The management accounting implications of trust

Woodward, David and Tan, Sulina Su Leen (2004) The management accounting implications of trust. 27th Annual Congress of the European Accounting Association, Prague, The Czech Republic. 31 Mar - 02 Apr 2004.

Abstract

The paper initially engages in a discussion of the different concepts of trust promulgated over the years via a review of the literature.
Trust is then discussed in the context of three management accounting situations, viz. the typical transfer pricing situation; the (equally) typical budget setting process; and the rather more specific situation of the accounting information system (here utilising the concept of action at a distance) employed within a particular construction company. So whilst two of the management accounting applications examined are from a theoretical perspective, the third is empirically based (if only because there is a dearth of theoretical literature available in the relevant domain).
The ‘angle’ from which trust is viewed differs somewhat in the three situations discussed. Thus in the case of both transfer pricing and budgeting, the focus is largely upon the extent to which the identified activities are enabled or enhanced by their taking place within a context of trust. The major difference between the two situations described is that, in the case of transfer pricing, the trust that is required for a satisfactory outcome is likely to exist between individuals of more or less equal rank. In the case of budgeting, however, the situation likely to be encountered is more of a principal:agent variety, where the superior will, concomitant with their seniority, have more power than the subordinate (even though the latter might well be better informed than the former).
These two examples are both of a general nature, but when the paper moves on to discuss the case of an accounting information system used within a construction company to inform headquarters regarding geographically remote activities, it becomes far more specific, identifying as it does the implications of the breakdown in trust that then occurred.
The three instances investigated suggest that trust is an important ingredient in a variety of management accounting applications. The exploration presented is therefore suggested as providing the foundation for a programme of research to examine the role of trust in various ‘negotiation’ and principal:agent contexts. So the paper ultimately suggests a research programme that explicitly considers trust in the study of a variety of management accounting situations.

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