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The Role of Financial Information in Decision-making process:

A Concept Paper

Isabelle Guillena

12- Rockefeller

City of Mandaluyong Science high school


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The Role of Financial Information in Decision-making process: A Concept Paper

An accountant’s job within a business is like a scorekeeper’s during a game. A

scorekeeper records every point earned, while an accountant records and keeps track

of the activities of an organization. This is to ensure whether a team is doing good in a

game or a company is flourishing and not losing profit (Beticon, et al. 2016).

Information is defined to be “data that is accurate and timely, specific and organized for

a purpose” (Business Dictionary). In other words, it presents valuable data that is used

differently for certain reasons. An example of information is age, name, blood type or

hair color. These facts can be used for the purpose of specifying the identity of a person

based on a criterion filled with information.

Another example of information in a situation is when shareholders require periodic

information that the managers are accounting properly for the resources under their

control. This information helps the shareholders to evaluate the performance of the

managers. The performance measured by the accountant shows the extent to which the

economic resources of the business have grown or diminished during the year (Elliot B.

and Elliot J. 2006)

According to Codjia (2017), “Financial information is diverse and may have various facets,

depending on the reviewer and the objective of the study.” She implies that financial

information varies depending on the user and what they wish to do with it. A great

example is when an accountant prepares financial statements. There are four types:

Statement of Financial Position (SFP), Statement of Comprehensive Income (SCI),

Statement of Changes in Equity (SCE) and Statement of Cash Flows (SCF). All of these
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require different financial information. Example for SCF, it generally needs the state of

cash flow, or how much money goes in and out of the company. In the end of the

financial statement, the accountant looks if the company used its finances properly or

not.

Taking the previous example into consideration, to avoid the net losses or decrease in

resources, companies must base their decisions on the financial information provided

by the accountant. However, the accountant must make sure that data they give is

accurate and useful. This is according to the book Fundamentals of Accountancy,

Business and Management (2016). It is also stated on page 7 of the book that “if an

accountant fails to capture useful financial information, then the decisions made by the

users could be misinformed and might lead to unforeseen consequences”. In layman’s

terms, if the information they’ve given is wrong, these will lead to bad things such as net

losses and the likes.

Decision making process requires information – financial and non-financial information as well

(Zager K. and Zager L. 2006). The role of financial information comes in when users

analyzes financial statements. Financial statement analysis is the process where we

convert data from financial statements into usable information for business quality

measurement (Zager, et al 2000). To know the current level of business quality is

important for users in the context of future decisions. For example, after finding out that

there is a net decrease after preparing the Statement of Cash Flows the owner must

consult the company accountant. The owner must take into consideration where most of

his cash goes so as to avoid the same result happening again. He found out that he

invested too much and did not gain most of the money back. He could either choose to
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invest into a new business, equipment, etc. or reduce. Business decisions such as this

was affected by financial information presented from the financial statements (Baker, et

al 2000)

As observed, the role of financial information in the decision-making process proves to be

important. Because while a business continues to stand and progress, financial

information continues to be very useful in estimating the current business quality and

creating assumption for more successful business in the future. Moreover, it goes to

show that if a business does continue to flourish, this is because the accountant of the

said organization provides useful financial information. And consequently, prepares

accurate financial statements that is then used to come up with the best decisions.

In conclusion, the writer sees the role of financial information in the decision-making process

akin to a trustworthy friend. A person may have lots of friends to rely on, just like a

business owner relying on his marketing team. But that person will always come back

seeking the guidance of that one trustworthy individual who gives the best advices. In

the context of business, the owner will then seek the fortitude of the financial information

presented by his or her accountant before proceeding to make decisions for the good of

his or her company.


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References

[1] Baker, R., & Wallage, P. (2000). The Future of Financial Reporting in Europe: Its

Role in Corporate Governance. The International Journal of Accounting,35(2),

173-187. Retrieved September 7 , 2018, from

https://www.sciencedirect.com/science/article/pii/S0020706300000443.

[2] Beticon, J. L., Domingo, J. D., & Yabut, F. D. (2016). Fundamentals of Accountancy,

Business and Management 2(M. T. Manaligod, Ed.). Quezon City, Metro Manila:

Vibal Group.

[3] Codjia, M. (2017, September 26). A Definition of Financial Information. Retrieved

September 7, 2018, from https://bizfluent.com/info-8333182-definition-financial-

information.html

[4] Elliot, B., & Elliot, J. (2007). Financial Accounting and Reporting (11th ed.). Essex:

Pearsons Education Limited.

[5] Information. (n.d.). Retrieved September 7, 2018, from

http://www.businessdictionary.com/definition/information.html

[6] Zager, K. (2000). Accounting Information in the Function of Business Quality

Measuring. Annual Congress of the European Accounting Association,23.

Retrieved September 7, 2018, from businessperspectives.org.

[7] Zager, K., & Zager, L. (2006). The Role of Financial Information in Decision Making

Process. Innovative Marketing,2, 3rd ser., 35-39. Retrieved September 7, 2018,

from businessperspectives.org.