Impact Of Management Accounting On Financial Performance (A Case Study Of CFAD Nigeria, Plc)

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Impact Of Management Accounting On Financial Performance (A Case Study Of CFAD Nigeria, Plc)


Abstract


The main thrust of this study is to examine the application of management accounting and its application to organisational, planning, control and decision making. Specific objectives are: to ascertain whether management accounting information are provided at the right time for improved financial performance, to identify whether the management accounting information system is computerized, to eliminate the constraint affecting the application of management accounting information on organization. Data for this study was collected from the respondents through the use of questionnaires. Other information was collected from text books, journals and other secondary sources of data. The sample for this study will be CFAD Nigeria, PLC. The random sample techniques are used to select the respondents of the study area. Thus, one hundred and twenty (120) samples were considered for this study. In testing the hypotheses formulated earlier for this study, the chi – square (X2) was employed.

Findings from the study reviewed that majority of the respondents are of the opinion that management accounting is important for the organizational planning and that management accounting information improves organizational performance.

This research will reveal the most important factors that lead to increasing accountant’s involvement in the managerial process of Nigerian companies.


Chapter One


1.0 Introduction

1.1 General Description of Study

The term management accounting came into use when accountants added to their existing function, it is not new though the interest shown in it is of relatively recent origin. Management accountants particular task is to provide information to his colleagues relating to the economics aspect of the operation of an enterprise, which he will take from the field of accounting such techniques as will be useful he will always look at the enterprise with the eye of a manager, conscious of management problems, responsibilities, opportunities, limitations, hopes and fears.
Management accounting is abroad based electric subject drawing upon relevant concepts and principles from economics, statistics, operational research, management behavioural science, information system as well as from cost and financial accounting.

It could be reasonably assumed that if there is a sound management accounting department in an organization which produces relevant and accurate information as the right time, then such an organization is bound to financially perform well if such information as the right time, then such an organization is bound to financially perform well, if such information is effectively and efficiently utilized. The extent of which the above assumption or the organization is true using the Nigeria companies/organization is the subject of this study.

Every organisation has managers, however, these managers have a responsibility to the organisation’s stakeholders to manage the organisation in the most-effective and most-efficient way, to maximize the organisation’s potential, thus it involves the managers undertaking adequate planning for the short-term and long-term future of the business, ensuring that the business is being properly controlled to ensure plans succeed, and making decisions that will enable the business to survive and grow in the future.

The management faces a broad array of decisions, including production, marketing, financial and other decisions. Having in mind that decision making is a fundamental part of management such decisions about the acquisition of equipment, mix of products, methods of production and pricing of products and services confront managers in all types of organizations. Though, the fundamental objective of planning is to assist management in deciding how to allocate an organisation’s resources, while Control is a key feature of management accounting and follows on from planning, it can be exercised at a strategic and / or an operational level, while decision making process.

Management accounting equips managers with information required to carry out these tasks. Management accounting is an important part of the economic information system, with a key role in decision making, whether we talk about small and medium enterprises or large companies. However, management accounting is superficially treated in most economic entities.

The format and content of management accounts depend upon the specific requirements of management. Different businesses will have different information requirements and their individual management accounts will reflect this. As internal reports, management accounts will often contain business-sensitive information for a restricted audience and can focus on both financial information and non-financial information, such as critical success factors (measures of factors or aspects of an organisation’s performance deemed to be critical, or essential, to its competitive advantage and thereby its success).

Early studies place management accounting in a service function with the scope to provide all levels of management with high-quality scorekeeping, attention-directing and problem-solving information and also to provides management with data in order to establish policies, develop plans and control operations.(Simon et al.1954).
Management accounting In a general sense, managerial accounting is an integral part of management that deals with identifying, presenting and interpreting information used for strategies, decision making, resource optimization, employee information, asset protection planning and control of activities, information of associates or other external information users. ( Briciu, and Căpuşneanu, 2011: 57-68).

Furthermore, there is a separate division within management accounting which captures cost accounting, cost analysis, cost control and cost reduction. Singer (1961) and BrunsandMcKinnon (1993) point out that management accounting captures collecting (financial) information which is useful.

It should be noted that, in addition to principals of financial analysis, the application of management accounting in an organization captures good knowledge of the business the firm operates in, fluent communication skills and knowledge of (change) project management.

