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THE RELEVANCE OF ACCOUNTING INFORMATION IN DECISION MAKING PROCESS

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THE RELEVANCE OF ACCOUNTING INFORMATION IN DECISION MAKING PROCESS

 

ABSTRACT

 

This research work was carried out to know the Relevance of accounting information in decision making process using United Africa Company (UAC) of Nigeria PLC as a case study. The objective of this study is to examine the usage level of accounting information and to show how accounting information assist in decision making, the purpose and significance of the study were highlighted, in addition the limitations and scope of the study was also discussed, research questions raised and hypothesis stated.

 

Relevant literatures were reviewed; the perspective of society in general and in decision making in particular towards accounting, accounting information system, decision making process, users of accounting information, characteristics of accounting information, usefulness of accounting information and problems of accounting information.

 

The methods adopted in data collection, population selection, sampling technique adopted and methods of data analysis where critically discussed.

 

Data was presented and analyzed using the administered questionnaire. This was carried out to obtain adequate answers to the research questions and also to test the hypothesis.

 

CHAPTER ONE

 

INTRODUCTION

 

1.1     BACKGROUND OF THE·STUDY

 

Decision making is a comprehensive process that comprises with identifying the problems and decision criteria, allocating weight to those criteria, moves to developing, analyzing and selecting an alternative’ that can resolve the problem, implementing the alternative and ending with the evaluating the decision’s effectiveness. Accounting information relates to the output of accounting department of an organization it is provided through collection, analysis, presentation and interpretation of data and information from other department in term of monetary values.

 

Accounting information is a major means of helping managers of organization equity investors of an organization, potential equity investors, creditors and bond holders of an organization, supplier’s and customers of an organization and other stake holder to take decisions.

 

Accounting provides information for three major purposes:

 

  1. External Reporting: these reports are used by investors, creditors, government authorities and other outside parties

 

Routine Internal Reporting: these reports which are periodically generated are used by managers of· the company for their internal decision.

  1. Non-Routine Internal Reporting: this information or reports are generated to support projects and other decision that comes up as the need arises from them.

 

The role of accounting information in business decision making process can be likened to the role of a captain of a sailing ship. The prudent t captain studies his charts before setting sail, then sets a course for his destination, knowing where he wants to be at a particular point in time, he checks his position continuously, taking correction action if he is off course. The weather may be uncertain and unpredictable and the seas uncharted, but with necessary instruments even the smallest boats can come through the most severe conditions.

 

By simple analogy a good accounting information system enable management direction and other users of information know where they are, where they are going and how to get there using appropriate management tools.

 

Thus the main focus of this project is to establish the impact of accounting information vis-a-vis decision making from the point of view of a major user of accounting information United Africa Company of Nigeria (UAC) Nig. PLC .

 

1.2    STATEMENT OF PROBLEMS

 

In a corporate setting, the decision makers (managers) are generally distinct from the owner of the business enterprise. In like manner, financial managers’ function involves three main types of managerial decisions.

 

One of the financial manager decisions is about investment.

 

The financial manager has not been able to evaluate efficiently and effectiveness on the timing and the risk of future cash flows of investment due to inaccurate account ting information on the state of liquidity of the organization.

 

Secondly, financial decision is also a financial manager responsibility and the best financing mix or capital structure to finance the investment decisions has not been utilized due to poor accounting information system.

 

Thirdly, dividend decision which involves determining how much should be paid out of the firm’s earnings to the shareholders as dividend and how much is to be retained cannot be ascertained due to lack of the knowledge of accounting tools for analyzing is accounting information.

 

1.3    PURPOSE OF THE STUDY

 

The relevance of accounting information as a tool for business decision cannot be over emphasized. The objectives of this study are stated below:

 

To ex-ray and establish that accounting information assist decision making

To examine the usage level of accounting information

To assess the significance of quantitative and qualitative accounting information

To show the necessity of accounting information and to notify its sources.

  1. To check the performance evaluation

 

To show the influence of accounting information in decision making.

1.4     SIGNIFICANCE OF THE STUDY

 

This study is significant in many ways. Firstly, it is an in-depth study on the importance of accounting information as a decision making tools.

 

Secondly, it provides an overview of the constituents of accounting information in use by a major use of accounting information (UAC NIG PLC). Put simply, at the end if this study, problems associated with the generation of accounting information would have been identified and solution proffered. ‘the assumption is that given the central rule of accounting in decision making and organizational performance, problem identified and solution proffered would be applicable to the various users.

 

Lastly, the impact of computer technology in generating and processing of accounting information is recognized and appreciated.

 

However, this study would not involve this area. It is hoped that this would constitute an investigative focus for future researchers.

 

1.5     SCOPE AND LIMITATION OF THE STUDY

 

This study shall be focus on the Nigeria companies using UAC NIG PLC as a case study. Sample of population of study” shall be financial Manager, chartered accountants, educationist in the field of the business administration, students studying accounting and other related courses etc.

 

The major limitations of this study are as follows:

 

  1. Statistics: The absences of vital statistics that would have lent more weight to the conclusion. This is not saying that conclusion reached in this study is baseless.

 

  1. Confidentiality: Some information that one would have like to feature in the study were considered to confidential for purpose of this study.

