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International Journal of Accounting and Financial Management Research (IJAFMR) ISSN 2249-6882 Vol.

3, Issue 4, Oct 2013, 1-10 TJPRC Pvt. Ltd.

EVALUATION METHODS OF CONTROL AND PERFORMANCE REPORTS FOR BANKS BY USING RESPONSIBILITY ACCOUNTING (AN EMPIRICAL STUDY OF THE COMMERCIAL BANKS IN THE KINGDOM OF BAHRAIN)
TALAL-ALKAWI Associate Professor, Chair Accounting & Finance, Applied Science University, Jufair, Kingdom of Bahrain

ABSTRACT
This study aims to identifying the extent to which commercial banks in Bahrain apply the methods of control system, performance reporting with the use of accounting responsibility and how to benefit from the results. In order to achieve such aims, a questionnaire was developed and distributed to the sample of study. A descriptive statistical analysis was used in the analysis. The study concludes with some results. The most apparent is that the methods of control system and performance reporting are applied on both theoretical and practical aspects. The study recommends the necessity for all levels in the commercial bank to participate in the performance evaluation process. It also recommends using some indexes of performance evaluation and developing an incentive system that leads to performance evaluation.

KEYWORDS: Performance Evaluation, Responsibility Accounting System, Performance Reports INTRODUCTION


This study aims at verifying extent of commercial banks' commitment in Kingdom of Bahrain with control requirements and performance evaluation through responsibility accounting as well as the major role of administrative accounting to provide high management with the tolls required to evaluate performance of various sections and branches and ensuring their effective performance of their assigned works. This shall help them do their function in planning, control economic resources to save and grow the same. Economic resources, and especially the financial are considered the main guide of the commercial banks' activity. Growth of such resources is the only indicator of their success, stability, competition and survival. For this reason, Responsibility Accounting System had emerged. Performance evaluation is considered one of the main factors of control process, where actual performance of each of the activities of the commercial bank as well as the total performance is compared with specific previously set indicators to detect deviations from previously set objectives. This is in addition to determining the positions responsible for the same , reasons thereof and avoiding them in the future; in addition to judging operation capacity whether in the whole bank or in internal activities. Since profit, growth, development and keeping the commercial bank existence in the market and its social responsibility are considered the main objectives of any bank. It was a must that the bank applies an integrated system interested in performance evaluation process to ensure that it effectively accomplishes its goals. Performance evaluation is originally based on correct previously set plan and how far it depends in the scientific

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method while preparation. Evaluation can not be done without measurement tolls to reach the major objective of evaluation which is knowing what exactly happened and how far it applies to the should be status. In light of study conclusion, the searcher had recommended that commercial banks in kingdom of Bahrain must develop their control system and performance evaluation methods. Problem of Study Severe Commercial banks are different from any other institution by their investments volume and variety of their business and extended activities. Thus, there must be an effective system of responsibility accounting to avoid waste and extravagance through controlling the available resources and ensuring commitment of all employees in various positions with performance measures set by the department. Subsequently, the searcher had emphasized on the necessity to reconsider commercial banks performance evaluation to ensure that performance of their responsible positions is measured as per clear and specific measures through using responsibility accounting systems to know if organizational structures, work procedures, plans setting, control and performance evaluation are being done according to responsibility accounting aspects and how far are commercial banks committed with the applicable responsibility accounting systems. 1. Is there a clear specification of responsibility positions in the structural structures in commercial banks in kingdom of Bahrain? 2. 3. Are planning budgets prepared in responsibility positions in commercial banks in Kingdom of Bahrain? Are actual information over responsibility positions are compared to the estimated data to evaluate performance of responsibility positions in commercial banks in Kingdom of Bahrain? Search Assumptions Study assumptions are formed based on responsibility accounting aspects and the following questions stated in study problems: There is a clear specification of responsibility positions in organizational structures in commercial banks in Kingdom of Bahrain. Planning budgets are prepared in responsibility positions in commercial banks in Kingdom of Bahrain. Actual data over responsibility positions are compared to estimated data to evaluate performance of responsibility position in commercial banks in kingdom of Bahrain. Control methods and performance reports differ according to different managerial levels in commercial banks in Kingdom of Bahrain. There is an effective incentive system which participates in enhancing responsibility accounting system in commercial banks in Kingdom of Bahrain The Study Importance Continuous development of management functions affects accounting. To cope with such development, accounting interested persons focus on developing its ways, methods and aspects to be constituent with management continuous need for information. The accountant must develop himself to link performance responsibility to individuals, not only being satisfied with business results and financial position, so that accounting exceeds measurement boundaries and addresses project business results and financial position to make management participate in individuals performance tackling and investigating their commitment with the plans set concerning their performance in specific periods. Hence,

