THE IMPACT OF ACCOUNTING INFORMATION ON MANAGEMENT’S DECISION-MAKING PROCESS


THE IMPACT OF ACCOUNTING INFORMATION ON MANAGEMENT’S DECISION-MAKING PROCESS  

CHAPTER ONE

INTRODUCTION

In recent years the advancement in information system modules all over the world has made business organizations to exert resources in this area if they are to compete favourably among their local and foreign counterparts. Gone were the days when business organizations were simply required to make profit, survive and provide a fair return to investors’ on their interest. The modern business organizations find itself in the atmosphere of global uncertainties, cut throat competition locally and internationally and unprecedented change in the economy. Hence, a great demand is often placed on the managers of these organizations to make pragmatic and informed decisions if the organization is to move forward as the success or otherwise of any

organization is often a function of the sum of the decisions taken in the past. However, the quality of decisions taken by managers rests upon the substance and accuracy of information provided by systems available to them. An accounting system is one of the most effective decision making tools of management as it provides an orderly method of gathering and organizing information about the various business transactions so that it may be used as an aid to management in operating the business (Copeland and Dascher, 1978). Accounting information

also may help managers understand their tasks more clearly and reduce uncertainty before making their decisions (Chong, 1996). Thus, Accounting Information system is vital to all organizations and perhaps, every organization either profit or non- profit oriented need to maintain an Accounting Information System as no organization is exempted from decision making in their operations. Accounting system, in recent times, has tended to be a system of information that does not stop at limits of data and financial information, but also it includes data and descriptive and quantitative information which is useful in decision making for users distinct with plurality and diversity. Such users include current and potential investors, lenders, suppliers, creditors, customers, governments and the public in addition to the administration, which is its responsibility to prepare the accounting programs and displaying it, that information must be

capable of achieving the goal that it has been prepared for. Hence the role of Accounting Information System for effective decision making cannot be over emphasized. It is noteworthy to say here that Accounting Information System derives its source from accounting data.

Accounting Information Systems produce results which enhances decision making. Hence, it can safely be concluded that Accounting Information System is not an end in itself but a means to an end i.e. decision making to improve corporate performance. Accounting Information System produces detailed and comprehensible accounting information which are invaluable basis for decision making.

1.1 BACKGROUND OF THE STUDY

 At independence, Nigeria joined the committee of nation with the hope for a better tomorrow. We were able to feed ourselves and were of course almost self-sufficient. Subsequently our hopes seemed unattainable. We seem to be going deeper and deeper into the woods. The consensus is that it has been bad for Nigeria.  Due to the adverse economic condition prevailing in the country many businesses have closed, shops and even financial institutions are being declared distressed at alarming rate. Businesses that are yet to be submerged or that want to stay afloat employ all kind of strategies. Some increase price, adopt promotional tools, engage in aggressive marketing etc. whereas others goes for an odd combination of activities and even undergo different kind of small business to survive.  Any business or individual that wants to survive must make the right decision. The era of mile of thumb is gone; employing it is a sure way to fail absurdly.  The price of any conceivable item from garri and bread to radio and book not to mention petrol has been soaring in      geometric proportions over the year. The economy is truly in distress. These compounds and complicates intricate are the problem of the organization vis-à-vis effective planning and decision making processes. Other factors such as stagflation, taxation, economic and political problem are the major problem which affects information and decision making. The future orientation is what most company and bank get from making accounting decision .the computation and interpretation of analytical ratios from financial statement enable bank to determine their operation trends and provide a basis for management decision making. Other users of financial analysis are used in making financial decision and achieving the goal of sustainability determines compliance with regulatory requirements. Financial analysis is an investment that has positive return in the future on how decision will be made, how to manage the finances to achieve the strategic goals of the institution through decision making. 

Many people think that accounting as a highly technical field which can be understood only by professional accountants actually nearly everyone practices accounting in one form or the other. In modern times, management require a wide variety of information to successfully accomplish its aim and objectives. This information is mainly determined by the element of uncertainty about the future and lack of knowledge about the present. Some of these decisions are of strategic importance having a large impact on the business, others are routine operating decision. Therefore accounting information is based on laws and regulations governing the handling of accounting report contained in the financial reports of organisation. 

Making the right decision depends on the possession of appropriate, accurate and up to date information provided and presented in a meaningful way. This study set out to examine the contribution of sound accounting system in providing the management with financial and other information basis for dealing with decision problems that arises from their organizational operations.

