The Use Of Financial Accounting As Tools For Management Decision Making (A Case Study Of GTbank)

Project and Seminar Material for Accountancy / Accounting

The Use Of Financial Accounting As Tools For Management Decision Making (A Case Study Of GTbank)


Abstract


Corporate organization owe a duty to fully disclose matter concerning their operations so as to aid both management decision and investment decision because management rely on the information obtained as a tool for planning, and man for the running of the business to meet up future challenges. Without the financial accounting there will be a problem of how to determine the profit of a company and evaluation of performance of a company. In achieving this aim, the methodology employed was the distribution of questionnaire to the staff of Guarantee trust bank. The questionnaire were analysed through the use of simple percentage and chi-square method. Data were sourced from both primary and secondary source I discovered from the test of hypothesis that financial accounting is a tool for management decision making. Conclusion was drawn based on the findings that financial accounting play a vital role and contribute immensely in management decision making process and recommends that decision making should be administered in flexible and variable rigids adherences to accounting information, which are clearly appropriated for current condition. Also it was recommend that organization should encourage and embrace the effective use of information technology in order to enhance and improve their competitive advantage in this turbulent 21st century.


Table of Contents


  • Title page
  • Certification
  • Dedication
  • Acknowledgement
  • Table of contents

Chapter One

Introduction

  • 1.1. Background of the Study
  • 1.2. Statement of the Problem
  • 1.3. Objective / Purpose of the Study
  • 1.4. Research Question
  • 1.5. Research Hypothesis
  • 1.6. Scope of the Study
  • 1.7. Limitation of the Study
  • 1.8. Significance of the Study
  • 1.9. Definition of Terms

Chapter Two

Literature Review

  • 2.1. Historical Background of the Company
  • 2.2. Conceptual Review
  • 2.3. Theoretical Review
  • 2.4. Empirical Review
  • 2.5. Summary of the Chapter

Chapter Three

Research Methodology

  • 3.1. Outline of the Chapter
  • 3.2. Research Design
  • 3.3. Population and Sampling Method
  • 3.4. Method of Data Collection
  • 3.5. Procedure of Data Collection
  • 3.6. Method of Data Analysis
  • 3.7. Limitation of the Research Methods

Chapter Four:

Data Presentation Analysis and Interpretation

  • 4.1. Introduction of the Chapter
  • 4.2. Criterion Group Returns Respondent Characteristics and Classification
  • 4.3. Presentation and Analysis on Research Question
  • 4.4. Presentation and Analysis on Test of Hypothesis
  • 4.5. Analysis of other Data

Chapter Five

Summary, Conclusion and Recommendation

  • 5.1. Summary of the Study
  • 5.2. Conclusion Drawn from the Findings
  • 5.3. Recommendation Based on the Conclusion
  • BIBLIOGRAPHY
  • APPENDIX
  • QUESTIONAIRES

Chapter One


Introduction

1.1. Background of the Study

As this is known to us that in any organization without making use of accounting tool and qualified accountant, the company will surely face the problem of profit will surely face the problem of profit and wealth maximization. The following question may arise, how did business executive known whether a company is earning profit or incurring losses. Financial accounting provided the rules and structure for the conveyance of financial information about business (and other organization). At any point in time, some businesses are poised to prosper while other teeter on the verge of failure. Many people are seriously interested in evaluating the degree of success achieved by a particular organizations as well as its prospects for the future. While a few basic procedures or methods have changed, the purpose of financial accounting remain the same. Business owners often use accounting to measure the financial performance of their companies and make business decision.

The American institution of certified public accountant has defined the financial accounting as “the art of recording, classifying and summarizing in as significant manner and in terms of money transactions and events which in part at least of a financial characters and interpreting the result there of American accounting association defines accounting as “the process of identifying measuring and communicating economic information to permit informed judgment and decision 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 enhance decision making in the organization. Hence it can safely be concluded that financial accounting is not an end in itself but a mean 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.


1.2. Statement of Problem

The factor that necessitated the establishment of accounting system in Guaranty Trust Bank PLC are related to a lot of problem which the management encounter in the efforts to activate and transform their accounting system into an economic viable one note able among them are;

  1. To minimize risk, failure and uncertainties and also stay ahead of competitors.
  2. Lack of financial accounting information may lead to the non-effective and inefficient accomplishment of the firm’s objectives.
  3. Poor record keeping, in efficient 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.

