Accounting in Control System

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U N I V E R S I TAT I S O U L U E N S I S

ACTAG

OECONOMICA

OULU 2008

G 34

Sinikka Moilanen

THE ROLE OF ACCOUNTING

IN MANAGEMENT CONTROL

SYSTEMS OF FIRMS HAVING

SUBSIDIARIES IN THE FORMER

SOVIET UNION

FACULTY OF ECONOMICS,

DEPARTMENT OF ACCOUNTING AND FINANCE,

UNIVERSITY OF OULU


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A CTA UNIVE RS ITA T I S O UL

G O e c o n o m i c a 3 4

SINIKKA MOILANEN

THE ROLE OF ACCOUNTING

MANAGEMENT CONTROL SY

OF FIRMS HAVING SUBSIDIA

IN THE FORMER SOVIET UNI

Academic dissertation to be presented, with

the Faculty of Economics and Business Admthe University of Oulu, for public defence in

TA105, Linnanmaa, on October 3rd, 2008, at


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Copyright 2008

Acta Univ. Oul. G 34, 2008

Supervised byProfessor Juha-Pekka Kallunki

Professor Janne Jrvinen

Reviewed by

Professor Cristiano BuscoProfessor Markus Granlund

ISBN 978-951-42-8880-7 (Paperback)ISBN 978-951-42-8881-4 (PDF)

http://herkules.oulu.fi/isbn9789514288814/ISSN 1455-2647 (Printed)

ISSN 1796-2269 (Online)http://herkules.oulu.fi/issn14552647/


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Moilanen, Sinikka, The role of accounting in management control syste

having subsidiaries in the former Soviet UnionFaculty of Economics, Department of Accounting and Finance, University of O4600, FI-90014 University of Oulu, Finland

Acta Univ. Oul. G 34, 2008

Oulu, Finland

Abstract

This thesis investigates how Finnish firms, as examples of Western firms, control

operations of their subsidiaries in Russia and the Baltic countries and the role of acc

management control systems. The thesis consists of three essays, which focus on dif

of the role of accounting in the management control systems. Even though the issue

this thesis are probably not unique to the area of the former Soviet Union, the cha

business in this context highlight specific management control questions relating to o

using power within management control systems.

The first essay investigates the changing role of accounting in a knowledge tra

between a head office and subsidiaries to show the importance of informal comm

cooperation in the development of accounting. Only after some time of inte

cooperation and the development of social capital in the accounting-mediated know

can more formal accounting controls can be relied on. The second essay illustrates h

social position of an individual can be reproduced and how it affects accountin

reporting in the control system. The third essay investigates the role and power of an

subsidiary in using accounting for controlling and steering the operations of its subs

the intermediate acts between the subsidiaries and its own Western parent c

intermediate can invoke the tensions between divergent social systems and thus u

signifiers according to its own needs, legitimating its existence despite the in

multilevel organizational structure may cause. Therefore, the whole thesis

accounting plays an important role in integrating firms in very different contexts, bu

happen with the help of more informal supportive structures and knowledgeable age

accounting. This is how accounting develops business thinking so that the practices

local demanding circumstances could also give something back to the parent comp

Keywords:management accounting, management control systems, mcorporations, transitional economies


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Acknowledgements

A doctoral thesis may sound like an impressive word, but as an

completing a big project requires hours and hours of hard work. G

point would not have been possible without the support and help of m

First of all I would like to express my sincerest gratitude to my

Professor Juha-Pekka Kallunki and Professor Janne Jrvinen. The

believed in me and my research from the very beginning and gisupport as well as concrete guidance for my research endeavour

grateful to the official pre-examiners, Professor Markus Granlund

School of Economics and Business Administration and Professor Cri

of the University of Siena, for adding value to this thesis through th

comments and suggestions.

I am also most indebted to Professor Salvador Carmona,

volunteered to comment on an early version of my first research

detailed and insightful comments showed the focal points to consider

a qualitative case study and gave me confidence as novice research

going in the right direction with my work.

In addition, I wish to thank Professor Jukka Pellinen of the U

Jyvskyl. Without his efforts as a supervisor of my Masters th

choice to open up a possibility for me to start working at the D

Accounting and Finance at the University of Oulu, I probably woul

embarked on a doctoral thesis.

Academic life has also given me the opportunity to meet do

people and I have had the great good fortune to receive comments

from many prestigious scholars. I wish to thank all those who have d

work and presentations at different workshops and conferences. Besword of thanks to the anonymous reviewers of the journals to w

submitted the parts of this thesis. The review processes helped me en

improving the quality of the essays.

This journey would also have been a lonely one without good


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coffee group for the lively discussions on various themes an

the department and the faculty for providing an encouraging a

Many people also deserve thanks for helping in the prac

to thank Dr. Seppo Eriksson for the editorial advice, Virgin

proofreading and the faculty administration for their assista

support, all the remaining errors are mine.

