Role of Management Accounting and Blockchain in Moving Businesses to the Revolutionary Circular Economy Model

Published: 2023/07/04 Number of words: 2713

Table of Contents

  1. Introduction.
  2. The concept of Management Accounting.
  3. Changing role of Management Accounting.
  4. Renewed interest in circular economy.
  5. Advent of blockchain.
  6. Use of blockchain in finance.
  7. Conclusion.
  8. Bibliography.


Economic growth and development are an aspiration/ambition for almost every individual, organisation, industry and nation (Nadeem et al. 2018). Scholars have highlighted that the current economic system has developed with no concern for the environment or little interest in recycling (Su et al. 2013). The last six decades have especially seen resource depletion at its highest, and unless we act proactively, our remaining days are simply a race for the resources that remain. Although the idea of the circular economy (CE) materialised about five decades ago and has gained popularity recently, it is believed that its roots cannot be traced back to any specific point in time (Webster, 2015). One way of characterising it would be to state that it is restorative and regenerative by design and aims to keep products, components, and materials at their highest utility and value at all times, distinguishing between technical and biological cycles (Ellen MacArthur Foundation 2015).

2.The concept of Management Accounting

International Federation of Accountants (1998) defines management accounting (MA) as a specialised field of accounting which focuses on information for managerial planning, evaluating, and controlling in organisations (Azudin & Mansor, 2017). Bromwich (1990) suggested that there was a need to release MA from the factory floor to allow it and to aid directly in meeting market challenges. In the last couple of decades, the changing role of MA has ensured it aids in strategic decision making and allowing firms to realise their true potential. Many researchers have reported the importance of MA knowledge, including Reid and Smith (2002), who are of the opinion that firms can gain access to financial and non- financial information to help improve their existing operations through the use of MA practices. A growing body of literature argues that an organisation’s management control needs to adapt as an organisation changes business model or strategy for the management control to be consistent with the organisation’s objectives and strategies (Svensson and Funck, 2019). Within MA, control encompasses planning, cybernetics, administrative and cultural controls as well as compensation systems, while decision making involves strategic and operational decisions (Malmi and Ikäheimo, 2003; Malmi and Brown, 2008).

3.Changing role of Management Accounting

Having said that, the digital economy has changed the role of management accounting in an irreversible way. A 2016 Deloitte report into Finance in a digital world, based on interview research, focused on technology disruptions that finance functions were experiencing. The report listed seven technologies that modern finance functions must have on their radar: cloud, process robotics, visualisation, advanced analytics, cognitive computing, in-memory computing and blockchain (CGMA, 2018a). Historically, the finance function’s mandate was to focus on organisational efficiencies and reduce operational costs. In many organisations, this focus has heralded lean operational processes, and now there is no more fat to trim (CGMA, 2018b). The finance function is not isolated anymore and in the future it will have to be more involved in developing solutions with the rest of the organisation.

Information technology (IT) has played and will play a major role in the development of accounting information systems (AIS) by providing “the push that drives accounting activities” (Vaassen and Hunton, 2009). Many organisations are implementing business intelligence & analytics (BI&A) technologies to support reporting and decision-making. Traditionally, MA is the primary support for decision-making and control in an organisation and as such, it has clear links to and can benefit from applying BI&A technologies (Rikhardssona and Yigitbasioglu, 2018). Even before Pacioli documented the double entry system of debits and credits (Payne, 2013), accountants tried to make sense of large volumes of business data, whether it came from a paper-based system, an early/legacy computer-based system, or a highly technical, all-encompassing enterprise system (Janvrin & Watson, 2017). The concepts of Big Data and BI&A have given birth to the idea of blockchain; a digital ledger of economic transactions that is fully public, continually updated by countless users, and considered impossible to corrupt. It is a list of continuous records in blocks (Carlozo, 2017).

4.Renewed interest in circular economy

The interest in the development of the CE concept worldwide has been renewed only recently, which is reflected in the main sources of information on the circular economy (Kalmykova. 2017), but it draws on many other concepts, established decades ago, such as spaceman economy (Boulding 1966). Upon a detailed literature review from various sources, it has been analysed that no study on the CE has made a connection with MA and blockchain and how companies will cope with the forthcoming change. Kalmykova (2017) has provided an overview of the literature on CE theoretical approaches, strategies, and implementation cases. Keeping China in mind, Yuan et al. (2006) have explained that the goal of CE strategy is to achieve the closed loops of energy and material cycles observed in countries like Germany and Sweden.

Svensson and Funck (2019) have explored empirically how organizations work with the CE and how management control has adapted to the business model. This is close to the current research this study plans to undertake, but there is no mention of the digital age, Big Data and especially blockchain. While focusing on the challenges of the CE, Nadeem et al. (2018) have touched upon the advances in technology and potential within blockchain. In other studies, researchers have analysed the frequency of research on CE, especially since China adopted this concept. Lieder and Rashid (2016) have noted that while research on this was almost non-existent in the 1990s, it has tripled since 2010 and doubled between 2012 and 2015.

