Author Topic: THE EXTENT OF RELIANCE ON ACCOUNTING INFORMATION FOR EFFECTIVE BUSINESS  (Read 206 times)

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THE EXTENT OF RELIANCE ON ACCOUNTING INFORMATION FOR EFFECTIVE BUSINESS AND FINANCIAL DECISION IN CORPORATE ORGANIZATION

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, accountinginformation 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 organization.  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.
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