Assessment Of The Effectiveness Of Accounting Information As A Tool For Management Decision

Project and Seminar Material for Accountancy / Accounting

Project and Seminar Material for Accountancy / Accounting


Abstract


The aim of the project is accounting information as a tool for management decision. The work covers various process of account information (management Account, financial account, standard for accounting information). This project will also consider possible ways of using accounting information as a tool for management decision. This project will afford the opportunity of identifying the major importance of accounting information in management for a proper decision making. Also the provided account information allows easy planning and control purpose. Lastly, the project topic assists the information conclusion drawn on he problem and the necessary ways of solving it properly to ensure a perfect management operation.


Table Of Content


Preliminary Page(s)

  • Title page
  • Declaration
  • Approval pages
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of content

Chapter One

1.0 Introduction

  • 1.1 Background of the study
  • 1.2 Statement of the problems
  • 1.3 Research of question
  • 1.4 Objective of the study
  • 1.5 Research of hypothesis
  • 1.6 Significance of the study
  • 1.7 Justification of the study
  • 1.8 Scope of study
  • 1.9 Definition of the terms

Chapter Two:

2.0 Literature Review

  • 2.1 Financial accounting
  • 2.2 Management accounting
  • 2.3 Users of accounting information
  • 2.4 Standard for accounting information
  • 2.5 The need for accounting information
  • 2.6 Presentation of information
  • 2.7 Over view of external financial statement
  • 2.8 Cost calculation
  • 2.9 Ratio and percentage analysis
  • 2.10 Break Even analysis
  • 2.11 Financial Decision

Chapter Three

3.0 Methodology

  • 3.1 Research design
  • 3.2 Population of study
  • 3.3 Sample of the study
  • 3.4 Sampling techniques
  • 3.5 Method of data collection
  • 3.6 Method of data analysis

Chapter Four:

4.0 Data Presentation, Analysis and interpretation

  • 4.1 Interview with the finance department
  • 4.2 Interview question with the management
  • 4.3 Test of hypothesis

Chapter Five:

5.0 Summary, Conclusions and Recommendations

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Limitation of the study
  • 5.4 Recommendations
  • Bibliography
  • Appendix A
  • Appendix B

Chapter One


1.0 Introduction

An organization needs qualitative information to function or make decision; the available of such information make the organization to function in the most effective and efficient manner. This information is provided by the accounting system to the management, which uses it primarily to accomplish three (3) broad purposes, viz:

  • To provide financial statement to interested external users
  • To plan the operations of the organization in both the short and long run.
  • To control the result of its operations

In financial accounting, the responsibilities of the accountant ranges from recording and analysis, summarizing and reporting the result of the activities of the organization to creditors, stock holders and prospective investors, government, labour, environmental organization and others. In the case of reports to external users, they are classified for general purpose; they are financial statement, the income statement, the retained earnings, the balance sheet and the statement of financial position. People who protest or enhance their investment in the organization as by other who have a special interest in it use this statement. In management accounting, accountants provide information for use by office within the organization (the managers) rather than for use by other outside the organistion, such information are mainly decision making concerning the internal function organization. Management accounting also provides information to the decision makes for the following purpose:

  • Formulation of policies
  • Planning and controlling the activities of the enterprises
  • Safeguard the assets of the organization
  • Disclosure of employee’s area of specialization
  • Decision taken alternative cause by action.

Management and financial accounting may be understood by considering the basic goals of financial accounting is to direct forms of operations to maximize income the period measure net income used by the management in making decision to avoid what may be considered as an unwise decision to external user or vice versa. However, the relevance accounting information effective decision making in this research work, the degree of the relationship shall be clearly spelt out and identified.


1.1 Background Of The Study

The choice of the topic “Accounting information as a tool for management decision making” has been motivated by the fact that whatever accounting on information is presented to the has been collected, classified and analysis will determine the extent to which it is to be relied upon by the management in order to formulate a favorable decision in the organization.