Technology has assisted mounting production levels and affected the performance of consumers, ensuing greater consumption, with shorter life cycle of products. This trend towards production and consumption has extended to a distressing level of resource depletion. (Nadeem et. al., 2018). The test of fast exhaustion of resources attracts the idea of novel game rules that focus on a hands-on approach, which is where the idea of the CE has emerged (Webster, 2015). The key notion behind this concept is not just that there is no waste produced, but that the whole system is designed for waste to be re-utilised in one form or another, for example re-cycled, up-cycled, down-cycled, or used as raw material for other production (Ellen MacArthur Foundation, 2015). The CE concept is different to the Green and/or Recycling and provides an active divergent method to the existing undeviating system of Take–Make–Dispose (Ellen MacArthur Foundation 2015) and presents the idea of ‘roundput’ in place of ‘throughput’ – where the resources are used but not used up (Webster, 2015).

5.Advent of blockchain

When talking about blockchain, its most common feature is that instead of trusting a central trusted institution to preserve the authoritative record, it permits all involved parties to maintain their own copy of the ledger that is consequently decentralised and simulated (Varma, 2019). Cryptographic integrity checks are used to safeguard that no one is capable of tampering with or corrupting their copy of the ledger. This is essential as dissimilar to a paper ledger where any overwriting or modification would be moderately discernible, digital records can be amended without leaving any perceptible trails (Varma, 2019).

There are many research studies focusing solely on blockchain, albeit most are quite recent as this concept has taken flight in the last few years only. Woodside et al. (2017) have reviewed the acceptance and future use of blockchain technology and focused on a managerial overview and framework of how the blockchain including its implementations such as Bitcoin have advanced and how it can be utilised in large-scale, enterprise environments. Mohsin et al. (2018) have mapped the research landscape for of blockchain technology in authentication into a coherent taxonomy and identified different kinds of authentication systems under different platforms that have used blockchain technology, focusing on the importance of this new technology in the computer world. Focusing on the Internet of Things (IoT), Hadi et al. (2019) have given the most famous IoT applications used in blockchain and future opportunities for using both together. However, all these studies have made connection with MA and CE.

6. Use of blockchain in finance

Like every sector, finance is also going digital, and hence numerous research items can be seen in the literature linking MA and Big Data, blockchain, business analytics etc together. A study by Sledgianowski et al. (2016) recommends that Big Data, technology, and information systems be integrated into accounting coursework to provide students with the necessary skills and knowledge to adapt to the data-centric environment. PricewaterhouseCoopers (2015) outlined recommendations for analyzing Big Data related to technical competencies in audit, tax, risk management, and consulting. Featured in CIMA and AICPA’s report (AICPA and CIMA, 2019), Safra A. Catz of Oracle believes that “Artificial intelligence and machine learning are radically transforming how business operates, especially finance. Routine tasks are being automated so that finance professionals can focus on what matters most: identifying the next growth markets”. Watson and Mishler (2017) have given a detailed account of blockchain technology and focused on whether management accountants should add blockchain technology to their professional vocabulary.

As depicted by Tapscott & Tapscott (2017), the basic principles of blockchain are as follows:

  • Distributed database
  • Peer-to-Peer transmission
  • Transparency and Pseudonymity
  • Irreversibility of records
  • Computational logic

Given the above principles as well as the peril and promise of a disruptive technology as blockchain, banks, insurers, auditors as well as professional services firms are relying on it aiming to reduce costs and friction. Tapscott & Tapscott (2017) have further evidenced that Santander, a European bank, has potentially put the savings from using such a technology at almost $20 billion a year. Capgemini, a consultancy, depicts that consumers could save up to $16 billion in banking and insurance fees each year through blockchain-based applications. Another benefit of using blockchain for the finance industry is that it has permitted players like JPMorgan Chase, Credit Suisse and Citigroup, all of which are presently investing in the technology, to do more with less, restructure their businesses, and diminish risk in the process (Tapscott & Tapscott, 2017).

As Treleaven (2017) have put, blockchain systems retain numerous eye-catching qualities for the banking and financial-services markets. These systems are irrepressible and can operate as devolved networks that do not necessitate a central server and do not have a single point of let-down. Because they operate using dispersed open-source protocols, they have integrity and do not require relying on a third party to carry out transactions. As this technology progresses and our assessment of its usages multiplies, it connects with other disruptive technologies such as IoT, |Big Data, intelligent assistants, and self-sufficient vehicles in generating key openings as well as having possible unplanned social consequences.


Blockchain is still a progressing and therefore undeveloped technology; it is difficult to forecast how effective it would be outside it’s only established use domain of cryptocurrencies (Varma, 2019). Historically, fundamentally novel technologies could take several decades to recognise their complete potential. Therefore, it is probable that blockchain would prove groundbreaking in the years to come notwithstanding its irregular success so far. It is clear, though, that businesses should be looking at this technology and accepting it, as its principal ideas are powerful and likely to be significant (Mohsin et al, 2018).

The management accounting industry has adopted blockchain at a fast pace in the preceding years and its use in finance has been stated in detail in this document. The concept of a circular economy needs the undivided attention at a global level and the opportunities and use blockchain and management accounting can provide in achieving this feat are immense. It is just a matter of finding the right balance that bridges the gap between achievement of a circular economy and using disruptive technologies to for the overall benefit of the society.

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