THE ROLE OF ACCOUNTING INFORMATION AS AN AIDS TO DECISION MAKING

THE ROLE OF ACCOUNTING INFORMATION AS AN AIDS TO DECISION MAKING

CHAPTER ONE

1.1     INTRODUCTION

          BACKGROUND OF THE STUDY

          At independence Nigeria joined the committee of nation with the hope for the better tomorrow. We were able to feed ourselves and were of course almost self-sufficient. Subsequently, our hopes seemed to be unattainable. We seem to be going deeper and deeper into the woods. The consensus was that it has been bad for Nigeria. Due to adverse economic condition prevailing in the country, many businesses have closed shops and even financial institutions have been 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 add combination of activities and even undergo various 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 bread to radio and book not to mention petrol has been soaring in geometric proportions over the years. The economic is of a truth in distress.

          These compounds and complicated intricate are the problem of the organization, effective planning and decision making processes.

          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 operational trend and provide a basis for management decision making.

          Other users of financial information are used in making financial decision and achieving the goal of sustainability determines compliance with regulatory requirements, management is an investment decision will be made how to manage the finances to achieve the strategic goals of the institution through decision making.

          In modern days, management requires a wide variety of information to successfully accomplish its aim and objectives. This information is mainly to determine by the element of uncertainty about the future and lack of knowledge about the present. Relevance 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 organization.

          Making the right decision depends solely on the possession of appropriate, accurate and up to date information provided and presented in a meaningful way. This study is 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 increased in the number of consumer of manufactured products, 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 organization, consumers complain of low quality product while employers complain of lack of promotion, inadequate salaries, lack of training.

          Furthermore, the major challenge facing every financial institution / business, organization of today is market relevance. The company tries to co-ordinates all these challenges effectively and efficiently so as to minimize any anticipated and unanticipated pitfalls.

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

  • Result to poor decision making
  • Poor decision making in administrative activities of the organization.
  • Poor organization and control of business activities and unsatisfactory service to its.

 

1.3     OBJECTIVE OF THE STUDY

  1. To ascertain the extent accounting information effectively performed or fulfills the basic roles of cost minimization, proper allocation of scare resource and improvement in the production.
  2. To determine whether there has been problem in generating and utilizing accounting information necessary for management decision making.
  3. To ascertain the extent in which accounting information generated by accounts departments has contributed in decision making process.

 

 

1.4     SIGNIFICANCE OF THE STUDY

          This research study, will aid to maximize 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 use as well as increased in productivity, thereby up lifting 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 benefits immensely. This project will equally serve as a reference to student who may be interested to embark on a research of this nature.

 

1.5     RESEARCH QUESTIONS

  • Are there problem in generating and utilizing accounting information necessary for management decision making process?
  • To what extent does accounting information has improved effectively performed or fulfill the basic roles of cost minimization, proper allocation of scare resource and improvement in the production?
  • To what extent does accounting information generated by accounts department has contributed in decision making process?

 

 

 

                                                                           

1.6     SCOPE AND LIMITATION 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.  This constituted and impediment to this research work.

Financial and time constraints were seriously encountered by the research

 Computational procedures of various accounting information or tools are outside the scope of work. Those deemed necessary may be treated.

          It is impossible to cover all the companies, firms and other business outfits in Nigeria. A sample of the two companies in Akwa Ibom State was scheduled and references were made from these.

          Though deliberate efforts is being made, to have a work whole study with sufficient validity and reliability. This work should not be viewed as a final solution to impact of accounting information on decision making process.

          There are limitations on resources for reference purposes especially responses on collection of data, many respondents give bias responses probably because of job protection, officers name and image protection, personal reluctance, unnecessary fear of legal implication and so forth.

 

 

 

1.7     DEFINITION OF TERMS

EFFECTIVENESS: 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

EFFICIENCT: 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: t is a system designed to obtain the financial position of an organization as at the end of the period.

 

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

 

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 and so on.

 

ANALYSIS: In standard costing and budgetary control, analysis of various in order to seek their causes. The total profit of various is analyzed into sub-variance indicating the major reasons for budget figure.

 

DEBT: A sum owned by one person or organization to a person shown 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 entitles 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 t result of the entity’s endeavour, to the interested parties inform of financial statement has been identified as follows:

  1. Statement of accounting policy
  2. Balance sheet
  3. Profit and loss account (income and expenditure statement)
  4. Notes on the accounts
  5. Statement of source and application of funds
  6. Value added statement

 

INFORMATION ON DECISION MAKING PROCESS

Information consists of data that have been retrieved processed or used for forecasting and decision making process.

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