IMPACT OF ACCOUNTING INFORMATION ON MANAGEMENT DECISION MAKING IN MANUFACTURING INDUSTRIES (A CASE STUDY OF TUYIL PHARMACEUTICAL LTD ILORIN)
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CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The impact of accounting information in making or marring an organization in a contemporary business world of today, cannot be over-emphasize. Human Resource Managers must fully understand accounting as a system of information that measures the activity of a firm and processes this information in such a way that it is easily communicated to and understood by the final users. Which also allow these users to make value judgments about the financial situation of manufacturing industries and also about their activity in order to make informed decisions regarding their future (Costa, 2012).
Financial accounting is the measures and records of business transactions which covers financial statements that are based on generally accepted accounting principles (GAAP) as well as relevant financial reporting standards (FRS). Accounting information is a part and parcel of today’s life which is necessary to understand the accurate financial situation of the industry and used as the basis of making any decisions. Accounting information is concerned with the financial reporting through financial statements to investors, government authorities, and other external parties. Thus, accounting information produces financial data for preparing ‘Statement of Financial Performance’ (income statement or profit and loss statement) and ‘Statement of Assets and Liabilities’ (balance sheet). Therefore, accounting information is not only relevance in evaluation of the past and keeping the present record on check, it is also useful in planning and sustaining the future of every industry (Onaolapo, Fasina, Opoola & Olatunji, 2011).
Manufacturing industries is the backbone of every industrialized nation including Nigeria. The world is now basically consumer-driven which means that manufacturing industries must innovate and develop new products to stay relevant. The 21st century worldwide advances in manufacturing technologies have brought about a metamorphosis in industry. Fast-changing technologies on the product front have created a need for an equally fast response from manufacturing industries. The current economy coupled with rapidly changing technology, rising labour and production costs, and new regulations make it difficult for manufacturers to maintain margins and remain profitable in the market place. To meet these challenges, manufacturing industries have to select appropriate manufacturing strategies, product designs, manufacturing processes, work piece and tool materials, and machinery and equipment. The selection decisions are complex, as decision making is more challenging today (Royaee, Salehi, & Aseman, 2012).
Accounting information aid in decision making by providing information relevant to the decision and to the decision maker (Gray, 1996). According to (Trimisiu, 2012), effective and efficient accounting information plays a central role in management decision making. Therefore, accountants play a crucial role in providing information for making economic and financial decisions in industries. These decisions are important elements for industries. Implementing the wrong ones can affect the industry in a very negative way and may sometimes also lead to its bankruptcy. Suma (2010), opined 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 industry (Trimisiu, 2012).
Accounting information will help management to take long term investment decisions by giving the proper view of present condition and would be condition of the industry. Though top management staffs needs accounting information in every step to take any sorts of strategic decisions but no significant study were found to be conducted on the impact of accounting information on management decision making in manufacturing industries. Therefore, the study was initiated to evaluate the importance of accounting information in strategic decision making in manufacturing industries.
1.2 Statement of the Problem
Manufacturing industries are constantly faced with the challenge of alternative decision-making, especially knowing that resources are relatively scarce and limited resources. According to (Socea, 2012), a decision is essential for an organization’s survival and development, since it is prior to any action. This necessitates doing the right things, the appropriate use of resources and the need to set different things in the order of importance. The poor performance and closure of some manufacturing industries in Ilorin may have been as a result of poor, application of management accounting information standards. Manager in most manufacturing industries consciously do not consider accounting information as a guide in making production and price decisions. The lack of the use of accounting information will equally hinder the proper allocation of the company’s scarce resources. It should be noted that the compliance to the management accounting standard by industry managers in decision making alone may not completely rule out the incidence of poor performance and closure of our industries but will do a great extent provide internal control. It is pertinent that good accounting information be applied for proper and accurate decision making, maximization of profitability and optimal utilization of scarce resource in manufacturing industries. This present study will bridge this identified gaps by investigating the impact of accounting information on management decision making in manufacturing industries in Tuyil Pharmaceutical Ltd Ilorin.
1.3 Objectives of the Study
The primary aim of this study is to examine the impact of accounting information on management decision making in manufacturing industries in Tuyil Pharmaceutical Ltd Ilorin. The sub objectives are:
- To investigate the relationship between computerized accounting information system and management commitment.
