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IMPACT OF
ACCOUNTING INFORMATION ON THE DECISION MAKING PROCESS OF AN ORGANIZATION
CHAPTER ONE
INTRODUCTION
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. 0kafor (2000)
The price of
any consumable 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 compounded and complicated intricacies are the problem of
the organization vis-Ã -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 operational trends and provide a basis
for management decision making. Other uses of financial analysis are 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 is 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 requires 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 operational decision.Drurry, (1973). Therefore accounting information is based
on laws and regulations governing the handling of financial information
contained in the financial reports of organization.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 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 based on accounting principles and information provided with the
perpetual increase in the number of consumers of manufactured products. It has
become necessary to devise a systematic means in handling the resultant
book-keeping and accounting activities. A lot of criticism has always been made
about the service of the organization, consumers complain of low quality
product while employees complain of lack of promotion, inadequate salaries,
lack of training etc. Furthermore, the major challenge facing every financial
institution\ business, organization of today is market relevance, on-going
fundamental changes in the global politics, economy and emerging competitions
particularly challenges proper adequate and contemporary accounting information
for management decision making. The company itself tries to coordinate all
these challenges effectively and efficiently so as to minimize any anticipated
and unanticipated pitfalls Edward (1976). If a sound and effective accounting
system is applied properly by the manufacturing organization, the difference
will be clear. Improper attention to
the accounting system and handling of accounting information has given birth to
the under mentioned problems which are the specific problems of this
study:
1. Perceived
difficulty in generating and utilizing accounting information.
2.Accounting
information generated by accounts departments contributes little to decision
making.
3. Inability
of accounting information to perform the basic function s of cost minimization
and profit maximization.
1.3OBJECTIVES
OF THE STUDY
The
objectives of the study are as follows;
1. To
determine whether there has been problem in generating and utilizing accounting
information necessary for management decision making.
2. To
ascertain the extent to which accounting information generated by accounts
departments has contributed in decision making process.
3. To
ascertain the extent accounting information has effectively performed the basic
roles of cost minimization, proper allocation of scare resource and improvement
in production.
1.4 RESEARCH
QUESTION
1.Are there
problems in generating and utilizing accounting information necessary for
management decision making process?
2. To what
extent does accounting information generated by accounts department contribute
in decision making process?
1.5 RESEARCH HYPOTHESES
Hypothesis
oneHo
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.
Hypothesis
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 making process.
1.6 SCOPE OF
THE STUDY
The research
cannot treat all aspect and kinds of accounting information because the field
is simply too wide. So only those relevant to these studies were dealt with
such as need- ratio analysis, cost-volume- profit analysis, absorption and
marginal costing, the contribution margin, standard costing and variance
analysis, linear programming. This study covers between 2010- 2014.
1.7
LIMITATIONS OF THE STUDY
The
availability of correct and up to date data is not easy, even when available;
one still encounters unnecessary bottlenecks due to our socio – cultural
background as regards disclosure of information and bureaucracy. So this
constituted an impediment to this research work.
Financial
and time constraints were seriously encountered by the researcher.
Computational procedures of various accounting information or tools are outside
the scope of the work. However, those deemed necessary may be treated. It is
impossible to cover all the companies, firms and other business outfits in
Nigeria as a sample, two companies in kogi state were studied and inferences
made there from. Deliberate effort is being made to have a worthwhile 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, officer’s name and image protection, personal reluctance,
unnecessary fear of legal implication and so forth.
1.8SIGNIFICANCE
OF THE STUDY
This research
study will help 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 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.
1.9DEFINITION
OF TERMS
INTEREST:
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 combination 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 information about a particular
person, thing or place.
LEVERAGES:
They are used by companies on its limited assets to guarantee substantial loans
to finance its business. FINANCIAL
INFORMATION: This is information summarized bya 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 variance in order to seek
their causes. The total profit of variance is analyzed into sub – variance
indicating the major reasons for budged figures.
DEBT: A sum
owed by one person or organization to a person showing that such debt are
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 involves deciding betweenalternative courses of action. In running
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 this
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. The wide scope of accounting can be recognized
when one considers the diversity of economic entity which cut across sizes and
borders. Accounting is the language used to convey the result of the entity’s
endeavors to the interested parties. An example of financial statement has been
identified as follows:
Statement of
accounting policy. The balancesheet. (Statement of financial position)Profit
and loss account (income statements).
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