Uncertainty, MCS and firm performance: towards all integrated business risk focused framework

Uncertainty is the core variable in any contingency theoretical framework (Chapman, 1997; Donaldson, 2001). Many reviews however have claimed that the accounting literature lacks a comprehensive framework for analysis of the relationship between uncertainty and MCS (Otley, 1980; Dent, 1990; Chapman, 1997; Langfield-Smith, 1997). In this study, we develop a theoretical framework that adopts a business risk view of uncertainty to explain or predict MCS fit/misfit with firm objectives, strategies and operational activities. We postulate that the degree of change in business risk will signal and influence the level of required changes in MCS design and/or use. The level, extent and form of actual changes are dependent on firm capacity, defined as the available and accessible human and non-human resources, to realize the required changes. The framework provides a basis for reviewing the apparent inconsistencies of past MCS research, and for positioning those studies argued to be narrow and/or of incomparable research design. More importantly, a methodology for identifying external and internal drivers of uncertainty from a business risk perspective is also presented. Additionally, through such identification a potentially proactive signalling mechanism for changes to MCS design and/or use is provided. The analytical findings of this paper will be of interest to managers, industry professionals, practitioners and academics alike.