Separation – integration – and now …? A historical perspective on the relationship between German management accounting and financial accounting

Abstract

German accounting has traditionally followed a dual ledger approach with strictly separated internal cost accounting, as the basis for management information, and external financial accounting focusing on creditor protection and based on the commercial law. However, the increased adoption of integrated accounting systems implies a significant change in the relationship between financial and management accounting systems. We use Hegelian dialectic to trace the historical development of German accounting from separated systems and antithetical propositions of full integration, to the emergence of partial integration as the synthesis of this transformation process. The foundation of our paper is a comprehensive analysis of the literature on the relationship between financial and management accounting in Germany. On this basis, we elaborate how financial accounting in Germany has been shaped by its economic context and legislation, and how financial accounting – accompanied by institutional pressures – in turn influenced management accounting. We argue that the changing relationship between management and financial accounting in the German context illustrates how current accounting practice is shaped not only by its environment, but also by its historical path. Based on this reasoning, we discuss several avenues for future research.

Management accounting developments in German-speaking countries: an overview and editorial reflections

“…Most likely, the most obvious and decisive characteristic of Germanic accounting is the strict separation between financial and management accounting, the dual-ledger approach. According to Brandau et al (2017), the dual-ledger approach was developed against the backdrop of the specific situation in German-speaking countries in the late 19th century, where bank loans formed the major source of financing and state legislation focused on protecting creditors through "prudent" rules for asset valuation and liabilities recognition (Brandau et al, 2017, p. 70). Additionally, as Ordelheide and Pfaff (1994) showed, factors such as codetermination and labour market and taxation characteristics contributed to the specific form of financial reporting in the German-speaking tradition.…”

“…Management accounting in German-speaking countries has followed a specific historical trajectory, which concerns, among other things, the specific separation of financial and cost accounting (Schmalenbach, 1919;Brandau et al, 2017), the specific ways costing has developed in the Germanic tradition (Küpper and Mattessich, 2005;Christensen and Wagenhofer, 1997), the specific understanding of the role of management accounting information in business practice (Ahrens, 1996(Ahrens, , 1997White, 2019), the low level of the formal professionalisation of the management accounting profession (Ahrens and Chapman, 2000;Heinzelmann, 2016) and idiosyncratic cultural aspects (Hofstede, 1981;Bhimani, 1999;Ahrens and Chapman, 2000). In parallel, management accounting research in German-speaking countries has developed along an idiosyncratic trajectory but seems to be becoming increasingly aligned with "international" traditions (Wagenhofer, 2006;Messner et al, 2008).…”

Introducing ERP System as a Condition of Information Security and Accounting System Transformation

“…A range of business accounting researchers state that the German accounting logics is quite specific, distinct and differs from its Anglo-Saxon colleague in the usage of the distinct system with two books. The system of two accounts is considered as an identification feature of German accounting researches and practices [31] [32] in addition to the tools and methods used for expenses and management accounts [33] [34] [35] [36]. The above-mentioned features of the German business accounting logics are realized in the basic model of the SAP ERP system configuration.…”

“Forging accounting principles” in France, Germany, Japan, and China: A comparative review

“…While Eierle's (2005) objective was to analyze the evolution of differential reporting requirements for different kinds of firms, she gives an overview of major legal reforms in the process and seems to have been cited much for this particular aspect. More recent overview studies include Ballwieser (2010), Brandau et al (2017), Fülbier and Klein (2015), and Hoffmann and Detzen (2013). These studies form the basis of the following overview, which is split into three episodes on the emergence of the regulatory framework of accounting, the German Commercial Code and accounting principles, and the impact of European harmonization efforts.…”

“… 11. Similar to Levant and Nikitin (2012) for France (see prior sub-section), Brandau et al (2017) examined the separation and integration of the financial and management accounting systems, arguing that the recent reforms, along with the changing corporate reporting environment, suggest a partial re-integration of the two systems. …”