Hospitality Management 18 (1999) 387}400

Hospitality management accounting:

current problems and future opportunities
Gordon Potter!,*, Raymond S. Schmidgall"
!School of Hotel Administration, Cornell University, Ithaca, NY 14853, USA
"The School of Hospitality Business, Eli Broad Graduate School of Management,
Michigan State University, USA

Abstract

This paper discusses areas for future research opportunities by addressing accounting issues
faced by management accountants practicing in hospitality organizations. Speci"cally, the
article focuses on the use of the uniform system of accounts by operating properties, the
usefulness of allocating support costs to operated departments, extending our understanding of
operating costs and performance measurement systems and the certi"cation of practicing
accountants. ( 1999 Elsevier Science Ltd. All rights reserved.

Keywords: Hospitality accounting research; Future of hospitality "nancial management; Performance

measurement; Planning and control

1. Introduction

Financial statements produced by accountants are used to communicate "nancial

information about hospitality enterprises to a number of interested internal and
external parties. Yet accounting involves much more than simply the production of
"nancial reports. It consists of several "elds including, but not limited to, "nancial,
auditing, tax, systems, and managerial. In this article we focus on managerial ac-
counting. Below we outline some of the current issues in managerial accounting and
o!er some avenues for future research.
Throughout the 20 century considerable research has been conducted in account-
ing. Much of this research occurred in the area of "nancial accounting. The major
focus on "nancial accounting is for good reason! Generally accepted accounting

* Corresponding author.

0278-4319/99/$ - see front matter ( 1999 Elsevier Science Ltd. All rights reserved.
PII: S 0 2 7 8 - 4 3 1 9 ( 9 9 ) 0 0 0 4 4 - 4
388 G. Potter, R.S. Schmidgall / Hospitality Management 18 (1999) 387}400

principles (GAAP), which are the foundation for the principles of accounting, relate
primarily to "nancial accounting. To help insure that the statements are prepared
according to GAAP, the "rm's general purpose "nancial statements are audited by
independent accountants. The audit process results in an audit opinion that indicates
whether the statements re#ect fairly the "nancial position, the operating results, and
the cash #ows of the entity. This reporting requirement is imperative given the capital
markets' reliance on "nancial information in the United States.
Managerial accounting has received much less attention than "nancial accounting.
Managerial accounting's primary focus is information for internal decision-making
and control. With the exception of the past few years, little innovation has occurred
in management accounting practices since the beginning of the 20 century. Hospitality
managerial accounting has received even less attention. There are many hospitality
managerial accounting issues that deserve research attention. This paper presents
several issues that should be explored as the new millenium dawns. Below we discuss
areas where research could help determine new management accounting practices and
procedures. These areas include research on the behavior of operating costs, useful-
ness of performance measures, allocation of overhead costs and acceptance and usage
of the Uniform System of Accounts. We also discuss how The Hospitality Financial
and Technology Professionals can be helpful in advancing this research and in the
certi"cation of their members re#ecting the growing professionalism of hospitality
accountants.

2. Acceptance and usage of uniform systems of accounts

The major "nancial statements of hospitality enterprises re#ect the "nancial

position, the operating results, and the cash #ow of the business. They are pro-
duced for both internal and external use. As such, they serve as scoreboards re#ecting
what has occurred in the past. Managers use the recently produced "nancial state-
ments to help direct future operations and to account to owners on the "nancial
consequences of their actions. In addition, because these "nancial statements are to
provide information that is useful for predicting the amount, timing and uncertainty
of future cash #ows, investors use the historical results for making investment
decisions.
In addition to preparing general purpose "nancial statements, an industry standard
of reporting property-level information has been developed for the various segments
of the hospitality industry. In general, these standardized reports, referred to as the
uniform system of accounts, are as follows:
Uniform System of Accounts for the Lodging Industry (USALI),
Uniform System of Accounts for Restaurants (USAR),
Uniform System of Financial Reporting for Clubs (USFPC).
Financial experts in the various segments of the hospitality industry developed each of
these uniform systems. The uniform systems have been revised many times during the
past century. The uniform systems for the lodging and food service segments were
 G. Potter, R.S. Schmidgall / Hospitality Management 18 (1999) 387}400 389

