Professional Documents
Culture Documents
Submitted By:
Session: 2018-2022
Class BBA 8th
Bachelor of Business
Administration (BBA)
Department of MBS
Signature of Supervisor
Declaration Form
I Zia ur Rehman s/o Muhammad Suleman roll no. FA18-BBA-030 student of Bachelor
of Business Administration at Mirpur University of Science & Technology (MUST),
Mirpur AJK do hereby declare that “Role Of Accounting in Decision Making”
submitted by our group in partial fulfillment of BBA degree is our original work and this
work contains no material which has been previously accepted for the award of any
degree in any institution and to the best of our knowledge and believe contains no
material published by another party except where due reference is made in text.
Date:
Dedication
We Dedicate this thesis to our parents, siblings and teachers who always encourage
us to prosper inlife and career.
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Acknowledgment
It was Allah who saw us through this programme. The Track to the final point was
difficult, but we are very thankful to Almighty Allah who never let us down. We are
very thankful to our supervisor Dr. Shujaat for his invaluable assistance and support
throughout our project. His criticism and suggestions made our work a reality sharing
with us the methods of data analysis and how to right the end results. We are also
indebted to Mr. Zafar Iqbal for his contribution in our knowledge we are indebted to all
those who supported and assisted us the whole time at this University.
Lastly, we are very thankful to our parents for their contribution, and whatever they did
for us is always valuable.
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Abstract
As part of the overall economic development of the country, investors, managers, administrators
of the state, etc., are required to have access to appropriate, reliable, and important information
for making economic decisions. The development of a reliable accounting system is also an
important factor, along with other economic development and management. Financial
information of high quality and reliability plays a crucial role in the decision-making process,
and its availability is of public interest with priority in general. As an important source of
information about decision-making phases, such as control, planning, and assessment, this
information is worth keeping in mind not just for foreign investors or large companies, but even
for medium and small businesses. It is the aim of this study to present a summary of
developments and knowledge on accounting information, its impact on decision-making,
management's information needs, and how they are being met today. Accounting information
should be seen as one of the important directions for enhancing efficiency in the decision-
making of economic units (entities) and the users of accounting information in order to increase
efficiency. In order for this study to be authentic and trustworthy, it must meet the qualitative
characteristics of validity, accuracy, and usability. Detailed financial reporting books, journals,
and annual reports will reflect exact information. It is the main objective of a literature review to
strengthen the aspects of the financial position of the organization. This review consists of
identifying and managing risks in a timely manner, enabling the attraction of investments, and
then making decisions based on solid economic information.
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Table of Contents
DEFENSE APPROVAL FORM..........................................................................................................ii
Title: Role of Accounting in Decision Making....................................................................................ii
Declaration Form................................................................................................................................iii
Dedication...........................................................................................................................................iv
Acknowledgment.................................................................................................................................v
Abstract...............................................................................................................................................vi
List of Figures...................................................................................................................................viii
CHAPTER 1........................................................................................................................................1
INTRODUCTION................................................................................................................................1
1.1 Background.................................................................................................................................1
1.2 Significance Of the Study...........................................................................................................2
1.3 Research Problem.......................................................................................................................2
1.4 Research Objectives...................................................................................................................3
1.5 Research Questions.....................................................................................................................3
1.6 Delimitations..............................................................................................................................3
CHAPTER 2.........................................................................................................................................4
CRITICAL ANALYSIS.......................................................................................................................4
2.1 Analysis......................................................................................................................................4
2.1.1International Accounting Standards (IAS)............................................................................4
2.2 Literature Review.......................................................................................................................6
2.2.1 Auditing and Accounting Rules...........................................................................................7
2.2.2 Information-based decision-making....................................................................................8
2.2.3 Decision-making based on financial statements..................................................................9
2.2.4 Information about finances and non-financial matters......................................................14
2.3.5 Decision-making parties in the company...........................................................................15
2.3 Hypothesis................................................................................................................................18
H1: Financial Accounting Help and correlated Decision-Making?...................................................18
CHAPTER 3.......................................................................................................................................18
VARIABLES.....................................................................................................................................18
3.1 Independent Variable and external Variables......................................................................19
3.2 Dependent Variable & Internal Variables Making Decision....................................................19