The project therefore examines the relevance of accounting information to managerial decision making manufacturing companies with a view to highlighting the area of weakness and making necessary recommendations.
It is in fact in the light of the above that attempt be made to appraise the essence of accounting information in making decision concerning the use of limited resources, including the identification of the overall organization objectives.

Historical Background Of The Case Study

Grains Processing Company (Nigeria) Limited otherwise known by its brand name Pz Lagos was first commissioned by the former Head of State General Muhammadu Buhari on the 1st September 1984. The company is located at Azare in Katagum Local Government of Bauchi State.

The company was the baby of the state government; the promotion of the company was alter taken over by the Nigerian bank for commerce and industry (NBCI) in accordance with the bank policy of the Military Government.

The establishment of this company was formed by the need to increase production by utilizing local materials. The company is a private Limited Liability Company essentially incorporated to process various grains into flour human consumption, presently its ownership structure comprises of:-

  • Complex trading company of Hungary 23%
  • Nigerian Bank for commerce and industry 40%
  • Bauchi State Government 36.4%
  • Other individuals 0.6%

Total 100%

The major machineries (plant and machinery) which the company started with include; Rollers, purifiers, plain shifter, servers, pneumatic system etc. The flour mills is capable of processing 47% of 200 tonners daily and its products comprises Maize grits, maize flour, millet flour, millets grits, wheat flour, Grains corn flour, grains corn grits etc.

The company markets its product through appointed dealer and sale officers in some parts of Bauchi, Yobe, Borno, Adamawa, Kano and Jigawa states. The company provides direct employment to people resulting from its production, about 170 staff approximately, which comprises have 159 Nigerians and 11 expatriates who are mechanical staff.


1.2 Statement Of Problems

Management who thinks that they operate successfully without the use of the information provided by the accountings and up being economic failure to their respective industries, and sometimes course embarrassment to the organization. Take for instance, the accountant of an organization provide his manager with the information that there is no fund for any programme execution in the company. Despite this information, the manager went ahead an instructed the accountant to draw a cheque payable to a contractor who supplied some materials to

The organization for settlement. Due to this action of the manager, the following condition is bound to happen.

  • This cheque is going to bounce because there is no money in the company’s account
  • If care is not taken, the contractor may sue the organization (company)

There are many different types of decision for which managers need accounting information, listed below are four (4) examples of typical question that regularly confront managers, they include:-

  1. What product line is to be produced?
  2. What price should be set for a product line?
  3. Should old equipments be replaced with new ones?
  4. Should a product line be dropped?
  5. Has an employee performed well enough to warrant a bonus?
  6. Should short-term borrowing be arranged to finance current operation?

For managers to make the best decision to resolve each of these questions the management accountant must provide quantitative information that is timely and relevant, it is with this information that managers can properly plan and control the organization operations. And these are some of the question and problems this research work intend to prepare solution to:

In conclusion, managers cannot take effective decision if the information provided to them but their accountants are not properly adhered to. It is this kind of problem that form the basis of this research work in which the relevant of accounting information in management decision making will be examined.


1.3 Research Question

  1. Does adequate accounting information ensure better management decision?
  2. Would effectiveness of accounting information serve as tools for fraud detection, fault finding and ensure solution to management?
  3. Would adequate accounting information assist management to facilitate better planning for both long and short term activities?
  4. Would effective accounting information help management towards high turnover and profitability in the organization?

1.4 Objective Of The Study

The objective of the study is concerned with established of the relevance of accounting information to managerial decision-making in manufacturing concerns. It is to further review and analyzes accounting information in line with modern day techniques of presenting accounting information and its unique role as aid in decision making by the management. The purpose of this study therefore includes the following.