- To examine how perceived case of use affects the adoption of computerized accounting information system.
- To determine the influence of market competition on the adoption of computerized accounting information system.
1.4 Research Questions
The following questions were formulated to guide the indebt of the study;
- What is the relationship between computerized accounting information system and management commitment?
- How does how perceived case of use affects the adoption of computerized accounting information system?
- What is the influence of market competition on the adoption of computerized accounting information system?
1.5 Justification of Study
The justification of this study lies on accounting information ability to summarize key financial reports in order to appraise management performance in manufacturing industries in Nigeria. The primary justification of this study is that business owners understand the need for accounting and record keeping. Computerized accounting system is a system that uses computers to input, process, store, and output accounting information informs of financial reports. The external variables in this study include peers and outside consultants such as accountants or other professionals. The internal variables include the personal characteristics of the owner, the availability of financial and human resources, and perceived competitive advantage.
Small business owners will benefit from this study and gain a better understanding about how incorporating and using CAS within their business operations could enhance employee collaboration, improve information flow, and reduce the potential for failure (Alsaaty, 2012).
The research work will also serve as a reference materials for students who are interested in the study of accounting information on management decision making. The result of the findings would provide another source of information for manufacturing industries to adopt in making sound and informed decision in effective realization of organizational goals. To the government, this study will make recommendation that would boost the financial performance of manufacturing industries in Nigeria.
1.6 Scope and Limitation of the Study
Computerized Accounting System (CAS) involve dedicated accounting software and digital spreadsheets to keep track of a business or client’s financial transactions. The scope of this study will cover the perceived performance of manufacturing industries in Nigeria in the last five years. However, the study is majorly limited to Tuyil Pharmaceutical Ltd in Ilorin, Kwara State as they are the channel of accessing information for the study.
Empirical Review
The application of computerized systems in business information processing has been very significant to the accounting profession in the 21st century as it relates to financial transactions. Gorton (1999), found that the need to facilitate financial management is another motivational factor for adopting computerized accounting system in the small businesses. Some of the researchers also have found a link between the use of CAS and enhanced business performance. Mc Mahon (2001), found that growing small and medium enterprises face increased challenges and consequently there is a greater need for careful attention to financial management and financial reporting. He pointed out that weaknesses and careless in financial management lead to business failure.
Sam et al. (2012) studied the relationship between the adoption of CAS and the personal characteristics of the CEO toward innovation. Sam et al. showed a significant negative relationship between CEO innovativeness and the adoption of accounting systems and a significant positive correlation to the variables of perceived ease of use and perceived usefulness when faced with the decision to adopt CAS. CEOs, regardless of their personal knowledge of technology, recognize the need for innovation and use common variables such as ease of use and usefulness as a component of the decision process (ALshbiel & Al-Awaqleh, 2011; Sam et al., 2012).
Edison et al. (2012) took a different approach to CAS adoption by investigating the factors that affect non-adoption of computerized accounting information systems by SMEs. The primary non-adoption factors identified in the study include acquisition cost, lack of a government support structure, financial constraints, and system complexity. With the exception of a government support structure, all the non-adoption factors identified in the study can be view as adoption factors if studied differently. Edison et al. (2012) argued that the non-adoption of technology by SMEs has a negative affect because they lose the benefits inherent with the use of CAS. Edison et al. further stated that some SMEs have even failed to survive because of non-adoption. Although non-adoption of CAS can have negative consequences, these consequences are only negative if the costs of acquisition and implementation exceed the benefits derived.
Burgess (1997) , in his study of IT adoption by Australian small businesses concluded that implementing of a CAS in an organization helps to increase efficiency in business and provide timely information . He also concluded that the main software application package used was accounting. Porter and Millar (1997), mentioned that with the introduction of information technology and more user friendly software, computerized accounting system appears to reduce the problem in book keeping practice. New and rapid financial information, new updates and changes will be available for others in making decisions. To survive and grow, SMEs need more non- financial information like customer behavior, market needs, price changes, besides the fundamental of financial reports. Changes in information are constant and therefore the use of technology (CAS) is required in small businesses.
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