The Impact of Accounting Information on Decision Making Process
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Abstract on The Impact of Accounting Information on Decision Making Process
The study examined the impact of accounting information on decision making process, a study of commercial banks in Ogun state, Nigeria.
The research adopted the descriptive survey research. This design creates avenue for describing existing conditions through the collection of primary data. The data obtained from the administration of the questionnaires were analyzed using the descriptive statistics techniques such as tables, percentage, frequency and mean. Furthermore, the Pearson Correlation Analysis was employed to empirically ascertain the degree of relationship between accounting information on decision making process.
The study employed the survey design and the purposive sampling technique to select 450 staff from the three banks that was used for the study which are, Zenith, GTB, First Bank Plc. A well-constructed questionnaire, which was adjudged valid and reliable, was used for collection of data from the respondents.
The results showed that there is positive and significant relationship between accounting information and decision making process (r=0.772; p<0.05).
The study concluded that accounting information has a significant effect on decision making process in commercial banks in Ogun state, Nigeria.
The study suggest that; Effort should be made at employed professional staff with transparent honesty and due punishment should be given to fraudulent staff; Seminar/Training should be given to staff orient them or educate them for the need for accounting information in the establishment or organization; The shareholder, investors and other users should be introduced or have meeting at intervals so as to assist the management in the achievement of their organizational goal; Use of modern devices life computers should be introduced in government parastals to enable easy and accurate collection of accounting information and also introduce this modern system to staff to enhance effective accounting system.
Chapter One of The Impact of Accounting Information on Decision Making Process
BACKGROUND TO THE STUDY
Accounting is the language of business as it is the basic tool for recording, reporting and evaluating economic events and transactions that affect business enterprises. It processes all documents of a business financial performance from payroll, cost, capital expenditure and other obligations to sale revenue and owners’ equity. It provides financial information about one’s business to the internal and external users, such as employees, managers, potential investors, finanancial institutions and others.
The making of decision, as everyone knows from personal experience is a burdensome task, says Wadia (1966). In most cases indecision is as disastrous as making a wrong one, therefore a plan of action is indispensable. Management is constantly confronted with the problem of alternative decision making especially knowing that resources are relatively scarce and limited. It is therefore pertinent that good accounting information be made available for proper and accurate decision making, maximization of profitability and optimal utilization of scarce resource. Accounting information is not only necessary for evaluation of the past and keeping the present on course; it is useful in planning the future of the enterprise. It 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, 1996). 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, 1990).Accounting systems can aid in decision making,provide information relevant to the decision and to the decision maker (Gray, 1996). 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., 1980). 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, 1998). 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, 1990).
Decision making is the process of choosing alternative courses of action using cognitive processes. Making decision is necessary when there is no one clear course of action to follow. Accounting systems can aid our decision making by providing information relevant to the decision and to the decision making. Accounting systems also provide check for the validity through the process of auditing and accountability (Gray et. Al 1996). Effective and efficient accounting information plays a central role in management decision making.
The making of decision, as everyone knows from personal experience is a burdensome task, says Wadia (1966). In most cases indecision is as disastrous as making a wrong one, therefore a plan of action is indispensable. Management is constantly confronted with the problem of alternative decision making especially knowing that resources are relatively scarce and limited. It is therefore pertinent that good accounting information be made available for proper and accurate decision making, maximization of profitability and optimal utilization of scarce resource.
There are some areas where accounting information helps decision making. It provides investors a baseline of analysis for – and comparison between – the financial health of security-issuing institutions. Financial accounting helps creditors assess the solvency, liquidity and creditworthiness of businesses. Financial accounting (and its cousin, managerial accounting) helps organizations make business decisions about how to allocate scarce resources. Financial accounting information helps in making Investment decisions as fundamental analysis depends heavily on a company’s balance sheet, its statement of cash flows and its income statement. All of the financial statements for publicly traded companies are created and reported according to the financial accounting standards set forth by the Financial Accounting Standard Board (FASB).