  1. To determine the nature of accounting information
  2. To appraise the decision making process of the organization
  3. To determine the use and application of accounting information in decision making

1.5 Research Of Hypothesis

  1. How the quality of decision making in the organization is low
    How the quality of decision making in the organization is high
  2. How the use of accounting information is low
    How the use of accounting information is high
  3. How the effect of accounting information in decision making is low
    How the effect of accounting information in decision making is high

1.6 Significance Of The Study

The study is of significance in that; the findings will be of almost important to many establishments and to the business society at large. This is because it will determine whether accounting information in the manufacturing concern can serve as a vital tool in managerial decision-making.


1.7 Justification Of Study

To enhance the assessment of the effectiveness of accounting information as a tool for management decision in the present social economics environment, management should put in place formidable strategy that are efficient and effective that are in line with global practice and standard. It should be noted that all information must guide management properly and bi in line with laid down rules and regulations of IAS (International Accounting Standard).

Also, the study will serve will as a supply of knowledge of manager and accountants on how they can improve decision making procedure of their companies for an effective performance and also to those who wanted to carry out further research on the same topic in the future.


1.8 Scope Of The Study

This work will cover some aspects of accounting techniques in operation in the manufacturing organization with reference to Pz Lagos and the type of report prepared for decision-making. The researcher intends to examine the relationship that exists between accounting information and management decision-making. Some related literature in the field of study would also be aid on the usefulness of each of the information prepared by individual segment of the accounting branches.


1.9 Definition Of Terms

Accounting:

Is the art of analysis, evaluating and interpreting of Organization financial activities and position, communicating the results to those who are interested. It can also be defined as the process of identifying; measuring and communicating economic information of facilitate informed judgment and decision by users of the information. It is a system designed to serve organizational goals.

Management Accounting:

Is the application of professional knowledge and skill in the preparation and presentation of accounting information in such a way as to assist the management in the formulation of policies and in the planning and the operation of the understanding.

Financial Accounting:

Is concerned with the preparation of general-purpose report for use by person outside the firm. It involves preparation of profit and loss account and the balance sheet, they are prepared in general terms suitable for presentation to shareholder and the general public, and they are also of interest to the management

Planning:

Is the process of deciding what action should be taken concerning the organization in the future.

Information:

Means a complete set of processed data that has a meaning to the decision maker

Control:

This involve overseeing the activities of the employee of the organization of the manager, they make sure that management policies are strictly adhered to.

Co-ordination:

Is the bringing together of the various units of an organization to work toward the achievement of this overall objective

Creditor:

An individual or institution that provides part of a company’s resources lending it money out.

Inventory:

It is referred to as store keeping items and are heated at storage level. Store keeping items usually consist of raw materials, work-in-progress and finished and supplies

Company:

Includes any enterprise which comes within the scope of the statement of standard accounting practices (S.S.A.P).

Assets:

These are the resources owned by the company. It may be tangible such as land, Building and machineries etc. it may also intangible such as Debtor, cash at bank etc

Liabilities:

These are debts or obligations of the company. They arise primarily because of the purchase of goods or services from other credit or through cash borrowing to finance the business.

Balance sheet:

Is a statement of assets and liabilities of an organization, which shows the financial position of the organization for a particular accounting period.

Management:

This means groups of decision make in an organization that see the smooth running of the affairs of the organization. It could also mean the act of getting things done with effective spirit of information and effective of co-ordination.

Dividends:

Is a profit to be shared to the shareholders of a company after deducting all expenses including tax.


Chapter Five


Summary, Conclusion And Recommendations

Introduction

So far this study we have seen how accounting information is used as a vital tool for management decision making. Also relevant literature were reviewed the methods used for data collection and how the data collected analysis and presented were all discussed in the previous chapters of the project.

This chapter therefore, as exclusively meant for summary limitation of study conclusion and making reasonable recommendation pertaining to the subject matter of the research work.


5.1 Summary

The management accountant provides accounting information to all levels of management which helps them in their decision-making. He provides information for planning and control purpose, the management accountant knows the problem of an organization, and at the same time the ways of solving these problems. Its relationship with other department is horizontal in nature whereby he advices other departments on how to go about doing things so that set objectives of the organization would be achieved.

