(Johnson and Kaplan, 1987).
Modern cost management systems have lost their relevance to management in that they do not provide accurate and timely data to the various levels of management to assess return on investment, profitability, and overall performance. Most management accounting systems described by Johnson and Kaplan provide only information necessary for tightly controlled external reporting requirements and other financial accounting needs, such as, annual reports, government reporting, etc., and did not provide necessary visibility to front line cost account managers. Grahame indicated that before the 20th century there was no real need to provide information to shareholders for many limited companies since senior managers held large numbers of the firms. There was no legal requirement about what type or when information should be provided to external shareholders. (2002).
According to Johnson and Kaplan, the need developed to raise large amounts of capital from increasingly widespread and detached suppliers (e.g., sale of stock, bonds), so did the need for periodic audited financial statements. Management accounting evolved to support these external-reporting requirements. Auditors became less interested in the relevance of product cost information for management decisions than for its impact on reported profits. As a result, these reports offered little value to operations managers towards reducing costs and improving productivity, failed to provide accurate product costs (direct labor based cost), and short-term cycle of monthly profit/loss statements required that cash outlays in a given period be expensed in that period, even though their benefits may be long-term. Short-term profit pressures therefore lead to a decrease in long-term investment (1997). According to Grahame this was the time that "Ownership consequently became divorced from manager ship- (2002). External shareholders became more involved and concerned with corporate financial information.