Objective of the studies
The main objective of this research study is to examine the Use of Accounting Information as a management tool for decision making in the context of Nigeria Airspace Management Agency (NAMA). However, the specific objectives of the study are to:
- Assess if accounting information have any effect on management decision.
- Examine if there is any relationship between the perception of the employees and accounting information of the firm.
- Evaluate whether accounting information affect the company performance positively or negatively.
REVIEW OF LITERATURE AND THEORETICAL FRAMEWORK
This chapter review relevant literature on the same thematic areas in order to identify areas of convergence and divergence views of renowned authors, researchers and writers. This chapter also covers conceptual review, empirical studies and theoretical framework of the topic under study.
Conceptual Clarifications on Accounting & Accounting Information System
Management is constantly confronted with the problem of alternative decision making especially knowing that resources are relatively scarce and limited. It is therefore pertinent that good accounting information be made available for proper and accurate decision making, maximization of profitability and optimal utilization of scarce resource. Accounting is defined by Webster’s ninth new collegiate dictionary, as “the system of recording and summarizing business and financial transactions and analyzing, verifying and reporting the results. Accounting in view of this study can be defined ordinarily as the means by which managers are informed of both the process and financial status of a business concern.
Warren, Reeve, and Fess (2005) defined accounting as information system that produces reports to the interesting parties about economic activities and company’s condition. The primary objective of accounting is to provide information that is useful for decision making purposes. It means that accounting is an information providing activity.
Hodggett (2012), conceptualize accounting information as the financial information about economic activities. All economic entities (e.g. businesses, government agencies, families, charitable entities) need such information because it is used for making economic decisions about those entities. An economic event of an entity is referred to as a transaction. Transactions are of two types: external and internal.
Mbanefo, (2007) conceptualize accounting as a measurement and communication system to provide economic and social information about an identifiable entity to permit users to make informed judgments and decisions leading to an optimum allocation of resources and the accomplishment of the organizations objectives.
Edwards (2012), defines Accounting has been defined as the process of identifying, measuring, recording and communicating economic information to permit informed judgments and economic decisions. The primary purpose of accounting is to help persons make economic decisions. In our society resources must be allocated among and within all kinds of entities. Accounting information provides the basis for making decisions about resource allocation. To be useful, data must be identified, measured, recorded, classified, summarized and communicated to potential users. These are the critical elements of accounting.
According to Fess and Niswonger (2008), accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information. Accounting information is a food for management planning and decision making. It refers to report of relevant financial information regarding the economic activities of an organization or business venture.
Concept of Accounting Information
Warren, Reeve, and Fess (2005) defined accounting as information system that produces reports to the interesting parties about economic activities and company’s condition. The primary objective of accounting is to provide information that is useful for decision making purposes. It means that accounting is an information providing activity. Warren, et al. (2005) also stated that the objective of accounting is simply to produce information used by managers to run company’s operation. Accounting also gives information to the interesting parties about economic performance and company’s condition. According to Considine et al. (2010), accountings role is to gather data about a business’s activities, provide a means for the data’s storage and processing, and then convert those data into useful information. An accounting system consists of the personnel, procedures, technology, and records used by an organization (1) to develop accounting information and (2) to communicate this information to decision makers (Williams, Haka, Bettner, & Carcello, 2008). Accounting information is raw data concerning transactions that have been transformed into financial numbers that can be used by economic decision makers (Jones, Price, Werner, & Doran, 1996). Jones et al. (1996) also stated that accounting information is knowledge or news about a reckoning of financial matters. Accounting information is central to many different activities within and beyond an organization (Considine et al., 2010). Accounting information is essential to business operations. According to Williams et al. (2008), the types of accounting information that a company develops vary with such factors as the size of the organization, whether it is publicly owned, and the information needs of management. The types of accounting information required depend on the types of business decision made by management. It means that the role of accounting information is assist manager in making business decisions. Fiorelli, Zifaro (2008) in Handayani (2011), classified accounting information in to three different types according to the benefits for the users:
- Statutory Accounting Information is the information shall be prepared in accordance with existing regulations.
- Budgetary Information is the accounting information presented in the form of budget that is useful for internal planning, assessment, and decision making.
