Management Accounting Practices, Business Environmental Uncertainty, and Financial Performance of Commercial Banks in Kenya

The study investigated the moderating effect of business environmental uncertainty and relationship between management accounting practices and financial performance of commercial banks-Kenya. It assessed direct relationship between costing, budgeting and performance evaluation system and financial performance. Secondly, study examined moderating effect of business environmental uncertainty on relationship between management accounting practices and financial performance of commercial in Kenya. Population comprised of 1290 employees in finance and accounting departments in 42 commercial banks. Questionnaire was utilized on 305 respondents. Descriptive statistics, Pearson correlation, and hierarchical regression analyses were preferred. The study found a positive and significant relationship between costing systems (β=3.012, p=.003), performance evaluation systems (β=4.089, p=.000) and financial performance. On the contrary, there was a positive (β = .480) but insignificant (p=.632) relationship between budgeting system and performance. Furthermore, business environmental uncertainty had a positive significant moderating effect on the nexus between costing system (β=4.000, p=.000), budgeting system (β=2.667, p=.019) and performance evaluation system (β=6.250, p=.000) and financial performance. On costing system, the study concluded that banks had measures for efficient cost control, maintained standard costing, and adhered to activities focused costings. Concerning budgeting systems, it concluded that banks insisted on final budget authorization, adherence to budget procedures and regular budget evaluation and monitoring. Regarding performance evaluation system, the research concluded that banks had benchmarks for financial performance evaluation and insisted on provision of quality work. The study recommends that banks should ensure that costing systems are regularly reviewed and updated to reflect evolving market conditions. The study recommended that banks should implement performance-based budgeting to promote fund distributions according to products’ performance. The study recommended that banks ought to connect training and skill-building initiatives to performance evaluation indicators to improve bank's performance. Key words: Costing systems, Performance Evaluation Systems, Financial Performance, Budgeting System and Management Accounting Practices