THE USE OF ACCOUNTING INFORMATION FOR DECISION – MAKING IN AN ORGANISATION (A CASE STUDY OF NNPC)
ABSTRACT
This study focused on the relevance
of accounting information system in decision making in an organization using
coca- coal bottling company as a case study. The purpose of accounting
information in any company is for decision making. Accounting information system
in an organization became an important tool to improve the efficiency of the organization
and support its competitiveness through providing management with financial and
accounting information, such information
is used to make different decision regarding planning, controlling, performance
evaluation and other decision. The
broad objective examining how effective
and efficient management apply accounting information in making business
decision. The finings revealed that management needs valuable, reliable and
accurate information for decision making. It is recommended that managers should have
elementary knowledge of accounting generally to enable them understand the
information for quick use. They should be trained from time to time on how to
apply accounting information to decision making.
TABLE OF CONTENTS
Title Page
Certification
Dedication
Acknowledgement
Abstract
Table
of Contents
CHAPTER ONE
1.0 Introduction
1.1 Background
of the Study
1.2 Statement
of Problem
1.3 Objective
of the Study
1.4 Research
Question
1.5 Significance
of the Study
1.6 Scope
of the Study
1.7 Limitation
of the Study
1.8 Definition
of Terms
CHAPTER TWO
2.0 Literature
Review
2.1 The Concept of Accounting Information
System
2.2 The
Users of Accounting Information
2.3 Effect
of Managerial neglect of Accounting
2.4 Accounting
Information System in NNPC
2.5 Problems
Encountered By NNPC in the Use of Their
Accounting
Information System
2.6
Thee
Information System of the Organisation-
General Consideration
2.7 Objectives
of Accounting Information
2.8 Thee
Decision Making Process
CHAPTER THREE
3.0
Research
Methodology
3.1 Research
Design
3.2 Research
Population /Sample Size
3.3 Instrument
Used
3.4 Source
of Data
3.5 Data
Analysis Techniques
CHAPTER FOUR
4.0
Presentation
and Analysis of Data
4.1 Data
Presentation
4.2 Data
Analysis
4.3 Discussion
4.4 Findings
4.5 Implications
of Findings
CHAPTER FIVE
5.0
Summary,
Conclusion and Recommendations
5.1 Summary
5.2 Conclusion
5.3 Recommendations
Bibliography
Appendix
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CHAPTER ONE
1.0 INTRODUCTION
1.1 Background of the study
One of the most important uses of
Accounting Information is decision-making. Decision making has been described
as a purposeful choosing form a number of alternatives cause of action.
The need for a decision arises in
business because a manager is faced with a problem and alternative causes of
action are available, any one of them which might provide a satisfactory
solution to that problem. In deciding which alternative to choose the manager
will regret all the information which is relevant to the decision he wants to
take.
The accounting information provides
managers with the necessary information they need. In this case, it is the
accountants that provide the information with which the management uses for
their decision making. This signifies that for any decision to be taken in an
organization, it gives the work of both the accountants and the managers.
Management can only come up with a
good decision, if they are able to get correct accounting information from the
accountant in a situation where the accountant does not provide correct
information; this is bound to affect the decision making of the management
adversely.
The question now is, how will business
executives know the company is embarking on a favorable decision or unfavorable
one. The answer to this question is based on the management and the accounting
information.
Management and accounting information
have been defined by various authors, According to the committee of Technology
of America Institute of certified public Accountants founded in 1961,
Accounting is the act of recording, classifying and summarizing in a
systematic manner and terms of money,
transactions and events which have in part, a financial character and
interpreting the result thereof.
According to New Encyclopedia
Britannica vol.13, the purpose of accounting is to provide information about
the economic affairs of an organization. This information may be used in a
number of ways by the organization’s managers to help them plan and control the
organization by owners and legislative or regulatory bodies to them appraise
the organization’s performance and make decision as to help them decide on how
much time or money to devote to the organization, by government bodies to determine
how much tax the organization must pay.