- Additional Accounting Information is other accounting information prepared by the company in order to increase the effectiveness of decision
Nature of Accounting Information
Accounting Information has progressed through the centuries alongside civilization from exchange of goods (Trade-by-barter) using symbols and cowries unto record keeping methods, as we have today’s people in all civilization maintaining various types of records of business activities. The oldest known is the day tablets records of the payment of wages in Babylonia around 3600BC. There are numerous evident of record keeping and system of accounting control in ancient Egypt and in the Greek city states. The earliest known English records were compiled at the direction of Willia in the conqueror in Eleventh century to ascertain the financial resources of the Kingdom, (Fess and Niswonger). Accounting information include account, balance sheet, cost accounting system, fund book-keeping which dates back to the middle ages and a known description of the system was published in Italy in 1494 by Pacioli a Franciscan Mark Fess and Niswonger. It should be noted that the earlier known use of a complete double try book-keeping was Geneva Kin the year 1840, double entry is the system that requires entries to be made in the books of a business to give effect to both suspects of the transactions. The principal book of this system is the ledger. The advantage of double entry can be stated as follows:
- It provides a complete record of every transaction, from both its personal and impersonal aspect.
- It provides an arithmetical check on the records since the total of the debit entries must equal their total of the credit entries.
- From the personal accounts the amounts owing to and by each person with whom the business deals can at any time be ascertained?
- The balance of the nominal accounts can be collected together in a profits and loss accounts, which discloses the results of the operation that is the profit and loss for given period.
- By means of a balance sheet in which the balance of accounts representing capital, assets and liabilities are set out, the financial position of the business at any given moment can be ascertained.
- With a reliable system of internal organization it reduces the risk and facilitates the detection of errors and fraud.
Source of Accounting Information
The sources of accounting information are internal although there may be several departments that furnish the information depending on the types of the business. The accounts department is central. Accountants are the major suppliers of accounting information. They provide management with the needed information used in conducting the affairs of the business.
Importance of Accounting Information.
As already noted accounting information is indispensable in the management activities of any organization. It provides quantitative information about economic entities. The information is primarily financial in nature and intended to be useful in making economic decisions. Harson (2009).
Accounting information is needed not only by management in directing the affairs of the co-operation but also by shareholders, who require periodic financial statement in order to appraise management performance. Fess and Niswonger, page 4. It is needed by government for efficient distribution and use of the nation’s resources thus; it plays an important role in all economic and social systems. It helps in checking irregularities and misappropriations. Accounting information is the livewire of any organization without which it is likely to remain static or in worse cases die.
The Nature & the use of Accounting Information in Business Organization.
Business organization can be classified into small and large firms. In the part of small firms a specialist institution is set up to provide a financial support for it ,and the public will lack the enthusiasm for the purchasing securities from the small firm whose shares are not quoted on the stock exchange.
Accounting information provides management with the needed information for use in concluding the affairs of the business and reporting to the owners. Five ingredients of accounting system, according to Black et al are:
- Basic business documents or forms such as cheque and invoice.
- Journals in which the effect of transaction on assets and equities are analyzed in terms of debit and credit.
- Ledger, which shows that results of transaction as summarized according to each asset or equities.
- The financial report which reports on how enterprise scared for that period.
- The procedures for preparing these records and report.
Studies carried out over the year indicated the importance of accounting information in a small firm and it has been proved that one quarter of small scale business turn to their accountants when they need help this shows that even the smallest firm need to be compensated if enough expenditure is made for the purpose of acquiring an accurate accounting information. In a large firm, it is the manager or board of directors that have or own the managing and implementing of accounting information their responsibility will be seen that the decision made are put into effective use. Managers that fail to meet the expected target will frequently be replaced. Within the management there will be a management structure with a line of authority. If the management of any business makes implementations based on their accounting information, they will execute plans, controls and make decision making very effective. Over the past twenty years the nature of business organization has changed dramatically. Accounting information technology has revolutionized the ways in which information essential to the management in their decision making is processed.
Concept of Decision Making
Decision making is the study of identifying and choosing alternatives based on the values and preferences of the decision maker. Making a decision implies that there are alternative choices to be considered, and in such a case we want not only to identify as many of these alternatives as possible but to choose the one that best fits with our goals, objectives, desires, values, and so on (Harris, 2008).
