**Vasilii Erokhin 1,\*, Dmitry Endovitsky 2, Alexey Bobryshev 3, Natalia Kulagina <sup>4</sup> and Anna Ivolga <sup>5</sup>**


Received: 29 April 2019; Accepted: 1 June 2019; Published: 4 June 2019

**Abstract:** The volatility of both global and national markets has emerged in recent years. In response to the changes in the operating environment, organizations have been adopting various practices to ensure sustainable development by anticipating threats and managing risks. While many studies are focusing on the investigation of strategic adaptation to the volatile economic environment, there has been little research examining management accounting (MA) as a sustainable development strategy in times of economic turbulence. This study investigates the degree of variation in the use of MA practices induced by economic recession. Investigating the variations in management accounting practices in Russian organizations in 2000–2013 (pre-recession period) and 2014–2018 (economic recession), the authors explore the change across 54 MA tools split into operation, management, and strategy pillars. The contribution of this study to the literature involves the understanding of the use of particular MA tools across various types of organizations and industries before and during the economic recession, as well as discovering the intention to change the instruments in case the economic situation deteriorates. The survey of four types of organizations (micro, small, medium, and large) in five sectors (service, industry, trade, agriculture, and tourism) was conducted in seven territories of Russia differentiated on the level of their economic performance (well-performing, average, and declining). The survey revealed that, during the crisis, the respondents tend to drop using many of proactive sustainability-oriented MA tools and instead focused on achieving immediate and direct effects on sales, profits, and other performance parameters by employing less-sophisticated short-term MA instruments. The forecast of future application of MA tools in a falling economy revealed that, in an attempt to achieve durable and sustainable performance, the organizations of all types and sectors intended to focus on practices such as risk management variance analysis, rolling forecasts, payback, breakeven analysis, and activity-based management.

**Keywords:** economic crisis; management accounting; management decision making; recession; survey; sustainable economic development

#### **1. Introduction**

In recent decades, the global economic environment has become increasingly volatile. Instability affects all countries, all sectors, and all types of businesses [1]. In such conditions, the ability of an organization to anticipate and respond to external fluctuations is critical for its survival [2]. So far, the majority of the existing studies have focused on the investigation of how volatility-induced economic slowdowns and recessions might be responded to using strategy-related instruments, i.e., strategic planning, mapping, and management. In depressed macroeconomic conditions, firms encounter a stronger pressure to operate in a sustainable way and become increasingly transparent about sustainability-related management accounting (MA) practices they implement [3]. External pressures induce internal fluctuations, both of which are important factors of sustainability integration within corporate strategy amid economic decline. George et al. [4] found such amalgamation of external influences and internal responses as one of the enablers of change in MA practices. External pressures are prevalent in shaping management decision-making in relation to accounting, reporting, and control, while integration of sustainability-related accounting tools into performance management systems leads to better management and control of sustainability performance in business [4].

Accounting techniques, nevertheless, have received less attention as these are considered less related to any organizational changes and reporting on sustainability performance. However, the development of existing management accounting techniques along with the emergence of new MA tools have enabled the organizations with a possibility to focus on not only financial information but also non-financial issues and thus to provide a strategic scope to sustainability management decisions. Specifically, sustainability management accounting (SMA) and sustainability reporting (SR) have integrated performance measurement accounting tools which communicate the information about how a firm acts to improve its economic effectiveness and efficiency. Transforming the economic environment imposes the need for adaptation of MA practices to respond to the changing conditions of the markets, the behavior of competitors and consumers, economic policies of the government, and other factors [5]. The effectiveness of management decisions is increasingly determined by the ability of a firm to generate qualitative information about the actions it has taken, results achieved in terms of economic and social sustainability, and the need to improve internal business processes [6]. In a volatile economic environment, firms increasingly rely on SMA and SR as comprehensive processes of the collection, analysis, and communication of sustainability-related information [7].