Accounting provides information for
all these purpose through the maintenance of the files of data and the
preparation of various kinds of reports. Most accountant information is
historical that is, the accountant observes the things that the organization
does, records their effect and prepares reports summarizing what has been
recorded. (New Encyclopedia Britannica 2001)
Most accounting data and reports are
generated solely or mainly for company managers. Preparation of these data and
reports is the focus of managerial accounting which consists of three broad
functions.
i.
Cost
finding
ii.
Budgeting
planning and performance reporting
iii.
Cost
and profit analysis
These points will be explained in the
next chapter. Management is the group of people in business who have over all
responsibility for achieving the company’s goals of low cost, creating new and
improved products, increasing the number of jobs available, improving the
environment and accomplishing many other social tasks. To achieve any of these
goals, of course the company must be successful.
Success and survival in a tough,
competitive business environment requires that management concentrates much of
its efforts on two major goals profitability and liquidity. Profitability is
the ability to make enough profit to attract and hold investment capital.
Liquidity means having enough funds on hand to pay depts. When they fail due or
supposed to.
Managers must constantly decide what
to do, how to do it and whether the results match the original plans. Successful
managers consistently make the right decisions based on timely and valid
information. Many of this information are based on the flow of accounting data
and their analysis.
Management is one of the most
important users of accounting information because it to provide management with
relevant and useful information e.g. the managers may ask: what was the
company’s net income during the past quarter? Is the return to owners adequate?
Does the company have enough cash? What products are most profitable? What is
the cost of manufacturing each product? Bulverde (1984). Needles, J. et al
(1984:9).
According to most recent surveys,
most top level business executives have background in accounting and finance
than in any other field. The essence of using accounting information is to
enable managers make wise decision. It is also used (accounting information) to
set up system of internal control to increase efficiency and prevent fraud in
companies.
Accounting information aids in profit
planning, budgeting and cost control. In a company, it is the duty of the
management accountant to see that the company keeps good records, prepares proper
financial regulations. Management accountants also need to keep up with the
latest development in the use of computers and in computer systems design.
Accountants provide many special
reports for management decision-making. This function requires the gathering of
both historical and projected data. It is important for accountants to present
the financial effects of alternative courses of action so that the best course
of action can be selected. Examples of these special reports are evaluations of
proposed new products, analysis of alternative plan, sites of a proposed
advertising campaign, a long-term financial plan, and a recommendation that a
product, department, or services be dropped. Believed (1984) Needles. et al
(1984:11). Some of the ways by which accounting information can be drawn are:
i.
General
accounting
ii.
Cost
accounting
iii.
Budgeting
iv.
Tax
accounting
v.
Information
system design
vi.
Internal
Auditing
All these points are to be discussed
fully in the next chapter.
In summary, accounting information is
primarily concerned with data gathering form internal and external sources
analyzing, processing, interpreting and communicating the result (information)
for use within the organization so that management can make more effective
plan, decisions and control operations.
Accounting information is used for
the following information needs: Planning information, Operational control
information, organizing directly and decision-making.
Oil prospecting began in Nigeria as
far back as 1908 when a Germen company, the Nigeria Bitumen cooperation started
operation in the Araromi area, west of Nigeria. Their pioneering effort however
ended with the outbreak of First World War in 1914. In 1937, oil prospecting
started again in Nigeria, Shell
petroleum Development Company of Nigeria
was whole awarded the sole concessionary right covering the whole territory of Nigeria. Their activities were again
interrupted by the Second World War, not resumed again in 1947. In 1956, oil
wells were discovered in commercial quantities at Oloibiri in the Niger Delta
after several years of prospecting. In 1958, shell started oil production and
export from its Oloibiri field.
Other Companies such as Mobil, Agip,
Safrap, now (EIF), Tenneco and Amadeas (Texaco and Chevron) now in 1961 begun
exploitation activities for oil in the onshore and offshore areas of Nigeria.
The exploration right which formerly was granted to shell alone was now
extended to new comers in line with the government policy of increasing the
pace of exploration in the country. In 1972, Nigeria ranked the seventh in the
world of as a major oil producer.