I would also like to express my warmest thanks to all th

firms who have offered their valuable time to help me with mme interviews and the chance to get to know their firms. This

have been possible without their valuable help.

I also gratefully acknowledge the financial support

foundations which enabled me to pursue this research

Kordelinin Sti, Foundation for Economic Education,

Foundation, the Jenny and Antti Wihuri Foundation, Kaupa

tieteiden tukisti KAUTE, Marcus Wallenbergin

Tutkimussti, Oulu University Scholarship Foundati

Foundation.

Because life is not only about doing research, I would

my friends and acquaintances, who have given me somethin

besides academic research every now and then. Satu, Nita a

friends, I hope you know how important you are to me!

Last, but certainly not least, my family deserves heart

support. My aunt Helena has been my second mother an

cousins Maija and Pentti have been my siblings in all but

most sincere support has come from my parents, who hav

utmost to help and support me in every possible way, also i

you for providing me with a sound supporting net for life!

Oulu, August 2008


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List of original publications

The thesis is based on the introductory chapter and the following essa

I Moilanen S (2007) Knowledge Translation in Management Ac

Control: a Case Study of a Multinational Firm in Transitional

European Accounting Review 16(4): 757-789.

II Moilanen S (2008) Family Ownership and Accounting in the

Control System: a Comparative Case Study of Western Firms in

Economies. The revised version of the paper is forthcoming in

Research in Accounting and Management 5(3), December 2008.

III Moilanen S (2008) The Role of Accounting and an Intermediate

the Management Control System. Management Accounting Res

252-269.


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Contents

Abstract

Acknowledgements

List of original publications

Contents

1 Introduction 2

Management Accounting and Control in MultinationalCorporations

2.1 Management accounting and control ......................................2.2 Management accounting and control in a multinational conte

3 Management Accounting and Control in the Former Soviet Un3.1 Accounting traditions from the Soviet era ..............................3.2 Challenge of traditions to the management control systems...

4 Research Design 4.1 Research questions ..................................................................4.2 Theoretical frameworks ..........................................................4.3 Methodology ...........................................................................4.4 Contributions of the thesis ......................................................

5 Main Findings and Concluding Remarks References

Original publications


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1 Introduction

In the writers experience and knowledge practically nothing h

about any revolution in cost accounting in Soviet Russia .

while not as important as some of the political or social phas

subject of interest to members of our profession, . (Wurman 1

Accounting, as an integral part of management control systems (MC

control in multinational corporations (MNCs), as it makes it possdiscipline, to control and to act at a distance (cf. Robson 1992, Ez

Kirk & Mouritsen 1996, Carmona et al. 1997). The role an

management accounting and control systems in MNCs (e.g Schw

Chow et al. 1999, Quattrone & Hopper 2005) and the role of MCSs i

of mergers and acquisitions (e.g. Jones 1985, Roberts 1990, Granlun

recently both been extensively studied. However, accounting may ncommon language in MNCs as business and social structure

corresponding understandings of accounting concepts differ (E

Difficulties can be expected, for example, when subsidiaries ar

countries that used to be under a socialist regime. Therefore, we still

learn about the expansion of firms operations to such different circum

prevail in the former Soviet Union (see Gray & Roberts 1991).

One of the greatest contemporary challenges in economics resea

the change in economic systems in the former Soviet Union, caused b

in the political system (Intriligator 1996). Even though the transi

market economy already started in 1985 and joint ventures betwee

Western firms were permitted in 1987, the massive change did not o

collapse of the Soviet Union in 1991 (Southworth 1994, Vmosi

then Western firms have been increasingly interested in exp

operations to exploit the enormous market potential in the area.

growing number of Western MNCs entering the area, little is k

management accounting and control in the different parts of the area o

Soviet Union and in the Western companies operating there


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external reporting according to Western norms prefer

management accounting. Change in financial accounting prerequisite for the development of management accountin

Haldma & Lts 2002). Actually, cost accounting was an inte

accounting in command economies and, therefore, managem

new concept (Sokolov & Kovalev 1996, Enthoven et al. 19

2002). However, macroeconomic stability may be difficul

microeconomic reforms to improve firm performance and eff1999) and as accounting is an important means of man

development becomes important in improving firm perfor

accounting and management traditions in the planned

significantly from those of Western countries (Elenkov 19

1998, Taylor & Osipenkova 2003). For example, informa

became important means of coping with conditions in

(Ledeneva 1998, Michailova & Worm 2003, Hutchings &

Therefore, it is doubtful if merely financial results control (se

the MNCs headquarters over subsidiaries in these countries c

Many Finnish firms have established operations in the n

the former Soviet Union, e.g. in Russia and the Baltic c

Finland provides interesting settings for studying the MCSs

purpose of this thesis is to investigate how Finnish firms, as

firms, control and steer the operations of their subsidiarie

Baltic countries and what kind of role accounting plays in t

consists of three essays, which focus on different aspects of t

in the MCSs. Even though the issues discussed in this the

exclusive to the area of the former Soviet Union, the characte

this context highlight specific management control quorganising and using power within MCSs. Therefore, the g

thesis may also have implications for other contexts, s

accounting vis vis more informal relationships in integrating

2008). The first essay investigates a case of transferring


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controlling and steering the operations of its subsidiaries, when the

acts between the subsidiaries and its own Western parent company, relies on results controls.

