ABSTRACT
The act of
management has always had an essential role in human community activities. The
efficiency of a company depends on the quality of managerialt process. This
requires performant management, which means competence and rational decisions.
Accountancy can support the decision making process and management activity.
The objective of an accounting system is to provide financial information
concerning the studied company. The information concerns the financial situation
and the performance of a company and there is intended to the users to taking
decisions. For taking decisions by the management in order to achieve the
objectives of the company it is necessary to know exactly the situation of the
company, either compared to other companies that work in the same field or in
relation to previous periods, this thing being possible through the accounting
information.
CHAPTER ONE
INTRODUCTION
1.1.
BACKGROUND TO THE STUDY
In recent
years the advancement in accounting transaction system modules all over the
world has made business organisations to exert resources in this area if they
are to compete favourably among their local and foreign counterparts. Gone were
the days when business organisations were simply required to make profit,
survive and provide a fair return to investors’ on their interest. The modern
business organisations find itself in the atmosphere of global uncertainties,
cut throat competition locally and internationally and unprecedented change in
the economy. Hence, a great demand is often placed on the managers of these
organisations to make pragmatic and informed decisions if the organisation is
to move forward as the success or otherwise of any organisation is often a
function of the sum of the decisions taken in the past. However, the quality of
decisions taken by managers rests upon the substance and accuracy of financial
accounting information’s provided by information systems available to them.
In today’s
world,Financial accounting provides the rules and structure for the conveyance
of financial information about businesses (and other organizations). At any
point in time, some businesses are poised to prosper while others teeter on the
verge of failure. Many people are seriously interested in evaluating the degree
of success achieved by a particular organization as well as its prospects for
the future. While a few basic procedures or methods have changed, the purpose
of financial accounting remains the same. Business owners often use accounting
to measure the financial performance of their companies and make business
decisions.
The American
Institute of Certified Public Accountants has defined the Financial
Accounting as "the art of recording, classifying and summarising in as
significant manner and in terms of money transactions and events which in part,
at least of a financial character, and interpreting the results thereof".
American Accounting Association defines accounting as "the process of
identifying, measuring, and communicating economic information to permit
informed judgements and decisions by users of the information.
It is
noteworthy to say here that financial Accounting derives its source from
accounting transaction data and information. Financial Accounting produces
results which enhances decision making in the organisation. Hence, it can
safely be concluded that Financial Accounting is not an end in itself but a
means to an end .i.e. decision making to improve corporate performance, and
also produces detailed and comprehensible accounting information which are
invaluable basis for decision making.
Financial
accounting provides data that these individuals need and wants, moreover many
possible benefits can be gained from acquiring a strong knowledge of financial
accounting and the means by which information is communicated about an
organization. Around the world, millions of individuals make critical judgments
each day about the businesses and other organizations they encounter.
Developing the ability to analyze financial information and then using that
knowledge to arrive at sound decisions can be critically important.
Financial
Accounting is a service activity. It uses words and symbols to communicate
financial information useful for decision making. The terminology and symbols
used have developed from the earliest known accounting records. As a
profession, accounting has evolved in response to society’s need for economic
information to help people make economic decisions. It is often called
the ‘language of business’. To be effective, the recipient must understand the
message that the sender intends to convey. You must learn the meaning of the
words and symbols used by accountants. Many people with little knowledge of
accounting must interpret accounting data.
Financial Accounting
is regarded as 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, it 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), it also aids decision making and providing information
relevant to the decision and to the decision maker, more reason why it
effective and efficient financial utilization plays a central role in
management decision making process.
Individuals
who attain a proper level of knowledge of financial accounting can utilize this
information to make decisions based on the organization’s perceived
financial health and outlook. Such decisions might include assessing employment
potential, lending money, granting credit, and buying or selling
ownership shares. However, financial accounting does not address issues
that are purely of an internal nature, such as whether an organization should
buy or lease equipment or the level of pay raises. Information to guide
such internal decisions is generated according to managerial accounting rules
and procedures that are introduced in other books and courses. Despite not
being directed toward the inner workings of an organization, employees are
interested in financial accounting because it helps them assess the
future financial prospects of their employer.
