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

CHAPTER ONE

1.0 INTRODUCTION

Accounting is something other than a set of clever devices for beating the income tax with little or on damage to one conscience, something more than specious way of window dressing where the best possible appearance is given to somewhat undesirable stock of goods. It is a universal language of business.

Industry and commercial activities involves, capital, man, material and machines and bring into their compass transportation, finance, insurance, banking and other features of our complex economic life. One common factor could be used to focus these activities. Money in business plays a dual role. Firstly, as physical economic factor of production and secondly as an abstract economic measure of value.

The final reconciliation of all the elements of business is reflected in the account, in term of money and if the value of money changes the fact must be recognised and taken into account. It is necessary to be able to measure the economic value in any combination together with the value of the utility.

One among numerous tasks of accounting is to reduce the multitude of these transactions to its virtual figure of profit and loss. The principle applicable is financial control. The modern technique of management of any business or foremost in its thinking should be: firstly, is to earn profit and secondly, to stay to pay debts as they fall due, of course, there are other objectives of business manager such as providing more goods and services at a lower cost. It meets the two basic task of survival, operating profitability and solvency.

The following question may arise. How do business executives know whether a company is earning profit or incurring losses? How do they know whether the company is solvent or insolvent, say a month from today? The answer to these question is in one word ACCOUNTING.

Oyebamiji and Adebisi, (2005) “defined accounting as the recording of economic events associated with an enterprises using information and data which is usually expressed in numerical and monetary terms, and the communication of the result of this in the form of financial statement to user groups”.

CAMA (1990) “Defined accounting as the art and science of recording business transaction in a methodical manner so as to portray: the true state of affair of business at a particular period in time and the surplus or deficiency which as occurred during a specified period”.

On the other hand, managing a business when simply stated is a matter of deciding what should be done, seeing to it that the means are available and getting people employed to the business to do it. The service which the accounting information or function provides for the assistance of management, bearing in mind the efficiency of past operations and current activities as well as projection  of probable future results. If an accounting system is designed to aid all the grade of managers, the will figures will not only be shown as over all totals for the business but they will also be analysed as far as practicable to demonstrate the contribution of each manager to the result. The integration of data relating to the various managers will help general management to achieve one of its fundamental tasks that of coordination. If the figures are submitted in a form which suggests a corrective action required to overcome inefficiency, management will have grounds for the exercise of another of its basic function control.

At every step in this process, management is faced with alternative, and every decision to do refrain from doing something involves a choice successful manager must make the right choice when the “chips are down”. In most cases, the probability that a good decision will be made depends on the amount and validity of the information that the manager has about the alternatives and their consequences information, which flow from the accounting data constitute the basis on which a wide variety of business are made.

The use of accounting information as a tool for decision making demands that figure relating to past operations be presented and primarily as guide to the future. The emphasis has changed from purely “historical” accounting to the submission of purposefully up to date information as a means of controlling current operation and projection of probable future as a guide to planning.

If an enterprises is to be successful, there must be a reliable advanced planning, it must be reliably planned which will be able to assimilate changes in condition which may occur and which are at present unforeseen. It in this field that modern accounting techniques produce their greatest service to industry in general and to manager in particular and it is on the basic of sound financial accounting that this service is achieved.

1.1 BACKGROUND OF THE RESEARCH

Accounting is a language which is used to communicate financial information to people: managers, shareholders, employees and potential investors or creditors. This belief gave rise to the definition of accounting as:The process of identifying and communicating economic information to permit informed judgment and decisions to users of the information (AAA: 1966, as in fess and warren 1984:7).

Woelfel (1980:7) described accounting as that which “provides the eyes and ears to management”. He further states thus: Accounting is the language of business; it shows business what it is doing and where it is going financially and also keeps score for a business. It shows problems and opportunities that confronts the business, and also suggests possible courses of action, when action is needed.

Selto and Bruce (1987:2) defined accounting information as “any data which must cause a decision maker to allocate resources among various factors or redistribute wealth among individual” while (Hobbs and Moore 1979:4) defined accounting information as “an output of an accounting system which takes the form of financial reports which in turn are used not only to appraise and monitor the past performance of individuals and groups, but also used to design and make designs affecting the future”. It has also been defined as a product of processed data in an accounting system. Thus, accounting information has its aim, the provision of relevant, timely and accurate information to aid managers in their decisions. In other words, accounting information is the end product of the activities of the accounting system.

Accounting information system encompasses the processes and procedures by which an organization’s financial information is received, registered, recorded, handled, processed, stored, reported and ultimately disposed off. Accountants have been historically conditioned to visualize a transaction processing model (Davis et al 1990: 4). Walgenhach et al (1988: 4) said virtually all profit seeking organizations and most non-profit organizations maintain extensive accountingrecords. One reason is that these records are often required by law. A more basic reason is that, even very small organization, a manager is confronted with a multitude of complex variable. Not even the most brilliant manager can be sufficiently informed just by observing daily operation instead, he/she must depend on the accounting process to convert business transactions into useful statistical data that can be abstracted and summarized in accounting reports. In every sense, this process is essential to the coordinated and rational management of most organization regardless of their size. The method used by a business to keep records of its financial activities and to summarize these activities in periodic reports comprises of the accounting system (Meigs, 1987: 2). Accounting information has a special meaning in that. It is data organized for special purpose that is for decision making (Glaviter, 1990: 12). This view was adopted by (pondy 1987: 426) where he said that accounting system must use standard criteria such as full disclosure, materiality, consistency, conservation and fairness. Accounting is closely related to general field of study including economics, finance, political science, psychology, and sociology and communication theory. By applying psychological principles, accountants learn how people process accounting information and how that information affects their decision (Williams 1975: 3).

1.2STATEMENT OF RESEARCH PROBLEM 

Most business organisation does not use accounting information in making their business decision. The question is: why is it that most business organisations do not make use of accounting information in their business decision making. It is because most of them do not keep accounting records? Is it because they do not know the importance of accounting information? Is it perennial problems associated with their liability to recruit trained and professional accounting personnel? As a result, the qualities of the decisions made by business organisation are very poor.

Some of their decisions are based on the “rule of the tumb”. Since they do not prepare management accounting reports, they make poor quality decisions in the following areas; sales, production, finance, marketing, advertisement, undertaking new project, dropping or adding new product lines, sources of raw materials and so on. Consequently, some of the small enterprises are folding up and some are just there for the sake of being in business.

1.3 OBJECTIVES OF THE STUDY

The main focal point and idea of this research work is centered on the research title which is to assess and ascertain the effectiveness of accounting information as a tool for management decision in an organizational. More to that to highlight the importance of accounting information to the decision makers of any organizational management sectors. Other objectives of the study are;

1.To find out whether business organizations keep proper accounting records.

2.To find out whether they employ trained and qualified accountants.

3.To investigate to what extent business organizations make use of accounting information in business decision making.

4.To highlight the importance of accounting information in business decision making.

5.To make recommendation based on the findings.

1.4 SIGNIFICANCE OF THE STUDY

The significance of this study is that it shows the necessary or importance of using accounting information in business decision making. in order to achieve the objective of any business organisation, accounting information must be used in making business decision.

The study is beneficial to all business organisations, because it indicates the importance of using accounting information in business decision making. As already mentioned, some of the business organisations do not use accounting information in their business decision making, and as a result, they make wrong decisions.

The study is also beneficial to the federal and state governments as they might be compelled to take the necessary actions, in order to prevent to collapse of business organisation in Nigeria.