3.2.1 Lending Decisions.............................................................................................................19
CHAPTER 4.......................................................................................................................................20
RESEARCH METHODOLOGY.......................................................................................................20
4.1 Method......................................................................................................................................20
4.2 Sample Selection......................................................................................................................20
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List of Figures
Figure 1 Does the company brings decisions based on AIS?..............................................................6
Figure 2 Main elements of accounting in decision making...............................................................17
Figure 3 Importance of Accounting...................................................................................................23
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CHAPTER 1
INTRODUCTION
An organization's accounting system is one of its most important pillars, whether it is
public or private. Various ideas contend that accounting is important for many reasons, and
there are a number of aspects and uses for accounting. In their article Azadnia, (2015) argue
that accounting is an important tool to help a business make rational decisions. According to
Abubakar et al. (2017) Accounting information can provide more detailed information about
business operations and status. Costing and managerial accounting are two different types of
accounting information. The study of managerial accounting is receiving a lot of attention
(Azudin & Mansor, 2018; Dávila, 2019). As a result, accounting information and decision-
making have a strong positive interaction (Ada & Ghaffarzadeh, 2015). A firm's decision-
making quality depends on the quality and nature of the information available to it. Detailed
information about the organization's activities can be found in such information. In addition,
the firm's operational capabilities and financial position must be taken into account (Bobrysev
et al., 2015). Especially given the degree of competition firms face in contemporary business
situations (Bouková, 2015), this is important. Thus, the purpose of this study is to explore how
management accounting plays a role in decision-making in Pakistan, specifically in the
country’s major companies. A business organization's decision-making process is one of its
most crucial elements. There are a number of key aspects of decision-making that contribute to
its importance. Butterfield (2016) asserts that decision-making enables the organization to
accomplish its objectives. A sound performance can be achieved and enhanced by linking
decision-making with the ability to make sound decisions. According to Garrison et al., (2010)
a firm's decision-making is essential to counteract the effects of competitive pressure and
thereby enabling the firm to survive. Making decisions is essential for a number of reasons,
including increasing market share (Socea, 2012), improving growth (Hilton & Platt, 2013), and
maximising shareholder value (Horngren et al., 2010).
1.1 Background
Choosing a business of action among several alternative finances of action results from
the outcome of business growth. A final choice is made at the end of every decision-making
process. An action or an opinion of choice can be the output. There is a certain amount of risk
involved in every decision. There are very few decisions that can be made with absolute
certainty. It would be wise to choose a solution that has the highest probability of success and
is in accordance with goals, desires, lifestyles, and values. Developments in banking, shopping
has also developed, and grown Pakistan’s major companies have made important decisions that
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have led to these notable developments and other positive contributions. The development of
new and better goods and services relies heavily on decision-making, therefore. As a result of
high and increasing operational costs, the Pakistan industry has been challenged to develop and
grow. Approximately 20 percent of the country’s main companies’ revenue can be consumed
by operating costs (Nekrasova, Leventsov & Axionova, 2015). The development of innovative
products and services will be limited if such costs are not controlled or kept within reasonable
limits. A number of studies have examined ways of reducing rising operational costs (Garrison
et al., 2010; Hilton & Platt, 2013). The use of management accounting is one of the most
widely advocated solutions (Butterfiled, 2016). Management accounting, however, plays a
relatively small role in decision-making. In this study, the author examines the role of
management accounting in business decision-making. This study is following the qualitative
study method and secondary data in which data of top journal, article, books, previous study,
and previous survey regarding the topic is included.
and this leads to the second problem. As a result, it is not clear whether management
accounting will remain responsible for collecting, processing, and providing quality
information.
1. In what ways does management accounting play a role in Pakistan companies' decision-
making?
2. In what ways does Pakistan company management accounting information support its
decision-making process?
3. How can multiple companies in Pakistan use management accounting information to
make better decisions?
1.6 Delimitations
The role of accounting in decision-making has been taken as an independent variable in
this study in order to examine the performance of Pakistani banks. DM and Bank performance
have already been discussed by different researchers using different methods based on Primary
data to do survey and calculate the results. The study focus is secondary on ERM. DM is
calculated using, rserac on secondary study, annual reports, literature review and Compliance
as determinants, In this study, only these determinants are used as measurement determinants
to assess DM (Decision Making) in financial accounting of Pakistan sectors.
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CHAPTER 2
CRITICAL ANALYSIS
2.1 Analysis
As one of the primary organizations responsible for setting accounting standards in
Pakistan, the Institute of Chartered Accountants of Pakistan (ICAP) plays a crucial role. ICAP
provides its members with updates on Exposure Drafts from the International Accounting
Standards Committee (IASC) by publishing them in our official journal, The Pakistan
Accountant, or through our newsletters. A draft of the document is available for members'
comments. Draft Standards are debated at conferences or seminars before acceptance if they
are considered important. It is necessary to amend some International Accounting Standards
(IAS) slightly to suit Pakistani needs, but most are accepted in full. In the event that the draft is
finalized, the Securities and Exchange Commission (SEC) issues an order directing the
preparation of Balance Sheets and Profit and Loss Accounts of listed companies and their
subsidiaries in accordance with International Accounting Standards. A Company Ordinance,
1984 (XLVII of 1984), along with clauses (a) and (c) of section 43 of the Securities and
Exchange Commission of Pakistan Act, 1997 (XLVII of 1997) confer authority on the
Commission to issue this Order.