Evaluation Methods of Control and Performance Reports for Banks by Using Responsibility Accounting (An Empirical Study of the Commercial Banks in the Kingdom of Bahrain)

study importance is clear which is connected to control methods evaluation and commercial banks performance reports using responsibility accounting system through explaining control concept and performance evaluation as well as explaining the concept of responsibility accounting system. The Study Objective Showing the role of responsibility accounting system at commercial banks and knowing how far applicable aspects are available therein. Determining challenges of responsibility accounting system application in commercial banks regarding the clear determination of responsibility positions and preparation of planning budgets in such positions, effective comparison methods to evaluate performance thereof.Providing recommendations and suggestions capable of activating responsibility accounting system role in evaluating commercial banks' performance. Study Community and Sample Study community consists of all commercial banks in Kingdom of Bahrain. 25 inquires had been circulated; 23 thereof were returned and 20 were approved valid in analysis process. Consequently, returned approved inquires represents 80% of sample volume. Control Concept and Performance Evaluation Need for control emerges due to variety of managerial levels in projects, so that it is difficult for one person to perform all the project's activities and control the same however simple they are. Control is the revision of others' works and actions to ensure their conformity with the set plans and the current or targeted performance measures. Planning is considered the base of control, from which proper measures are derived to ensure valid execution of the plans as per the set method. Hence, there is no control without planning even if such planning is not in the correct and written form (Sheikh Salim and others, 1983, P. 260) In coherence with the above, control is defines as "collection of procedures and rules which aim at ensuring that final results are constituent with the previously set objectives" (Qasim Abdul Raziq Mohamed 2003, page 19). Control is based on performance evaluation of the works assigned to the employees in responsibility position and clearing deviations and correcting them. Deviations clearing and correction in the proper time can be achieved through comparing actual and planned performance at the end of the costing period to ensure that such plans had been executed and economic unit objects were accomplished. Control Steps can be Summarized as Follows Determining the required objectives during specific period. Determining performance measures or setting control measures. Measuring achieved performance and comparing the same with the set measures. Correcting deviations resulted from the comparison of actual and planned perfrmance. (Sharish Mostafa Najib, 1993, P. 685-686) Control is done through studying past mistakes and preventing them in the future, if possible. It also includes the continuous effective planning and executive activities in accordance to expected changes or conditions in the future.

