The Use Of Accounting As A Management Tool
The study centers on the “Use of Accounting as a Management Tool” (A case study of Anambra State Agricultural Development Project, Awka).
In pursuance of this investigation research objectives and hypotheses were formulated. Both primary and secondary data were collected and the data were then presented, analyzed, interpreted using textual, graphic and tabular modes of data presentation. The formulated hypotheses were also tested using chi-square as the test statistic.
Based on the above, it was found that Anambra State Agricultural Development Project uses Accounting as Management Tool. All their financial transactions of Anambra State Agricultural Development project are recorded in the appropriate books of accounts. From these books, revenue projections, expenditure estimates, financial statements, statements of source and application of funds are prepared. Management of Anambra State Agricultural Development project uses ad inter-alia each of these prepared statements as a tool for decision-making, evaluation of the financial strength, profitability and future prospects. Continuous type of budget is used for planning and controlling purposes. Economic rate of return is used to evaluate projects. Profitability is evaluated in terms of the benefits, which the given community derives from a given project.
With reference to the findings, the researcher recommends that; quarterly and mid year financial statements should be prepared to highlight the key variables affecting achievement of the objectives of Anambra State Agricultural Development Project; Budget should be compared with actual result so as to find out variables where they exist and make amendments where necessary; all the problems identified from the respondents should be addressed; there should be proper authorization and documentation; only qualified staff are to be employed; staff work schedules should be attainable with the actual working hours, ad accounting and computer training programmes should be organized at reasonable intervals.
1.1 Background of the Study
Accounting, unlike the other natural sciences, is not based on fundamental laws or absolute precepts. It has evolved over many years through trial and error, and its continual improvement rests on a basis responsive to the requirements of users of financial statements. The domain of financial accounting is therefore visualized as requiring attention at four levels: postulates are the antecedent conditions or essential prerequisites to principles; the principles must meet the supported by the principles. This framework of accounting standards and guidelines defines the area accounting theory. Theories are generalizations, which serve to organize otherwise masses of data, and which thereby establish significant relationships in respect of such data.
Accounting theory is therefore the logical reasoning in the form of a set of broad principles that provide a general frame of reference by which accounting practices can be evaluated, and which guide the development of new practices and procedures. It thus provides a coherent set of systematic principles that form the general structural framework for the evaluation, and development of sound accounting practices. It presents the value judgments upon which accounting principles, concepts and polices are based. Theses policies regulate moderate and direct practices and lead to reports which are used by decision makers. Without a good knowledge of accounting theory, accounting becomes mechanistic, routine and a repetitive drudgery. Osisioma (1986: 40) stated that;
…Accounting involves the collection compilation and systematic recording of business transactions in terms of money, the preparation of financial reports and the use of these reports as tools of management …
Management is heavily dependent on accounting operation facts. Management is regarded as a process of converting information into action and accounting is the source of most of the information. Accounting is a system of principles and techniques that permits the recording, classification, accumulation, presentation and interpretation of financial information so that past performance, present condition and future planning can be evaluated. The decision making process of accounting normally involves planning and control. Accounting formalizes plans be expressing them in the language of figures as budget and control as performance reports which compare results with plans and spotlight deviations or variances form plans.
The importance of accounting information in management can be applied to any organization without regards to its size. Willsmore (1971: 1)observed that;
…Even in the very personal business management can only take place through figures; results, reporting and the man who doesn’t understand that must fail…
Managing a business is a matter of deciding what should be done, seeing to it that the means are available and getting people employed in the business to do it. At every step in this process, management is faced with alternatives, and every decision, to do something or to refrain from doing something involves a choice. In most cases, the probability that a good decision will be made depends on the extent and validity of the information that the manager has about the alternatives and their consequences information which flows from the accounting records or which are developed by special analysis of accounting data constitutes the basis on which a wide variety of business decisions are made. Accounting involves the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information. The success or failure of accounting as a management tool will depend upon the philosophy on which it was established and the attitude of management towards it as well a the skills involved.