The remainder of the introductory chapter is organised as foll

literature on management accounting and control in multinational co

reviewed in Section 2. Section 3 focuses on the characteristics of

environment in Russia and the Baltic countries and their possible

MCSs of MNCs operating in the area. Research design, covering questions, theoretical frameworks and methodological issues, is

Section 4. The main results of each essay are reported and

implications are discussed in Section 5, which also concludes the chap


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2 Management Accounting and Control

Multinational Corporations

2.1 Management accounting and control

Baliga and Jaeger (1984) relate control to processes in which a pers

of persons, or organization of persons) determines or intentionally

another person, group or organization will do. According to them, thprocess, where targets are set and performance is evaluated, is at

control. Control is needed in order to make people act according

interest of the organisation (Merchant 1985). Ouchi (1979) div

mechanisms into three categories: markets, bureaucracies and

Merchants (1985) three-part classification results and action controls

some extent bureaucratic controls and clan controls coincide with soResults control is usually executed in financial terms, whereas ac

include e.g. physical and administrative behavioural constraints.

pressures, training, individual self-control, rewards as well as s

placement procedures constitute personnel controls. For his part, Si

has four categories for control systems use: Beliefs and boundary

also diagnostic and interactive control. Of these, diagnostic controls

traditional results controls or accounting, even though the measures

financial. Accounting information, however, can be also used inte

managers by highlighting the most important measures in regular int

subordinates. Boundary systems can be seen to be somewhat simi

controls, and Merchants (1985) social controls can include belief sy

are a form of positive control posing no restrictions but showing sco

development. These definitions of MCSs differ mainly in their stand

relationship between management control and strategy. Whereas Mer

sees strategy as guiding the implementation of management control,

Simons (1995) management control is namely for controlling strategy

Even though management control includes a wide spectrum of


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performance visible and accordingly controllable (e.g. Ezzam

al. 1997, Quattrone & Hopper 2001). However, the accountarather a means for headquarters to monitor and intervene in

than a means to map the subsidiaries according to their ow

Mouritsen 1996). This means that accounting also creates an

in terms of space and time by defining the accountability

O'Leary 1994, Ezzamel & Willmott 1998, Carmona et al.

Hopper 2005). In addition, accounting can protect a suheadquarters as long as the reporting requirements are app

Siti-Nabiha & Scapens 2005).

2.2 Management accounting and control in a mult

Accountants and managers in a multinational and internation

of complexities, because of the environmental uncertainties,

flows and complex organisational structures (e.g. Choi 1

Emmanuel et al. (1998), important issues for multina

accounting are, for example, performance evaluation an

changes, inflation accounting and corporate governance. Per

and control may be problematic because of the distance betw

local units. Currency changes and inflation are often faced

Western settings where differences in organisational structure

also make corporate governance issues more difficult. Acco

Jaeger (1984) the issue of control is parallel with delegatio

questions for MNCs is thus balancing between centralisation

Actually, MNCs have been divided into taxonomie

differences in the intensity and form of centralisation (see e.g1992). Perlmutter (1969) defined a taxonomy based on

geocentric (world-oriented), polycentric (host country-orient

(home country-oriented). Multinationality is thus define

intensity of the geocentric thinking of the managers.


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structure defining firms as global (tightly controlled and

multinational (decentralised) or transnational (local flexibility integration) (Ghoshal & Bartlett 1990, Bartlett & Ghoshal 2002).

enables decentralised control where results are monitored and contro

actual operations are autonomous (cf. Merchant 1985) and acco

intensity of centralisation/decentralisation affects the role of accou

MCS. On the other hand, accounting can also help in managing

between centralisation and decentralisation as it can reinforchierarchical but also lateral relations (cf. Busco et al. 2008).

The role of accounting and control systems is also highlighted i

mergers and acquisitions, which are a typical way of extending o

foreign countries. Jones (1985) concludes that accounting type co

become highly significant during the first few after an acquisition.

inappropriate changes in management accounting systems caused

undesirable effects. Granlund (2003) also suggests that in a merger, a

system plays an important role as an integrator of the firms. Robert

the other hand, shows how accounting controls may also impede the

of a profitable longer-term strategy.