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Control methods include methods which can be applied to show the need for positive work and alternative available methods, and to choose the best to accomplish the required work on time. Control methods are divided into the following: Control through planning and taking decisions Control through scheduling , directing and supervision Control through following up using performance reports Control through objectives (Marrai Abdul Hai, 1993, P.427) The previous methods aim at control through various ways. Planning serves control purposes to compare different alternatives and this shall result in best using of the available resources. Control through schedule, directing an supervision depends on setting timetables and detailed technical schedules to perform various tasks and ensure that (financial, material and human) resources are available on due time and proper quantities. However, control through using performance reports are considered the most important method of modern administration, since it pursues actual performance deviation from the previously planned form, while objective guided control attempts to generate proper responses on executive management level so that general goals of the economic unit are accomplished. Control commences under responsibility accounting system in the lower level of the organizational structure of the economic unit, and the managerial levels rise to the highest. Besides, number of costs and revenues' aspects increase while managerial level rises. This reflects the ascending form of control in responsibility accounting system. Responsibility of the general manager includes all costs and revenues' aspects and all responsibility positions' activities. Question scope increases by the raising of responsibility position in the organizational structure. (Nour Ahmed 1993, P. 123) Internal auditing is considered one of Accounting Information Technology aspects. It aims at keeping the bases of the economic unit as well as ensuring the accuracy, integration and consistency of the accounting data as well as abiding by the managerial polices and efficient economic exploration of the resources (Qasim Abdul Raziq Mohamed, 2003, P.162) Moreover, operational auditing aims at evaluating efficiency (comparing outcomes to inputs) and effectiveness (comparing the accomplished objective to the previously planned objectives) of the operational processes of an economic unit or any section or activity thereof. Managerial auditing is interested in the way works related to various managerial responsibilities are done, which is represented in how responsibility positions holders use all the available abilities such as human and material resources effectively and sufficiently, and financial processes are correctly performed. (Dahmsh Naem Hosni 1985, P. 203 267) In practical environment, there is no specific form through which operational auditing of the economic unit is done. However, such auditing shall have the following functions: Planning work execution through using auditing evaluation measures. collecting evidences to measure the actual performance Analyzing and detecting actual performance deviation from the previously set measures., Determining the proper procedures regarding the deviated point. Referring report on the results to the proper managerial authority (TAYLOR D.H. GLEEN W.G., 1997, P 713) The searcher believes that the possibility to evaluate performance of departments' and sections' managers by applying managerial auditing help the management assess responsibility positions inside the economic unit so that level of percentage importance being audited in the whole facility is divided on sections and responsibility positions, and this decreases it to the lowest possible level. Responsibility accounting based auditing participates in determining the relevant

Evaluation Methods of Control and Performance Reports for Banks by Using Responsibility Accounting (An Empirical Study of the Commercial Banks in the Kingdom of Bahrain)

importance of each position and which number is important in each section to be checked. Besides, auditing help reconsider division of such importance subject to work new conditions. Control methods accomplish two objectives; the first is measuring actual performance and the second is increasing the efficiency of future performance. Responsibility accounting system plays a major role in performance evaluation domain of all managerial organization levels in the economic unit through responsibility positions in order to control implementation and increasing performance efficiency. Performance evaluation through responsibility accounting system, after the clear determination of authority and responsibility, is considered very important for each responsibility position because it is related to behavior, organization, and planning. Responsibility position evaluation differs according to the activities being exercised in each position. To accomplish responsibility accounting objectives in performance evaluation, the following steps should be taken: Determining economic unit objectives and positions since they are the reasons for establishing this unit and its various potions. Economic unit objectives differ according to their work nature. Generally, economic unit's objectives must answer the following questions: 1. 2. 3. 4. 5. 6. What is the economic objective of the economic unit? What are the products and services provided to the economic unit? What are the markets served by the economic unit? What is the desired percentage from the market? What is the targeted profit percentage? What is required growth rate in sales, profits, assets and equity? DRURY C., 1992, P 436(

Responsibility Accounting System Though responsibility accounting is not a new concept, yet it is one of the relatively modern ways of accounting thought. As for the origin of responsibility accounting concept in accounting though, it goes back, as seen by Kahala, to miscellaneous writings about responsibility accounting in the forties. American HIGGINS' essay entitled "Responsibility accounting" is considered the first scientific essay on responsibility accounting, where HIGGINS had cleared that responsibility accounting is not a change of the accounting theory or principles thereof , rather it is a tool to control costs based on "who did that" rule. (Kahala, Gabriel Joseph and others, 200, P 314) Accounting individuals for their deeds had emerged since man origin. Along with life development and complexity of its work and the emergence of economic communities, and the technical and scientific advancement as well as the geographical distance, there had been a problem in management and difficulty in taking decisions which serve the economic units in proper time and place and with the speed required to meet the economic unit objectives. This had led to the emergence of non-central management whereby some individuals in various managerial levels are authorized to take the decisions related to their sections. Subsequently, the economic units are divided into different administrative units which need control systems to monitor and evaluate their managers' performance and accounting them and ensuring valid exercise of their authorities.