originally produced in the 1920s. Each serves as a turnkey system as it provides

"nancial reports for a new operation. In addition, the uniformity that results from
"rms voluntarily adopting the uniform system allows management to compare the
"nancial performance of operating units. Finally, each uniform system is the basis on
which industry averages are produced by trade associations, creditors and consulting
"rms.
Given the usefulness of the various uniform systems of accounts, it follows that
most businesses operating in hospitality segments would be expected to utilize the
appropriate uniform system of accounts at some level of analysis. Research reveals
otherwise. Kwansa and Schmidgall (1999) in a recent survey of lodging controllers
determined that 76% of lodging operations were using the USALI. But only 11%
of these controllers responded that they were following it `completelya, while 65%
indicated `in most but not all respectsa. Further, Kwansa and Schmidgall found that
only 9% of the respondents' self-rating of their knowledge of the USALI was excellent.
Just over 51% indicated `gooda while 29% indicated `faira and the remaining 11%
indicated `poora. Finally, these researchers tested the knowledge of their respondents
in three speci"c areas where the USALI had been changed with the 9th revised
edition. They found that (1) only 23% understood the proper accounting for preopen-
ing expenses, (2) only 35% of the respondents understood the proper accounting for
gratuities received for banquet service, while (3) 85% understand the proper ac-
counting for china, glassware, and related types of items.
A natural avenue for future research would be to investigate what economic and
social factors motivate "rms to adopt or reject the uniform system of accounts. Do
the "rms that do not use these systems have more useful reporting systems or, would
they prefer to follow the uniform system but have resource constraints that prohibit
implementation? Since the "nancial statements are in essence the scoreboards, if
hospitality businesses are to be "nancially successful they should use reporting
systems that best re#ect the "nancial results. The Hospitality Financial and Techno-
logy Professionals (HFTP) formerly the International Association of Hospitality
Accountants views their major role as educating hospitality "nancial executives. Since
the decision to adopt an accounting system by a business is often made by the
"nancial executives of the business, the HFTP can be most in#uential in educating
and encouraging their members to adopt the recommended standardized accounting
systems for their businesses. The HFTP has published several articles in their publica-
tion, The Bottomline, since the release of the 9th revised edition of the USALI in 1996.
Still more education will be necessary as the new millenium commences if the uniform
system is to be fully utilized in the lodging industry.
In addition, studies similar to Kwansa and Schmidgall should be undertaken in the
clubs and foodservice segment to determine the usage of each segment's uniform
system. The National Restaurant Association, publishers of the USAR, have stated in
the preface of recent editions of their uniform system book that the USAR has proven
to be the Association's `best sellera. However, sales of the book and actual usage may
not be the same. Only future research will reveal the extent of actual usage of the
uniform systems and possibly what future steps are required to encourage greater
usage of the uniform systems for restaurants and clubs.
390 G. Potter, R.S. Schmidgall / Hospitality Management 18 (1999) 387}400

3. Allocation of overhead costs by lodging operators

The data provided in the detailed USALI accounts are primarily used by the
management of lodging businesses. If properties follow the USALI then the income
statement consists of three major sections:
f A section covering operated departments which reports the revenues and the
directly related expenses of pro"t centers, e.g. the rooms department.
f A section displaying the undistributed operating expenses including administrative
and general, marketing, property operation and maintenance, and utility expenses.
These expenses are not allocated to pro"t centers though they indirectly bene"t
them.
f A "nal section includes management fees, "xed charges, and income taxes. These
expenses are not allocated to pro"t center either.
The principal motivation why the USALI does not ascribe most operating expenses
to the operated departments is to insure uniformity in accounting across a variety of
property types. Thus, the primary emphasis of the uniform system is for "nancial
reporting purposes.
For most lodging properties undistributed operating expenses, combined with
management fees, rent, property taxes, and insurance, comprise a considerable
portion of the total expenses for a period. Geller and Schmidgall (1980) suggested
that these `overheada costs should be allocated for the important business deci-
sions including pricing, sta$ng, expansion, refurbishing and renovation. The
allocation of these overhead costs would result in "nancial statements re#ecting
pro"tability by pro"t center down to income tax expenses. Schmidgall and Malk
(1992) state that knowing how each operational area is performing is vital for
managing the "nancial success of lodging operations. Further, they state that pro"t
centers not fully burdened with overhead costs produce misleading results and that
a seemingly pro"table department may be a loser after overhead costs are added.
Turkel (1993) suggested the primary income statement for lodging operations be fully
allocated statements. The process of allocating overhead costs has been presented by
Coltman (1998), Geller and Schmidgall (1980), Schmidgall (1996), and even in the
USALI (1996).
While the discussion above has focused on the usefulness of cost allocation
for understanding the full cost of operating a pro"t center, cost allocation may also
be helpful in motivating department managers to consume costly resources more
e$ciently. This might occur, because once managers are held accountable for
additional costly resources, they have more of an incentive to understand the nature
of the resources they are consuming and how the resource's cost arises. The USALI
speci"cally states, `If assigning these costs is deemed to be valuable to manage-
ment for decision making, e!orts to determine a reasonable and fair basis for
assigning costs are encouraged. This cost assignment, however, should be supple-
mental to the presentation of the departmental results after they have been stated in
accordance with the Uniform System of Accounts for the Lodging Industrya (USALI,
1996).
 G. Potter, R.S. Schmidgall / Hospitality Management 18 (1999) 387}400 391

