THE USE OF ACCOUNTING INFORMATION SYSTEM AS A MANAGEMENT TOOL TO ENHANCE DECISION MAKING

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THE USE OF ACCOUNTING INFORMATION SYSTEM AS A MANAGEMENT TOOL TO ENHANCE DECISION MAKING

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Accounting information is the language of business as it is the basic tool for recording, reporting and evaluating economic events and transactions that affect business enterprises. It processes all documents of a business financial performance from payroll, cost, capital expenditure and other obligations to sale revenue and owners’ equity. It provides financial information about ones business to the internal and external users, such as managers, investors and others. It 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 & Hope, 2009). The making of decision, as everyone knows from personal experience is a burdensome task (Wada, 2006). In most cases indecision is as disastrous as making a wrong one, therefore a plan of action is indispensable. Management is constantly confronted with the problem of alternative decision making especially knowing that resources are alternatively scarce and limited. It is therefore pertinent that good accounting information be made available for proper and accurate decision making, maximization of profitability and optimal utilization of scarce resources. Accounting information is not only necessary for evaluation of the past and keeping the present on course; it is useful in planning the future of the enterprise. According to Mbanefo (1997), planning may conventionally be call budget/budgeting targets, which give meaning and direction to operations of the organization within a defined period. At the end of the budget period the external results are compared with budgeted performance and discrepancies (variance) are analyzed for purposes of exposing the causes so as to prevent re-occurrence. Budgeting uncovers potential bottlenecks before they occur, coordinates the activities of the entire organization by integrating the plans and objectives of various parts. The budget ensures that the plans and objectives of the parts are in consistency with the broad goals of the organization. It compels managers to think ahead before formalizing their planning efforts and finally provides defined goals and objectives which serve as benchmarks for evaluation of subsequent performance.

Management uses both financial and non-financial information to make effective decisions that would help achieve the goals and objectives of the organization (Melisssa Bushman, 2007). Financial information used by management accountants include sale growth, profits, return on capital employed and market shares, non-market shares, non-financial information include customer satisfaction level, production quality, performance of competing products and customer loyalty. Decision making is however, the choosing of alternative courses of action using cognitive processes. Making decision is necessary when there is no one clear course of action to follow. Accounting systems can aid decision making by providing information relevant to the decision and to the decision makers. Accounting systems provides a check for the validity through the process of auditing and accountability (Gray et al., 2006). Effective and efficient accounting information plays a central role in management decision making.

1.2 Statement of Research Problem

Generally, the use of accounting information is indispensable for decision making in any business organization. The problem however lies in the quality and validity of the information, that is, if it’s timely, adequate and clear. According to the report of the Joint Auditor’s First Bank Annual Report and Account (2000/2001 page 30) falsified accounting information was the reason for many failed banks in Nigeria. The major purpose of the use of accounting information is to maximize 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. It is against these backdrops that this study is being conducted.

1.3 Research Questions

The study is poised towards providing answers to the following research questions

· Does accounting information have any effect on management decisions?

· Is there any relationship between the perception of the employees and accounting information of the firm?

· Does accounting information affect the performance of the company positively or negatively?

1.4 Objective of the Study

The main objective of this research study is to examine the Use of Accounting Information as a management tool for decision making in the context of Dangote Group Plc. However, the specific objectives of the study are to:

· Assess if accounting information have any effect on management decision.

· Examine if there is any relationship between the perception of the employees and accounting information of the firm.

· Evaluate whether accounting information affect the company performance positively or negatively.

1.5 Research Hypotheses

The following Null hypotheses are advanced and shall be tested in the course of the study.

Hypothesis one

Ho: Accounting information does not have any effect on management decision making

Hypothesis Two

Ho: There is no significant relationship between the perception of employees and accounting information

Hypothesis Three

Ho: Accounting information does not have any effect on the company’s performance.

1.6 Significance of the Study

This research work will be useful to the people in the academic field, readers, and knowledge seekers and will also be of great relevance to the oil and gas industry in the area of managerial decisions and performance appraisal. This research work will also contribute to the knowledge of Accountants and other financial managers as it will assist them on effective planning and control in areas of accounting information in making effective management decisions and how to devise strategic moves in meeting with the stated goals and objectives of the organization and the environment at large.

1.7 Scope of the Study

The study area of this research work is concerned with the use of accounting information as a management tool for decision making within the context of Dangote Group Nigeria Plc as case study.

Brief Historical Background of Dangote Group Nigeria Plc.

The company was established in May 1981 as a trading business with an initial focus on cement, the Group diversified over time into conglomerate trading cement, sugar, flour, salt and fish. By early 1990s, the Group had grown into one of the largest trading conglomerate operating in the country. In 1999, following the transition to civilian rule and after an inspirational visit to Brazil to study the emerging manufacturing sector, the Group made a strategic decision to transit from a trading based business into a fully-fledged manufacturing operation. In a country where imports constitute the vast majority of consumed goods, a clear gap existed for a manufacturing operation that could meet the ‘basic needs’ of a vast and fast growing population.

The Group embarked on an ambitious construction programme, initially focused on the construction of flour mills, a sugar refinery and a pasta factory. In year 2000 the Group acquired the Benue cement company Plc from the Nigerian government and in year 2003 commissioned the obajana cement plant; the largest cement plant in sub-Sahara Africa. The Group is now one of the largest manufacturing conglomerates in sub-Sahara Africa and is pursuing further backward integration alongside an expansion programme in existing and new sectors.

1.8 Plan of the Study

This research work is divided into five Chapters one elucidate the background to the study, research objectives, hypothesis testing, research question etc. Chapter Two concentrate on review of relevant literature, conceptual review, empirical studies review and theoretical framework. Chapter three Concentrate on introduction of research methodology, research methods, sources of data collection (questionnaire), data analysis, population of study etc. Chapter Four looks at data presentation, analysis and interpretation while Chapter 5, contains introduction, summary, findings, recommendation based findings and conclusion.

1.9 Operational Definition of Terms

Accounting: Accounting can be defined as an art of recording, summarizing, reporting, and analyzing financial transactions (Stan Snyder, 1997).

Information: This can be defined as a stimuli that has meaning in some context for its receiver (Adeolu, 2001).

Management: This is the art of working particularly through people, for the achievement of the broad goals of an organization (Ejiofor, 1987).

Management Accounting: This is an aspect of accounting that is concerned with providing information to management in the areas of planning, decision making and control (Yusuf, 2003).

Decision Making: This is the process of choosing alternative courses of action using cognitive processes (Siyanbola, 2012).

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