THE USE OF ACCOUNTING INFORMATION FOR DECISION – MAKING IN AN ORGANISATION (A CASE STUDY OF NNPC)
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
Table of Contents
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
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-
2.7 Objectives of Accounting Information
2.8 Thee Decision Making Process
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
4.0 Presentation and Analysis of Data
4.1 Data Presentation
4.2 Data Analysis
4.5 Implications of Findings
5.0 Summary, Conclusion and Recommendations
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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
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
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.