Listed companies and subsidiaries of listed companies are required to adhere to the following
IASs following their adoption by national accounting bodies. Standards adopted include:
IAS 2 Stock
IAS 8. Changes in accounting policies and fundamental errors for the period.
Pakistan has not adopted IAS 15 Information Reflecting the Effects of Changing Prices;
IAS 22 Business Combination is being considered, and IAS 29 National Accounting
Framework - has not been adopted by Pakistan. It has not been considered for adoption in the
Pakistan context because it is not relevant in hyperinflationary economies. It is being
considered for adoption to be IAS 40 Investment Property. The Securities and Exchange
Commission has not yet notified ICAP of the adoption of IAS 22 and IAS 35 to IAS 39. Some
minor deviations occurred in the adoption of IAS 1 for banks and insurance companies, but
most of the IASs were adopted in full. Banking Companies Ordinance 1962 outlines
accounting requirements for banks, while Insurance Ordinance 2000 mandates separate
insurance classes for insurance companies. Generally, IASs are followed with only minor
deviations. As of 1 Jan 2001, IAS 12 will be effective rather than the 1996 revision, and the
original IAS will remain in place until then. IAS 16 - Allows revaluations of assets to be offset
against devaluations of other assets, i.e., the offset is not limited to the same asset.
defined as meeting certain goals. It is common for companies to aim for profitability (Socea,
(2012). The Cash Flow Statement shows the sources and expenditures of cash, the inflows and
outflows of cash, and changes in net cash due to operations, finances, and investments. In
conjunction with other financial statements, this statement provides an overview of the
company's financial health. This statement shows how equity has changed over time and how it
has been structured. As part of the company's capital, the income or profit is retained (Sekaran,
& Bougie, (2016). The retained earnings are the net profit that has increased and the net loss
that has decreased. Due to the fact that they reflect different aspects of the same transaction, all
of the financial statements mentioned above are interconnected. A full picture of a company's
financial position and business prosperity can only be obtained by analyzing and comparing
the data and information from all financial statements. This kind of information can be
considered complete and reliable (Djogoć, 2009).
As Franklin and Krieger (2011) describe it, the development of decision-making serves
as the brain and nerve center of an organization. The definition of a decision is the process of
identifying a need, issue, or chance, generating alternative solutions, evaluating them, and
selecting one out of a number of alternatives. The decision-making process can also be defined
by (Laine, 2017) in three ways: first, as selecting one single alternative from a set of possible
choices, according to the rational optics of the decision-maker; second, as eliminating all
alternatives except those that would best serve the goals at hand. According to Kinicki and
Kreitner (2005), the concept of decision-making is connected to the selection of an alternative.
Every day, we make decisions that are influenced in many ways by the various options
available for analyzing the same situation. For entrepreneurs, it is crucial to have immediate
access to information, as it improves their decision-making process. Decision makers find it
difficult to find information online (Laine, 2017).
It is the manager's responsibility to make decisions in real-time on countless matters,
such as planning, implementing, monitoring results, and assessing, which are usually
measurable in terms of aspects. Kinicki and Kreitner (2005) identify decision-making as the
process of identifying and choosing alternative solutions that achieve the desired situation.
Maintaining the organization's good position, it is one of the principal responsibilities of the
manager. In O'Brien & Marakas 2006, the management administrative support sub-system
supports the decision-making process for management decision making. Third parties and both
external and internal users can make decisions using accounting, as it is proven to be an
information system that provides financial information to management. During the past few
decades, accounting has become an essential source of information for decision-making in
enterprises (Li, (2017). Accounting is also used as a control tool and as a decision-making tool
in the creation of financial statements and in predicting the utility a company can provide in the
future. Moreover, it enables planning, monitoring, and decision-making by providing
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information about the company's activities, which have been analyzed and interpreted.
