CHAPTER
ONE
INTRODUCTION
1.1 Background of the Study
For any organization of any type, be
it small, medium or large, service or manufacturing, to survive in this dynamic
and global world, there is need for proper management of information.
Therefore, information is the backbone of any business. However, there is need
for information to be well process, and the means to process information is
through an integrated set of component called an information system. Thus,
information system is the combination of different component to perform a
specific function and basically it can be sourced from both internal and
external. According to Elvisa and Erkan (2015), the most important part of
management information system is the one that is concern with data processing,
known as Accounting Information System (AIS). AIS involved identifying,
recording, analyzing, summarizing and communication of economic information to
its end user for decision making.
Decision making has been described as
a purposeful choosing, from a number of alternative causes of action. AIS
provide managers with the necessary information they need. Management decision
is one of the most important facets that pervade all organization and
constitute its progress and/or failure in actualization of pre-determined goals
and objectives (Clinton, Matuszewski & Tidrick, 2011). Interestingly, both
financial and non-financial information are used by Management accounting and
is generally intended for the use of internal users who use the information to
make decisions that help achieve the goals and objectives of the organization.
Financial information used by management accountants include sale growth,
profits, return on capital employed and market shares, non-financial
information include customer satisfaction level, production quality,
performance of competing products and customer loyalty. Melissa Bushman (2007)
opined that management accountants use both financial and non-financial
information to aid business decision-making, in other words, business decision
making is predicated on AIS. AIS is a set-up, or system that is primarily
concerned with financial data gathering from internal and external sources,
analyzing, processing, interpreting and communicating the result (information)
for use within the organization so that management can make more effective and
efficient plan, decisions and control operations.
Planning, decision making and control
operations according to Priyia and Longnathan (2016), are challenges constantly
confronted by management in running the affairs of the organization, especially
knowing that resources are relatively scarce and limited. So, the need for good
AIS must be made available for proper and accurate decision making. In making a
sound decision, the management needs valuable and accurate information from its
accountant. The accountant is at the services of the management by providing
them with the necessary information they need for decision making. In recent
times, it was observed that cases of mismanagement, fraud and irregularities
prevail in the organization.
Green Wood and Hinings (2012) opined
that there is evidence that reveal the influence of accounting information in
decision making process. It emphasizes the importance of a holistic context and
which, led to the integration of other institutional influence and multiple logics.
The essence of using AIS is to enable managers make wise decision. AIS is also
used to setup system of internal control to increase efficiency and prevent
fraud in companies. AIS aid in profit making, budgeting and cost control. In a
company, it is the duty of the management accountant to see that his company
keeps good records and prepare proper financial regulations. Management
accountants also need to keep up with the latest development in the use of
computers and in computer system design. Accountants provide many special
reports for management’s decision making. This function requires the gathering
of both historical and projected data.
1.2 Statement of the Problem
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 is timely, adequate, and clear. The major
purpose of the use of accounting information is to minimize 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. 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
only through accounting information that managers and external users get a
picture of the organization as a total entity. Managers who fail to realize
this do not appreciate an accountant’s analysis in respect of financial
accounting information generated. This may lead to poor decision being taken
and it may affect the profitability & performance of the organization. Some
organization due to low financial layout causes the effect & importance on
decision to be taken not to be noticed or gained by the organization.
Generally, the use of accounting information will
become critical factor in changing competitive environment, for the
manufacturer to effectively and efficiently make decision. The major problem
discovered for management is the identification of fundamental concept of
accounting information to be implemented by each company which can affect the
company positively or negatively and therefore, there is a problem. If a
particular concept of accounting information used by the company affect the
management decision negatively, and this helps us to recognize the reason for
the negative effect, which can be as a result of adoption of wrong accounting
information or uncertified accountant giving wrong information to the company
which can lead to wrong decision to the progress of the company.
1.3 Objectives of the Study
The study
sought to know the effectiveness of accounting information on management
decision making in manufacturing companies in Nigeria. Specifically, the study
sought to;
1.
2.
3.
1.4 Research Questions
1.
2.
3.
1.5 Research Hypotheses
Ho1: There is no
relationship between effective use of accounting information and management
decision making in manufacturing companies.
1.6 Significance of the Study
This study will be
of immense benefit to other researchers who intend to know more on this study
and can also be used by non-researchers to build more on their research work.
This study contributes to knowledge and could serve as a guide for other study.
1.7 Scope/Limitations of the Study
This study is on effectiveness
of accounting information on management decision making in manufacturing
companies in Nigeria.
Limitations of study
1.
2.
1.8 Definition of Terms
Accounting:
Information:
Accounting
information: These are processed data used by an
organization to make financial decision.
Financial
Accounting: It is the process of collecting,
classifying, recording, summarizing and communicating data in respect of event,
which can be expressed in terms of money for the purpose of making decisions.
Management: This means a group of decision makers or managers in an
organization who see to the smooth running of the affairs of the business.
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