Further analysis has clarify that the emergence of team-oriented management accounting roles (management accountants)nowadays needto have hybrid skills from the traditional roles, this is because management accounting is becoming wider involved in integrated business situations, agendas and decision-making forums.

It is against this issue, ideas, information that this study tends to analyze, explain, and assess the application of management accounting in organizational planning, control and decision making process.


1.2 Statement of Problems

The business world has changed totally. As a result, the role of management accountant is very different now than it was years ago.

In the past, management accountants operation is strictly staff capacity usually separated from the managers for whom they provided reports and information.

Also from a broad perspective, Financial reporting is one of the significant objectives for an accountant, due to its major effect in highlighting and examining the financial information of a company. The quality of reporting financial information is an international issue and the decision making skills of the accountant plays a major role in reaching the overall company objectives, but most organization today lag behind when reporting financial activity of the company as a result of inadequate application of Management accounting skills and functions, this sometimes diminish the integrity and reputation of the organization.

In any organization where there is an effective and adequate management accounting technique, it provides vital information for internal reporting manager’s use in decision-making and formulation of long term plan.
In corporations that derive much of their profits from the information economy, such as banks, publishing houses, telecommunications companies and defence contractors, IT costs are a significant source of uncontrollable spending, which in size is often the greatest corporate cost after total compensation costs and property related costs. A function of management accounting in such organizations is to work closely with the IT department to provide IT cost transparency. Presumably most of this function are not applied in most organization, thereby leading to inability of the manager to plan, control and make IT cost decisions.

Although many agree about the important role of management accountants in organisations plan, control and decision making, moreso certain studies show a certain lack of involvement by management accountants. Even though quantifiable information is important for improved financial performance, accountants are not engaged in it because of the absence of the appropriate techniques. “They are not perceived as having a positive contribution to decision-making, unless the contribution is to legitimize decisions arrived at through a political process, whereas this poses serious challenges to the organization business activity.

Finally, the inability of some organization to use management accounting techniques in their decision-making has resulted to non-effective and efficient accomplishment of the firm’s or organizational goal.

Therefore, the aim of this research work is to have a look at or show the information, management can derive from management accounting techniques, then usefulness or lack of it for decision making in business organization.


1.3 Objectives of the Study

Thought it is undisputed facts that, Management accountants, are responsible for financial information in most companies, have a certain role in the decision making process. That role differs from company to another, depending on the skills and qualities a person has and earned over the years.

The main objective of the study is to examine the application of Management Accounting on organizational planning, control and decision making.

The specific objectives are:

  1. Ascertain whether management accounting information are provided at the right time for improved financial performance.
  2. Identify whether the management accounting information system is computerized.
  3. Eliminate the constraint affecting the application of management accounting information on organization decision making.
  4. Identify the effect of poor Management financial performance.
  5. Determine how effective the management accounting information system is in the company.
  6. Explain the differences between management Accounting and other fields of Accounting.

1.4. Research Question:

For the purpose of the research study, the following research questions were asked:

  1. Are management accounting information provided at the right time for improved financial performance?
  2. Are there any constraint affecting the application of management accounting information on organization decision making?
  3. What are the effect of poor Management financial performance?
  4. How effective are the management accounting information system is, in the company?
  5. Is the management accounting information system computerized?
  6. Are there any differences between management Accounting and other fields of Accounting?

1.5 Significance of Study

Management accounting has evolved over time and is influenced by the continually changing environment in which it has developed. This type of accounting is focused on internal use by management rather than external reporting. At this time, management accounting has appeared to have matured and the current principles provide the basis for management accounting of the future. All types of accounting share a common objective: to measure entity capital and its changes through use over time. The principal end products of management accounting are the forecast balance sheet and the forecast profit plan. However, management must also consider historical reporting and must use the same concepts for planning and reporting to provide comparable results

On this note, this research work when completed will be very useful to the followings:

Business/ Organisations: To this group, the research work will provide them with the requisite knowledge of management accounting in making provision and interpretation of information required by management at all levels for formulating organizational policies, planning and good decision making.

The study will also be of importance to government corporation, companies, regulators and policy makers who are involved in regulating the accounting Standards and guidelines, it will also educate the general public and entrepreneurs on application of management accounting practices, types, it application, and benefits, It will also enable a better understanding of common management accounting techniques in relation to other fields of accounting.

