Experiencing Change in German Controlling

Traditional German Management Accounting

There is a relatively little empirical research in accounting in Germany, if we compare with research into organizational and societal contexts of accounting - of the kind that has become well established in the UK, Scandinavia and much of Mediterranean Europe - has been almost non-existing in Germany.

As a consequence, the definition of accounting terms doesn´t have the same meaning and sometimes in the German literature one term could have different meanings, because they don´t have a theorical common body, as English literature (CIMA - Character Institute of Management Accounting), for example if we look into the meaning difference between both terms "Management accounting" and "Management accountants" en English language, versus the German terminology of related terms "Controlling" and "Controller"; though there is a certain overlap between the techniques and functions of management accounting carried out by Management accountants in the UK and those carried out by Controller in Germany, however the overlap is by no means complete. Furthermore, there is gulf between academic and practice-controlling term, whereas the Controlling meaning inside academic field may, variously, be modeled as focused upon information, rationality or coordination, nevertheless research into controlling practices is rare in Germany.

So, we are going to study three company cases where we could disclosure perceptions of practice Controlling roles and I hope to find and answer to the query ´What is Controlling?´.

Historically German management accounting is portrayed as strongly influenced by the seminal academic contributions of Schmalenbach, Plaut, Gutenberg, Kilger, Riebel and Hováth. The profile of this academics authors is close to economic theory than is the case in the UK: ´Most British accountants have only a superficial awareness of economic theories and ideas´. As regards this different background, German approach that insists that it should be separate cost accounting which deals costs and benefits, explained by models named `contribution margin accounting´(Deckungsbeitragsrechnung) and ´flexible standard cost´ (FSC); from financial accounting which carries out with the role of transaction-based payments and receipt, that it is shaping by capital maintenance and tax requirements.

Focusing on FSC intended to be a practicable system... the number of relevant variable cost drivers is normally reduced to one per cost center. Therefore, cost center accounting helps the enterprise to control cost in defined reporting units and it follow that: ´Cost drivers must be measured in the cost center. Responsible reporting units must be clearly defined to monitor costs.

Stemming from the hyperinflation in the 1920s and the state planning system of the 1930s, the financial accounting rules specified by German commercial low (Hendlesgesetzbuch) have been strictly oriented towards historical cost. Whereas, Anglo-American practice have been using transaction-based cost output, that means the most significant imputed cost is an extra depreciation charge based on an estimate of the replacement cost of fixed assets, therefore a measure of real economic cost which is more useful for management decisions such as pricing.

In spite of there is a lot of overviews from this observations which seek to make a generalizations about German Accounting, it is no always clear whether the claims advanced are normative theories about what German ´best practices´ should be, or descriptive accounts of actual practice (and if the latter what is the source of the information). There may be some gulf between the academic framing of German accounting and its practical application.

Ahrens (1999) - Contrasting Involvements: A Study of Management accountants in Britain and Germany. Amsterdam, Harwood Academic Press. - identified three crucial features of the distinctiveness of German management, compared with that of the UK, in the 1990s:

1.     The emphasis of functional differentiation: in which the production function was recognized as of high specialist expertise not amenable to close interrogation by management accountants.

2.     Relatively centralized and detailed operational control: which relied upon concrete, ofther physical, and information.

3.     A conception of management that emphasized specific, specialist, technical knowledge and did not encompass the kind of abstract, generalist notions of management - particularly ´people management´-

Ahrens concluded that, Germany, management accounts were more different about intervening in operational matters, deferred more to technical specialist opinion, and saw Controlling as a task of planning and informing that was at arm´s length with management decision-making. In contrast to the privileging of management accounting´s portrayal of (financial) reality in the UK, German companies were found to prioritize operations rationales of actions.

In addition, both academic knowledge is influenced by professional organizational body, which copy even within the universities through undergraduate programmers. Conversely, what it happens in the Germany where universities seem to have been much more influential in setting the theoretical foundations for the discipline of Betriebswirtschaftslehre early in the career of those who will later become Controllers.

The German model of Controlling may be characterized by three general features:

1.       The separation of cost and management accounting from financial accounting, illustrated by the German term ‘Einkreissystem’ on cycle system describing the Anglo-Saxon general ledger system and ‘Zwekreissystem’ two cycle system denominating the German system of different ledgers for financial and cost accounting, leading to a distancing of Controllers from operations.

2.       Separation of Controlling from operations, ins present in the mission statement of the Internationaler of Controller Verein (International Controller Association). Distancing controlling function from the operational day-to-day business in the name of objectivity, and this is a way to take into account strategic issues.

3.       The role of Controllers as coordinators rather than members of management, leading to a separation between function of managing distancing Controllers from management, conversely, what happens in UK where management accountants may be seen as part of the management team. This claim is already present in the International Controller Association´s idea of the Controller as ‘pilot´and ‘ and economic awareness of the company.