Clearly, no authoritative accounting body requires the lodging industry to prepare

fully allocated statements. Turkel (1993) recently criticized the preparers of the USALI
for not `requiringa fully allocated income statements. Recommendations for fully
allocated statements appear to be largely ignored according to Damitio and
Schmidgall (1994). Seventy-eight percent of the lodging respondents to their survey
indicated they did not allocate overhead costs. The major reason for not allocating
overhead costs was `certain overhead costs are beyond the control of department
headsa. The authors agreed that some overhead costs were likely beyond the control
of department heads but suggested the primary reason for allocating costs should be
to re#ect the pro"tability of pro"t centers after full allocation. They concluded that
education is required in order to convey the advantages that occur from using fully
allocated statements.
As the next millenium nears, the reasons and need for fully allocated income
statements are as strong as in the past. Though the lodging industry is currently
enjoying very pro"table times, in only a few years the lean times so often realized
in the past are likely to occur. Therefore, we urge the "nancial community within the
lodging industry to experiment with the use of fully allocated income statements as
a means to more clearly understand how the costs of their operations relate to
revenue generating activities. Further, we believe the HFTP is the proper organiza-
tion to lead the educational e!ort required and the "nancial management committee
of the AH & MA responsible for revising the USALI could speci"cally spearhead this
e!ort.

4. Behavior of operating costs

For a number of years the lodging industry has been tracking and reporting
categories of operating expenses for lodging properties following the various editions
of the uniform system of accounts. In the United States summary statistics of these
costs are reported in various industry publications such as PKF Trends and HOST
Reports. These publications provide summaries of expenses by industry segment as
a percent of revenues and on a per available room basis. An operator can use these
summaries to determine how a property's costs compare to industry averages com-
puted by segment, size, rate and location. The lodging industry is somewhat unique in
providing such detailed expense information. Unfortunately, these summaries are
silent regarding how expenses arise in the industry or how managers can learn to
control these expenses.
Within the past two decades, facing intense competition, industries have been
critically reexamining their costing systems (Cooper and Kaplan, 1987, 1991). Cooper
and Kaplan (1987) provide numerous examples that outline how an inadequate
understanding of the behavior of costs can systematically distort the cost estimates of
producing products and services. An inaccurate understanding of cost behavior could
provide faulty guidance to managers on how to identify areas for cost reduction.
Understanding how costs behave is also critical for creating accurate budgets that are
needed for planning and performance measurement (Schmidgall and Ninemeier, 1987;
392 G. Potter, R.S. Schmidgall / Hospitality Management 18 (1999) 387}400

Harris, 1995; DeFranco, 1997). For instance, the bene"ts of cost}volume}pro"t

techniques rely on a reasonable understanding of cost behavior. While some attempts
at broad estimates of cost behavior are provided in Rushmore, Ciraldo and Tarras
(1999), we know little about how costs arise in the hotel industry. This may in part be
due to the fact that the Uniform System of Accounts provides no prescription for how
these expenses should be controlled.
Some research into the behavior of lodging property rooms and restaurant depart-
ment expenses is reviewed in Harris (1995). Generally, the research has focused on
separating the "xed and variable components of costs. Although a partitioning of
costs into a "xed and variable component is very useful for prediction and sensitivity
analysis, most properties have a number of factors that may be impacting costs
simultaneously. Enz and Potter (1998) examined factors explaining di!erences in
undistributed operating expenses for a number of properties in a full-service hotel
chain. In addition to documenting that undistributed expenses per available room,
many of which are traditionally considered as "xed expenses, increase with occupancy
rate, cost of living, hotel type and number of revenue sources, Enz and Potter
document that properties realize economies of scale but diseconomies of scope.
Speci"cally, diseconomies of scope were documented because properties catering to
a number of customer segments had higher undistributed operating expenses than
those properties focusing on one or few segments even after controlling for all of the
other factors discussed above. As such, their "ndings are consistent with cost manage-
ment arguments articulated by Kaplan (1983, 1984) that state that the product line
and service channel variety lead to more complex operations which, in turn, results in
a disproportionate increase in costs.
Clearly, there is a lot to learn about the behavior of operating expenses. Research
using the cost-hierarchy framework outlined in Cooper and Kaplan (1991) would help
the industry understand how many property-level costs are incurred. A critical
examination of the accuracy of more advanced costing systems, such as activity-based
costing, needs to be undertaken. But research cannot stop there. Because every
resource is consumed to generate a revenue, as we begin to learn more about the
drivers of costs, accountants will need to interact with marketing personnel to frame
the analysis in a cost}bene"t format. For instance, classic economic analysis would
suggest that customers are willing to pay more for items that more closely match their
preferences. Therefore, accountants' cost analysis will be incomplete until we begin to
understand what type of price premiums consumers are willingly to pay for the added
product or service. While above we have discussed diseconomies of scope that may
occur because of the impact of service complexity on costs, understanding where
economies of scope are present in the industry is also important. For instance, some
hospitality companies may be realizing cost savings through their recent practice of
centralizing certain services across brands such as reservations, yield management,
maintenance, and snowplowing and other grounds keeping activities for a group of
properties in the same geographic area. At this time the cost savings from this practice
has not been documented. In summary, the industry could bene"t from a more
thorough understanding of drivers of operating expenses and the incremental rev-
enues these drivers produce.
 G. Potter, R.S. Schmidgall / Hospitality Management 18 (1999) 387}400 393

