CHAPTER ONE
INTRODUCTION
1.1. BACKGROUND TO THE STUDY
Accounting
information is an ingredient in most, if not all, financial
managerial decisions. In developed economies, these decisions are worth
billions of dollars each year. In some cases, the decisions are lacking in
quality. Consequently, if researches can improve decision making through
improved information, society will benefit.
As we all know,
accounting
speaks the language of business as it records all transactions of an individual
firm or other bodies that can be expressed in
monetary
terms. Predicated on the going concept,
accounting
is the scheme and art of collecting, classifying, summarizing and communicating
data of financial nature required to make economic decisions in a corporate
organization.
Accounting
information can be used to translate these different dimensions into
a common financial dimension.
Accounting
information uses formalized categories for collecting and reporting
information that creates a common language with which members of the
organization can communicate. Formalization permits the transmission of
information with fewer symbols and this facilitates the coordination between
different functions that need to provide input to the decision-making process.
However,
accounting
information is also an imperfect representation of the underlying decision
problem, since not all aspects involved can be quantified perfectly in financial
numbers (Galbraith, 1973).
Accounting
information may help managers to understand their tasks more clearly
and reduce uncertainty before making their decisions (Chong,1996). We talk
about uncertainty as a lack of information compared to what a decision-maker
needs to make a decision (Galbraith, 1973), and the less managers are able to
predict the outcomes from their actions, the more uncertainty there is.
According to Ademola et al (2012), accounting information is essential to
business management. It involves identification, classification, storage and
protection, receipt and transmission, retention and disposal of records for
preparation of financial statements.
Accounting
information serves as a critical tool for recording, analyzing,
monitoring and evaluating the financial condition of companies, preparation of
documents necessary for tax purposes, providing information support to many
other organizational functions,(Amidu et al., 2011). In the context of
corporate organisation, accounting information is important as it can help the
firms manage their short-term problems in critical areas like costing,
expenditure and cashflow, by providing information to support monitoring and
control.
The range of
accounting
information users is a broad one, and it has different information
needs, but the same quality requirements in terms of accounting information
contained in the financial statements. Even if a number of criticisms and
limitations can be brought and attributed to accounting information, it remains
the most important substantiation source of financial decisions for most
corporate organizations.
Finally,
accounting
information is an ingredient in most, if not all, financial
managerial decisions. In developed economies, these decisions are worth
billions of dollars each year. In some cases, the decisions are lacking in
quality. Consequently, if researches can improve decision making through
improved information, society will benefit, it also produces results which
enhances decision making in the organisation. Hence, it can safely be concluded
that
Accounting
information is not an end in itself but a means to an end .i.e.
decision making to improve corporate performance, and also produces detailed
and comprehensible
accounting
information which are invaluable basis for decision making in a
corporate organization.
