ASSESSMENT OF THE EFFECTIVENESS OF ACCOUNTING INFORMATION AS A TOOL FOR MANAGEMENT DECISION

BACKGROUND TO THE STUDY: The effectiveness of accounting information as a tool for management decision cannot be over emphasized. Accounting keeps the financial score for a business, it call attention to the problem and the opportunities that comfort the enterprise. Where action in needed, it suggests possible solution or answers. Accounting is an intellectual discipline, we need a working definition, accounting is defined as the act of analyzing evaluating and interpreting an organization financial activities and communicating the result to those who are interested. It can also be defined as the process of identifying, measuring and communicating  the result to those who are interested. It can also be defined as the process of identifying, measuring and communication economic information to facilitate informed judgment to serve organization objectives. (According  to WALGENBACH, P.H.. ET AL 1977), in his book “Financial accounting and introductory”.  From the definition above, it could be observed that accounting is not restricted to the recording of transaction in monetary terms but it also provide information to its users. Accounting can be widely classified into two categories, they are:

USERS OF ACCOUNTING INFORMATION

Accounting information are required and used by various classes of people e.g. owner of the business, the government, investors, employees and creditors.

 Sizer john (1969): say that “ the owners of the business share performance, compare their organization with similar others to enable them decide either to increase or decrease their share in the company. Through the use of accounting information, the government can determine that business are meeting their legal obligation to pay taxes, contribute social security benefits for their employees and also satisfy other regulations such as those concerning the registration and trading of their stock.

An organization needs qualitative information to function or make decision; the available of such information make the organization to function in the most effective and efficient manner. This information is provided by the accounting system to the management, which uses it primarily to accomplish three (3) broad purposes, viz:

i.             To provide financial statement to interested external users

ii.            To plan the operations of the organization in both the short and long run.

iii.           To control the result of its operations

In financial accounting, the responsibilities of the accountant ranges from recording and analysis, summarizing and reporting the result of the activities of the organization to creditors, stock holders and prospective investors, government, labour, environmental organization and others. In the case of reports to external users, they are classified for general purpose; they are financial statement, the income statement, the retained earnings, the balance sheet and the statement of financial position. People who protest or enhance their investment in the organization as by other who have a special interest in it use this statement. In management accounting, accountants provide information for use by office within the organization (the managers) rather than for use by other outside the organization, such information are mainly decision making concerning the internal function organization. Management accounting also provides information to the decision makes for the following purpose:

i.             Formulation of policies

ii.            Planning and controlling the activities of the enterprises

iii.           Safeguard the assets of the organization

iv.          Disclosure of employee’s area of specialization

v.           Decision taken alternative cause by action.

Management and financial accounting may be understood by considering the basic goals of financial accounting is to direct forms of operations to maximize income the period measure net income used by the management in making decision to avoid what may be considered as an unwise decision to external user or vice versa. However, the relevance accounting information effective decision making in this research work, the degree of the relationship shall be clearly spelt out and identified.

The choice of the topic “Accounting information as a tool for management decision making” has been motivated by the fact that whatever accounting on information is presented to has been collected, classified and analysis will determine the extent to which it is to be relied upon by the management in order to formulate a favourable decision in the organization.

The project therefore examines the relevance of accounting information to managerial decision making with a view to highlighting the area of weakness and making necessary recommendations.

It is in fact in the light of the above that attempt be made to appraise the essence of accounting information in making decision concerning he use of limited resources, including the identification of the overall organization objectives.

1.2 STATEMENT OF THE PROBLEM

Management who thinks that they operate successfully without the use of the information provided by the accounting and up being economic failure to their respective industries, and some times course embarrassment to the organization. Take for instance, the accountant of an organization provide his manager with the information that there is no fund for any programme execution in the company. Despite this information, the manager went ahead an instructed the accountant to draw a cheque payable to a contractor who supplied some materials to the organization for settlement. Due to this action of the manager, the following condition is bound to happen.