1.2 Statement of the Problem
The research problem is the use of accounting as a management tool. The success or failure of accounting as a management tool will depend upon the philosophy on which it was established and the attitude of management towards it. Accounting serves the interest of business therefore; it must keep pace with the various stages of business development. Management Accounting is concerned with the application of accounting and statistical techniques to the specific purpose of providing and interpreting information designed to assist management in its function of promoting maximum efficiency. It focuses on the internal environment of business, and provides information for such decisions of the firm as an inter-alia make or Buy, Replacement, Pricing, Cost Reduction Decisions. The techniques applied for the analysis are both statistical and accounting in nature – Budgeting and Budgetary control, standard costing and variance analysis, direct costing and Break-Even Analysis and Project Cost Analysis.
Accounting, the traditional companion of management in decision making, has to develop new and better techniques for the improvement of management decisions accounting has risen to the occasion, re-defining traditional concepts to meet the new challenges, and developing whole new techniques where they had never existed.
1.3 Objectives Of The Study
This research has the major objective of examining the use of accounting as a management tool by Anambra State Agricultural Development Project.
Specific objectives include;
- To identify the present accounting tools;
- To examine the objectives for the adoption;
- To assess the basis for developing the accounting tools;
- To examine how the accounting staff are aware of the accounting tools in use
- To identify the problems affecting the effective implementation of the accounting tools;
- To examine the qualities of the accounting tools in use
1.4 Research Questions
- What are the present accounting tools;
- What are the objectives for the adoption;
- What are the basis for developing the accounting tools;
- How are the accounting staffs aware of the accounting tools in use
- What are the problems affecting the effective implementation of the accounting tools;
- What are the qualities of the accounting tools in use.
1.5 Justification for the Study
A major reality of modern business management in a free enterprise economic system is the advanced state of competition and rivalry, where only the fittest enterprises survive. With the wealth creation and maximization of business motive ever s current, management continues to remain under increasing obligation to improve its share of the market, its assets, the value of its stock in the capital market, its credit worthiness and its overall earning potentials. These, in turn, require an improvement in the quality of decisions. Management should not for instance, miss an opportunity to increase its profit due to a mistake in the understanding of the real factor that determines profit. Therefore, in order to respond effectively, to the challenges of the times, management requires good decision analysis procedures, which will emphasize the relevant factors in business decisions.
The study will x-ray the extent of use of accounting as a management tool by Anambra State Agricultural Development Project, as a basis for offering informed suggestions for improvement on the use of accounting as a management tool.
It is envisaged that the findings, suggestions and recommendations of this study will be beneficial to both accountants and management of Anambra State Agricultural Development Project and other establishments, who will be interested in seeking the best use of accounting to achieve corporate result.
Specifically, this study will highlight the strength and weaknesses of each accounting tool in use by Anambra State Agricultural Development Project. It will also recommend those accounting tools that ill result in effective management.
This study will serve as a reference material for future research project on the same topic or related topic.
Finally, the outcome of this study will be useful to the researcher, as a partial fulfillment for the award of Higher National Diploma in Accountancy of the Institute of Management and Technology (I.M.T), Enugu.
1.6 Organization of the Study
For purposeful completion of this study, the researcher therefore, plans the study as follows:
The whole study is subdivided into five chapters starting from the introduction, review of related literature, research design and methodology, analysis of data, findings and summary and finally policy recommendations and conclusion.
Introductory chapter will include; Background of the study, Statement of the problem, Objective of the study, Scope and Limitation of the study and finally definition of terms and references.
Chapter two which is review of related literature will be subdivided into sub-titles. It will also include hypothesis formulation and references.
Chapter three, which covers research design and methodology will include; the population to be samples, sample frame, size and technique, as well as method to be used in sourcing data. The researcher will use both secondary and primary data. This chapter will also indicate the statistical techniques to be used sample size determination formular and chi-square for hypothesis testing.
Chapter four is the analysis of data. Here textual, tabular, percentages, averages and graphic modes of presentation will be used in presenting and analyzing data collected.
Chapter five will include research findings and summary of the study. This will be deducted from the analysis of data; it also covers policy recommendations and conclusion will be based on the possible findings of this study.
The preliminary pages include; fly text, title page, approval page, dedication, acknowledgement, and table of contents, list of tables and figures, abstracts …
1.5 Scope and Limitations of the Study
The scope of this study is focused on the use of accounting as a management tool. The scope also covers accounting personnel of Anambra State Agricultural Development Project at the Headquarters.