Accounting information systems play an important role in the revised publication. In the
context of effective management decisions within an organization, accounting systems are
essential (Laine, 2017). As a general rule, AIS can be categorised into two categories: a)
effective decision making related to information mainly used for controlling organizations; and
b) facilitation of decision-making related to organizing organizations (Hosomi, 2017). With the
globalization of accounting becoming the predominant trend in the future of business,
accounting will become the constant support of decision-making. Therefore, the research
hypothesizes that information from the accounting information system can contribute to better
decision-making. Since many small businesses face problems and incur financial expenses as a
result of the IFRS application, AIS has been developed to provide them with specialized
information. Worldwide, the software market is developing. Each country develops its own
AIS or collaborates with global software producers according to its legal regulations.
Each SAP solution is developed to meet the specifications in the country where it
operates. All local needs are met in an optimal way by integrating universal knowledge with
local business practices. The SAP solutions are designed from the outset to support
international corporations operating across various local markets and seeking a consolidated
result, total control across all sectors and an integrated process across all countries. In SAP's
system, elements relevant to local solutions (for example, business language, common law, and
standard practices) are recognized and incorporated. In addition to complying with local
accounting laws, local and international standards, where applicable, and other tax regulations,
companies must use local AIS or buy their AIS abroad. The local accounts law must be
followed. Language and local currency requirements must also be met by each AIS. To
develop an AIS that supports decision-making, designers must also take all of this into account.
Information generated by AIS is invaluable for share holders and stakeholders to make
investment decisions. A company's financial and accounting data are needed for financial
managers to evaluate past performance and prepare for future plans. It is well known that more
effort in the implementation of AIS correlates with better financial and economic results;
however, the researcher is aware of the fact that, aligned with organizational performance and
long-term strategy (Garrison, 2010).
The results are also combined with other complementary variables. As a result, while in
a short term, resource allocation in the AIS might negatively affect performance, and this could
be a barrier to investment in this type of technique during times of crisis, a well-defined
strategy aimed at investing and enhancing its use requires management support and staff that is
well-trained. It is therefore necessary to analyze the relationship between AIS investments and
certain changes in company structures. A management decision is another word for a
functional decision made at the middle management level to optimize the performance of
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To ensure the accuracy and reliability of accounting reports, the security of assets, the
efficiency of accounting transactions, the prevention of fraud, and the timely preparation of
accounting data, internal monitoring procedures have been implemented. The AIS plays a
crucial role in improving financial report quality by improving supply chain administration
(Chia, (1995). A retail company's success depends on its ability to manage its supply chain
effectively. Moreover, most companies are creating more virtual relationships and networks
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through strategic alliances. As a result, raw material management is an integral part of the
supply chain management process until the end users are reached (Butterfield, (2016).
AIS can affect organizational performance based on the results of previous studies. In a
study conducted in Dubai, Soudani (2012) found that AIS had an impact on economic
performance. In this study, 74 corporations were surveyed as well as listed agencies at the
Dubai economic market (DFM), which is a subset of the 40 ministries and independent
agencies in the United Arab Emirates and led by the federal authorities. To demonstrate the
effectiveness of IT implementation for organizational overall performance, numerous studies
used economic measurements. Soudani (2012) used ROA, ROE, debt in capital form, leftovers,
variable fees, raw material, and variable costs to measure firm performance using monetary
performance as the metric. A company's financial performance is measured by long-term
profitability, availability of monetary assets, and income growth in Malaysia (Granlund, &
Lukka, (2017). In accordance with Boulianne (2007), the performance of a commercial
enterprise unit can be measured utilizing three indicators: return on assets, profit margin, and
revenue growth. ROI and earnings before tax were used by (Socea, (2012). to measure a firm's
financial performance. Rather than measuring monetary performance, non-economic
performance is more appropriate.
directors' reports, profit and loss accounts, balance sheets, cash flow statements, and auditor's
reports. The data taken from is also analyzed using a known technique by analysts.
Comparative purposes, determining the financial strength of a company, and evaluating its
performance are the main purposes of ratio analysis. As a result, researchers apply ratio
analysis to profitability ratios and/or financial ratios (Zyznarska-Dworczak, (2018).
In the course of operating, a company necessarily interacts with a wide range of activity
events and influential forces, which are referred to as stakeholders. An internal stakeholder is
an individual or organization within the organization, and an external stakeholder is an
organization outside the organization that is interested in the company's performance and
operational results. Employees, shareholders, and managers are internal stakeholders (Zhang,
& MinSi, (2017). Stakeholders expect that their investment in the company will fulfill their
personal expectations. Invested funds are expected to return a reasonable return to investors -
shareholders. Information about the company's operations and security of investment is of
interest to them. It is also important to shareholders to know how well the company is doing,
how much profit it has, the earnings per share, and the dividend percentage. Companies, and
shareholders decide whether to increase or decrease their capital based on that information. A
high-profit ratio, a high return on equity ratio, a high return on assets ratio, etc., will be
achieved by management sharing their knowledge, skills, and time with the company. Human
resources and skills are important to a business, and employees expect that their compensation
is reasonable and that their working conditions will be good and secure. An external
stakeholder is someone who is not associated with the organization, such as a customer, labor
union, supplier, media, competition organization, financial institution, or government
institution (Zhang, & MinSi, (2017).