The case firms in this thesis represent different levels of

multinational corporations. The firms have also used different strate

Russia and the Baltic countries: greenfield projects, joint v

acquisitions. The Bakery in the first and second essay has evolved

country-centred to a stage where the operations abroad in neighb

truly constitute a significant proportion of the business. The Dairy fo

remained more focused on home country operations, but is gradual

the coordination of its total activities across national borders. The thi

Finparent (and its subsidiary Balticparent) operates locally in Finlneighbouring areas, but is a part of a true MNC operating in 27

Europe and America.


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3 Management Accounting and Control

Former Soviet Union

Even though research on management accounting and control h

investigate transitional economies (e.g. Firth 1996, Anderson &

Vmosi 2000, Luther & Longden 2001, Szychta 2002), little is know

operations of MNCs in these economies. However, MNCs themselv

transnational diffusion of management accounting and control pra1996, Granlund & Lukka 1998) in environments where the econ

political background differs from that of Western countries. Therefo

important question for the MNCs is how these different struct

reconciled within the organisation.

3.1 Accounting traditions from the Soviet era

The present literature provides descriptions of the special chara

accounting and management in Russia and the former Soviet Uni

accounting has been an instrument for reporting to government

authorities and the role of accountants has changed, also in parts of

world (see Burns & Baldvinsdottir 2005, Scapens 2005), the use o

differed somewhat in the Soviet Union. For example, accounting r

Soviet Union were prepared for the authorities to protect socialist

fulfil the plans of the central administration not for internal

(Enthoven et al. 1998). Thus compliance with the norms of the author

the most important matter in preparing the reports (Seal et al. 1995)

was understood as bookkeeping and cost accounting was an inte

financial accounting. Besides, accounting was cash-based andcontrolled prices so that the data derived from the accounting system

economic content and accounting was somewhat neutralised (B

Planning for the future and budgeting were also the tasks of a separ

Department, which was detached from accounting (Sokolov & Ko


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and discomfort with accounting innovation and the weak

managers and accountants. Overall the uses and users traditionally been different from those of the Western world

of the Soviet Union (Solodchenko & Sucher 2005).

The number of internationally acknowledged studi

accounting and control, with special reference to former

likewise still small. Southworth (1994) studied accounting

joint venture in Ukraine. He focused on the information n

partner to be able to manage the joint venture. He conc

accounting information produced according to Western needs

for the joint venture managers, but that the precise Sovi

provided more information for decision-making even though

not be calculated. Therefore, the results are similar to So

(1996), who claim that Soviet type information can be

information, even though accounting was organised

organisations of the Soviet Union. Therefore, the problem

usefulness of local accounting information, but in truly inte

practices. Because of the fundamental differences, the situat

that in Granlund (2003), who found accounting to be an int

of two Western firms, or that of Busco et al. (2008), wh

divergent goals of the different units in a global organisationaddition to Southworths (1994) study in Ukraine, Haldm

investigated managerial accounting procedures in Esto

contingency framework they found that product costs were

since the cost centres were often broadly defined. On the w

use of management accounting information in Estonia

compared to the Western practices.

3.2 Challenge of traditions to the management con

Despite the years since the dissolution of the Soviet Union


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formal structures (Engelhard & Ngele 2003). Even though blatnow

has a negative connotation, as it is associated with bribery, trasystems were based on positive reciprocal friendships and aid (Led

These unofficial relationships cannot be set aside in business and th

example, the role of audit in Russia (Sucher & Bychkova 2001,

2005). Problems in knowledge sharing in former socialist countries a

due to the traditional tendency to see knowledge as a means of p

causes information hoarding and thus questions the approp

empowerment (Michailova 2002). This applies to cost accounting as

was used as a means of exercising power (Enthoven et al. 1998). I

(1983) cultural dimensions, these findings apply to long power dista

collectivism. Elenkov (1998) notes that Russians do indeed seem to

on power distance and collectivism scales than their counterparts

which could influence the organising of an effective MCS. For ex

Merchant et al. (1995) do not find that anticipated cultural differenc

incentive systems of US and Taiwanese firms, OConnor(1995) show

distance affects the usefulness of budget participation, which again

on superior-subordinate relationships. Naturally, the findings in Rus

generalised to the whole area of the former Soviet Union. Therefor

shows some differences in business between Russia and the Baltic co

between the Baltic countries). Even though Russia and the Baltic cothe Soviet background, the cultural differences and their effects

traditions have not yet been widely acknowledged in accounting rese

Because of the specialities presented above, people in MNCs ope

former Soviet Union need to be conscious of the historical backgro

challenges history poses to management control systems (cf. Engelha

2003). Western management accounting and control practices maythe most suitable ones in transitional circumstances (e.g. Firth 199

matters embody a considerable amount of implicit assumptions

activities, structures and institutions (Giddens 1990: 113). Thes

obvious presuppositions are no certainties in other circumsta


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bypass formal mechanisms of control in the Soviet Union ind

became detached from the actual operations. It is thus hiaccounting in such and environment can be a common busin

different parts of the organisation closer to each other (cf.

