CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
One of important assumptions in decision making process and improvement economy is existence of quality information. Significant number of this information comes from accounting information systems and from financial statements. Financial statements have to provide realistic and objective picture of realistic business condition of certain company. In other words, auditing of financial statements is understandable, by which accuracy is ensured. In context of consideration of financial statements as a function of decision making it is important to emphasize that different users must know how to “read” those statements. “Reading” contents of financial statements provide whole number of different instruments and analyses procedures for understanding business. A well-established process of management on the basis of the financial statements and financial information is one of the most significant presumptions of the quality business.
Decision making process requires information – financial and non-financial information as well. The most important financial information needed in the process of business decision comes from accounting. Therefore, we can say that accounting is a service function to management. It, basically, processes or gathers and studies “raw data” and converts them into suitable information in the process of decision making.
The basic characteristics of the accounting are:
· Gathering, processing and presenting accounting (financial) information
· Information considering company’s business
· Those directed towards different interested users
Accounting of quality information Significant number of this information comes from accounting information systems and from financial statements. Financial statements have to provide realistic and objective picture of realistic business condition of certain company. In other words, auditing of financial statements is understandable, by which accuracy is ensured. In context of consideration of financial statements as a function of decision making it is important to emphasize that different users must know how to “read” those statements. “Reading” contents of financial statements provide whole number of different instruments and analyses procedures for understanding business. A well-established process of management on the basis of the financial statements and financial information is one of the most significant presumptions of the quality business.
In order to improve the usage of financial information in the context of the decision making process, we need to analyze financial statements. In that context, we can describe financial statement analysis as the process where we convert data from financial statements into usable information for business quality measurement by different analytical techniques, which is very important in the process of rational management. Therefore, to know the current level of business quality is very significant in the context of future business management, since we try to ensure company’s development and existence on the market. Financial statement analysis comes before the management process that is before the process of planning which is the component of the management process. Planning is very important for good management. Good financial plan has to consider all company’s strength and weaknesses. The task of financial statement analysis is to recognize good characteristics of the company so that we could use the most of those advantages, but also to recognize company’s weaknesses in order to take corrective actions. Because of that, we can say that management of the company is the most significant user of financial statement analysis. The research intends to investigate financial information as a tool for management decision making with a case study of MTN NIG.
1.2 STATEMENT OF THE PROBLEM
The problem confronting this research is to investigate financial information as a tool for management decision making.
1.3 RESEARCH QUESTION
1 What is financial information?
2 What is the source of financial information?
3 What is the role of financial information in management decision making?
4 What is the role of financial information in management decision making in MTN NIG?
1.4 OBJECTIVE OF THE STUDY
1 To appraise the nature of financial information
2 To determine the nature of management decision making
3 To appraise the role of financial information in management decision making
4 To determine the role of financial information in management decision making in MTN NIG
1.5 SIGNIFICANCE OF THE STUDY
1. The study shall analyze the nature and source of financial information
2. The study shall provide a framework for the use of financial information in management decision making
3. The study shall appraise the role of financial information in management decision making in MTN as a case appraisal
1.6 STATEMENT OF HYPOTHESIS
1 Ho Financial information is not significant in MTN
Hi Financial information is significant in MTN
2 Ho The level of financial information in MTN is low
Hi The level of financial information in MTN is high
3 Ho The impact of financial information in management decision in MTN is low
Hi The impact of financial information in management decision in MTN is high
1.7 SCOPE OF THE STUDY
The study investigates financial information as a tool for management decision making with a case study of MTN NIG
1.8 DEFINITION OF TERMS
ACCOUNTING/FINANCIAL INFORMATION
Decision making process requires information – financial and non-financial information as well. The most important financial information needed in the process of business decision comes from accounting. Therefore, we can say that accounting is a service function to management. It, basically, processes or gathers and studies “raw data” and converts them into suitable information in the process of decision making. The basic characteristics of the accounting are:
· Gathering, processing and presenting accounting (financial) information
· Information considering company’s business
· Those directed towards different interested users
Accounting process contains several phases. Basically, it is a process in which input data converts into output information. If we focus our attention on the most significant part of the accounting (bookkeeping), then we can present the data processing through several phases. The first data processing phase consists of collecting data about occurred business events. After data collecting comes the second phase of the accounting process that consists of business event analysis, after that recording in journal and general ledger comes. At the end of accounting period, just before preparing basic financial statements, we need to check data accuracy in the books since we make financial statements on the basis of those data. Therefore we prepare the trial balance. It represents the recapitulation of all ledger accounts and financial transactions. After all records are coordinated and after we find all data accurate, we have the last phase of the accounting process that refers to preparing financial statements. As it has already been pointed out, financial statements have to satisfy interests of different accounting (financial) information users.