·              This cheque is going to bounce because there is no money in the company’s account

·              If care is not taken, the contractor may sue the organization (company)

There are many different types of decision for which managers need accounting information, listed below are four (4) examples of typical question that regularly confront managers, they include:-

i.             What product line is to be produced?

ii.            What price should be set for a product line?

iii.           Should old equipment be replaced with new ones?

iv.          Should a product line be dropped?

v.           Has an employee performed well enough to warrant a bonus?

vi.          Should short-term borrowing be arranged to finance current operation?

For managers to make the best decision to resolve each of these questions the management accountant must provide quantitative information that is timely and relevant, it is with this information that managers can properly plan and control the organization operations. And these are some of the question and problems this research work intend to prepare solution to:

In conclusion, managers cannot take effective decision if the information provided to them but their accountants are not properly adhered to. It is this kind of problem that form the basis of this research work in which the relevant of accounting information in management decision making will be examined.

1.3 OBJECTIVES OF THE STUDY

The primary objective of the study is to assess the effectiveness of accounting information as a tool for management decision. Other objectives of this study therefore include the following.

1. To examine the importance of accounting information for decision making           

2. To carefully look at the need for accounting information as a vital tools for managerial decision making

3. To know the extent management of the company under review have been using the accounting information given to them

4. To examine the challenges of using accounting information as a vital tool for managerial decision making

1.4 RESEARCH QUESTIONS

1. Is accounting information important for decision making?

2. Why is accounting information needed for managerial decision making?

3. To what extent does management use accounting information given to them?

4. What are the challenges of using accounting information for decision making?

1.5 SIGNIFICANCE OF THE STUDY

The study is aimed at establishing whether there is any correlation between the accounting information provided by the account department (accountants) and the decision made thereof by the users of the information, most importantly management of First Bank of Nigeria LimitedAbdullahi Fodio Road Branch, Sokoto.

These groups will benefit from the research namely;

(i)The organization under study

(ii)Business Managers

(iii)Future researchers, and

(iv)The researcher personally.

(i) The Organisation Under Study

The management of the organization will use the research where applicable as a tool for formulating policies for the firm as a standard of evaluating accounting information and control of their accounts department through financial decision.

(ii) Business Managers

The work will also go a long way to educate managers on the relevance of a sound accounting information in decision-making process of their organisation and subsequently on its growth.

(iii) Future Researchers

The work will serve as a source of secondary data to future researchers who intend to carry out further research work on “accounting information as a tool for management decision making” or any related topic. It will also help students in the accounting department to have in-depth knowledge of the practical application of accounting information.

(iv) The Researcher Personally

The research will enable us imbibe thorough knowledge of the uses of accounting information as a tool for management decision making. It will also give foresight on the applicability of accounting information on the Management of the Bank.

1.6 SCOPE OF THE STUDY

This study will be focusing on the assessment of the effectiveness of accounting information as a tool for management decision. It will also focus on the importance, need and the challenges of using accounting decisions for managerial decision making.

The management and staff of Flour Mills of Nigeria, Calabar will serve as enrolled participants for the survey.

1.7 LIMITATIONS OF THE STUDY

The project is limited by many factors which posed as snags or obstacles to the smooth compilation of the work. It is important that users of the work note the limitations in the course of carrying out the work. The significant problems faced include the following;

Finance

The economic turndown coupled with inflation has increasingly raised the cost of materials. This led to the devaluation of Naira affecting every aspect of the Nigerian economy. The impact of this on the study is enormous limiting visits to the respondents and qualitative materials for carrying the study.

Time

Time is another limiting factor which acted as a snag to the completion of the project, though lengthy period was given for the submission of the work but considering the academic pressure coupled with the writing of the project made things not too really easy for the research.

1.8 DEFINITION OF TERMS

Accounting

This is the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information.

Information

This is a complete set of processed data that has a meaning.

Accounting information

These are processed data used by an organization to make financial decision.

Financial Accounting

It is the process of collecting, classifying, recording, summarizing and communicating data in respect of event, which can be expressed in terms of money for the purpose of making decisions.