1.2 STATEMENT OF THE PROBLEM

Basically, the nature of manufacturing business compels it to carry out a great deal of book-keeping records based on accounting principles and information provided with the perpetual increase in the number of consumer of manufacturedproducts, it has become necessary to devise a systematic mean in handling the resultant book-keeping and accounting activities.  A lot criticism has always been made about the service of the organisation, consumers complain of low quality product while employers complain of lack of promotion inadequate salaries, lack of training etc.  Furthermore, the major challenge facing every financial institution\ business, organisation of today is market relevance. On-going fundament at changes in the global politics, economy and emerging competitions particularly challenges proper and adequate contemporal accounting information for management decision making. The company itself tries to coordinate all these challenge effectively and efficiently so as to minimize any anticipated and unanticipated pitfalls. If a sound and effective accounting system is applied property by the manufacturing organisation, the difference will be clear. 

Improper attention to the accounting system and handling of accounting information has given birth to the under mentioned problems.

1. Poor planning 

2. Result to poor decision making 

3. Poor organization and control of business activities and unsatisfactory service to its customers. 

4. Poor decision making in administrative activities of the organization

1.3 RESEARCH QUESTIONS

1. Are there problem in generating and utilizing accounting information necessary for management decision making process? 

2. To what extent does accounting information generated by accounts department contributed in decision in making process? 

3. To what extent does accounting information has improved effectively performed or fulfil the basic roles of cost minimization, proper allocation of scare resource and improvement in the production?

1.4 OBJECTIVE OF THE STUDY

The purpose of our paper is to find out which accounting tools are used in Wexiödisk and to

inform the reader about how those affects the decisions made by the company. In order to contribute to the attainment of the purpose the paper will pursue the following structure. As a start, the methodology will provide the reader with an insight into the process of how the study was conducted. Afterwards, the chosen theories are introduced, which include ideas of various accounting tools as well as decision-making. Fieldwork data, collected during our study, will be eventually presented and then compared with the theories in use. This allows for drawing conclusions that will be shown in the final section.

1.5 RESEACH HYPOTHESIS

NUMBER ONE 

Ho There are problem in generating and utilizing accounting information necessary for management decision making. 

H1 There are no problems in generating and utilizing 

accounting information necessary for management decision making. 

NUMBER TWO 

Ho accounting information generated by accounts department has not contributed in decision making process. 

H1 Accounting information generated by accounts department has contributed in decision process.   

NUMBER THREE 

Ho Accounting information has not improved effectively performed or fulfil the basic roles of cost minimization, proper allocation of scare resource and improvement in the production. 

H1 Accounting information has improved effectively performed or fulfil the basic roles of cost minimization, proper allocation of scare resource and improvement in the production?

1.6 SIGNIFICANCE OF THE STUDY

This research study will help to maximise the beneficial impact of accounting information on the decision making process of an organization. This boosts the profitability of the organization as well as ensuring its continuity as a business entity. It will help in the efficient allocation of scare resources that have alternative being use as well as increase productivity thereby uplifting the standard of living. It will review the improvement in the organization or company handling the accounting information and show equally the ways through which improvement could be accomplished. In fact, all interested groups like shareholders, employers, investors, creditors, government etc will benefit immensely.  This project will equally serve as a reference to student who may be interested to embark on a research of this nature.

1.7 SCOPE OF THE STUDY

The research cannot treat all aspect and kind of accounting information because the field is simply too wide. So only those relevant to these studies were dealt with as per need- ratio analysis, cost-volume- profit analysis, absorption and marginal costing, the contribution margin standard costing and variance analysis, linear program. 

The availability of correct and up to data is not easy, even when available; one still encounters wholly unnecessary bottlenecks due to our socio – cultural background vice versa disclosure of information and bureaucracy. So this constituted an impediment to this research work.

1.8 LIMITATION OF THE STUDY

Due to a lack of time for our research, we could not conduct this study as deep as we wanted and so some questions that we had did not find any answer. The most of the information we got come from interviews and questionnaires. During the interview we had sometimes the feeling that the interviewees are used to employ other words and vocabulary than we do. We couldn't choose other methods in addition as the research participant’s time was very limited. Indeed, such methods required more time than just a few months. There are limitations on resources for reference purposes especially responses on collection of data, many respondents give bias responses probably because of job protection, officer’s name and image protection, personal reluctance, unnecessary fear of legal implication and so forth.

