ACCOUNTING INFORMATION AND ITS ROLE IN THE MANAGEMENT OF BUSINESS ORGANIZATION.

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Listed companies use financial statements as one of the major medium of communication with their stakeholders. Therefore, stock market regulators and accounting standards setters try to improve the quality of financial statements in order to increase the transparency level in financial reporting. (Vishnani 2008).

Accounting plays a significant role within the concept of generating and communicating wealth of the companies. Financial statements still remain the most important source of externally possible information on companies

Financial information is essential in making sound investment decisions and it will reduce the informational irregularity problem between the firm’s managers and the investors. (Hossain 2004).

Though the investors use non financial information in order to make investment decisions, still conventional investors give more weight to financial information. According to the survey done by the Bosten College (2007), 62% of respondents favour financial information and only 38% favour the use of non financial information for investment decisions.

Until approximately 42 years ago no arguments were encounter on relevance of Accounting Information. (Dung 2010). But, recent empirical studies explored that Accounting Information in published financial statements lost their relevance over the period of time. (Ball and Brown, 2009).

            An understanding of the accounting information is that it covers information that is used to prepare financial statements which report the results and financial position of a business to the decision makers. (Dung 2010).

Owners and management use this information to judge about the results of business operations and make decision about their management. External users like creditors, suppliers, tax authorities also use accounting information for their decision making, i.e. judging whether the business will be able to return loans, pay for goods sold, whether taxes are paid correctly, etc.

To be useful and used accounting information must be compliant with fundamental accounting assumptions and conventions.

Accounting information has to be:

·         Fair (correct) - present fairly and correctly results of operations and financial position of the business

·         Consistent - presentation and classification of items in the financial statements must be the same from one accounting period to the next

·         Prudent - accounting for certain items requires making judgments, these must be made with prudence to ensure assets or income are not overstated, liabilities or expenses are not understated

·         Material - material items must be disclosed separately, immaterial items can be aggregated into groups

·         Relevant - accounting information must be useful assisting users in their decision making process

·         Reliable - free from material mistakes and errors

·         Complete - presented without omission of material information

·         Comparable - providing ability to compare information through time and with other entities

·         Understandable - users without specific accounting knowledge must understand the accounting information

To ensure the above characteristics each business must have people, accounting procedures, software to process information and control system to control all the process. All these means are called accounting information system.

          Every organization needs accounting information for the proper management of the organizational activities and decision making process. To be able to fully access and examine the relevance of accounting information in the management of organizations.

1.2 STATEMENT OF PROBLEM

The following are that statement of problems for this study:

1.      Providing a solution to the problems that exist between accounting information and decision making process.

2.      There is the problem of the dependence of investor’s decision making on accounting information. Without confidence in the existing accounting information of a particular organization, it will negatively affect investor’s decision making.

3.      There is also the problem of determining how relevant are accounting information to the bank, investors or the government.

1.3 OBJECTIVES OF THE STUDY

The objectives of the study are as follows:

1.     To assess the relationship between accounting information and decision making

2.     To examine the relevance of accounting Information on Investors decisions.

3.     How it is relevant to the bank, investors and the government.

1.3 RESEARCH QUESTION

The following are the research question of this study to help the research generate more research findings.

1.     Is there significant relationship between accounting information and management decision making?   

2.     Does the decision of the investors to invest in stock depend on the available accounting information?

3.     Are the available Accounting Information in commercial banks so reliable in such a way that investors will have confidence in it?

1.4 RESEARCH HYPOTHESIS

Based on the foregoing, the following research hypotheses formulated will be empirically tested and result gotten will serve as a spring board for recommendations. From the hypothesis below it is clear that there is no relationship existing between the Null hypothesis and the Alternative hypothesis. These are as follows:

1.     Ho: there is no significant relationship between accounting information and           management decision makingHi: there is significant relationship between accounting information and management decision making

2.     Ho: the decision of the investors to invest in stock does not depend on the available accounting information of the organization in question.Hi: the decision of the investors to invest in stock depends on the available accounting information of the organization in question.