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Based on the above, it is clear that the traditional concept of control is interested in monitoring material aspect. However, the correct logic implies controlling the cause not the result, because the main cause of achieving or not achieving the goal of the material aspect is the human aspect. Thus, the new concept of control had emerged as it means "controlling persons as long as it is related to measuring their performance as per the planning rates". The human aspect is capable of determining the reason for the deviation and giving sufficient for the same. (Nagrn Charles Hor, 2003, P. 322) In fact, responsibility accounting is the development of costs accounting in regard of determining responsibility for uses, so that it expands to include and cover responsibility for all recourses. It aims at monitoring execution through determining the responsibility of economic unit employees for the actual performance and the negative or positive results thereof. This shall automatically impact the efficiency of any economic unit staff as well as the whole unit. Prediction Analysis Below are the results related to the general information concerning study sample. Table 1 shows the personal information of study sample. Table 1: Personal Information Below 30 30-50 Above 50 Below 10 10-25 More than 25 Accounting Business administration Finance and banks Economy General administration Doctorate Master Bachelor Diploma Less than diploma Section head Manager Other Frequency 6 10 4 0 7 8 11 0 0 0 1 0 10 0 0 7 8 Percentage %03 %03 %03 %00 %00 %03 %00 %03 %13 %13 %0 %13 %70 %10 %00 %00 %03

Age Experience years

Specialization

Qualification

Position

Prediction Analysis The table shows the effect of the clear determination of responsibility positions on the organizational structures in the commercial banks in Kingdom of Bahrain. The accounting average and percentage of answers are from 4.15 to 4.55. it is considered an excellent percentage according to the study approved measure. All answers of variable questions had the same impact level, with "AGREE" (above 3-4) with the percentage of (above 60%-80%) Based on the above, the first assumption was achieved (there is clear determination of responsibility positions on the organizational structures in the commercial banks in Kingdom of Bahrain)

Evaluation Methods of Control and Performance Reports for Banks by Using Responsibility Accounting (An Empirical Study of the Commercial Banks in the Kingdom of Bahrain)

Table 2
Accounting Average and Percentage Not Sure Totally Agree Totally Not Agree Frequ ency 1 %0 Frequ ency Perce ntage % %0 Perce ntage % Totally not agree Perce ntage % %0 Agree Not Agree Frequ ency -1 1 1 %0 %0 1 %0 %13 %0 %0 %13 %10 %13 %10 %0 %0 %0 %0 %10 Frequ ency Perce ntage % Not agree Not sure Perce ntage %

Measurable Deviation

Variable

Frequ ency

Frequ ency

Frequ ency 1 0 1 1 0 0 0 0 1 1 1 1 0

Perce ntage

Perce ntage %

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Total Variable Questions

0500 %11 050 %80 050 %88 0500 %87 0500 %80 0500 %80 0500 %87 050 %80 0510 %80 4.3 86%

35013 35101 35683 35087 35003 35601 35700 35800 35671 0.685

11 8 13 8 6 7 13 8 6

%00 %03 %03 %03 %03 %00 %03 %03 %03

1 13 8 11 10 11 7 1 11

%00 %03 %03 %00 %60 %00 %00 %00 %00

Prediction Analysis The above table shows the effect of the preparing planning budgets of responsibility positions in the commercial banks in Kingdom of Bahrain. The accounting average and percentage of answers are from 4.2 to 4.5. It is considered an excellent percentage according to the study approved measure. All answers of variable questions had the same impact level, with "TOTALLY AGREE" (above 4) with the percentage of (above 80%-100%) except for questions 5 and 6 where the level impact was "AGREE". Based on the above, the second assumption was achieved (Planning budgets are prepared in the commercial banks in Kingdom of Bahrain) Table 3
Totally agree Accounting average and percentage Measurable deviation Agree