Since then, we have grown to become
the sixth of the largest oil producing countries in the world. Initially
government’s interest was only limited to the oil collection of royalties and
other dues offered to it by the oil companies and making rudimentary laws to
regulate the activities of the oil industry. After the Nigeria civil
war, oil had become very important to the economy. The establishment and
strength government control in the industry.
The ministry of petroleum Resources
whose functions were regulatory was formed and was not until it April 1997 that
the merger between the NNOC and the Ministry of Petroleum Corporation was
consummated. Commercial activities of the former NNOC namely: (exploration,
production, transportation, processing of oil refining marketing of crude oil,
and its refined products) with regulatory functions of the former ministry of
petroleum resources.
In 1985, the corporation NNPC was
recognized into five semi-autonomous sectors each headed by a sector
co-coordinator. The five sectors were:
i.
Oil
and Gas
ii.
Refineries
iii.
Petrochemicals
iv.
Petroleum
products making
v.
Petroleum
inspectorates
Today, the NNPC companies six (6)
Directorates, and eleven subsidiaries are charged with the execution of the
corporation business. It is due to the organic development of NNPC that led to
reorganizing of the corporation into five (5) autonomous sectors. Refineries
were one of the sectors as a result of this Port-Harcourt refining company came
as one of the refineries owned by the corporation.
Port-Harcourt Refinery Company limited is in business to provide efficient petroleum
refinery services primarily to NNPC at minimum cost. The company provides quantitative
refinery services for domestic services.
1.2 Statement of the problem
The
central concern of management is decision. In making a sound decision, the
management needs some valuable and accurate information from the accountant.
The accountant is at the services of the management by providing the management
with the necessary information which they need for decision making.
However,
management acquisition and utilization of accounting information has always
been faced with problems and they are;
1.
Provision
of sometimes inaccurate, inefficient and unreliable accounting information by
the management accountants.
2.
Management
not making adequate use of the accounting information provided by the
management accountant even when the information produced is on time and
accurate.
3.
The
inability of the management accountant to produce the information, timely and
the information not being available at the time of decision-making.
4.
Inability
of the managers to interpret and understand information provided by the
government accountants.
5.
Even
when the managers have all the accounting information which they need, they do
not always make the right decision, this is a result of management override of
policies, that is, management neglecting the accounting information and going
ahead to come up with any decision or policy of the choice or giving accounting
its rightful place in decision- making.
The information technology
requirement of the company used as a case study are still behind schedule, most
of their operations are still done manually, this also affect the accuracy and
timeliness of their report information which can thereby affect the decision-making
of the management.
1.3 Objectives of the study
This research is aimed at examining
how effective and efficient management apply accounting information in making
business decision.
The main objectives of this study
are:
1.
Ascertain
the roles played by accurate and quantitative accounting information in
decision-making.
2.
Establish
the type of decision management make
based on the accounting information at their proposal
3.
To
look into the extent to which manager (s) neglect the use of accounting information
in their decision making activities.
4.
Make
suggestions for their improvement in the provision and utilization of
accounting information for efficient and effective decision-making in an
organization.
1.4 Research Questions
The purpose of the study is to
highlight the use of accounting information in NNPC and to disclose the
obstacles involved in the demand and supply of information which in the
research question.
1.
Does
the role of accounting information enhance the accurate and quantitative
accounting information in decision-making.
2.
Is
management decision based on the accounting information at their proposal
3.
Does
management neglect the use of accounting information in their decision making
4.
Does
organi0sation gives room for suggestions on improvement in the provision and
utilization of accounting information for efficient and effective
decision-making in an organization.
1.5
Research Hypothesis
Ho: Adequate Accounting information does not
enhance decision-making in organisation
Hi: Adequate Accounting information enhance
decision-making in organisation
Ho: Management does not make decision based on
the accounting information at their proposal
Hi: Management make decision based on the
accounting information at their proposal
Ho: Manager (s) does not neglect the use of
accounting information in their decision making activities.
Hi: Manager (s) neglect the use
of accounting information in their decision making activities.
