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THE IMPACT OF ACCOUNTING INFORMATION
ON DECISION MAKING PROCESS
ABSTRACT
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
INTRODUCTION
1.1 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.
1.1 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.
1.2 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.
1.3 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.
1.4 RESEARCH QUESTIONS
(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
1.5 STATEMENT OF HYPOTHESIS
HO: Null-
Hypothesis
H1: Alternative Hypothesis
Number One:
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.
1.6 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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