The implications of the management accounting change paradox - A case study on the clashes between FAMCO and PE Inc concerning financial reporting

Abstract: This paper concerns an in-depth case study on a family-owned company (FAMCO), which was acquired by a private equity company (PE Inc) in 2011. Using paradox theory, this paper investigates how the previously noted relationship between stability and change impacted the management accounting change process following the acquisition. It is shown that PE Inc immediately set out to change FAMCO's management accounting in terms of frequency and content. Being used to base everything on experience and gut-feeling this was however how FAMCO now came to prepare the monthly financial reports. As a consequence, PE Inc did not obtain the change they had aimed for and responded by pushing harder. Not managing the tension between stability and change initiated a vicious cycle (Smith, Lewis 2011) of management accounting change. This cycle, which started out as an issue of only management accounting, ultimately impacted the performance of the entire business. Due to a significant amount of time spent on monthly financial reporting, management did not have time to manage the company. Through these findings, this paper makes two key contributions to previous research. Firstly, a new theoretical perspective is used to explain management accounting change, and it is shown that this is suitable for analysing the relation between stability and change noted by previous research. Secondly, we are able to illustrate the implications of that there is a relationship between stability and change within management accounting change. Furthermore, the study also increases the knowledge of management accounting change following an acquisition. That it assesses a private equity company, which is constrained in terms of time, thus constitutes a third contribution.