Although the research in the field of SMA and SR has been on the agenda for several decades already, the empirical evidence has been mainly based on case studies [8,9] most of which captured MA practices in developed countries. Few of them have analyzed the adoption of MA tools in more vulnerable economic environments in developing countries and even fewer have ever addressed the practices of management accounting in Russia. In the beginning of the 1990s, Russia started reforming its accounting and reporting system to converge it with the International Financial Reporting Standards (IFRS). The adoption of the IFRS has led to a significant revision of accounting methodology [10] and resulted in financial performance of the Russian companies [11] during the 2000s. In 2014, the Russian economy was hit by sanctions and rapidly falling oil prices. These shocks led to a significant balance of payment pressures with a surge in capital outflows and depreciating exchange rate [12]. Since that time, Russia has been experiencing economic decline further dampened by the intensification of geopolitical tensions. Very few studies, however, have investigated the effects of economic volatilities on the changes in the application of MA practices in the Russian organizations after 2014. Due to the fact that, in the course of over two decades of the reform, Russia has not fully adjusted its national accounting and reporting system to the IFRS, the findings of international studies cannot be fully employed to reflect and explain de facto reactions of Russian companies on the change of economic situation in the country. The limitations in the application of the IFRS in Russia are related to the national peculiarities of application of professional judgment and the specific approach to the interpretation of economic events [11]. Technically, in many companies, financial statements are still drawn up in accordance with the Russian system of accounting which in turn is being transformed to the IFRS framework

"with due account for the specific circumstances and the analysis of encountered problems" [13]. Beyond the technical aspects of management accounting, engaging with sustainability accounting in Russia poses a challenge of understanding how the application of particular MA tools can contribute to improving performance of a firm and ensuring its resistance to the volatilities of the external economic environment.

The purpose of this study is to contribute to the understanding of the MA change induced by economic recession and the way in which it can lead to the changes in sustainability performance of the firms. The paper is structured as follows. In Section 2, the authors overview major studies related to the topic of the paper and develop a narrative around the relationships between economic recession, sustainability, and the ways in which the firms can respond to external volatilities of economic environment by using various MA tools. The approach adopted in investigating the above research questions is presented in Section 3. In Section 4, this study involves the survey of the four types of organizations in various industries in Russia about the use of MA tools in the pre-recession period of 2000–2013, the change in 2014–2018 as a response to economic decline, and the intentions to adopt MA practices in case the economic situation deteriorates. In Section 5, the authors' findings are discussed in relation to the prior literature along the three pillars of management accounting, economic volatility, and sustainable development. In Section 6, the authors summarize all findings, implications, and contributions, as well as refer to the limitations of the study and point out future research directions.

#### **2. Literature Review**

A review of the prior literature allows two streams of accounting–sustainability-narrative to be revealed. On the one hand, the contribution of MA to sustainable development has been questioned from a point of view of the critical social accounting perspective, particularly, by Gray [14] and Zvezdov [9]. On the other hand, in some sources, specifically, in the works of Burritt and Schaltegger [15], Siti-Nabiha and Scapens [16], and Schaltegger and Burritt [17], a management approach to accounting supports sustainability management, while SMA and SR are recognized among the contributors to measuring and managing sustainability performance.

A number of studies have established a theoretical background for the idea that management accounting tools can serve an active role in improving sustainability performance, supporting managerial decisions, and shaping organizational changes [18–20]. Celik [21] observed that companies could ensure sustainability by employing proper accounting practices prior to and pursuant to the economic crisis. Many other studies have been devoted to solving general theoretical, methodologic, and methodological aspects of management accounting as one of the tools of sustainable performance [22–27], particularly, the model of management accounting based on the ideas of organizational control and efficiency [28]; various aspects of setting the system of budgeting in an enterprise [2,29,30]; the concept of the balanced scorecard [31–34]; the role of communication in the decision-making system based on management accounting [35]; the role of management accounting in the development of performance evaluation systems [36]; issues of genesis and prospects for further development of management accounting [37–42].

Many of the previous studies have examined the factors influencing SMA and SR. Adams and McNicholas [43] studied SR in relation to accountability and organizational change and identified the impediments to the development of SR framework and its integration into planning and decision making. Gond et al. [44] developed a research framework that delineated a set of possible relationships between sustainability issues, management accounting, reporting, control, and organizational strategy, while Caputo et al. [45] investigated how traditional and new MA tools and management control systems may be integrated into different sustainability strategies and thus affect organizational changes. George et al. [4] studied the role of accounting technologies, specifically performance management and reporting systems, in supporting sustainability integration into strategic operations across various types of organizations and recognized management accounting as one of the effective

sustainability embedding mechanisms. It is worth mentioning the works devoted to the problems of transformational processes of accounting and analytical support for the management of economic entities [46–53]. The formation of the concept of the enterprise business model under the influence of macroeconomic factors was completed by Magretta [54]; the description of inflation accounting methods was performed by Davis-Friday and Rivera [55], Konchitchki [56] and Robson [57]; trajectories of management accounting development were investigated by Luft and Shields [58]; the transformation of managers information needs was studied by Anderson and Lanen [59]; new planning and control mechanisms in managerial accounting were investigated by Chenhall and Langfield-Smith [36].

