc 28(2–3):287–318

    Article  Google Scholar 

  • Tee SW, Bowen PL, Doyle P, Rohde FH (2007) Factors influencing organizations to improve data quality in their information systems. Acc Financ 47:335–355

    Article  Google Scholar 

  • Wang RY, Strong DM (1996) Beyond accuracy: what data quality means to data consumers. J Manag Inform Syst 12(4):5–34

    Google Scholar 

  • Young SM, Lewis BL (1995) Experimental incentive-contracting research in managerial accounting. In: Ashton RH, Ashton AH (eds) Judgment and decision making research in accounting and auditing. Cambridge University Press, Cambridge, pp 55–75

  • Zimmerman JL (2000) Accounting for decision making and control, 3rd edn. Irwin/McGraw-Hill, Boston

    Google Scholar 

Download references

Acknowledgments

I would like to thank three anonymous reviewers, Univ.-Prof. Dr. Friederike Wall, Univ.-Prof. Dr. Franz Rendl, Ass.-Prof. Dr. Alexandra Rausch, Mag. Katharina Rodgers, the participants of the \(1^\mathrm{{st}}\) Venice-Klagenfurt Workshop on Agent-Based Simulation 2011, the participants of the Workshop of the Austrian Working Group on Banking and Finance 2011, the participants of the stream Simulation and Management Accounting at the European Conference on Operational Research 2012, and the participants of the Artificial Economics 2012 for their valuable comments on earlier drafts of this paper.

Author information

Authors and Affiliations

  1. Department for Controlling and Strategic Management, Alpen-Adria-Universitaet Klagenfurt, Universitaetsstrasse 65–67, Klagenfurt, 9020, Austria

    Stephan Leitner

Authors
  1. Stephan Leitner
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Stephan Leitner.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Leitner, S. A simulation analysis of interactions among intended biases in costing systems and their effects on the accuracy of decision-influencing information. Cent Eur J Oper Res 22, 113–138 (2014). https://doi.org/10.1007/s10100-012-0275-2

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10100-012-0275-2

Keywords

Search

Navigation