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;

  1. Find the causes of failure in the attainment of organization objective, resulting from lack of adequate utilization of accounting information.
  2. Highlight the effects of managerial neglect of accounting information on the achievement of the organizational goal.
  3. To ascertain the extent to which accounting is being used as a financial tool for measuring financial performance of organization.
  4. Analyze the relationship between financial accounting, accounting information and management decision making.
  5. 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.

1.4. Research Questions

The research question provides a framework and guidelines through which substantial knowledge of the research study can be understood, these includes;

  1. What are the causes of failure in the attainment of organization objectives, resulting from lack of adequate utilization of accounting information?
  2. What the effect of managerial neglect of accounting information in the achievement of the organizational goal.
  3. To what extent is financial accounting bring used as a financial tool for measuring financial performance of organization.
  4. Is there any relationship between financial accounting, accounting information and management decision making
  5. 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.

1.5. Research Hypothesis

Hypothesis One
  • Ho: Financial accounting is not a practical tool for efficient and effective management of decisions in an organization.
  • Hi: Financial accounting is a practical tools for efficient and effective management of decision in an organization.
Hypothesis Two
  • Ho: Financial Accounting do not plays a significant role in management financial decision making role.
  • Hi: Financial Accounting plays a significant role in management financial decision making role.

1.6. Scope of the Study

The study built around the implicit use of financial accounting for management decision making in an organization, in Nigerian (by making use of Guaranty Trust Bank PlC, As a Case study).

However, the research was limited to Guaranty Trust Bank PLC operator in Sagamu, Ogun State metropolis due to the schedule and vicinity of the researcher.


1.7. Limitation of the Study

Limitation envisage in this research work are;

  1. Restructure on data generation: the data obtained was restricted to the case study
  2. Time frame of this research work is and other limitation as more time may be required to make more findings, because adequate time will be required to get up to data current data from the bank and the clients.
  3. Distribution and retrieval of questionnaire from respondent (banks official and the client might also constitute limitation as we may not be able to retrieve all questionnaires.
  4. Also there might be financial and transportation constraint to this study as these two factor will be at our capacity which might not be enough to give us desired results.

1.8. Significance of the Study

Financial and other accounting report the basis upon which may diverse interested group lay their must in making vital investment decision some are skilled in the profession of accounting, others are not such interested group include; Government and its agency, financial analyst, researchers, student public financial investors, various business seeking for expansion opportunities, creditor and trade union. Financial analyst need accounting report as an essentials tool in his analyst, date has to be reliable to a reasonable extend, in most cases form audited reports and accounts this with other statistic and some element of forcasting the analysis will be able to predict the financial market required accounting reports to explain trend without and economy or with in business cycles investors and shareholders seen to be the group that eagerly seek out for accounting reports to assess the performance or growth potential of a form which we was to invest in creditors must consider before permitting them to borrow fund difficulties in development accounting will be over come it suggestion made in this project are adhered to by management GTB.


1.9. Definition of Terms

1. Financial Accounting:

Financial accounting is concerned with reporting general purpose information to user to an entity in order to help them make sound economics decision about the entities performance and financial position.

2. Management:

This is process by which business systems are administered. It is also a process of planning, controlling and decision making in an organization

3. 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.

4. Financial Ratio:

These are various financial calculations derived from accounting records internal and external use of such information to determine the company favourable performance otherwise.

5. Gross Profit:

This arises when the total (turnovers) exceed the cost of production of an organization within a given profit.

6. Net Profit:

This arise when the gross profit exceed the total expense of an organization within a given period the result would be not loss when expenses the gross profit.


Chapter Five


Summary of Findings, Conclusions and Recommendation

5.1. Summary of Findings

In summary, the first section introduced the topic of the study, statement of problem, objective of the study, research hypothesis, significance of the study. The second section dwelt on the review of related literature, in section three, the researcher dwelt on the research methodology adopted in carrying out the work. Also the research design was also highlighted while the various sources data used were briefly mentioned. It also discusses the procedures used by the researcher in the analysis of the collected data. The fourth section dealt with the presentation and analysis of data.

After a careful analysis and interpretation of data generated in the course of this research work, the following findings were made in order to confirm the null or alternative hypothesis stated in this study.

Results of the study revealed that the use of financial accounting techniques and information improves/enhances decision making in organizations. It can then be conveniently conclude that there exist a strong relationship between the financial accounting and managerial efficiency. There is also a high level of awareness pertaining the role of financial accounting in the management planning, control and decision making role.

Decision making process requires information – financial and non-financial information as well. The most important financial information needed in the process of business decision comes from accounting. Therefore, we can say that accounting is a service function to management. It, basically, processes or gathers and studies “raw data” and converts them into suitable information in the process of decision making.