This research would contribute to the existing literature by focusing on tax administration in Nigeria with a view to identifying the critical problems that are confronting the tax system so that appropriate measures could be taken to tackle them.

This paper will contribute to the understanding of an accountants’ role in the formulation of company decisions. This research will reveal the most important factors that lead to increasing accountant’s involvement in the managerial process of Nigerian companies.

Finally this study 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.


1.6. Statement of Hypothesis

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;

Hypothesis one

Ho: Management Accounting Information are not effectively and efficiently used to improve financial performance performance.

Hypothesis Two

Ho: Management accounting information are not applied at the right time for improved financial performance in an organisation?


1.7. Scope of the Study

From the foregoing discussion, the research focuses on Management Accounting And Its Application To Organisational, Planning, Control And Decision Making Using Nigeria CFAD Plc As Case Study.


1.8. Limitation of the Study

Limitations envisage in this research work are:

  1. Uncooperative attitude of the staff in the organisation: this is a major limitation which increase the time spent in completing the research work.
  2. Monetary constraints: This factors serves as a deficiency for the research work, and as a result of low financial capability, it was not enough to give us desired results.
  3. Protocols of getting the top management of the firm for more information.

1.9. Definition of Terms

1. Management Accounting:

This is the process of identifying measuring, analyzing, interpreting and communicating information in pursuit of an organizational goal.

2. 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.

3. Company:

This refers to a legal entity that carryout business in its name.

4. Controlling:

This is a process of ensuring that organisation operates in the intended manners and achieves it’s goal.

5. Organisation:

This refers to a recognized business entity of enterprise that carryout business activity.

6. 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 carryout the duties of accountants in taxation and audit practice.

7. Strategic Planning:

This establishes, for management, the shape and direction to be taken by the organisation. This type of planning is normally ad-hoc and is driven by the recognition of a need for the revision / change of priorities. This normally results from seeing actual results achieved and / or projected outcomes under a variety of proposed strategies.

8. Cost Accounting:

The part of management accounting that is concerned with costs is often known as Cost Accounting, It is generally made up of the following five parts, input measurement basis, an inventory valuation method, cost accumulation method, a cost flow assumption and a capability of recording inventory cost flows at certain intervals.


1.10. Brief History Of Case Study (NIGERIA CFAD PLC.)

CFAD Nigeria, PLC, incorporated in 1946, is the pioneer and largest brewing company in Nigeria. Its first bottle of beer, STAR Lager, rolled off the bottling lines of its Lagos brewery in June 1949. Other CFAD were subsequently commissioned by the company, including Aba Brewery in 1957, Kaduna Brewery in 1963, and Ibadan Brewery in 1982. In September 1993, the company acquired its fifth brewery in Enugu state, and in October 2003, its sixth brewery, sited at Ameke in Enugu. Ama Brewery began brewing on the 22 March 2003 and at 3 million hectolitres is the largest brewery in Nigeria. Operations at Enugu brewery were discontinued in 2004, while the company acquired a malting Plant in Aba in 2008.

In October 2011, CFAD Nigeria acquired majority equity interests in Sona Systems Associates Business Management Limited, (Sona Systems) and Life CFAD Limited from Heineken N.V. This followed Heineken’s acquisition of controlling interests in five CFAD in Nigeria from Sona Group in January 2011.

Sona Systems’ two CFAD in Ota and Kaduna, and Life CFAD in Onitsha have now become part of CFAD Nigeria, PLC, together with the three brands: Goldberg lager, Malta Gold and Life Continental lager.

CFAD Nigeria, PLC now has eight operational CFAD from which its products are distributed to all parts of Nigeria, in addition to the malting plants in Aba and Kaduna.

Products

The company has a portfolio of high-quality brands, including

  1. Star Lager (launched in 1949) Pale Lager
  2. Gulder lager beer (1970) Pale Lager
  3. Legend Extra Stout (1992) 7.5% ABV Extra Stout
  4. Heineken Lager (June 1998) Premium Lager
  5. Goldberg Lager (October 2011)
  6. Life Continental Lager (October 2011)
  7. Star Lite Lager (February 2014) Pale Lager
  8. Ace Passion Apple Spark (December 2014)

Alcohol-free drinks

  1. Maltina (1976), in three varieties, namely Maltina Classic, Maltina Strawberry, and Maltina Pineapple; Maltina Sip-it (2005), in Tetrapak;
  2. Amstel Malta (1994).
  3. Fayrouz, in pear and pineapple (2006)
  4. Climax Energy drink
  5. Malta Gold (October 2011)

Most of the products are packed in returnable bottles and all products are now available in cans. Fayrouz is also produced in P.E.T Bottles. The company’s head offices are located in Lagos.