5. Performance measurement

The choice of performance measures is one of the key challenges facing hospitality
organizations today. Performance measures help organizations de"ne and implement
strategy. They are also an integral part of the current practice of value-based
management with its emphasis on creating value for the shareholder. Performance
measurement is also a critical component of human resource management. These
measures are the basis for directing employee behavior and for providing a framework
for employee learning. Moreover, the design and choice of performance measurement
system is an integral part of the evaluation and compensation of managers. Given the
importance of the performance measurement system to the organization, it is surpris-
ing how little we know about what measures should be used and how they should be
combined to have the desired bene"ts.
While it is clear that no one performance measure will su$ce, there is still
uncertainty concerning what the attributes of good performance measures are and
how many performance measures are needed for a "rm to have a successful perfor-
mance measurement system (Geller, 1985). One valuable attribute would be that the
measure is related to the value generating process of the "rm. This would suggest that
a measure, whether "nancial or non-"nancial, is useful if it is related to an organiza-
tion's future cash #ows or future pro"tability. In this sense, the measure is valuable
because it is predictive. While this is an important attribute for purposes of valuation
another important use of a performance measure is in human resource management.
A measure can be useful for human resource management if it is helpful in guiding and
directing employee behavior by focusing the employee on activities that management
want the employee to attend to. In this situation an important attribute of a perfor-
mance measure is that the measure should be easy to understand by the employee.
Employees can only act on measures when they understand how their actions impact
the measure. In addition, because performance measures are often used for determin-
ing compensation, a good measure should be related to employee e!ort and yet not
easily manipulated by managers. There are a number of performance measurement
issues for hospitality "rms. Below we discuss the usefulness of the performance
measurement system for prediction, or a relevant measure for valuation, and for
human resource management.
At the reporting entity level, a measure can have value if it is useful to owners and
shareholders in estimating shareholder value. While much research suggests that
investors rely heavily on accounting earnings to determine value, many lodging
companies seem to spend a considerable amount of resources reporting alternative
measures of performance. For instance, many taxable lodging companies devote
resources to a discussion of earnings before interest and taxes (EBITDA). Real estate
investment trusts focus on funds from operations (FFO). The Securities and Exchange
Commission's Financial Reporting Release No. 1 outlines the Commission's stance on
alternative measures of performance (secion 202.01):

If accounting income computed in conformity with generally accepted ac-

counting is not an accurate re#ection of economic performance for a company
394 G. Potter, R.S. Schmidgall / Hospitality Management 18 (1999) 387}400

or an industry, it is not appropriate solution to have each company in-

dependently decide what the best measure of its performance should be . . . .
Where measurement of economic performance is an industry-wide problem,
representatives of the industry and the accounting profession should present the
problem and solutions to the FASB . . . . Until new and uniform measurement
principles are developed and approved for an industry, the presentation of
measures of performance other than net income should be approached with
extreme caution.