2004). Besides, knowledge tends to be embedded in a s

Nahapiet & Ghoshal 1998, Lord & Ranft 2000, Bedward et

translated in the interaction of the transfer process (cf. La

Dugdale 2002). Therefore, it is important to note that as A

1997b) shows, accounting can also be implicated differently

accountability. The implications depend on how true a p

supposed to give of operations, which again depends on the lo

Controlling multinationals even without such significant

their environments requires intensive communication b

misunderstandings (e.g. Noerreklit & Schoenfeld 2000)

cooperation in order to communicate and develop the MCSs

area of the former Soviet Union may be even more intense

essays in this thesis show. The intense communication and

however, may be organised differently. These differe

interesting issues about using accounting as an intermediar

setting. Therefore, it is important to study the MCS as a tota

focusing on small parts of it, such as incentive systems (cf. MTight accounting and financial controls may need comple

cooperation through a geographically closer subsidiary (third

department can play a significant role in control and dev

structure through the controller (first and second essays), b

the control can be organised through non-accounting manag

finance department only has a role in consolidating reexternally (second essay).


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4 Research Design

4.1 Research questions

The purpose of this thesis is to investigate how Finnish firms, as

Western firms, control and steer the operations of their subsidiaries i

the Baltic countries. The special focus is on the role of accounting

department in control and how the presupposed special requiremenvironment in the transitional countries can be met in the MCS

consists of three essays, which are based on case study methodology

(first and third) focus on one case firm and one presents a compari

two cases (second).

The research question presented above is approached from differ

the essays. This enables findings related to different aspects of

accounting and power within the MCS, which may also have implica

the context of the former Soviet Union. The first essay studies how

control procedures are transferred from the head office (HO) to the su

Russia and the Baltic countries. The essay explores the chang

accounting and how accounting translates in the process. The implic

translation to the control system are moreover examined.

The second essay continues by exploring the role of accounting

and investigates the development of MCSs of firms operating in Ba

(and Russia). It shows how history and previous experience affect M

the same requirements are fulfilled by a differently organised MCS.

essay focuses on how family owners participation in the managemen

in the role of individuals vis vis financial department and ac

management control and how the participation at least partly edevelopment.

In the third essay, the special requirements of the transitional c

are confronted by investigating how an intermediate subsidia

accounting for its own purposes in the MCS In so doing the


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4.2 Theoretical frameworks

All the essays in this thesis explore characteristics and cha

control systems and the role of accounting as an inscription

Accounting can be a mediator, even a translator which

distance (e.g. Kirk & Mouritsen 1996), as it makes ope

Ezzamel 1994). As the research questions presented abov

processes studied have occurred, the basic assumptions of th

used in illustrating the interesting aspects of these managem

need to be of a subjectivist nature. Different frameworks, alb

assumptions as will be elaborated below, are mobilised

different parts of this thesis.

The first essay exploits the concept of knowledge transla

Actor Network Theory (ANT) and especially on the work of

The idea is that no knowledge transferred can remain the process, but is translated in the network of human and techno

& Dugdale 2002). This is because knowledge is not entirely

& Takeuchi 1995) and knowledge tends to be embedded

Latour 1999, Augieret al. 2001). A specific knowledge tr

(Choi & Eriksson 2001) is borrowed from the international b

to investigate the change of accounting and management cohuman and technological actors. The knowledge translation

at exploring how parties learn from each other in an in

relationship. It implicitly combines learning barriers and fa

Hardy 2000: 209) and the stages of inter-organisational le

Asahi 1995). The model also distinguishes between ori

knowledge. The process of bi-directional translation consis

between past experience and present activities (cf. Bresman

seems a plausible viewpoint when looking at transitional econ

business history from the Western countries. The sociol

framework are appreciated by supplementing the framewor


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maintain organisational routines that constrain behaviour and o

themselves represent organisational routines as a product of h(Giddens 1984, Barley & Tolbert 1997). Institutions are accordingly

interplay of organisational roles, (formal) rules and (informal) routine

MCS in the way things are habitually done (Burns & Scapens 2000,

2006, Lukka 2007). Institutions also embody social relations that a

around the attribution of meaning (signification), value (legitimation

(domination) (Giddens 1984, Jones & Dugdale 2002). These so

guide the mobilisation of power in the change (or stability) of

accounting and control (Hardy 1996, Burns 2000). This viewpoint is

explain how the power of individuals in the development of M

reproduced. The viewpoint is thus related to the research on o

cultures (Jrvenp 2007), as different organisational cultures as

provide different options for the mobilisation of power in the develo

MCS. For example, trust seems to play an important role in a family-

reflects on the organisational structures such as the MCS (cf. Luh

Tomkins 2001). This also leads to the different roles of finance depar

case firms compared, even though both firms face the same requir

their environments. The discussion on socially constructed trust als

theoretical standpoint of the second essay close to that of the first ess

the role of accounting is investigated in the construction of trust as a capital (Coleman 1988).

