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CHAPTER ONE
INTRODUCTION
1.1 Background of the study
One of the marks of the executive is the ability to decide. One of the obligations of free men is the willingness to decide. One of the qualities of effective
people is the courage to decide. Making decisions is part of our every day’s lives. Considering organizational life, it is often
one of the main functions and
tasks of management, as underlined also in the statement above. Indeed, management and decision-making are often
regarded as belonging together, as
management usually makes the major decisions of the organization. Decision-making involves the selection of the best course of action. In order to decide
on the best option, management has to judge the effectiveness
of various alternatives. Therefore they need some guidance that is usually provided in form of
data and information.For this reason they often
rely on financial and economic information gathered by management accounting. Management accounting
can be defined as “the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of information that
assists executives in fulfilling organizational objectives a formal mechanism for gathering and communicating data for the ends of aiding and coordinating
collective decisions in light of the overall goals or objectives of an organization." As can be derived from this definition, accountants play a crucial role in
providing information for making economic and financial decisions. These decisions are an important element for the organisation. Implementing the wrong
ones can affect
the company in a very negative way and may sometimes also lead to its bankruptcy. Young, J. even goes so far to claim that “The road to
bankruptcy is paved with poor decisions.” As the outcome of a decision cannot always be predicted with certainty, management often
faces the risk
of choosing the wrong ones.
Hence, management always needs to have some courage as well when facing decisions. The accounting profession is a key
player in the world of both internal and external accountability and has a public role in ensuring responsible stewardship of investors’ portfolios (Institute of
Management Accountant, 2010). As such, it must be a strong contributor to the emerging issues. Failure to do so will see it taking on the responsibility to
develop and maintain standards and reporting that increasingly deal with a smaller and smaller share of an investor’s, value which is not a prescription for a
healthy and growing profession. Publicly-held organizations are required to disclose a much broader range of financial information; standards were
developed that created defined frameworks for reporting; audits are required to ensure compliance. Financial reporting has continued to evolve to meet the
needs of external as well as internal users. Reporting occurs for internal and external purposes. The goal of internal reporting to management focuses on the
provision of information that facilitates eective
operational decision making, in order to protect the organization’s assets and capacity to function and to
balance the optimization of short-term results with long-term sustainability. External reporting is typically of two types that which is defined by statute for
legal or securities regulatory purposes (mandatory reporting), and that which is discretionary and developed to provide information and communicate aairs
of the organization to stakeholders in an open and transparent manner. The goal of statutory reporting is to achieve compliance; the goal of discretionary
reporting is to provide key stakeholders with additional information that allows them to make informed decisions relative to their interests, accountability,
and responsibility. Typically, statutory reporting requirements lag that desired by stakeholders. Progressive organizations tend to assess their stakeholders’
need for information and voluntarily disclose that which is “over and above the minimum required”
1.2 STATEMENT OF THE PROBLEM
In this era of technological change and advancement, vigorous global and domestic competition, and enormously expanding information processing
capabilities, management accounting systems are not providing useful, timely information for the process control, product costing, and performance
evaluation activities of managers (Johnson and Kamplan, 1987). Until the 1980s, the valuation of a typical company was approximately equal to its book
value. This was as a result of a company’s earning capability was strongly tied to its tangible assets. However, an increasing portion of earnings has been
driven by a company’s human capital. Even in manufacturing businesses that continue to rely heavily on tangible assets, the ability to optimize the performance of these assets is increasingly seen as being driven by the innovation and creativity of the workforce. While these kinds of knowledge assets can
be extremely productive, they are invisible in traditional reporting. It is in view of this that the researcher intend to investigate the effectiveness
of financial
accounting and reporting on management decision making.
1.3 OBJECTIVE OF THE STUDY
The main objective of this study is to ascertain the effectiveness
of financial accounting and reporting on management decision making. For the successful
completion of the study, the researcher intend to achieve the following sub-objective;
i) To ascertain the effectiveness
of financial accounting in management decision making
ii) To investigate the impact financial reporting on management decision making
iii) To investigate the relationship between financial reporting and management decision making
iv) To examine the effectiveness
of financial accounting and reporting as a tool for management decision making
1.4 RESEARCH HYPOTHESES
To aid the completion of the study, the researcher formulated the following research
hypotheses
H0: financial reporting does not have any significant impact on management decision making;
H1: financial reporting has a significant impact on management decision making
H02: there is no significant relationship between financial reporting and management decision making
H2: there is a significant relationship between financial reporting and management decision making
1.5 SIGNIFICANCE OF THE STUDY
It is believed that at the completion of the study, the findings will be of great importance to the management of organization as the study seek to explore the
benefit of management reliance on the financial information presented by the finance unit or accountant. The study will also be of important to the
accounting unit and accounting profession as the study seek to stress the usefulness of accounting information to the management, staff,
investors, potential
investors, and the general public. The study will also be of great importance to student who intend to embark on a study in similar topic as the findings of the
study will serve as a pathfinder to them. Finally the study will be of great importance to students, teachers and the general public as the finding will add to
the pool of existing literature.
1.6 SCOPE AND LIMITATION OF THE STUDY
The scope of the study covers the effectiveness
of financial accounting and reporting on management decision making; but in the cause of the study, the
management encounters some constrain which limited the scope of the study;
a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient,
thereby limiting the study.
b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and
examinations with the study.
c) FINANCE: The finance available for the research work does not allow for wider coverage as resources are very limited as the researcher has other
academic bills to cover
1.7 DEFINITION OF TERMS
Accounting
Accounting is the systematic and comprehensive recording of financial transactions pertaining to a business, and it also refers to the process of summarizing,
analyzing and reporting these transactions to oversight agencies and tax collection entities.
Financial reporting
Financial reporting is the process of producing statements that disclose an organization's financial status to management, investors and the government.
Financial accounting
Financial accounting is a specialized branch of accounting that keeps track of a company's financial transactions. Using standardized guidelines, the
transactions are recorded, summarized, and presented in a financial report or financial statement such as an income statement or a balance sheet.
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