FINANCIAL ACCOUNTING INFORMATION AS AN AID TO MANAGERIAL DECISION MAKING

1.1 Introduction

Financial Accounting information aids in profit making, budgeting and cost control. In a company, it is the duty of the management accountant to see that his company keeps good records and prepare proper financial regulations. Management accountants also need to keep up with the latest development in the use of computers and in the computer system design. Accountants provide many special reports for management, decision making. This function requires the gathering of both historical and projected data.

As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.

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1.2 Background of Study

Financial accounting information therefore, is the information derived from the financial accounting report. The essence of this information is for management and other users to make decisions. Therefore, the accuracy of decision making depends on the effective and efficient design of management information system. The accounting concerned prepares the financial accounting information in such a way that will enable users to derive maximum information for their use.

Decision making itself can be described as the art or science of choosing among possible managerial actions, the art or science of decision making enable management of a business to choose from among a range of already analyzed and evaluated alternative. Two classes of decision makers can be identified in respect of the use of financial accounting information. These are the external users and the internal users. Management represents and the internal users include creditors, shareholders, government agencies, trade unions e.t.c. Managers are the major users of financial accounting information need this information to plan.

One of the most effective uses of accounting information is decision making. Decision making has being described as a purposeful choosing from a number of alternative causes of action. The accounting information provides managers with the necessary information they need. In this case, it is the accountants that provide the information with which the management uses for its decision making. Managements can only come up with a good decision if they are able to get correct accounting information from the accountant. In a situation where the accountant does not provide correct information: this is bond to affect the decision making of the management adversely. Management is frequently faced with the problems of making alternative decisions faced with fact that resources are relatively scarce and limited compared to human wants. management does not only seek to ascertain cost at various stages in the process of providing a product or services, but also to make proper and accurate decisions at all levels on the modern organization. This process is facilitated by utilization of adequate and accurate accounting information policies.

The various diversities of business information help the business organization in different ways. Information from external to internal for example: from customers to the firm helps the firm to increase or decrease its productions, how and when to render certain services to its customers. Information from internal to external help potential customers to know the existence of such a business organization and also to advocate their income towards the product (goods and services) of such business organization also in an organization like a limited liability company, information on financial position is made available to the public, thus can motivate potential inventors to invest into such a company if such financial statement create a positive impact on the potential customers, this can also retain other investor in the organization. Government also uses the financial statement of an organization to allocate resources available into such organization and also rate such organization appropriately in terms of taxation.

Finally, it is noted that financial accounting information unites workers as their regular contributions are made known to them and also management is able to improve upon making certain decisions that will match with the available accounting information in such organization.

Therefore, in Nigeria where the research was carried out, the activities that was conducted is to examine the Financial Accounting Information as an Aid to Managerial Decision Making.

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1.3 Statement of Problems

Investigation revealed that Managers of certain businesses do not have sound accounting systems to enable them monitor operating expenses and revenues. They do not need the warings communicated by financial accounting information. This ignorance or lack of financial accounting information, may lead to the non-effective and inefficient accomplishment of the firm’s objectives.

It is only through accounting information that managers and external users get a picture of the organization as a total entity. Managers who fail to realize this do not appreciate an accountants analysis in respect of financial accounting information generated. This may lead to poor decisions being taken and it may affect the profitability and performance of the organization.

Some organizations, due to low financial layout or lack of adequate planning or ignorance may not employ expert hands needed and this causes the effect and importance of financial accounting information on decisions taken not to be noticed or gained by the organization.

The researchers in this study will seek to show the information management can derive from financial accounting and their usefulness for decision making in business.

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1.4 Aim and Objectives of Study

The aim of the study is to examine the Financial Accounting Information as an Aid to Managerial Decision Making. In achieving this aim, the following specific objectives were laid out as follows:

1. To ascertain of there is any relationship between effective use of financial accounting information and the decisions made in an organization.
2. To ascertain whether company performance is related to efficient and effective use of financial accounting information.
3. To determine factors that may constrain or promote the effective use of financial accounting information.
4. To find out whether financial accounting information report help in decision making in the organization
5. To make recommendations which may enhance the employment of information provided by accounting system

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1.5 Research Questions

The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:

• Are there factors that may constrain or promote the effective use of financial accounting information?
• Does accounting information report help in decision making in the organization?
• Does company performance relates to efficient and effective use of financial accounting information?
• Is there any relationship between effective use of financial accounting information and the decisions made in an organization?

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1.6 Research Hypothesis

In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.

Hypothesis One

• H0: There are no significant factors that may constrain the effective use of financial accounting information
• H1: There are significant factors that may constrain the effective use of financial accounting information

Hypothesis Two

• H0: There is no significant relationship between effective use of financial accounting information and the decisions made by the management of an organization
• H2: There is a significant relationship between effective use of financial accounting information and the decisions made by the management of an organization

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1.7 Significance of Study

The study is on financial accounting information in as an aid to management decision making has a great impact on organizational existence. The result of this study would benefit the organization involved; employees of such organization, investors and potential investors of such organization are at the safe side on having understood this study.

The government is not left out here as, the result of this study will awake the concerned government parastatals to implement and make it mandatory for all business organization to keep records of their timely transactions not for the purpose of tax alone but also for the purpose of knowing their current level in the business.

Also, the study will generate into future researcher the urge of making further research on the subject master, this will further change the study to meet with the changing environment.

This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.

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1.8 Scope of Study

The scope of the research is focused on the Financial Accounting Information as an Aid to Managerial Decision Making.

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1.9 Limitations of the Study

During the course of this study, many things militated against its completion, some of which are:

1. Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
2. Establishment Policies: Establishment policies posed a serious limitation as most staffs are not ready to release information needed for this project work. There were lots of information needed from the staffs of this establishment to enhance the study which took them time to release or they did not release at all for security purposes, hence the scope was reduced.
3. Research material: availability of research material is a major setback to the scope of the study.
4. Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
5. 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).

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1.10 Definition of Terms

In order to facilitate the understanding of this study, it is important to define some of the terms uses in the study.

Financial Accounting: Financial accounting is concerned with the recording of transactions for a business enterprise or other economic units and the periodic preparation of various reports from such records.

Information: These can be said to be facts needed or received by a person, or group of persons which is or will be useful to them.