Harris (2008), also mentioned that decision making is the “process of sufficiently reducing uncertainty and doubt about alternatives to allow a reasonable choice to be made from among them.” According to him, decision making emphasizes the information gathering function. It is where uncertainty is reduced rather than eliminated. In addition, very few decisions are made with “absolute certainty because complete knowledge about all the alternatives is seldom possible. Thus, every decision involves a certain amount of risk”.
According to Baker et al. (2001), decision making should start with the identification of the decision maker(s) and stakeholder(s) in the decision, reducing the possible disagreement about problem definition, requirements, goals and criteria.
Decision making the selection from among alternatives of a course of action is at the core of planning. A plan cannot be said to exist unless a decision – a commitment of resources, direction, or reputation – has been made. Until that point, we have only planning studies and analyses. Managers sometimes see decision making as their central job because they must constantly choose what is to be done, who is to do it, and when, where, and occasionally even how it will be done. Decision making is, however, only a step in planning, even when done quickly and with little thought or when it influences action for only a few minutes. It is also part of everyone’s daily living. Planning occurs in managing or in personal life whenever choices are made in order to gain a goal in the face of such limitations as time, money, and the desires of other people.
The Decision-Making Process
Decision making is the study of identifying and choosing alternatives based on the values and preferences of the decision maker. Making a decision implies that there are alternative choices to be considered, and in such a case we want not only to identify as many of these alternatives as possible but to choose the one that best fits with our goals, objectives, desires, values, and so on.. (Harris (2008). According to Baker et al. (2001), decision making should start with the identification of the decision maker(s) and stakeholder(s) in the decision, reducing the possible disagreement about problem definition, requirements, goals and criteria. Then, a general decision making process can be divided into the following steps:
Step 1. Define the problem
This process must, as a minimum, identify root causes, limiting assumptions, system and organizational boundaries and interfaces, and any stakeholder issues. The goal is to express the issue in a clear, one-sentence problem statement that describes both the initial conditions and the desired conditions. Of course, the one-sentence limit is often exceeded in the practice in case of complex decision problems. The problem statement must however be a concise and unambiguous written material agreed by all decision makers and stakeholders. Even if it can be sometimes a long iterative process to come to such an agreement, it is a crucial and necessary point before proceeding to the next step.
Step 2. Determine requirements
Requirements are conditions that any acceptable solution to the problem must meet. Requirements spell out what the solution to the problem must do. In mathematical form, these requirements are the constraints describing the set of the feasible (admissible) solutions of the decision problem. It is very important that even if subjective or judgmental evaluations may occur in the following steps, the requirements must be stated in exact quantitative form, i.e. for any possible solution it has to be decided unambiguously whether it meets the requirements or not. We can prevent the ensuing debates by putting down the requirements and how to check them in a written material.
Step 3. Establish goals
Goals are broad statements of intent and desirable programmatic values…. Goals go beyond the minimum essential must have’s (i.e. requirements) to wants and desires. In mathematical form, the goals are objectives contrary to the requirements that are constraints. The goals may be conflicting but this is a natural concomitant of practical decision situations.
Step 4. Identify alternatives
Alternatives offer different approaches for changing the initial condition into the desired condition. Be it an existing one or only constructed in mind, any alternative must meet the requirements. If the number of the possible alternatives is finite, we can check one by one if it meets the requirements. The infeasible ones must be deleted (screened out) from the further consideration, and we obtain the explicit list of the alternatives. If the number of the possible alternatives is infinite, the set of alternatives is considered as the set of the solutions fulfilling the constraints in the mathematical form of the requirements.
Step 5. Define criteria
Decision criteria, which will discriminate among alternatives, must be based on the goals. It is necessary to define discriminating criteria as objective measures of the goals to measure how well each alternative achieves the goals. Since the goals will be represented in the form of criteria, every goal must generate at least one criterion but complex goals may be represented only by several criteria. It can be helpful to group together criteria into a series of sets that relate to separate and distinguishable components of the overall objective for the decision. This is particularly helpful if the emerging decision structure contains a relatively large number of criteria. Grouping criteria can help the process of checking whether the set of criteria selected is appropriate to the problem, can ease the process of calculating criteria weights in some methods, and can facilitate the emergence of higher level views of the issues. It is a usual way to arrange the groups of criteria, sub criteria, and sub-sub criteria in a tree-structure (UK DTLR (2001)). According to Baker et al. (2001), criteria should be
- Able to discriminate among the alternatives and to support the comparison of the performance of the alternatives,
- Complete to include all goals,
- Operational and meaningful,
- Few in number.