1.9 OPERATIONAL DEFINITION OF TERMS 

EFFETIVENESS: The total or actual interest paid or earned in a year, expressed as a percentage of the principal amount at the beginning of the period. 

EFFICIENCY: A measurement of the ability of an organization to produce and distribute its product. In accounting terms it is qualified by a communism of the standard hours allowed for a given level of production and actual hour taken. 

ACCOUNTING INFORMATION: This is a system designed to obtain the financial position of an organization as at the end of the period. 

INFORMATION: Is a processed data used in obtaining detailed data about a particular person, thing or place. 

LEVERAGES: They are used by companies of its limited assets to guarantee substantial loans to finance its business. 

FINANCIAL INFORMATION: This is information summarized by a company’s activities over the last year. They consist of the profit and loss account, the cash flow statement etc. 

ANALYSIS: In standard costing and budgetary control, analysis of various in order to seek their causes. The total profit of various is analysed into sub – variance indicating the major reasons for budged figures. 

DEBT: A sum owned by one person or organization to a person showing that the debt to be required to be settled within one accounting period. 

RATIO: To put company’s performance in percentage. The use of accounting ratio to evaluate a company’s operating performance and financial stability. 

DECISION MAKING: This is the end of deciding between alternative courses of action. Running of a business, accounting information and techniques are used to facilitate decision models such as discounted cash flow. 

IMPACT: This means the duties responsibilities and functions. As it has to do with work, it is that fundamental obligation incumbent on the public relations for the attainment of democratic order in the organization policy. 

Accounting: Is the process of producing needed information regarding primarily the financial activities of economic entities by Bartho N. Kezee 1996. 

The wide scope of accounting can be recognized when one considers the diversity of economic entity which cut across sizes and bounders. 

Accounting is the language used to cover the result of the entity’s endeavours, to the interested parties inform of financial statement and the financial statement has been identified as follows: 

Statement of accounting policy. 

Balance sheet. 

Profit and loss account (income statements). 

Notes on the accounts. 

Statements of source and application of funds. 

Value added statement.

INFORMATION ON DECISION MAKING PROCESS 

Information consists of data that have been retrieved processed or used for information purposes and as a basic for forecasting and decision making process.

CHAPTER TWO

LITERATURE REVIEW

2.1 PREAMBLE/ PREVIEW/ INTRODUCTION

In recent years the advancement in information system modules all over the world has made business organisations to exert resources in this area if they are to compete favorably among their local and foreign counterparts. Gone were the days when business organisations were simply required to make profit, survive and provide a fair return to investors’ on their interest. The modern business organisations find itself in the atmosphere of global uncertainties, cut throat competition locally and internationally and unprecedented change in the economy. Hence, a great demand is often placed on the managers of these organisations to make pragmatic and informed decisions if the organisation is to move forward as the success or otherwise of any

organisation is often a function of the sum of the decisions taken in the past. However, the quality of decisions taken by managers rests upon the substance and accuracy of information provided by systems available to them. An accounting system is one of the most effective decision making tools of management as it provides an orderly method of gathering and organising information about the various business transactions so that it may be used as an aid to management in operating the business (Copeland and Dascher, 1978). Accounting information

also may help managers understand their tasks more clearly and reduce uncertainty before making their decisions (Chong, 1996). Thus, Accounting Information system is vital to all organizations and perhaps, every organization either profit or non profit oriented need to maintain an Accounting Information System as no organization is exempted from decision making in their operations.

Accounting system, in recent times, has tended to be a system of information that does not stop at limits of data and financial information, but also it includes data and descriptive and quantitative information which is useful in decision making for users distinct with plurality and diversity. Such users include current and potential investors, lenders, suppliers, creditors, customers, governments and the public in addition to the administration, which is its responsibility to prepare the accounting programs and displaying it, that information must be capable of achieving the goal that it has been prepared for. Hence the role of Accounting Information System for effective decision making cannot be over emphasized.

It is noteworthy to say here that Accounting Information System derives its source from accounting data. Accounting Information Systems produce results which enhances decision making. Hence, it can safely be concluded that Accounting Information System is not an end in itself but a means to an end i.e. decision making to improve corporate performance. Accounting Information System produces detailed and comprehensible accounting information which are invaluable basis for decision making.

.

THE IMPACT OF ACCOUNTING INFORMATION ON MANAGEMENT’S DECISION-MAKING PROCESS



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