Chapter Five


Summary Conclusion and Recommendation

5.1 Summary of Findings

The objectives of the study were to;

  1. Ascertain whether management accounting information are provided at the right time for improved financial performance.
  2. Identify whether the management accounting information system is computerized.
  3. Eliminate the constraint affecting the application of management accounting information on organization decision making.
  4. Identify the effect of poor Management financial performance.
  5. Determine how effective the management accounting information system is in the company.
  6. Explain the differences between management Accounting and other fields of Accounting.

Findings from the study reviewed that majority of the respondents are of the opinion that management accounting is important for the organizational planning and that management accounting information improves organizational performance.


5.2 Conclusion

The study concludes that Information for Decision Making practices is the most highly used management accounting practice amongst the manufacturing companies in Nigeria followed by Strategic Analysis, Budgeting, Performance Evaluation, Costing, Size and Leverage respectively. The study further concludes that the most important elements of management accounting practices amongst the manufacturing companies in Nigeria are;

The management accounting function identifies key factors that influence performance and risky areas that require improvements and Return on equity, ROE (Net income / Average Equity) has increased as a result of application of management accounting practices, The management accounting function develops strategies that enable the manufacturing companies to exploit financial innovations in creating a sustainable competitive advantage and management accounting provides information from its environment to management to facilitate decision-making and Return on Asset, ROA (Net income /Total assets) as a result of application of management accounting practices.


5.3 Recommendations

This study examined management accounting and its application to organisational planning, control and decision making. From the practice perspective, this study recommends the creation and enhancement of awareness among firms of the importance of information for decision making practices as this is the most highly used management accounting practice amongst the companies in Nigeria. The findings recommend that to achieve a proper measure of financial performance, firms need not only to integrate Return on Equity, Return on Asset and Earnings per share as the measures for accounting but also other value based measures which have gained popularity in academic literature in last two decades. As an efficient accounting ethical practice, it is the responsibility of the management accounting professionals to remain relevant in adding value to the companies for which they work and to their profession by keeping abreast of research findings in their area of responsibility. In relation to policies, accounting curriculum should be developed consistently to the changing role of accountants. Accounting Education must equip their student with capabilities in coping with the rapid changing of the business environment so that they can always provide relevant management accounting information to managers. Academics and practitioners can use the findings of this study to fully understand how management accounting practices can help to improve business performance in companies.


5.4 Limitations of the Study

The study only concentrated on the cost and management accounting practices of companies in Nigeria and not all the companies in the economy. These results are therefore 54 only limited to the companies and may be of little or no use to the companies in other sectors in the country. Due to the self-report nature of data which entailed the use of questionnaires, responses on the survey may not accurately convey their real involvement in the management accounting practices. Some of the respondent did not return the questionnaires therefore, resulting to lesser the targeted sample thus, influencing the nature of statistical reporting. Further, some firms did not accurately disclose the ROA figures due to the nature of the sensitivity of financial information disclosure. Therefore, this affected proper statistical analysis of the data. Finally, due to limited time available to carry out the research, the above areas were not comprehensively studied to provide a national wide picture. This would be an important area because policy makers and implementers argue that the effects of management accounting practices on financial performance of companies in Nigeria can only be resolved by providing them with research action points based on empirical data.


5.5 Suggestions for Further Research

Research should be carried out that also includes those companies in other sectors to establish if they also consider the management accounting practices as important and to establish the frequency of usage of the practices. Further research is important in other countries with similar or almost same micro and macroeconomic environments for companies. The findings of would enhance a cross-country comparison of the management accounting practices and their impact on financial performance. In addition, future studies should examine specific factors as to why companies are not adopting newly developed management accounting tools. The relatively limited benefits associated with new managementaccounting techniques raises the question of the conditions necessary to effective implement these tools. Finally, the dependence between traditional and new management accounting techniques needs further investigation.


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