While previous studies have discussed the role of management accounting and performance management systems in supporting sustainability, few of them have captured the organizational responses to economic recessions. Much of the literature in the area of accounting–sustainability relationships has examined the factors of and motivations for SMA without proper reference to the internal organizational context, notwithstanding that a volatile economic environment imposes a significant effect on the performance of the firms at not only macro but also micro levels [43,60]. Economic, financial, and, particularly, accounting footprints of sustainability are unclearly expressed and thus rarely used [61], which calls for the need to adapt management methods to unstable conditions and, accordingly, requires the development of new, more effective methods for generating information and making proper managerial decisions in the times of economic transformation. In the beginning of the 2000s, Adams [62], Larrinaga-Gonzalez et al. [63], and O'Dwyer [64,65] were among the first to study the internal accounting and reporting processes through the lenses of their impact on organizational change. In continuation of their studies, Mat et al. [66] assessed the level of employment of various MA practices in response to the changing business environment, including rapid developments in information and communication technology, development of computer-based production systems, and integration of smaller firms into larger ones. Van der Stede [67] offered reflections on opportunities and challenges for management accounting research in the wake of the financial crisis and discussed a continuing need to study incentives, risk management, and budgeting.

In Russia, despite the extreme volatilities of the economic environment during the 1990s and adverse effects of the economic crisis of 2008–2009 on business, few studies have addressed accounting practices through a prism of sustainable development. A description of separate methodical approaches to management accounting in the conditions of the economic crisis may be found in Bobryshev et al. [68], Truhachev et al. [69], and Yakubiv [70]. On the back of recession in Russia, sustainability-related MA research has been attracting increasing scholarly attention, but its focus is on the macro level, whereas a limited attention has been paid to the role of MA instruments in supporting sustainability within organizations at the micro level. Litvin et al. [71] examined the problem of the differentiation of territories at the macro level under the influence of crisis factors. Elchaninova et al. [72] and Gerasimov et al. [73] studied the ways of balanced development of socio-economic systems in the context of crisis processes in the Russian economy. Despite the emerging consideration of MA effects on sustainable operation of a firm in the conditions of economic crisis, there are questions that still remain unanswered. First, which particular effects economic recession imposes on the application of MA tools. Second, how exactly MA practices may contribute to the improvement of economic sustainability of a firm in the volatile environment. Third, in Russia, less is understood of the de-facto MA practices within organizations and how they are transforming over the period of economic decline.

Another problem in understanding the true relationship between accounting practices and sustainability is endogeneity of influencing factors. Managerial decisions are typically determined by a set of external and internal factors, the causality of which increases when exposed to the volatilities of the external economic environment. Different choices in organizational behavior are linked to one another, but change in various manners in response to the environmental changes [74]. So far, there have been many studies addressing the endogeneity problem in relation to management accounting. Chenhall and Moers [75] provided an overview and discussion of endogeneity as well as possible solutions to the problem. Li [76] attempted to summarize econometric methods that are commonly used to address

endogeneity concerns and illustrated how generalized method of moments, instrumental variables, fixed effects models, lagged independent variables, and control variables could be used to mitigate the endogeneity problem. Coles et al. [77] addressed the endogeneity concerns through the lens of firm performance and external uncertainties and their influence on industry pay gap. Abdallah et al. [78] presented the case studies and provided the insights into how endogeneity may be controlled in empirical analysis. To the best of the authors' knowledge, none of the previous studies have addressed the endogeneity problem in relation to management accounting in Russia.

#### **3. Materials and Methods**

Previous studies have equipped organizations with a range of tools to measure their performance and decide on strategic directions of development in various economic conditions. To reveal an extent to which business has settled on the currently available set of tools or is searching for alternative solutions to ensure sustainability in the times of economic decline, the authors utilized a six-question survey consisting of two parts.

In part one (questions 1–3), at the beginning of the survey, a question was asked whether or not the respondent represented a company located in one of the regions included in the study. To reflect the complexity of economic recession effects, seven territories of Russia were included in the survey: well-performing—those >10% above the national average rate of growth (Moscow city and Krasnodar region), average—within ±10% corridor around the national average rate of growth (Kaluga and Kaliningrad), and declining—those >10% below the national average rate of growth (Stavropol, Arkhangelsk, and Khabarovsk regions).