1.6
Significance of the study
Accounting information is very
important in the life of any business. It is based on this information that the
management will be able to make wise decisions. The accountants present the
accounting information in such a way as to assist management in policy and
decision making in the day- to-day operations of the company.
Based
on the information produced, the management will have the benefits of using it
to plan and control their current ad future operations based on it also, they
will come up with their management decision and information of long-term plans.
The information also will help the management report historical information to
outsiders.
The
account manager based on the management plan (target/standards) will analyze
the performance of the organization and access whether the organization
actually attained the standard set by the management or not, if there is any
variance, the management in charge of accounts will look into it to find out
the causes of the variance, and the report to the management based on that
report. The management can make a wise decision that will take the cause of the
variance into consideration. The use of accounting information in any
management organization is inevitable. Any organization that does not make use
of accounting information for their decision making is bound to be running into
difficulties and might be out of business.
Bill Gates, founder and one time
richest man in the world stated in his book ‘Business at the speed of light’
2001, that there would be two categories of business, one, business that use
technological tools that enhances business and secondly business who
doesn’t which would result in them being
out of business.
1.7 The scope of the study
The research study is limited to
Port-Harcourt Refinery Company limited, A subsidiary if Nigerian National
Petroleum Corporation (NNPC). Attention will be directed to only relevant
accounting information that will be useful for effective decision-making.
The accounting staff and the managers
of their corporation will be interviewed for the purpose of getting relevant
useful accounting information for decision making, also to determine how
effective to use the accounting information for their decision making. The
recommendation and the conclusion will be based solely on the information
gathered from the company.
NNPC website (www.nnpcgroup.com) would be leveraged on in
getting relevant data and information.
1.7
Limitation of the study
The researcher gained access to the
Company`s portal, where adequate data and information were gotten. The use of journals and newspapers
also was used in gathering facts and information.
The limitation encountered was in the
area of gaining access to the establishment, but adequate information was given
by staff of the organization via email and telephone.
There was no other constraint in
seeking further inquiries.
1.8
Definition of terms
Decision Making: This is a process of
choosing specific cause of action form among many possible alternatives. Determine
ways and means for accomplishing the line of action decided upon is also a part
of the decision-making process.
Accounting: This is the act of
recording classifying and summarizing in a significant manner and in terms of
money, transactions and events which are in part at least of a financial
character and interpreting the results thereof.
Information: Data that has been
processed to produce meaning relating to a field.
Accounting Information: Those
processed information relating to accounting.
Management: This is a group of people
in a business who have overall responsibility for achieving the company’s
goals.
Inventory: This is the stock of goods
which a firm posses within an accounting period.
Cost Centre: This is the smallest of activities
of areas of responsibility where costs are accumulated.
Profit Centre: This is a segment of a
business that is responsible for both its revenues ands expenses, providing
information for such an entity.
Planning: The use of information
supplied by accountants in making decision by which management formulate
objectives ad chooses a pattern of action I order to achieve those objectives
for future business of the firm.
Control And Coordination: A process
of ensuring that the cause of actions is maintained and that the desire aims
are achieved. This is done through the use of budget and actual data.
Cost Decision: This is the
application of accounting and cost principles, methods and techniques in the
ascertainment of cost and analysis of savings and or excess as compared with
the previous experiences or with standard.
Decision: alternative line of actions
which are often irrevocable.
Organization: In organizing the
managers decide how best to put together the organizations human and other
resources in other to carryout establishment.
Cost Accounting: This refers to the
determination and control of cost.
General Accounting: This is the
overall record keeping preparation of financial statements and report and control
of all business activities.
Budgeting: This is the planning of
financial aspects of business operations.
Questionnaire: This is a method of
data collection in which the research questions and question on other relevant
issues are put down in a systematic manner.
Management Accounting: This is concerned with the provisions and use
of accounting information to managers within organizations to provide them with
the basis to make informed business decisions that will enable them to be
better equipped in their management and control functions.
Information System: This is a system used
to collect, record, store and process information for decision makers. Like, forms,
records, flow charts, manuals, control and reports.
CHAPTER TWO