Given the industry's focus on alternatives to accounting earnings, what is the indus-
try's motivation for these alternative measures? We know very little about how useful
these alternative performance measures are for investors. An exception is Vincent
(1999), who documents that both net income and funds from operations measures
have information content for REIT investors. Many taxable hospitality "rms promin-
ently report measures such as EBITDA in their annual reports. The 9th edition of the
Uniform System of Accounts (Hotel Association of New York, 1996) also provides a
line for EBITDA in its income statement. However, we are not aware of any research
that examines the usefulness of this measure in the hospitality industry relative to
traditional earnings numbers.
While the discussion above focussed on the use of "nancial performance measures
for prediction, another area of importance is the growing recognition of the use of
non-"nancial performance measures. A number of recent studies suggest that non-
"nancial performance measures such as customer satisfaction, internal processes, and
improvement activities are related to future "nancial performance (Kaplan and
Norton, 1992, 1996; Singleton-Green, 1993). Using cross-sectional data from 77
Swedish "rms from diverse industries, Anderson et al. (1994) document that, after
controlling for past return and a time trend, a "rm's return on assets (ROA) is
positively associated with customer satisfaction measured six months earlier. Ittner
and Larcker (1998) examine the relation between customer satisfaction and "rm
performance using customer-level data obtained from two large service companies
and "nd that customer satisfaction measures are related, albeit with some decreasing
returns, to the subsequent year's customer retention, usage and pro"ts. Foster and
Gupta (1997), using two years of data from a beverage distributor, document an
inconclusive link between customers' satisfaction and pro"ts the distributor realizes
from the customers. Anderson et al. (1997) "nd weaker or negative association
between customer satisfaction and return on investment in Swedish service "rms.
In the lodging industry Banker et al. (1999) analyzed six years of monthly data for
18 properties of a hotel chain. They document that at this chain non-"nancial
measures related to customer satisfaction and process are related to future gross
operating pro"t. Much more work needs to be done in the lodging industry to
understand the links between "nancial and non-"nancial measures of performance. At
the operating level, developing predictive non-"nancial measures could help in capital
budgeting. For instance, if companies can link certain performance measures to future
cash #ows, then these measures can be used in helping to ascertain the net present
value of new capital projects.
 G. Potter, R.S. Schmidgall / Hospitality Management 18 (1999) 387}400 395

In addition to issues of the predictive ability of performance measures, there are

very important questions regarding the types of measures that should be used to
evaluate, monitor and compensate employees (Woods et al., 1998). Many of these
issues also pertain to designing e!ective management company contracts and
franchising agreements. While certain performance measures are useful for valua-
tion simply because of their predictive ability, measures used in employee com-
pensation and performance review are used primarily to motivate and guide
employees to take actions in the best interest of the "rm (Natarajan, 1996). Hence,
performance measures may have value for contracting if they in#uence someone to
take an action that is in the best interest of the business. Two areas receiving much
interest are (1) income measures that charge managers for the use of capital, such as
residual income and Stern Stewart's EVA', and (2) non-"nancial measures of
employee performance.
Residual income performance measures are rapidly being incorporated in a number
of "rms (see Ittner and Larcker, 1998). Residual income, and more re"ned measures of
residual income such as EVA', is constructed by subtracting from operating income
a charge for the use of costly debt and equity capital. This type of income measure
assumes that managers are only adding value when the income exceeds the cost of
capital. The bene"t of a residual income performance measure is that it encourages
management to attend to the balance sheet and to encourage managers to only
maintain assets in the business when are providing an adequate return. A recent study
by Wallace (1997) documents that "rms adopting residual income-based compensa-
tion plans for their managers were found to have reduced their asset base and
increased key asset turnover ratios.
The important question for the hospitality industry is would the implementation of
residual income measures be useful in motivating and evaluating managerial perfor-
mance? Moreover, should residual income measures be the basis for the incentive fees
in management contracts? Clearly, absent these types of measures managers may have
incentives to over-invest owner resources to generate above line sales growth and
income after undistributed operating income. However, how much control over
a lodging property's assets does a manager have? Research on residual income
measures also has implications for management contracts. A number of articles have
documented the variety of incentive fees that exist in management contracts. While
very few of these contracts base incentive fees on residual income measures, it would
be helpful to learn which type of contract results in enhanced performance.
Non-"nancial performance measures are also an integral part of any employee
performance measurement system. Because managerial actions are likely to "rst result
in non-"nancial outcomes such as quality or customer satisfaction (Hauser et al.,
1994), non-"nancial performance measures are useful in measuring and rewarding
managerial performance. Ittner et al. (1997) report that 36% of the companies in their
study used non-"nancial measures in executive compensation. With respect to the
hospitality industry, Banker et al. (1999) report that a number of hotel companies
compensate property-level managers based in part on non-"nancial measures. While
little is known about whether the implementation of non-"nancial performance
measures in compensation contracts leads to improved performance, Banker et al.
396 G. Potter, R.S. Schmidgall / Hospitality Management 18 (1999) 387}400

document that the implementation of an incentive plan that incorporated non-

"nancial measures resulted to improved unit pro"tability.
The use of non-"nancial performance measures in performance review is an impor-
tant area for research in the lodging industry. Moreover, this area of research should
extend to the study of non-"nancial performance measures in the design and monitor-
ing of franchise contracts. One of the biggest problems in franchising arrangement
is monitoring the quality compliance of franchisees and understanding the "nancial
impacts of poor performing franchisees on corporate performance. It is likely that
non-"nancial measures can help resolve some of these problems.