While the work of Giddens (1984) is one basis of the theori

second essay, the third essay exploits Giddens (1990) sociology of

discussing disembedding and reembedding in MCS, i.e. how

translates local issues into global language. This again enables the g

control and act on the local subsidiaries at a distance (e.g. Robson 1Mouritsen 1996). However, the accountability system is often used a

the head office to monitor and intervene in subsidiaries affairs rath

means to map the subsidiaries according to their own logic (cf. Kirk

1996). This is because accounting communicates the social relations


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All these theoretical baselines have also been used be

studies, since the thoughts of ANT have been widely exploiteBriers & Chua 2001, Mouritsen et al. 2001, McNamara e

Giddens writings and OIE (Macintosh & Scapens 1990, M

1991, Scapens 1994, Burns & Scapens 2000, Soin et al. 2

Scapens 2005, Busco et al. 2006, Hyvnen & Jrvinen 20

2006). The viewpoints are also somewhat complementary a

of contemplating the change and development of MCS. For

Dugdale (2001) have combined various works of Giddens

(2002) have also coupled ANT with disembedding and re

(2002) for his part has suggested ANT as a complem

institutional viewpoint for studying change and stability in so

The complementarity of these frameworks can also be

their basic assumptions. As the social construction of reality

the frameworks presented, they fit the subjective stance refl

questions. Regarding the ontology behind the theories, subj

the centrality of a researcher in explicating the interactions

social constructing, which cannot be objectively measured. T

of the first essay deals with knowledge transfer, which h

epistemological assumptions for interpretation. As explained

Latour (1987), knowledge is translated in the interaction betwhuman actors, which implies that knowledge is unique and re

situation. This is also reflected in the more detailed fram

Eriksson (2001), as knowledge becomes a product of past ex

activities. Yet, their operationalisation of the concepts (whi

reflected in the first essay of this thesis) tends to be more

objectively oriented without fully studying the actual actions For Giddens (1984, 1990) knowledge is also clearly socially

focus of his ideas is probably more on the assumptions abo

presents people as knowledgeable agents, which would

assumptions, but at the same time there are structures that bo


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framework for each essay has been based on the special features of t

interesting contributions of each case can thus be highlighted by botsome interesting issues with the help of the framework selected a

empirical data and interpretations to refine those frameworks (cf. Kea

4.3 Methodology

The dominating methodology for studying management accounting a

different cultural environments has been to measure cultural dim

quantitative study (e.g. Birnberg & Snodgrass 1988, Harrison 1993,

1994, Merchant et al. 1995, O'Connor 1995, Chow et al. 1999).

research uses Hofstedes (1983) cultural dimensions, i.e. individu

distance, uncertainty avoidance and masculinity. The line of resear

criticised for overconcentrating on the dimensional definition of cult

rather limited (Bhimani 1999, Harrison & McKinnon 1999). Bec

limited international management accounting research activity wi

Russia and the Baltic countries, the research questions could no

specific and qualitative research methodology was chosen to answ

questions formulated. Besides, this methodology enables a ri

viewpoints, thus going beyond the dimensional definition of culture

not capture all interesting differences existing between environmethodology has also been earlier used in some comparative c

studies on management accounting (e.g. Ahrens 1996, 1997a, 1997b

et al. 2003). However, this thesis is not cross-national or cross-cult

but is attached to the qualitative research of management control in

Quattrone & Hopper 2005, Siti-Nabiha & Scapens 2005), ex

investigation to a special environment that has so far attached only lattention. For the purposes of this thesis it is important to note that ac

embody different meanings in different business cultures (cf. Ahrens

1997b), but studying MNCs differs from a pure cultural compar

duality of institutions necessitates reciprocal adaptations which ma


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were sought and the final decision based on the firms con

this kind of research. Semi-structured interviews were used agathering data. Therefore, the themes of the interviews were

the final content of the interview was only determined in the

interview. The primary data of the whole thesis totals 41 in

case firms conducted from June 2004 to April 2007. The firs

firm was the person responsible for management, accountin

the Russian/Baltic subsidiaries and other interviewees w

cooperation with the case firms. Thus the interviewees w

Finnish head offices and from the subsidiaries. In the early s

the choice was made so that the knowledge transfer app

preliminary point of view for gathering the data. Eve

framework may cause bias, some kind of guidelines m

everything can be observed (Atkinson & Shaffir 1998).

carried out so that a similar approach was used in the first int

firms in order to enable comparisons. The first interview in e

elicited basic information about the company and its acti

economies. Management control issues were divided into thr

and planning, organising, and evaluation and rewarding

grouping by Chow et al. (1999). Management control issues

in Russia and the Baltic countries and the effects of multinwere also addressed. Later on the interviews in each of the c

their own special issues.

