CHAPTER ONE

1.0 INTRODUCTION

This chapter gives a description of the rational of the study, background information, problem statement, research questions, research objectives, hypothesis, and significance of study, justification of the study, scope and limitations of the study, definition of terms, conclusion and the organization of the study.

1.1 RATIONAL OF THE STUDY

Information is absolutely necessary for the decision making in any business organization. The problem however lies in the quality and validity of the information that is, if it’s timely, adequate and clear. The main purpose of the use of accounting information is to reduce risk, failure and uncertainties and also stay ahead of compitors. It is generally acknowledge that most unqualified accountants generate inaccurate information and so result in failure of organization to achieve its goals. This study will seek to know how organizations can derive accounting information and their usefulness for decision making in business organization .the purpose is to see the need for accounting information to any business organization and how it helps in decision making.

1.2 BACKGROUND OF THE STUDY

The terms information and information system are viewed to have increasing effects on the enterprises, occupying model fields and management analysis. Economic information contains news from different fields and information as found in any other system. In most cases, this information is derived from the economic database (Tickell, 2010). Resources are relatively scarce and limited and so management in most cases finds itself confronted with the decision-making problem. In this regard, good accounting information should be accessible to offer suitable and precise. 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 (Young,2002).

Management is the art of working particularly through people, for the achievement of the broad goals of an organization (Ejiofor 1987), in trying to achieve these goals the manager has to map out strategies to find out the accounting information suitable for the company.

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 and financial accounting (Drury 2003).

Financial accounting can be defined as the measures and records business transactions and provides financial statements that are based on generally accepted accounting principles (GAAP) as well as relevant financial reporting standards (FRS). Financial accounting is concerned with the external reporting through financial statements to investors, government authorities, and other outside parties. Thus, financial accounting produces financial data for preparing ‘Statement of Financial Performance’ (income statement or profit and loss statement) and ‘Statement of Assets and Liabilities’ (balance sheet).

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 important elements for the organization. Implementing the wrong ones can affect the company in a very negative way and may sometimes also lead to its bankruptcy. Suma (2010) 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. Apparently, good decisions are important and ensure the wellbeing and also the survival of an organization.

1.3 STATEMENT OF THE PROBLEM

A decision is essential for an organization’s survival and development, since it is prior to any action (Socea, 2012). A manager is an individual responsible for an organization or a set of entities. Any manager is invested with formal authority in accordance with his assigned statute. In their role, managers have to make effective decisions to keep the organization flourishing. Hence, as long as there is management, there will be the “problem” of how to manage better. Therefore, as Greenberg & Baron (2008) say, to make decisions is one of the most important and critical activities of organizations. Since, organizations as systems build themselves up by making decisions. Every made decision creates and leads to a new decision. These decisions might involve the strategic direction of the organization or simply just deal with the day-to-day activities of employees.

Thus, management is constantly confronted with the problem of alternative decision-making, especially knowing that resources are relatively scarce and limited. This necessitates doing the right things, the appropriate use of resources and the need to set different things in the order of importance. However, as we live in an age of data abundance. Business managers have today access to far more data than any previous generation of managers, and that is transforming the way many business decisions are made.

Therefore, it is pertinent that quality accounting information is made available for proper and precise decision- making, maximization of profitability and optimal utilization of scarce resources.   

Because accounting information is not only required for evaluation of the past and keeping the present on course; it is useful in planning the future of the organization.

(Nnenna, 2012) Given these conditions, the accelerating pace of business changes and the significant amounts of information available to businesses using modern technology, the challenge is to filter out useful information and present it in a manner that makes it useful for managers.

1.4 RESEARCH QUESTIONS

1.4.1 Main research question

• What are the effects of accounting information on the management decision making?

1.4.2 Specifics Research Questions

• What types of decisions are made in Bambili Cooperative Credit Union (BamCCUL) base on accounting information?
• What are the characteristics that must be provided in the accounting information used by BamCCUL management in decision making?

1.5 RESEARCH OBJECTIVES

1.5.1   Main Research Objective

• To examine the effects of Accounting Information on Management decision making in Bambili Cooperative Credit Union (BamCCUL) in particular.

1.5.2Specifics Research Objectives

• To study the effect of reliability of accounting information on decision making in BamCCUL.
• To study the effect of comparability of accounting information on decision making in BamCCUL.