In some methods, see Keeney and Raiffa (1996), non-redundancy is required in the form of independency. We mention that some authors use the word attribute instead of criterion. Attribute is also sometimes used to refer to a measurable criterion.
Step 6. Select a decision making tool
There are several tools for solving a decision problem. Some of them will be briefly described here, and references of further readings will also be proposed. The selection of an appropriate tool is not an easy task and depends on the concrete decision problem, as well as on the objectives of the decision makers. Sometimes .the simpler the method, the better. But complex decision problems may require complex methods, as well.
Step 7. Evaluate alternatives against criteria
Every correct method for decision making needs, as input data, the evaluation of the alternatives against the criteria. Depending on the criterion, the assessment may be objective (factual), with respect to some commonly shared and understood scale of measurement (e.g. money) or can be subjective (judgmental),reflecting the subjective assessment of the evaluator. After the evaluations the selected decision making tool can be applied to rank the alternatives or to choose a subset of the most promising alternatives.
Step 8. Validate solutions against problem statement
The alternatives selected by the applied decision making tools have always to be validated against the requirements and goals of the decision problem. It may happen that the decision making tool was misapplied. In complex problems the selected alternatives may also call the attention of the decision makers and stakeholders that further goals or requirements should be added to the decision model.
Define the Problem
The decision-making process begins when a manager identifies the real problem. The accurate definition of the problem affects all the steps that follow; if the problem is inaccurately defined, every step in the decision-making process will be based on an incorrect starting point. One way that a manager can help determine the true problem in a situation is by identifying the problem separately from its symptoms.
The most obviously troubling situations found in an organization can usually be identified as symptoms of underlying problems. (See Table 1 for some examples of symptoms.) These symptoms all indicate that something is wrong with an organization, but they don’t identify root causes. A successful manager doesn’t just attack symptoms; he works to uncover the factors that cause these symptoms.
The research methodology, which present the techniques and procedures used for this study sets out by considering the design, population, sample size and sampling methods, research questions as well as the analytical tools employed in the analysis and interpretation of data obtained from this study.
The research design is mainly concerned with providing a plan study that permits accurate assessment of cause and effect relationship between independent and dependent variable. Research design is a plan, structure and strategy of investigation conceived so as to obtain answer to research questions and to control variances. Among other advantages, research design serves to provide answers on how the research questions and problems are determined, as well as control extraneous variable(s) and the errors that would be expected from randomness or measurements.Asika (2006) defined research design as the process of structuring investigation aimed at identifying variables and their relationship to one another. The design adopted for the study is survey design. This design is a process of examining the effect of the use of accounting information as a tool for management decision making, case study of Nigeria Airspace Management Agency (NAMA). Without any attempt to manipulate or control them. In this study, Accounting Information is the independent variable, while Management decision making is the dependent variables. The survey research technique aimed at assessing the positive and negative effects the use of accounting information has on management decision making.
Re-statement of Research Question
- Does accounting information have any effect on management decisions?
- Is there any relationship between the perception of the employees and accounting information of the firm?
- Does accounting information affect the performance of the company positively or negatively?
Re-statement of research Hypothesis
Ho: Accounting information does not have any effect on management decision making
Ho: There is no significant relationship between the perception of employees and accounting information
Ho: Accounting information does not have any effect on the company’s performance.
Population of the Study
A population is made up of all conceivable elements, subjects or observation relating to a particular phenomenon of interest to the researcher. (Asika 2000).
Population is also an aggregation of all elements that share common characteristic. Synonyms of population are universe, census, set etc. (Asika 2000).
However, this study was carried out among the employees of Nigeria Airspace Management Agency (NAMA), which serves as a representative of the Manufacturing Industry. Nigeria Airspace Management Agency (NAMA). Has over 20 branches with two thousand three hundred and fourteen (2314) employees Nigeria Airspace Management Agency (NAMA). Annual Report, 2012). The study is restricted to NAMA.