6. Certi5cation: needed now more than ever

Nearly everyone knows the three initials, `CPAa, following a person's name stand
for Certi"ed Public Accountant. These initials mean the individual has met standards
and ful"lled requirements to earn the coveted designation. Thousands of associations
utilize professional certi"cation to recognize individuals for both their dedication to
their chosen profession and their ability to perform to set standards. Most certi"ed
professionals believe that the certi"cation process is one of the most important steps
one makes in career development. Major reasons for professional certi"cation include
the following:

1. Certi"cation demonstrates one's commitment to their profession. Receiving certi"-

cation shows one's peers, supervisors and, in turn, the general public commitment
to a chosen career and one's ability to perform to set standards. Since university
degrees can no longer represent the full measure of professional knowledge and
competence in today's evolving job market, certi"cation sets one apart as a leader
in their "eld.
2. Certi"cation re#ects achievement as a certi"ed professional has displayed excel-
lence in their "eld or industry and ful"lled set standards and requirements.
3. Certi"cation establishes professional credentials, since it recognizes one's indi-
vidual accomplishments. Certi"cation serves as an impartial, third-party endorse-
ment to one's knowledge and experience.
4. Certi"cation improves career opportunities and advancement, as it gives one
the advantage when being considered for a promotion or other career
opportunity.
5. Certi"cation prepares one for greater on-the-job responsibilities. Certi"cation is
often a voluntary professional commitment to an industry or "eld of knowledge. It
is a clear indicator of your willingness to invest in your own professional develop-
ment.
6. Certi"cation o!ers greater professional recognition from peers and one can expect
increased recognition from their peers for taking the extra step in their professional
development.
7. Certi"cation raises the professionalism of one's company and it identi"es it as
being committed to employing quality professionals.
 G. Potter, R.S. Schmidgall / Hospitality Management 18 (1999) 387}400 397

Being certi"ed in various hospitality "elds is highly visible given the following
designations:

f Club managers CCM

f Hotel managers CHA
f Hospitality technology specialists CHTP
f Hospitality accountants CHAE
f Hospitality educators CHE
f Food and beverage executives CFBE
f Human resource executives CHRE
f Hospitality sales professionals CHSP

The above are only a few of the many professional designations held by hospitality
professions. Therefore, since initials after one's name suggest excellence, failure to have
earned the initials may well lead one's peers and superiors to question not only one's
knowledge but also abilities.
The Hospitality Financial and Technology Professionals (HFTP) in 1981 estab-
lished the Certi"ed Hospitality Accountant Executive (CHAE). Since that time nearly
800 hospitality accountants have earned their CHAE. Eight hundred may seem
impressive but it is a small minority of the current membership of the HFTP, which
exceeds 4000. Geller and Schmidgall (1984) found that 8% of HFTP members held the
CHAE designation and that 26% had not earned at least a baccalaureate degree. Of
the respondents who had earned at least a bachelors degree, 56% majored in
accounting. Geller et al. (1990) updated the 1984 study and determined 17% of the
respondents (members of HFTP) held the CHAE designation and 24% had not
earned at least a bachelors degree. The most common major, held by 55% of the
respondents, was in accounting.
Tse (1989) surveyed the HFTP membership and found results very similar to Geller
et al. (1990). Fourteen percent held the CHAE designation while 30% had not earned
at least a four year college degree. Schmidgall and Damitio (1996) updated the Tse
1989 study for the HFTP and found 16% had earned the CHAE and 27% had not
graduated with at least a bachelor's degree. Neither of Tse or Damitio and Schmidgall
studies revealed the major of the college graduates.
Clearly, the percentage of HFTP members earning the CHAE has leveled o! in the
mid teens. In addition, many accounting professionals in the hospitality industry do
not have at least four year college degrees and many did not do major in accounting.
Therefore, it is even more important that these hospitality accountants earn their
CHAE to re#ect their knowledge of hospitality accounting.
A major key to increasing professionalism in hospitality accounting is re#ected by
the CHAE designation. Therefore the HFTP should give an even greater emphasis to
the bene"ts of certi"cation as they communicate with their members. HFTP regional
chapters should be strongly encouraged by the international association to hold
seminars to assist their members in preparing for the CHAE examination. As the new
decade dawns, we believe professionalism in hospitality accounting must be pushed
more than even before!
398 G. Potter, R.S. Schmidgall / Hospitality Management 18 (1999) 387}400