 

  1. Time: There is a limited time going by the volume of work involved in a study of this nature.

 

1.6     RESEARCH QUESTION ON STATEMENT OF HYPOTHESIS The purpose of this study has earlier been identified as that of establishing how accounting information provides basis for business decisions. The following are the research questions:

 

Do companies rely on accounting information in decision making?

What are the problems inherent in the use of accounting information as a tool for decision making?

How can problems of accounting information be solved or minimized?

What is the assessment of accounting information as a basic tool for decision making?

The statement of hypothesis will therefore be a null and alternate. They are:

 

Ho: Management performance is not positively related to a good accounting information system

Hi: Management performance is positively related to a good accounting information system.

 

Ho: Accounting information has no bearing on the quality of business decision.

Hi: Accounting information has bearing on the quality of business decision.

 

Ho: Accounting information has no positive effect on shareholders’ investment decision

Hi: Accounting information has positive effect on shareholders’ investment decision.

 

1.7    HISTORICAL BACKGROUND

 

United Africa Company of Nigeria PLC (UAC) has a rich and varied history of successful enterprise that pre-dates the geographical entity called Nigeria. The rumps of the Company’s early days can be traced to the activities of European traders and commercial activities.

 

The Company has evolved through a series of mergers and acquisitions and restructurings as the various entrepreneurs sought to enthrone profitable and enduring enterprises.

 

One of the most significant developments in the company’s history was the setting up of the Royal Niger Company, which was chartered between 1672 and 1750 to administer the territory that would later become Nigeria.

 

United Africa Company of Nigeria (UAC) NIG. PLC was originally establish in 1879 as at trading company and was found following the merger of four companies trading up the River Niger: Alexander Miller Brother and Company, Central African Trading Company Limited, West African Company Limited and James Pinnock but became a public company in 1974 to commence manufacturing In Nigeria.

 

United Africa Company of Nigeria is a fully owned Nigeria public company and one of the largest diversified businesses in the private sector company with over 190,000 shareholders. The company’s business portfolio includes the following companies: UACN Property Development Company PLC

 

(UPDC), the first company in the real estate sector to be quoted on the stock exchange, warm spring waters Nigerian Limited, manufacturer of “GOSSY” spring Water, the bottling plant is located in Ikogosi-Ekiti, Ekiti State. The Company has majority stakes in Grand Cereals and Oil Mills Limited (GCOML); Spring Waters Nigeria Limited (SWAN) and Option Leasing Company Limited. UAC interests also include shareholdings in CAP PLC, UAC Registrars Limited and GM Nigeria Limited as a joint venture with General Motors Corporation of Detroit USA (300/0 equity), the world’s largest automobile manufacturer, Following the new pensions reforms in the country, UAC has registered UNICO CPFA Limited, as a subsidiary of the Company.

 

UAC’s Corporate Social Responsibility initiatives target the’ educational sector through interventionist programmes that seek to uplift the standards in the sector and provide a more conducive atmosphere for sound academic attainment. The Company’s pilot Schools Support Projects have led to the provision of various. Infrastructural assistance and facilities to schools in some of the geo-political zones of the country.

 

The Company has, over the years, directed its. Corporate Social Responsibility initiatives towards assisting communities, institutions and charitable organizations and the award of scholarships.

 

Today, UAC has become a food focused conglomerate with leading brands such as Mr. Biggs, Gala, Grand oils, Supreme, SWAN Natural Spring Water and Gossy Spring Water. The company’s brand portfolio also includes franchised international food brand such as Nando’s, Creamy Inn, Chicken Inn, Pizza Inn and Dial-A-Delivery.

 

The headquarter of UAC PLC is located at Niger House Lagos. Some factors that aids the company’s growth includes:

 

Diversification

Population

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Good marketing skill

Standard quality of product

Winning with people initiative (WWP)

1.8    DEFINITION OF TERMS

 

Accounting Information System: This can be defined as the means for collecting, collation, accumulation, analysis, processing, reporting and interpretation in standard term, information about the business to assist management it; planning, control and decision making.

Financial Analysis: It can be defined as the relationship between financial data in the financial statement to assist or aid In evaluating the financial condition and performances ofa firm or company in a particular financial year and in accordance with the interest of various users of the report

Liquidity: It is the ability of a company to meet its financial obligations as they become due. It can also be referred to as a state of solvency.

  1. Insolvent: It is a state or situation where as a company finds itself unable to meet its obligation as they fall due. .

 

Generally Accepted Accounting Principles (GAAP): These are set of accounting concept used in the preparation and presentation of financial statement. The fundamental accounting concepts include: entity, going concern, periodicity, realization, matching, consistency, historical cost and double entry.

Inflationary Economy: This is an economy where its monetary value varies with time movement. It IS synonymous with third world countries. e.g.  Nigeria, Ghana, India, Malaysia, etc.

Exchange Rate Flotation: This is the rising and failing of the, value of local currency to that of its foreign counterpart. This fluctuation has great impact on investment and decision making.

Budgets: These are plan of what a business expects to accomplish and its incorporated target for achievement, a budget is generally a financial and/ or quantitative plan of operations for a forthcoming accounting period.

Financial Statement: This is a sub-division of the content of an annual report and it provides summary information to various users which enable them to know the profitability, liquidity or general well-being of a company.

Capital Structure: The capital structure of company could be described as the way in which a company is financed or being owned. The capital structure of a company can be financed by equity finance and debt finance.

 

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