3.     Ho: The available Accounting Information in commercial banks are not reliable in such a way that investors will have confidence in it?Hi: The available Accounting Information in commercial banks are reliable in such a way that investors will have confidence in it?

1.5 IMPORTANCE/SIGNIFICANCE OF THE STUDY

The researcher now discovered that it will be reasonable to encourage Nigeria banking sector to introduce a proper and vital accounting information system so that the general public can have confidence in the available accounting information. Without confidence in accounting information as a whole, investors will not take their investment decisions. This shows that investors generally not focus on short term capital gain or irrational for unusual events. Therefore, accounting standards setters should enhance the quality of the financial reporting in order to increase the value relevance of accounting information.

1.6 SCOPE OF THE STUDY

This research project basically covers such area as accounting information as well as financial statement, it relevance to general public in the area of business management and investment decision making. The area covered in the research work is limited to Zenith Bank Plc, Agbor Road Branch, Benin City which was used as a case study.

1.7 LIMITATION OF THE STUDY

During the conduct of this research work, some factors posed as constraints to the determined efforts of the research to carryout the research study to such a depth and in such a manner that it ought to have been carried out judging from its relevance to management, such factors include:

a.     Management Restriction: it’s no doubt that management usually refused to allow access to information that are considered very confidential in nature like detail information of the organizational corporate profile. As a result of the restrictions the researcher was able to work with only the information that was accessible.

b.     Time Constraint: Time is also another factor tat acts as hindrances in carrying out this research study. This is as a result of the fact that other things were still being attended to in the course of carrying out this research work.

c.      Financial Constraint: money also acts as a problem in the conduct of the research work. Traveling expenses were incurred in getting the materials for the research work. Also incurred, were expenses for the typing and distribution, building and a lot of other expenses.

1.8 METHODOLOGY OF THE STUDY

 A survey of individuals in this study involves with accounting information and its role in the management of business organization which was conducted in order to obtain relevant data for the study. In order to obtain demographic information about organizations as regards accounting information, questionnaires were sent to Zenith Bank plc, which is the primary source of data used for this research work. The purpose is to get the organization’s views on a number of issues regarding accounting information and its role in the management of business organization. In addition, was the secondary source of data which was considered most helpful in this study. The secondary sources from which data was collected include: textbooks from library, and different websites on the internet.

All the information gathered will be analyzed by the use of tabulation that is arranged in sub-topics according to their relevance to the hypothesis formulated before. Table and simple percentage will be used to carefully analyze the data collected. After each table a brief explanation would following to understand fully the positive and negative responses of the respondents. Thereafter, hypothesis will be tested based on the data collected and analyzed.

1.9 DEFINITION OF TERMS

Accounting Information System - An accounting information system (AIS) is a system of collection, storage and processing of financial and accounting data that is used by decision makers.

Accounting: According to James Ilaboya 2005, accounting is the fundamental processes of developing theories for the discipline of accounting. And the primary aim of accounting theory has been to provide a basis for the predication and interpretation of accounting behaviours and events.

Accountant: An accountant is a practitioner of accountancy or accounting, which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and others make decisions about allocating resources. Hadi (2004).

Efficiency: This is a fact of performance which relate to the rate of resource utilization (ie cost incurred in the course of the work. Ovuorie (1997).

Financial Accounting: According to James Ilaboya 2005, Financial Accounting is the fundamental processes of developing theories for the discipline of accounting. And the primary aim of accounting theory has been to provide a basis for the predication and interpretation of accounting behaviours and events.

Policies: Koontz Donnell and Weihrich (1980) define policies as a general statement or understanding which guide thinking in decision making; the essence of policies is the existence of discretion, within certain limits in guiding decision making.

Ethnics – rules, principles or order governing a profession.

Leader – person in authority (Head of a country or organization).

Management – the art of running and controlling a business or similar organization. According to Fubara (1986) views management as an activity carried on in an environment that comprise of resources in capital and human, having alternative uses.

Dishonesty – lack of trust and intending to deceive people.

Measure – steps, methods to control situation.