The findings of the research indicated that the continuous utilization and implementation of financial accounting as a management tools could lead to better decision-making by managers, it will enhance more effective internal control systems, enhancement of the quality of financial reports and facilitating financial transaction processes in the organization.

Finally, findings also reveals that, financial accounting information generated by accounts department has contribution immensely in decision making process of the management, also it has improved effectively, the basic roles of cost minimization, proper allocation of scare resource and the improvement of organizational productivity.
Findings also provides useful insights to policy makers on the factors that affect the effective use of financial accounting in corporate organisation. Such insights may be used in introducing further measures to improve the usefulness of financial accounting tools, techniques and information in corporate governance in different contexts, More so, this insights offered also would be useful to banking practitioners in their attempts in improving corporate governance in banks.


5.2. Conclusions

Financial Accounting information prepares the whole range of financial tools for different users. We can measure and examine the business quality of the entire company on the basis of accounting and financial information. In that context we examine true and fair presentation of financial position, business efficiency and cash flow.

Successful business is the business operation that results for quite a long period in corresponding level of security and efficiency of business. Security of business is examined, first of all, on the basis of a balance sheet and efficiency on the basis of the profit and loss account. However, for a more complete picture about business quality we need to consider data from other statements, for example, cash flow statement.

The study also concludes that, the task of financial statement analysis is to recognize good characteristics of the company so that we could use the most of those advantages, but also to recognize company’s weaknesses in order to take corrective actions. Because of that, we can say that management of the company is the most significant user of financial statement analysis.

Furthermore, the sufficient supply and proper use of financial accounting as a veritable tools for decision making had gone a long way in helping the management in making efficient and effective decision in some organisations and for this, there is a significant impact of the uses of financial accounting as an aid to management decision making in the company, moreso, financial accounting is also of maximum importance to the various users such as the curriculum planners, government, and public. It gives them the confidence of planning effectively. The soundness of the management decisions are its ability to know what the state of the organization is at any time depends on the accuracy and completeness of the records.

It can be concluded that although financial accounting could play an important role in the management decision making of corporate financial organisations such as banks, the effectiveness of its role would depend on the nature of the factors in the organizational interface and in the external environment, and thus supports the contingency view. Such factors have the potential to promote as well as obstruct the role of financial accounting in the banking industry. Hence, the study provides a basis to understand the essential usage of financial accounting as tools for decision making in commercial banks.

Finally, even though the objectives of firm may differ from one organisation to another. Based on the statement of the problem stated in chapter one, the research concluded that the application of financial accounting information makes the difference between failed banks, enterprises, corporate bodies on one side and the successful one on the other side. For the improvement in the application of financial accounting information to be sustained, adequate understanding of the difficulty in the application of accounting information is very essential. If this is applied as at when due failure in business both private and public sectors will be highly minimized or eliminated.


5.1. Recommendation

Financial Accounting is a very essential tools to the management and users’ for their development, especially when it extends to decision making. In view of the above the following recommendations were deemed necessary.

  1. Based on information gathered, the researcher maintains that not all accounting departments/management decision are well coordinated, despite the awareness of the role of accounting system organization and thus opines that;
  2. Clear-cut definition of long-term corporate objective, within which the accounting information system will operate.
  3. Decision-making should be administered in flexible and variable rigid adherences to accounting information, which are clearly appropriated for current conditions. This will course the whole accounting system to gain credibility and effectiveness.
  4. Effective communication and information flow is important for a good accounting system, and banks/organizations should provide communication channels between top and lower levels of management regarding long and short term objectives and the practical problems of implementing those objectives.
  5. Co-ordination from the top management will ensure proper interpretation and implementation of the accounting information in decision-making. Therefore, I recommend that every personnel should know where he or she belongs in the entire organization and also see him or herself as part of the corporate whole. These individuals most take part in decision-making process, at least at the functional levels.
  6. In setting high accounting policies, the government should also ensure that the decision makers of the tertiary institutions are well resourceful personnel so as to be able to interpret as well and easily make use of the accounting information delivered to them.
  7. Furthermore, Organizations are encouraged to embrace the effective use of information technology in order to enhance and improve their competitive advantage in this turbulent 21st century.

Finally financial accounting information, techniques, methods, and standards should be seen as an important tool for decision making process in an organisation and more encouragement should be given to staff in the performance of their duties. This will enhance efficiency and effectiveness of the accounting information in the
Organization or banking industry.


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