ASSESSMENT OF EFFECTIVENESS OF ACCOUNTING INFORMATION AS AN INSTRUMENT FOR MANAGEMENT DECISION (A CASE STUDY OF MANUFACTURING COMPANIES IN LAGOS STATE)

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Accounting information is a part and parcel of today’s life which is necessary to understand the accurate financial situation of the organization and used as the basis of making any decisions. Since strategic decisions have long-term effect on the business and therefore it is important to analyze accounting information for making strategic decisions. Accounting information helps managers understanding their tasks more clearly and reducing uncertainty before making their decisions (Chong, 2010). Accounting is sometimes referred to as a means to an end, with the ending being the decision that is helped by the availability of accounting information (Arneld and Hope, 2013). Accounting systems can aid in decision making providing information relevant to the decision and to the decision maker (Gray, 2010). Effective and efficient accounting information plays a central role in management decision making (Trimisiu Tunji, 2012). Accounting information is one type of information recognized as a ‘learning machine’ that can help to evaluate how objectives might be achieved by quantifying the financial impact of each alternative available to the decision (Burchell et al., 2014). Accounting and financial information are among the most important information widely used in the managerial decisions (Royaee, Salehi, & Aseman, 2012). Within contemporary economic conditions, a successful manager needs a lot of reliable accounting information in order to be able to make quality business decisions (Miko, 2009). Economical information especially financial and accounting ones are the information which always managers use in short term and strategic decisions and they may have most application among different variables effective in decision-making and in all types of decisions (Royaee, Salehi, & Aseman, 2012 and Hubber, 2013). Strategic decisions, when the decision maker aims for long periods of time, allocates all or part of the company's core assets to achieve that goal; such decisions are usually adopted at top management (Eugenia1 and Tiberiu, 2013). Strategic decisions are among the most distinctive decisions in an organization and these are used for determining the goals and direction for long-term company development. Basically top management is involved in these sorts of decisions. They decide on company policy, long-term and annual business plans and the organizational structure, i.e. anything that is linked to the future of the company. A wrong strategic decision have far-reaching, negative effects on the company, which in turn places a lot of responsibility on the shoulders of the strategic decision maker (Sikavica, et al.2014). In this study, five strategic decision making areas such as basic, manufacturing, human resource, marketing, long-term investment were selected. These strategic decisions making somehow depend on accounting information. Without accounting information manufacturing department can’t know what is going on with the production cost and equipment cost. For hiring, training and promotions, human recourse manager somehow depends on accounting information. For developing new product or determining the sales commission, a sales manager needs proper accounting information. Accounting information also helps to take long term investment decisions by giving the proper view of present condition and would be condition of the organization. Though top management needs accounting information in every step to take any sorts of strategic decisions but no significant study were found to be conducted on the role of accounting information in strategic decisions making in manufacturing industries in Bangladesh. Therefore, the study was initiated to evaluate the importance of accounting information in decision making.

1.2 STATEMENT OF THE PROBLEM

Information is indispensable for decision making in any business organization. Generally, the use of accounting information will become critical factor in changing competitive environment, for business firms to effectively and efficiently make decision. The major problem discovered for management is the identification of fundamental concept of accounting information to be implemented by each company which can affect the company positively or negatively and therefore, there is a problem. If a particular concept of accounting information used by the company affect the management decision negatively, and this helps us to recognise the reason for the negative effect, which can be as a result of adoption of wrong accounting information or uncertified accountant giving wrong information to the company which can lead to wrong decision to the progress of the company. The problem however lies in the quality and validity of the information, that is, if it is timely, adequate, and clear. The major purpose of the use of accounting information is to minimize risk, failure and uncertainties and also stay ahead of competitors. Notwithstanding the immense benefit of use of accounting information, it is generally acknowledged that most unqualified accountants generate inaccurate information and so result in failure of organizations to achieve desired goal. These problems largely contribute to the failure of the use of accounting information in business with the result that inaccurate decisions are made to the detriment of the organization. It is only through accounting information that managers and external users get a picture of the organisation as a total entity. Managers who fail to realise this do not appreciate an accountant’s analysis in respect of financial accounting information generated. This may lead to poor decision being taken and it may affect the profitability & performance of the organisation. Some organisation due to low financial layout causes the effect & importance on decision to be taken not to be noticed or gained by the organisation. The researchers in this study will seek to show the information management can derive from financial accounting & their usefulness for decision making in Business. The purpose is to see the need for accounting information to any business organisation how it aids in management decision making.

1.3 AIMS OF THE STUDY

The major purpose of this study is to examine the effectiveness of accounting information as an instrument for management decision. Other general objectives of the study are:

1. To examine how accounting information may be used to control fraud and mismanagement of funds.

2. To examine the need of accounting information as a vital tools for managerial decision making.

3. To examine the influence of accounting information as an instrument for management decision.

4. To examine the problem remedied of getting information for decision making in business organizations.

5. To examine the relationship that exists between accounting information system and management decision making process.

6. To make suggestions as to the usefulness of accounting information to the users in general.

1.4 RESEARCH QUESTIONS

1. Can accounting information be used to control fraud and mismanagement of funds?

2. What are the needs of accounting information as vital tools for managerial decision making?

3. How is the influence of accounting information as an instrument for management decision?

4. What are the problems remedied of getting information for decision making in business organizations?

5. What is the relationship that exists between accounting information system and management decision making process?

6. What are the suggestions as to the usefulness of accounting information to the users in general?

1.5 RESEARCH HYPOTHESES

Hypothesis 1

1. There is no significant influence of accounting information as an instrument for management decision.
2. There is a significant influence of accounting information as an instrument for management decision.

Hypothesis 2

1. There is no significant relationship that exists between accounting information system and management decision making process.
2. There is a significant relationship that exists between accounting information system and management decision making process.

1.6 SIGNIFICANCE OF THE STUDY

The study findings will be of immense importance in the sense that they will assist management of manufacturing firms to realize how to carry out their managerial responsibilities. Since accounting information is dynamic and full of potentials not yet tapped, the comments and recommendations of this work will, hopefully, assist manufacturing firms and all businesses to improve on their managerial functions and decision making. In essence, the study will be beneficial and add knowledge to students so as to enlighten them more on accounting information and managerial functions. The study shall therefore serve as a reference for further research.

1.7    SCOPE OF THE STUDY 

The study is based on the assessment of effectiveness of accounting information as an instrument for management decision (A case study of manufacturing companies in Lagos State).

1.8 LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

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.

Accountant: This is a professional whose job is to prepare and keep the books of account of an organization.

Management Accounting: This is a process of allocating resources by planning, organizing, controlling and directing for the purpose of producing desired output.

Management: This means a group of decision makers or managers in an organization who see to the smooth running of the affairs of the business.