Variable

Frequ ency

Frequ ency

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Total Variable Questions

0570 %10 056 %10 050 %13 056 %10 050 %88 0500 %11 0500 %81 050 %86 0500 1350 %

35003 35018 35637 35018 35700 35013 35630 35831 35608

16 10 11 10 11 11 13 1

%83 %60 %00 %60 %00 %00 %03 %00

0 6 8 6 6 1 1 1

%10 %03 %03 %03 %03 %00 %00 %00

Frequ ency

Perce ntage

Perce ntage %

Perce ntage %

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Prediction Analysis The table shows the effect of different control methods and performance reports due to the difference of administrative levels in the commercial banks in Kingdom of Bahrain. The accounting average and percentage of answers are from 3.95 to 4.45. It is considered an excellent percentage according to the study approved measure. All answers of variable questions had the same impact level, with "AGREE" (above 3-4) with the percentage of (above 60%-80%) Based on the above, the first assumption was achieved (control methods and performance reports differ due to the difference of administrative levels in the commercial banks in Kingdom of Bahrain). Table 4
Not sure Totally agree Accounting Average and Percentage Measurable Deviation Totally not agree Frequ ency Perce ntage % Agree Not agree Frequ ency Perce ntage % %13 %13 %0 %10 %13 %13 %0 %13 %13 Perce ntage %

Variable

Frequ ency

Frequ ency

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q 10 Q 11 Total Variable Questions

0510 %80 0530 %81 0530 %81 0 %83 050 %86 0500 %80 050 %86 050 %80 050 %88 0500 %87 050 %86 0501 %8050

35778 35013 35010 35060 35607 35601 35071 35616 35030 35081 35607 35083

0 0 0 0 8 7 7 6 8 7 8

%00 %10 %13 %10 %03 %00 %00 %03 %03 %00 %03

10 10 17 10 13 11 10 10 10 10 13

%60 %70 %80 %73 %03 %00 %63 %63 %63 %60 %03

CONCLUSIONS
Based on the study of employees' answers to the inquiry and after analyzing the study entries and testing assumptions, the searcher had reached the following conclusions: There is a clear determination of responsibility positions in the organizational structures of banks. However, coordination between centers is absent, which causes confusion in applying responsibility accounting system. The reasons for that may be the lack of understanding accounting concepts, which support responsibility accounting concept. There are planning budgets regardless of measurable costs while preparation. Most of study sample members had confirmed that there is no integrated system of incentives on responsibility positions level though they are convinced of its importance in increasing employee's productivity. Most of study sample members had confirmed that there are periodic reports prepared by the positions, yet they depend on comparisons and lack some clarification.

Frequ ency 0 0 1 0 0 0 1 0 0

Perce ntage

Perce ntage %

Evaluation Methods of Control and Performance Reports for Banks by Using Responsibility Accounting (An Empirical Study of the Commercial Banks in the Kingdom of Bahrain)

Recommendations Clarifying the relation among responsibility positions and continuous coordination to raise work level provided by each position, which help apply responsibility accounts bases. Focusing on training programs to prepare and write reports to the managers of these positions and their employees to manifest its sequence and format and how they depend on comparisons. It is necessary to approve comparison as a base of performance evaluation in responsibility positions in commercial banks. It is important to approve fair incentive system which cares for the human aspect, and this shall help apply of responsibility accounting system in responsibility positions and enhance the loyalty of employees to the bank; resulting in efficiency raise and consequently positively affect its performance.

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