Data Presentation, Analysis and Interpretation
This chapter focused on data presentation, analysis and interpretation of the findings relating to this research topic, based on the data generated from the field survey. Out of the 110 questionnaires distributed to respondents, 101 were returned and found useful for this analysis, as such, analysis was based on this 101 responses. The data from the questionnaire were coded and presented on excel spread sheet for further analysis. The data were then exported into a Statistical Package for Social Scientists (SPSS) software version 17.0.
Furthermore, the formulated hypotheses are subjected to inferential test using one –way analysis of variance (ANOVA). The chapter also discusses the findings of the analysis.
Summary, Conclusion and Recommendation
This chapter covers the summary of the research topic, conclusion based on the findings of the research and recommendations for further research.
Accounting information is aimed at information system that produces reports to the interesting parties about economic activities and company’s condition. The primary objective of accounting is to provide information that is useful for decision making purposes. It means that accounting is an information providing activity. The objective of accounting is simply to produce information used by managers to run company’s operation. Accounting also gives information to the interesting parties about economic performance and company’s condition. Accountings role is to gather data about a business’s activities, provide a means for the data’s storage and processing, and then convert those data into useful information. An accounting system consists of the personnel, procedures, technology, and records used by an organization (1) to develop accounting information and (2) to communicate this information to decision makers. Accounting information is raw data concerning transactions that have been transformed into financial numbers that can be used by economic decision makers. However, accounting information is knowledge or news about a reckoning of financial matters. Accounting information is central to many different activities within and beyond an organization. Accounting information is essential to business operations. The types of accounting information that a company develops vary with such factors as the size of the organization, whether it is publicly owned, and the information needs of management. The types of accounting information required depend on the types of business decision made by management. It means that the role of accounting information is assist manager in making business decisions. Accounting information is classified in to three different types according to the benefits for the users: 1. Statutory Accounting Information is the information shall be prepared in accordance with existing regulations. 2. Budgetary Information is the accounting information presented in the form of budget that is useful for internal planning, assessment, and decision making. 3. Additional Accounting Information is other accounting information prepared by the company in order to increase the effectiveness of decision making. The study tried to address the problem with the improper use of accounting information by managers and employees which serves as a major shackles hindering the effectiveness of management decision making.
The primary aim of this study is to asses and evaluates the effect of the use of accounting information on management decision making of Nigeria Airspace Management Agency (NAMA). The method employed in the study is that of survey, and also both primary and secondary sources of data were used. Statistical presentation of data was employed using basically the statistical package for social scientist (SPSS). The test of hypothesis saw that the alternative hypothesis was accepted while rejecting null hypothesis.
- The study revealed that accounting information has significant effect on management decision making at a statistical significant level.
- The study also revealed that the manufacturing industry needs informed financial decisions that would enhance overall performance.
- The study revealed further that most workers in Nigeria Airspace Management Agency (NAMA) are single within the age bracket of 21-30. This shows that the industry is highly populated with young brains with vibrant skills.
- The study revealed that accounting information obviate the necessity of remembering various transactions in Nigeria Airspace Management Agency (NAMA).
- Furthermore, it was also revealed that there is a relationship between the perception of employees and accounting information as a result of the fact that employees and their representative are interested in the information which enables them to assess the ability of the enterprise to provide remuneration, retirement benefits etc.
- The study shows that accounting information depends on the perception of the quality of information by the user.
- Besides the result of the study disclosed that there is a significant relationship between time factor and accounting information as supported by the findings of Choe (1998) who posited that accounting information improve efficiency of operation.
- Findings of the study revealed that time factor is very important in the case of periodicity concept which defines a specific interval of time for which an entity’s reports are prepared.
- Consequent on the above, the findings of the study shows that the timing can be a fiscal year, natural year, quarterly or monthly.
- The study also revealed through the result of the last hypotheses that accounting information has effects on company’s performance via profitability, productivity and effectiveness.
Based on the statement of problem, the objective of the study and the result of the findings, the following recommendations are made.
- Companies should consult professional accountants when starting a business to learn about the various laws that affect them also to familiarize themselves with the variety of financial records that they will need to maintain.