This study was not without limitations – Apathy on the part of some of respondents, inaccessibility of some management staff, Red-tappism, finance and time.
These limitations not-with-standing, the findings of this study are still very reliable. Satisfactory efforts were made to ensure that the research was carried out under conditions that ensured reliable and valid conclusions.
1.5 Definition of Some Terms
A formal expression of management plans in quantitative and financial terms.
A social system entailing responsibility for the efficient planning and regulation of the operations of an enterprise, with a view to attaining set objectives.
The end towards which activities of any enterprises are aimed, the end point of a management programme.
The process of setting goals and objectives, formulating strategy and deciding among alternatives course of action.
The increases in the net value of the assets of a business over a given period, which has arisen as a result of successful trading and not by means of capital adjustment.
This is a systematic means of writing an economic history and plans of an organization in both quantitative and financial manner so that facts can be revealed, and properly analyzing such fact for the purpose of advising management.
Findings, Conclusion and Recommendation
This chapter deals with the findings and summary of this study. The researcher made critical examination of the accounting system of Anambra State Agricultural Development Project and came out with the following findings.
This study revealed that all the financial transactions of Anambra State Agricultural Development Project are recorded in the appropriate books of accounts. From these books, revenue projections, expenditure estimates, financial statements, statement of source and application of funds are prepared. Management of Anambra State Agricultural Development Project uses an inter-alia each of these prepared statements as a tool for decision making, evaluation of the financial strength, profitability and future prospects.
The financial records of Anambra State Agricultural Development Project Agricultural Development Project are subjected to external audit. There is also an internal audit unit. Management takes recommendations of this unit.
The accounting system in use is computerized. Anambra State Agricultural Development Project uses continuous budget for planning and controlling purposes.
The aim of investing in projects is not profitability. This does not mean that the project does not make profit. Profit so made is tax free. Economic rate of return is used to evaluate projects. Profitability is evaluated in terms of benefits which the given community derives from a given project.
Anambra State Agricultural Development Project could not have operated very well without accounting information. Accounting information serves as management tool. Hence, accounting enhances management of the project.
The major problems affecting accounting personnel in the execution of their duties include: Inadequate salary and fringe benefit (mainly junior staff), lack of proper understanding of the use of computer (middle level manpower), poor transportation, excess work schedule.
Accounting techniques in use include project appraisal, budget, statements of source and application of funds, balance sheet, financial statement, and economic rate of return.
One of the prime means control is he separation of responsibilities; this helps to reduce the risk of intentional manipulation of error. Functions which are separated include; authorization, execution, custody, recording, systems development and daily operation of the computer.
The following accounting policies are adopted in the preparation of financial statements in Anambra State Agricultural Development Project. The accounts are prepared on accrual basis under the historical cost convention except that of the federal and state government grants are treated on cash basis. Stock is valued on a first-in-first-out basis and/or at the lower cost and net realizable value after providing for obsolete stock. Depreciation of fixed assets is calculated on straight line method at the rates expected to write off the cost of the assets over their expected useful lives.
5.2 Policy Recommendation and Conclusion
This point deals with policy recommendations and conclusion of the study. The researcher recommends the followings:
Only qualified staff are to be employed. This will ensure compliance to current accounting practices and qualitative service.
Maintenance of necessary books of accounts. This will ensure accurate analysis of financial statement and proper presentation of facts and figures.
Institute of reasonable work schedule. Hence each staff will be able to complete his or her schedule within each day’s working hour.
Organizing accounting/computer training programmes at reasonable intervals. This will help to improve the dexterity of both men and serving staff.
There should be proper authorization and documentation.
All the problems identified from the respondents should be addressed. This will give the concerned staff sense of belonging and concern.
Quarterly or mid-year financial statements should be prepared to highlight key variables affecting achievement of the objectives of Anambra State Agricultural Development Project.
Budget should be compared with actual result so as to find out variances where they exist and make amendments where necessary.
Accounting packages have been essential management tools. Reasonable estimates can only be made on information provided from the accounting system. Thus, accounting is a management tool like most well organized organizations like Anambra State Agricultural Development Project; the Finance Department provides management with accounting information which aid in the decision making process.
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