Synchronic and diachronic primary data source trian

within the interview data (Pauwels & Matthyssens

interviewing various respondents on the same topic or the sa

particular topic more than once. People outside financiinterviewed in order to distantiate the interpretation from

viewpoint and local employees of the subsidiaries were in

comprehensive view of the MCS taking the local point o

Except for two more informal conversations, the interview


31/48

firms. These were mostly used for confirming statements m

interviewees. Further analysis of the interview data followed a path to that in Dent (1991). Various readings and interpretations were c

various parts of the study progressed. The initial data were cate

thoroughly scrutinised in different ways to identify patterns until the

used in the essays started to reveal their usefulness for understa

patterns. The categorisations comprised, for example, the guiding

knowledge translation (as the preliminary view of gathering da

elements of MCSs and contextualisation of those elements. In additi

were constantly checked against with the selected framework to

similar patterns applied.

However, using case study methodology means that genera

general laws cannot be used for purposes of explanation; explana

based only on the specific circumstances of each case. However

model used in the explanations does not deny the existence o

regularities. Only general laws, which transcend all social systems,

(Ryan et al. 1992: 119-120). Therefore, despite the subject

assumptions of the theoretical frameworks, the use of theories in th

whole does not solely represent any research paradigm, but strad

between subjectivism and objectivism. This is because theoretically g

interpretations with a reference to the theoretical framework andliterature were sought from the subjectivist reality of the case firms (

Knuuttila et al. 2008). Even though the interpretation is based on in

and the perceptions of the interviewees (cf. Burrell & Morgan 1979),

relevant view of a certain reality, as subjective perceptions are based

understandings (Carruthers 1995).

4.4 Contributions of the thesis

This thesis contributes to the literature in four main respects. First, ev

has been observed that Western type management accounting faces


32/48

between operating in the different countries of the area whic

related to technical and general control matters, such as inmay include local needs for surveillance and guidance, for

the differences in power distance (cf. Merchant et al. 1

Michailova 2002). These local specialities also yield intere

regarding the integration of MNCs1 with the help of accou

packages (cf. Busco et al. 2008).

Second, while the role of accounting as a mediator of kn

been shown previously (e.g. Kirk & Mouritsen 1996, Jon

Granlund 2003, Quattrone 2004), this study contributes

showing how social capital is created in the accounting-m

translation process. Furthermore, the social capital devel

control at a distance (cf. Robson 1992, Kirk & Mouritsen 1

development of social capital explains the changes in the role

translation process.

Third, this thesis enhances the understanding of the inter

rules, roles and informal routines in the MCSs (cf. Busco et a

by showing how the power of an individual in the developm

accounting and control is reproduced. It illustrates the invol

of institutions and that of individuals, as internal institution

central social positions that again can work around (formal)routines actively affecting them and the relationship between

Fourth, the work explores the role and power of an interm

the MCS, when the intermediate dampens the transfer of bud

structures from the Western parent firm to the subsidiaries

Union. Therefore, it shows how the intermediate subsidiary u

the role of accounting, giving different meanings for accopractices. Even though the reports going to the parent are no

local operations (cf. Siti-Nabiha & Scapens 2005), accountin

only detached by the discursive practices of the intermedia

study contributes to the conceptualization of the accounting


33/48

5 Main Findings and Concluding Remar

This thesis investigates the role of accounting in management

subsidiaries of transnational Finnish firms. More specifically,

accounting is explored from different viewpoints in the context of the

in the area of the former Soviet Union to highlight specialities of

accounting and control. This specific context renders it possible to

general contributions regarding organising and power usage within M

as integrating firms with the help of accounting. The results show tha

firms have had to allocate resources to teaching the locals the Wes

operating and accounting. Thus, the results are in accordance with Fi

that Western firms can help in the development of management a

transitional economies. However, the results also show that the role o

differs in different stages of the operations and also in different firm

to Jones (1985), accounting was not important in the control systemstages of the cooperation. The firms found accounting inform

unreliable, as it was not prepared according to Western principles.

translations from local principles to Western ones do not require mu

even though the practices and especially the legislation have not tot

even almost 20 years after the collapse of the Soviet Union. The thes

how the requirements for control and accounting (and controllingdiffer between some countries in the area so that more guidance

apparently power distance) and surveillance (because of a sort of d

needed in other nations while others seem to resemble more the Fin

doing business. More concretely, it seems that the Finnish firm

suspicious of their Russian subsidiaries while the Estonians are felt to

familiar partners.