Financial
accounting refers to the conveyance of information about an organization as a
whole and is most frequently directed to assisting outside decision makers, it
is also designed to portray the overall financial condition and prospects of an
organization. Every employee should be quite interested in assessing that
financial information to judge future organisational prospects.
Finally the
ultimate purpose of this research study is to provide various users of
financial accounting information with a rich understanding of the uses, benefits,
and importance of financial accounting so they can evaluate available
information and then make good choices for management decisions.
1.2.
STATEMENT OF PROBLEM
The major
purpose of the use of financial accounting information is to minimize risk,
failure and uncertainties and also stay ahead of competitors. Notwithstanding
the immense benefit 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. There are
cases of managers refusing the use of accounting information because of their
inability to interpret such data, thereby making the organization to remain at
“status quo ante”. These problems largely contribute to the failure of the use
of accounting information in business with the result that inaccurate decisions
are made to the detriment of the organization.
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.
Furthermore,
Inspite of the fact that convention of objectivity is respected in accounting
but to record certain events estimates have to be made which requires personal
judgement. It is very difficult to expect accuracy in future estimates and
objectivity suffers. For example, in order to determine the amount of
depreciation to be charged every year for the use of fixed asset it is required
to estimate (a) future life of the asset, and (b) scrap value of the asset.
Thus in accounting we do not determine but measure the income.
Most profit
making organizations in Nigeria are however, often encountered with accounting
and financial management challenges. Poor record keeping, inefficient use of
accounting information to support their financial decision-making and the low
quality and reliability of financial data are part of the main problems in
financial management concerns of these companies.
(Adeboye 2005)
While proper accounting is a useful system for making sound economic decisions,
The misuse, untimely, poor record keeping, and inaccuracy of accounting
information also causes most firm’s to implement and make poor financial
decisions, these short comings might be the cause of difficulties to succeed
and to raise fund or borrow money during the later stage. In the worst case,
might face with the failure and perhaps bankruptcy in the end.
Finally, Based
on the fact that the financial accounting is one of the social sciences which
aim to serve various needs of the private and public business facilities, it is
affected by the changes of the general economic, social, legal and political
and political conditions prevailing in each country or certain environment at
each period. The accounting information is resulted by certain requirements
which change due to various environmental factors within the economic, social,
legal and political environments in which the accountancy works.
1.3.
OBJECTIVES OF THE STUDY
As a central
objective, this study seeks to evaluate the use of Financial Accounting as
tools for management in decisions making in an organization. But more
specifically, it attempts to achieve the following:
- Find the causes of failure in the attainment of organization objective, resulting from lack of adequate utilization of accounting information.
- Explain what accounting information is necessary, who are the users and the various ways each of these users utilize the information and the benefits derivable from them.
- Highlight the effects of managerial neglect of accounting information on the achievement of the organizational goal.
- To ascertain the extent to which Accounting is being used as a financial tool for measuring financial performance of organisation.
- Analyze the relationship between financial accounting, accounting information and management decision making.
- Determine the effectiveness of Accounting Department of the organization in decision making of management of organisations.
1.4.
RESEARCH QUESTION
The research
question provides a framework and guidelines through which substantial
knowledge of the research study can be understood.
The research
question asked includes:
- What are the causes of failure in the attainment of organization objective, resulting from lack of adequate utilization of accounting information.
- What accounting information is necessary and who are the users are and the various ways each of these users utilize the information and the benefits derivable from them.
- What the effects of managerial neglect of accounting information on the achievement of the organizational goal.
- To what extent is financial Accounting being used as a financial tool for measuring financial performance of organisation.
- Is there any relationship between financial accounting, accounting information and management decision making.
- Effectiveness of Accounting Department of the organization in decision making of management of organisations.
