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Many authors have expressed concern about the negative influence of accounting systems on operational decision making. Accounting systems take two forms, management accounting and financial accounting, and can be tightly linked through the use of standard costing common to both. However, the functions of these two forms of accounting are quite different: management accounting is focused on monitoring and analysing the effect of management decisions, financial accounting is focused on short-term, external reporting. The concern is that this linkage is drawing operating decision making into a short-term, narrow focus not supportive of the most effective operations. Since there has been very little work on how standard costing systems are actually used in operations, this work is an exploratory look at practice. This study explores whether the use of standard costing systems is actually contingent on environment, as may be appropriate, and whether its use affects decision making in operations. Results of a survey of 110 manufacturing companies suggest that at least some firms use standard cost systems in environments where they may not be suited and that their use may not be consistent with the manufacturing strategy. Also, results indicate that some operations managers base decisions on external financal reporting rather than internal criteria such as inventory turnover, number of defects, or customer delivery. Further, significant differences in report usage are associated with whether or not a firm uses standard costing systems. Overall, these results suggest that financial accounting and standard costing systems are influencing operations decision making and that far better understanding of this potentially wide-ranging influence is needed.
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