The accounting information are of two type i.e management and financial accounting information. Management accounting information are those which deals with internal reporting while financial accounting information are those information used by person out side the firm it involves the accounting assets liabilities and ownership interest as well as relevant information which helps the management in decision taking. Accounting information should accurately be presented i.e. should be a realistic description of events or transaction that are disclosed in the report. The results of decision or events should not be involved in accounting reports unless they can be verified with reasonable confidence. This serves as a check on processing and measurement of errors that might have occurred. The process of generating the information to use to be efficient when the benefit of the information used exceeds the cost of providing it. The accounting information must be sufficiently available early. So that appropriate charge in resources allocation cannot be made for its usefulness.

The needs and supply of accounting information in any organization is determined by the following factors.

  1. The information needed for individual manager reflecting their responsibilities.
  2. The work specification
  3. The organization structure of the company,
  4.  The prevailing management styles.

The management information arrived at after pressing is presented to the management inform of reports the report will certain such things like reference to the problem to be solved, the investigation procedure adopted, the interpretation placed upon the information conclusions drawn on the problem, and the necessary recommendations.

Management decision making requires cost estimation of cash flows for each alternative course under consideration which is made easier if the behaviour of cost items can be identified these types of cost behaviour are categorized as variable costs, fixed costs and semi variable cost. Variable cost vary more or less directly with changes in the level of actively fixed cost and unaffected by changes in the level of actively while semi variable cost partially with the level of actively and at the same time are partially fixed the purpose of cost estimate is to estimate the fixed amount of a variable cost amount for various actively levels of the total cost.

Management performance is usually judge on the basis of the company’s success in generating profit. The criterion for many of the management’s decision therefore, is the increments affect various alternative plans on profits. The cost volume profit model is a useful tool for analyzing the relationship between revenues, cost or expenses activity level short run operating decision. Accounting can play an important role in cost volume profit analysis by providing management various products the probable effect of change in selling price and other variables.


5.2 Conclusion

The project has proved the importance of accounting information in a firm as regards to decision making. The tools used by accounting staff in any company will make sense only if the application if the accounting principles and techniques discussed in chapter two are used to various aspects of the problem to be solved when making decision. Accounting information makes a significant contribution of the decision making in an organization. The application of accounting information in a business concern is capable finding solution to management problem in terms of decision making.

Accounting need to work together with the management so that the company can achieve its set objectives. The information provided by the management accountant should be used by the managers, and then the management accountant should make sure that they provide the needed information at the right time.


5.3 Limitations Of The Study

The researchers experience some problems which could be attributed to the Nigerian factors, both humanly and non-human in nature. This could be summarized as below.

  1. Financial constrain.
  2. Uncooperative tendency of most respondents who are skeptical of disclosing some certain information concerning the projects research semester work load of the institution is not always in favors of students carrying out research work.
  3. Unavailability of relevant research materials at schools library greatly contributed to limitation of the study.

5.4 Recommendation

The usefulness of accounting report is jointly determined by its constants and the user’s skill of interpreting it, the account department should therefore help management to understand the meaning and proper use of the information prepared and submitted to them. The researcher has examined the importance of accounting information as a vital tool for management decision making and come up with the following recommendation.

  1. Relevant information should be prepared and present decision makers so as to influence the management decision processes.
  2. The accounting information must be sufficiently available early so that important information is not rendered useless when delayed.
  3. Management should be able to compare alternative, objectives, actions and events from the accounting information supplied to them and the accounting reports should be made in such a way that alternative can be compared and a decision made.
  4. Accounting information should be compared in such a way that it could be verified i.e. the results of decision or events should not be included in accounting reports unless they can be verified with reasonable confidence.
  5. Accounting information must be brief and straight to the point it should be complete and include all information that are important. This will ensure a busy manager to obtain the information he needs quickly having read through unnecessary materials.

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