Without the information provided by financial accounting, investors would have less understanding about the history and current financial health of stock and bond issuers. The requirements set forth by the FASB create consistency in the timing and style of financial accounts, which means that investors are less likely to be subject to accounting information that has been filtered based on a firm’s current condition.
Accounting information also aids lending or dividend decisions as number of common accounting ratios that creditors rely on, such as the debt-to-equity (D/E) ratio and times interest earned ratio, are derived from the financial statements. Even for privately owned businesses that do not necessarily follow the requirements of the FASB, no lending institution assumes the liability of a large business loan without critical information provided by financial accounting techniques.
Reliable accounting serves a practical function for the firms themselves. Beyond the regulatory and compliance hurdles that financial accounting helps clear, financial accounting also helps managers create budgets, understand public perception, track efficiency, analyze performance and develop short- and long-term strategies.
In this study three decision areas such as financial decision, investment decision and dividend decision were selected. These different areas of decision somehow or in one way or the other solely depends on accounting information. Without accounting information individuals, companies or business organization into various kind of investments cannot determine financial investments and dividend decision to be taken. Accounting information helps to take long term investment decisions by giving the proper view of present and future conditions of the organization. This study is initiated to evaluate the importance i.e. the impact of accounting information on decision making process.
STATEMENT OF THE PROBLEM
Information is absolutely necessary for decision making in any business organization. The problem however lies in the quality and validity of the information, i.e. if it is timely, adequate, and clear. The main purpose of the use of accounting information is to reduce risk, failure and uncertainties and also stay ahead of competitors. Not minding the immense benefit derived from the 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 . In other wards the major problem discovered when making decisions in an organization is the identification of fundamental concept of accounting information to be implemented by each company which can affect the company positively or negatively.
These problems stated immensely contribute to the failure of the use of accounting information in business with the result that inappropriate 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 organization.
This study will seek to show the information organisation can derive from accounting information & their usefulness for decision making in business organization. The purpose is to see the need for accounting information to any business organisation how it helps in decision making.
OBJECTIVE OF THE STUDY
The major objective of this study is to examine or to evaluate the impact of accounting information on decision making process. But more specifically, it attempts to achieve the following:
(a) To know the value of accounting information in decisions made in an organization.
(b) To explain the use of accounting information to users and to also identify the various ways in which each user can implement or make use of the information and the benefits derived from them.
(c) To make suggestions that will enhance or promote the effective use of accounting information in an organization.
(d) To find the causes of failure in the attainment of organization objective, as a result of inadequate utilization of accounting information.
SCOPE AND DELIMITATION OF THE STUDY
This study could have covered generally the impact of accounting information on decision making process in various organizations in Nigeria but due to the challenges of such a task especially the financial resources with which to execute it, there was some limitations encountered during the course of research, those limitations include the following:
(a) The confidential nature of accounting information in the business organization posed as a problem to this study.
(b) The researcher was unable to reach all the members of the sample as a result of their frequent travels and busy schedule.
(c)The sample used in the research though representative but it is relatively small compared to the population, as a result of lack of adequate financial resources with which to carry out the research on a greater sample.
(i) Does proper use of accounting information helps the organization in making efficient and effective decision?
(ii) Does accounting information affects the company positively or negatively
(iii) Is there any relationship between the view of the employees and accounting information within the organization
STATEMENT OF HYPOTHESIS
HO: Null- Hypothesis
H1: Alternative Hypothesis
HO: Proper use of accounting information does not help business organizations in making efficient and effective decisions.
H1: Proper use of accounting information help business organizations in making efficient and effective decisions.
SIGNIFICANCE 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 being 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.
This research study will help us to know the beneficiaries of accounting information in decision making which are: creditors, investors, management and shareholders.
a. Creditor: A company’s financial information enables a creditor determine whether amount owing to them will be paid when due.
b. Investor: The investors provide risk capital so they need the information to help them determine whether they should buy, hold or sell.
c. Management: The financial information helps them to analyze the performance and position of the organization and to take appropriate measure to improve the company’s result.
d. Tax Authorities: It helps them to determine the credibility of the tax return filed on behalf of the company.
This project will also serve as a reference to student who may be interested to embark on a research of this nature.
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