In question 2, the respondents were asked if the company operated in one of the sectors included in the survey. According to Coles et al. [77], in different sectors, industry performance risk influences firm performance risk and sustainability in various extents. Through financial policy, increasing risk can generate uncertain performance. The higher the volatility in the market, the more uncertainty there is about winning the competition. Better growth opportunities in a particular sector result in higher performance and stability but lead to an increase in the expected value of performance gap between sectors. To provide cross-sectoral comparisons of the recession-induced changes in application of MA tools, the study included service sector (professional, financial, and other types of services) (particularly developed in Moscow city), industry sector (Kaluga, Arkhangelsk, and Khabarovsk regions), retail and trade (Moscow city and Kaliningrad region), agricultural production (Stavropol, Krasnodar, and Khabarovsk regions), and hospitality and tourism (Stavropol and Krasnodar regions).

Qualifying questions 1 and 2 were intended to ensure that a respondent was aligned with the proposed sample group. The questionnaires received from the territories or sectors not included in the survey were removed from the sample. To send the questionnaires and collect responses from the respondents, the authors used the SurveyMonkey platform. The invitations to complete the survey (information about the purpose of the study, description of the content, and a link to the SurveyMonkey page) were emailed to 358 potential respondents—accounting specialists, operational managers, and senior managers of the private companies located in the selected territories and operating in the selected sectors. Contact details of the companies and responsible employees were obtained from the Catalogue of Russian Enterprises [79]. Its interface allows the use of filters and selection of organizations across various sectors in all territories of Russia. Of the completed questionnaires, 166 were received, 153 of which were qualified for the study.

In question 3, the respondents were asked about the size of the company. The coefficients of firm size measures are robust in sign and statistical significance, that is why we considered size as the key variable which affects all the variables included in our study. Frank and Goyal [80], Rajan and Zingales [81], and Moeller et al. [82] all reported that firm size affected the empirical results in the sphere of corporate finance. As demonstrated by Dang et al. [83], the most popular firm size proxies used in empirical studies are total assets, total sales, and market value of equity. In Russia, however, all the three parameters relate to the commercially sensitive information. Therefore, we did not

expect the respondents to disclose the commercial data in the questionnaires and instead used the number of employees suggested by Dang et al. [83] and Hart and Oulton [84] as an alternative firm size measure when the main measures were not available or irrelevant. The cut-off for the classification was based on the Federal Law of the Russian Federation "On the Development of Small and Medium-Sized Entrepreneurship in the Russian Federation" [85]. Out of 153 qualified, there were 21 micro organizations (below 15 employees), 67 small-sized firms (15–100 employees), 36 medium-sized companies (101–250 employees), and 29 large enterprises (over 251 employees).

In part 2 (questions 4–6), it was suggested that the respondents select the MA tools commonly utilized in their companies in the pre-recession period of 2010–2013 (question 4) and the period of economic recession in 2014–2018 (question 5). Lastly, in question 6, the respondents were asked which MA tools their companies would continue using (or the new ones they would adopt) to improve sustainability as the economic situation deteriorated. The MA tools were split into three pillars and ten categories (Table 1), it was suggested that the respondents select up to three tools per category.


**Table 1.** Management accounting tools included in the survey.


**Table 1.** *Cont*.

Source: authors' development.

The selection of the MA tools and their distribution along the pillars and categories was based on the recommendations of the Chartered Institute of Management Accountants (CIMA) [86]. Operation pillar included the tasks demanded by the organization, specifically, costing of activities, pricing of products, analysis of profitability of revenue-generating activities, and allocation of available assets by means of budgeting and investment. The management pillar was concerned with how economic performance was measured and which tools were applied to manage it in the conditions of economic recession. The reactions of the respondents to the economic environment were then mediated by strategy pillar tools in two directions: first, reporting to senior management, stakeholders, and a wide audience, and, second, affecting strategic decision making.

The application of the survey method revealed the patterns and features of the transformation of management accounting in Russia under the influence of the economic downturn. It also allowed establishing new approaches to management accounting in response to the deteriorating economic environment, as well as discovering explicit and hidden factors that promoted and hindered the development of management accounting in a country which experienced an economic recession.