7. Future opportunities for research in management accounting

This article has reviewed some of the critical areas of concern for management
accountants. Below we emphasize some key avenues for future research in hospitality
managerial accounting. Reviews of the research literature and current practice
suggest that much of our understanding of cost behavior and the current design
of our cost management systems evolved out of the uniform system of accounts.
While this system is important for providing uniform "nancial reporting for owners
and other external parties, it falls short when it comes to managing the day to
day operations of a hospitality company. To help managers to better understand
the impact of their decisions on operating costs and revenues, and to design
more e!ective control systems, managerial accountants in the hospitality industry
need to ask what types of information we could provide to facilitate decision making
and control. In this vein, properties need to begin experimenting with reporting
pro"t center performance that provides a more realistic view of the resources con-
sumed by operating departments by tracing or allocating undistributed operating
costs to the operated departments. Given the potential problems associated with
arbitrary allocations of costs, much research shall be required to help determine
appropriate apportionment techniques and the costs and bene"ts of assigning undis-
tributed operating costs to operated departments. Related research should examine
alternative forms of responsibility centers within a property. It is not clear that the
current organizational form supported by the uniform system of accounts with
a separate rooms, food, beverage, telephone and other miscellaneous departments is
preferred over other business unit systems (Quek, 1995) that would require alternative
accounting systems.
In addition, to help motivate and reward employees, and to generate value for the
owner, accountants for hospitality companies need to think seriously about explicitly
implementing or expanding non-"nancial performance measurement systems. The
hospitality industry was one of the "rst industries to track non-"nancial measures on
customers. Many hospitality companies have already incorporated these measures in
the compensation plans of their executives. However, little is known about how these
non-"nancial measures are related to future "nancial performance. Establishing this
link would be very useful for designing contracts and for capital budgeting. A logical
area for research on non-"nancial performance measures is in the area of capital
budgeting. For instance, the analysis of the future cash #ows of many new capital
investments could be sharpened if the bene"ts of a proposed capital project could be
linked "rst to non-"nancial consequences and then to "nancial consequences. In fact,
because all activity analysis should be framed in a cost}bene"t, non-"nancial
measures can be very useful in situation where a "nancial consequence is not readily
available. Moreover, non-"nancial measures could play an important role in motivat-
ing more employees and other agents, such as by including non-"nancial measures in
management and franchise contracts. Because these types of contracts must be
defensible in a court of law it is going to take a concerted e!ort by researchers to
address the link between current non-"nancial performance measures and future
"nancial performance.
 G. Potter, R.S. Schmidgall / Hospitality Management 18 (1999) 387}400 399

These lines of research, as well as other discussed above, cannot be implemented in

a vacuum. Rather, in the future managerial accountants need to work closely with
members in marketing, human resources, properties, etc. to insure that the accounting
system "ts into the overall organizational design and culture of the property.