1.5. STATEMENT OF HYPOTHESIS
The Statement
of Hypothesis is “a speculation of the way the variables of study behaves” it
is a guide method to be used in their analysis. The needs for such guides rise
to the following hypothesis;
The hypotheses
are stated in the null form for testing:
Hypothesis one
Hi: Financial
Accounting is not a practical tool for efficient and effective management of
decisions in an organization
Hypothesis Two
Hi: Financial
Accounting do not plays a significant role in management financial decision
making role.
1.6. SIGNIFICANCE OF THE STUDY
The
significance of this study was to create through documentation, an awareness,
benefit and the importance of financial accounting as a veritable tools for
management decision making in the organization, both financially and
economically.
Accounting is
increasingly seen as a social rather than a pure technical phenomenon as it is
implicated in both organizational and social contexts (Hopwood, 1985).
Following this notion, this study is inspired by the desire to understand the
potential context of the use of financial accounting in an organization
planning, control and management decision making, A study of this nature is
mostly important in relation to developing countries like Nigeria.
This study
will be of great importance to the government, corporate individual, financial
and non-financial institution since it will help to determine the actual roles
played by accounting department of this financial institution, as it will also
provide indepth knowledge on the duties and responsibilities of the accountant.
This paper
would offer useful insights on the usefulness of financial accounting as a
concept, accounting information, and also provide a contextual framework for
researchers on the relationship of financial accounting with other aspect of
accounting in an organization.
Finally it
will be of great significance to schools and students, it will serve as a
reference point for future researchers who will want to research more on the
topic.
1.7. SCOPE OF THE STUDY
The study builts
around the implicit use of financial accounting for management decision making
in an organizations, in Nigeria.((by making use of Access Bank Plc, as a case
study.)
However, the
research was limited to Access Bank Plc operator in Sagamu, Ogun State metropolis
due the schedule and vicinity of the researcher.
1.8. LIMITATION OF THE STUDY
Limitations
envisage in this research work are
- Restriction on data generation: the data obtained was restricted to the case study
- Time frame of this research work is another limitation as more time may be required to make more findings, because adequate time will be required to get up to date current data from the bank and the clients.
- Distribution and retrieval of questionnaires from respondents (banks official and the clients) might also constitute limitation as we may not be able to retrieve all questionnaires.
- Also there might be financial and transportation constraints to this study as these two factors will be at our capacity which might not be enough to give us desired results.
1.9. DEFINITION OF TERMS
1. Financial
Accounting: Financial accounting is concerned with reporting
general-purpose information to users external to an entity in order to help
them make sound economic decisions about the entity’s performance and financial
position. It also deals with the maintenance of books of accounts with a view
to ascertain the profitability and the financial status of the business.
2.
Decision-Making: Decision making can be defined as identifying
alternatives, evaluating such alternatives and choosing from such alternatives.
Decision making can be viewed as the very fabric of which organized activity is
made.
3. Financial
Accountant: The role of a financial accountant is to record, summarise and
report on the financial transactions of an organisation in such a way that it
is possible for someone outside of the organisation to get an accurate picture
of the organisation’s financial position and performance
4. Accountant:
An accountant is any person who possesses a professional license to practice
accountancy from a recognized professional body and has legal capacity and
authority to carry out the duties of accountants in taxation and audit
practice.
5. Financial
statement: A financial statement (or financial report) is a formal record of
the financial activities of a business, person, or other entity .It also
provide information regarding the position and performance of a business, such
as its assets, liabilities, equity, income, expenses and cash flow.
6. Management:
This is the process by which business systems are administered. It is also a
process of planning, controlling and decision-making in an organization.
7. Company:
This refers to a legal entity that carryout business in its name.
8. Business
strategy: An integrated set of plans and actions designed to enable the
business to gain an advantage over its competitors and, in doing so, maximize
its profits.
9.
Book-keeping: It is the art of recording in the books of accounts the monetary
aspect of commercial or financial transactions.
10.
Transaction: A transaction is a stimulus from one person and a related response
from another.
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