- Clear-cut definition of long term corporate objective, within which the accounting information system will operate should be provided.
- Decision making should be administered in flexible and variable rigid adherences to accounting information, which are clearly appropriated for current conditions. This will cause the whole accounting system to gain credibility and effectiveness.
- The company should always keep records of past events in case of future purpose, this can be possible with the use of computer or by fully automating the company’s operation.
- A professional accountant should be employed by the company in order to keep valuable information and keep accurate records of the company’s account.
- Employees should be encouraged to develop themselves by becoming professionals in their chosen career, this will affect the company to grow positively.
- Effective communication and information flow is important for a good accounting system, and organizations should provide communication channels between top and lower levels of management regarding long and short term objectives and the practical problems of implementing those objectives.
- Efforts should be made to measure the effects of currently employed accounting concept on management decision making.
- Regular meeting with staff should be organized to disseminate information about the company and also elicit feedback that help to improve the company.
- Co-ordination from the top management will ensure proper interpretation and implementation of the accounting information in decision making. Therefore, every personnel should know where he/she belongs in the entire organization and also see himself as part of the corporate whole. These individuals must take part in decision making process at least at the functional level.
Suggestions for Further Research
Further research on the study abounds in this study area like;
- Relationship between accounting information management and Organization Effectiveness.
- Accounting Information for Business Performance Assessment in Small and Medium Enterprises (SMEs).
- The study failed to critically examine the relationship between accounting information and employee’s commitment.
- The study was unable to look at the framework for analyzing accounting information in the manufacturing industry, so further study can embark on this.
- Further research can also involve a replication of the present study in other industry to know whether the findings of this study can pass the test of generalizability.
The research study revealed that accounting information performs a crucial role on management decisions and organization performances, which has been shown to be major force in decision making. This is achieved by implementing the best fundamental concepts of accounting suitable for each company. The company used as case study made the researcher to understand that, for any company to be successful, it should endeavor to make use of accounting information because accounting itself is a language of business, and before venturing into any business, one must know the right method to achieve the stated goals and objectives. Also, studies have shown that successful utilization of accounting information requires a fit between three factors. First, a fit must be achieved with dominant view in the organization or perception of the situation. Second, the accounting system must fit when problems are normally solved, i.e. the technology of the organization.
Thirdly, the accounting information must fit with the culture of the organization i.e. the norms and value system that characterizes the organization. Finally, there is also a high level of awareness pertaining the role of accounting information and managerial efficiency. There is also a high level of awareness pertaining the role of accounting information system which is not limited to senior and management staffs alone but also cut across intermediate and junior staffs whose operations are also governed by the accounting information system. It is evident that the accounting information factors looms large among factors, which contribute to the overall corporate efficiency.
- Akujuobi, A.B “Basic Accounting: A Practical Approach” 2007. Ever Standard Printing and Publishing Co. Ltd. No. 7lLimcan Rd. Onitsha.
- Benjamin, James .J. Francis, Arthur .J. Strawser, Robert H; “Financial Accounting” Revised Edition. 1978 Dame Pub. Inc. Box 35556, Houston, Tx. 77035.
- Considine, B., Parkes A., Olesen K., Speer D., & Lee, M. (2010). Accounting Information System: Understanding Business Processes, 3rd Edition. Milton, Qld: John Wiley & Sons Australia, Ltd.
- Fraser, L. M. & Ormiston, A. (2001), Understanding Financial Statements, 6th Edition, Upper Saddle River, NJ: Prentice Hall.
- Gibson, C. H. (2011). Financial Statement Analysis, 12th Edition. Norwalk, Connecticut: South-Western Cengage Learning.
- Gitman, L. J. & Zutter, C. J. (2012). Principle of Managerial Finance, 13th Edition. Boston: Prentice Hall Pearson Education.
- Handayani, B. D. (2011). Affecting Factors on the Use of Accounting Information for Small and Medium Enterprises (SMEs). Jurnal Akuntabilitas (Accounting Scientific Journals), Vol. 11, No. 1, 50-67.
- Ittner, C., & Larcker, D. (1995). Total quality management and the choice of information and reward systems. Journal of Accounting Research, 33(Suppl.), 1–34.