References

Anderson, E., Fornell, C., Lehmann, D., 1994. Customer satisfaction, market share, and pro"tability:
"ndings from Sweden. Journal of Marketing 58 (3), 53}66.
Anderson, E., Fornell, C., Rust, R., 1997. Customer satisfaction, productivity and pro"tability: di!erences
between goods and services. Marketing Science 16 (2), 129}145.
Banker, R., Potter, G., Srinivasan, D., 1999. An empirical investigation of an incentive plan based on
non-"nancial performance measures. The Accounting Review (forthcoming).
Coltman, M., 1998. Hospitality Management Accounting Sixth Edition. J. Wiley, New York.
Cooper, R., Kaplan, R.S., 1987. How cost accounting systematically distorts product costs. In: Bruns, W.,
Kaplan, R.S. (Eds.), Accounting and Management: Field study Perspectives. Harvard Business School
Press, Boston, MA.
Cooper, R., Kaplan, R.S., 1991. The Design of Cost Management System: Text, Cases, and Readings.
Prentice-Hall, Englewood Cli!s, NJ.
Damitio, J.W., Schmidgall, R.S., 1994. Allocation of overhead costs in lodging properties. Journal of
Hospitality Financial Management 3 (1), 45}55.
DeFranco, A., 1997. The importance and use of "nancial forecasting and budgeting at the depart-
mental level in the hotel industry as perceived by controllers. Hospitality Research Journal 20 (3),
99}110.
Enz, C.A., Potter, G., 1998. The impacts of variety on the costs and pro"ts of a hotel chain's properties.
Journal of Hospitality & Tourism Research 22 (2), 142}157.
Foster, G., Gupta, M., 1997. The customer pro"tability implications of customer satisfaction. Working
paper, Stanford University and Washington University.
Geller, A.N., Schmidgall, R.S., 1980. Cost allocation under the uniform system of accounts. Cornell Hotel
and Restaurant Administration Quarterly 21 (3), 31}39.
Geller, A.N., 1985. Tracking the critical success factors for hotel companies. Cornell Hotel and Restaurant
Administration Quarterly 25 (4), 76}81.
Geller, A.N., Schmidgall, R.S., 1984. The hotel controller. Cornell Hotel and Restaurant Administration
Quarterly 25 (2), 16}22.
Geller, A.N., Ilvento, C.L., Schmidgall, R.S., 1990. The hotel controller revisited. Cornell Hotel and
Restaurant Administration Quarterly 31 (3), 91}97.
Harris, P.J., 1995. Statistical cost estimation and prediction in hotels. In: Harris, P.J. (Ed.), Accounting and
Finance for the International Hospitality Industry. Butterworth-Heinemann, Oxford, pp. 83}102.
Hauser, J.R., Simester, D., Wernerfelt, B., 1994. Customer satisfaction incentives. Marketing Science 13 (4),
327}350.
Hotel Association of New York, 1996. Uniform System of Accounts for the Lodging Industry, 9th Revised
Edition. Educational Institute of the American Hotel and Motel Association, East Lansing, MI.
Ittner, C., Larcker, D., Rajan, M., 1997. The choice of performance measures in annual bonus contracts. The
Accounting Review 72 (2), 231}255.
Ittner, C.D., Larcker, D.F., 1998. Innovations in performance measurement: trends and research implica-
tions. Journal of Management Accounting Research 10, 205}238.
Kaplan, R.S., 1983. Measuring manufacturing performance: a new challenge for managerial accounting
research. The Accounting Review 58 (4), 686}705.
Kaplan, R.S., 1984. The evolution of management accounting. The Accounting Review 59 (3), 390}418.
Kaplan, R., Norton, D., 1996. The Balanced Scorecard: Translating Strategy into Action. Harvard Business
School Press, Boston, MA.
400 G. Potter, R.S. Schmidgall / Hospitality Management 18 (1999) 387}400

Kaplan, R.S., Norton, D., 1992. The balanced scorecard * measures that drive performance. Harvard
Business Review 70 (1), 71}79.
Kwansa, F., Schmidgall, R.S., 1999. The USALI: its development, function, acceptance and usage. Working
paper, University of Delaware and Michigan State University.
Natarajan, R., 1996. Stewardship value of earnings components: additional evidence on the determinants of
executive compensation. The Accounting Review 71 (1), 1}22.
Quek, P., 1995. Accounting for responsibility. Lodging 21 (2), 33}34.
Rushmore, S., Ciraldo, D.M., Tarras, J., 1999. Hotel Investments Handbook. West Group, New York.
Schmidgall, R.S., Malk, M., 1992. Understanding overhead. Lodging 18 (1), 33}37.
Schmidgall, R.S., 1996. Hospitality Industry Managerial Accounting, Fourth Edition. Educational Institute
of the American Hotel & Motel Association, East Lansing, MI.
Schmidgall, R.S., Damitio, J.W., 1996. Pro"le of the IAHA member: an update. The Bottomline 11 (3),
31}37.
Schmidgall, R., Ninemeier, J., 1987. Budgeting in hotel chains: coordination and control. Cornell Hotel and
Restaurant Administration Quarterly 28 (1), 78}84.
Singleton-Green, B., 1993. If it matters, measure it. Accountancy 111 (5), 52}53.
Tse, E., 1989. A pro"le of the IAHA member. The Bottomline 4 (5), 12}19.
Turkel, S., 1993. Further thoughts on unallocated cost accounting for food and beverage operations.
Lodging 18 (1), 5.
Vincent, L., 1999. The information content of funds from operations (FFO) for real estate investment trusts
(REITs). Journal of Accounting and Economics 26 (1), 69}104.
Wallace, J.S., 1997. Adopting residual income-based compensation plans: do you get what you pay for?
Journal of Accounting and Economics 24 (3), 275}300.
Woods, R.H., Sciarini, M., Breiter, D., 1998. Performance appraisals in hotels. Cornell Hotel and Restaur-
ant Administration Quarterly 39 (2), 25}29.