The first essay shows that accounting can mediate the knowle

from the HO to the subsidiaries (cf. Granlund 2003, Quattrone 2004)

changes in the course of the process. At the very beginning the

around accounting is emphasised in order to enable adequate reportin


34/48

system. The people in such social positions can mobilise dif

power and thus mediate between the institutional realm and tof an MCS as well as between the rules and routines and the

(cf. Burns & Scapens 2000, Busco et al. 2006). The role

control system can also be utilised by an intermediate subsid

between its parent and subsidiaries, as shown in the third ess

can rationalise its existence by reason of the untrustworthin

that trust in an accounting expert system is not enough in an

people are used to bypassing any rules. The intermediate sub

presenting their own control to be looser by separating the re

parent) from the local operations, even though accounti

different purposes in the operational cooperation between the

subsidiaries. The intermediate can thus use accounting signi

own needs, legitimating its existence despite the inflexib

organizational structure may cause. The findings support th

power of accounting may be blurred (Jones & Dugda

accounting remains the basis for legitimated behaviour and i

the local operations (cf. Siti-Nabiha & Scapens 2005). This

intermediate can invoke the tensions between divergent socia

Accordingly, accounting also has an important role

transnational or multinational firms operating in the area oUnion. However, the transitional circumstances give ris

requirements for communication and knowledge transfer, e

accounting. The facilitator of the knowledge transfer

Schoenfeld 2000) can be, informal communication within a

structure, where the financial function plays a focal role (fir

individual (second essay) or the discursive practices utilisedsubsidiary (third essay). Informal communication and person

to be important especially in the early phases of cooperation

their importance, presumably because of the Russian tra

networking, blat (Ledeneva 1998, Michailova & Worm


35/48

embodies Western business thinking, which it can introduce in other

more informal communication also occurs around it. Communicimportant, as differing accounting meanings (cf. Ahrens 1996, Ah

Ahrens 1997b) need to be at least to some extent reconciled to

cooperate within an MNC. It seems that adapting accounting practice

needs becomes even easier when accounting controls are not to

accounting only has a secondary role in creating the rationales fo

Fogarty & Rogers 2005), as when accounting norms are inclusive

require much but compliance with the reporting norms (which may b

the case in the third essay). Therefore, in a context of substantial d

business environments (or institutional clash as in Vmosi 2000) tigh

controls seem to require tight complementary controls to ensure the

accounting figures, whereas looser accounting control enables

development of business thinking. This also means that accounting n

in the integration of MNCs in the form of formal performance m

systems (cf. Busco et al. 2008), but also more informally. Accountin

only some social structure (or a non-human actor) that det

construction of social systems. There are knowledgeable agents (hu

who can use their power in moulding local accounting practices. Thei

emanate from the technical organisational structure (as the

subsidiary in the third essay) or from the reproduction of the oculture (as in the second essay).

On the other hand, it may not even be ultimately self-evident

from whom. As some evidence in the thesis suggests, the locals h

Western accounting and control practices and adapted them to

environment. Since the transitional environments are fairly dem

accounting applications for these environments could also be of use

the globalising world (cf. Dent 1996). The finding that account

mediating integration is not as such a new one (e.g. Granlund 2003,

2008), but in the present context it moves the study beyond t

viewpoint (cf. Covaleski et al. 1996) suggesting that Western busi


36/48

quantitative methods to reach statistically generalisable re

comparison could be made to ascertain if the controls over and those in transitional economies differ from each other

methodology could be further utilised to enahnce the underst

accounting vis vis the role of individuals in integrating MN

role of accounting vis vis the role of intermediate

management control systems deserves further exploration in d


37/48

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transition regression model

20. Jrvinen, Janne (2005) Rationale for adopting activity-based costing in hospitals.

Three longitudinal case studies

21. Pekkarinen, Saara (2005) Economic analysis of travelling. Studies on travel

behaviour in Finland

22. Holma, Heikki (2006) Supply chain management and industry cyclicality. A study

of the Finnish sawmill industry

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intensive firms in different organizational life-cycle stages

27. Simonen, Jaakko (2007) The effects of R&D cooperation and labour mobility oninnovation

28. Kyrlinen, Petri (2007) Essays on investor behavior and trading activity

29. Karjalainen, Pasi (2007) Valuation of intangible assets in different financial

environments

30. Jnkl, Sinikka (2007) Management control systems (MCS) in the small business

context. Linking effects of contextual factors with MCS and financial performance

of small firms

31. Hyvnen, Johanna (2008) Linking management accounting and control systems,

strategy, information technology, manufacturing technology and organizationalperformance of the firm in contingency framework

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