THE IMPACT OF ACCOUNTING INFORMATION ON
DECISION MAKING PROCESS
Published by
Chrisantus Oden
6389
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 parastatals 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, financial
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
(Arnold 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
(Tiramisu 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 scarce 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.
REFERENCES