During the input, transformation, and output processes, external stakeholders influence
the activities of the company in different ways. Customers expect that the product or service
they purchase from the company will meet their needs. Continuity of supply and quality are
important to them. For manufacturing to take place, raw materials must be supplied by
suppliers. In many cases, it is extremely important for raw materials to be available and their
procurement conditions to be favorable. In order to achieve the company's overall objective,
access to raw materials and conditions is extremely important (Yang, & Gabrielsson, (2017).
The negotiating power of suppliers should not be the only factor considered when providing
resources. Analyzing alternatives: buying versus renting, orienting toward foreign markets,
making strategic business partnerships, etc. A good example would be. When deciding whether
to cooperate with a particular company, suppliers consider its liquidity and overall solvency.
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The company must also remain aware of new competition, as the company operates in a
constantly challenging environment. Through laws, decrees, and regulations, governments and
public bodies are one of the most important external players affecting businesses. It is most
likely that the state will participate directly in any activity of public interest that is performed
between companies and organizations (Tavakol, & Dennick, (2011). Government can
sometimes nationalize or regulate the companies or organizations mentioned above; in making
decisions, the government has majority control. Marketable banks, insurance companies,
investment banks, and other financial institutions play a critical role in businesses, as capital
markets are central to their existence (Trucco, (2015). These financial institutions, however,
require information about a company's solvency and liquidity before they can authorize funds.
In addition to accounting information, the company's management needs to interpret
nonfinancial indicators, if necessary, in order to satisfy different interest groups or stakeholders
(Djogic, 2009). Various sources of information can be used to make decisions and are usually
separated by domestic sources (accounting records) and external sources. The data is processed
regardless of the source of the data, whether it comes from an external source or from an
internal source. Organizing management information will assist the company in answering
questions whenever that information is needed, when that information is needed, who needs
that information, where that information is needed, and why it is necessary.
1. The daily business transaction recording subsystem, which focuses on routine
decision-making.
2. General ledger and financial reporting provide traditional financial statements like
balance sheets, income statements, cash flow reports, and other statutory reporting.
Transactions related to fixed assets and capital investments are handled by the fixed
asset and capital investment subsystem. Reporting subsystem for various levels of
management. We can conclude from the above that the accounting information system plays a
significant role in the decision-making process and in the daily performance of management at
all levels (Djogić, (2009). Data collection, data processing, database management, and data
creation are the four basic applications found in modern computerized systems (Hoozée,
(2018). Information systems based on computers can be accessed using the system. The
business community has been concerned about accounting information systems (AIS) for
years, according to some scientists. In addition to helping companies identify potential benefits
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of IT investments, it helps them improve their businesses as well. (Hilton, 2013) states that an
accounting data framework (AIS) is crucial to the management of an organization and the
implementation of an internal control system. As he examined the fit of AIS with
organizational needs for data communication and control, he concluded that despite the fact
that bookkeeping data frameworks can provide compelling data for decision-making,
acquisition, and establishment, they are useful when their benefits outweigh their costs when
utilizing them.
2.3 Hypothesis
Research has demonstrated that role of accounting is positively correlated with decision-
making based on a theoretical framework. The following hypothesis underlies this study:
CHAPTER 3
VARIABLES
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In addition to serving the interests of outside investors and lenders, the role of accounting
serves the interests of the firm’s internal operations as well. In addition to meeting the
regulatory and legal obligations outlined for public companies, businesses should refer to their
companies must be accurate and updated regularly, and they must be honest and transparent
about their financial activities. Additionally, financial accounting helps companies optimize
their daily operations and identify potential growth projects that could benefit their business in
the future. Among the most common external variables are technology and market conditions
A company's financial statements, including its balance sheet, income statement, and
cash flow statement, serve as the basis for its financial analysis. Due to this, public companies
must prepare and submit financial statements that conform to Financial Accounting Standard
Board (FASB) financial accounting standards. In addition to setting price targets and
determining whether a stock's price is fairly valued, investors and analysts use financial
statements to determine a company's creditworthiness and valuation. Investors would be unable
to assess stock and bond issuers' financial health without the information provided by financial
accounting. As a result of the FASB's requirements, accounting information is more likely to
be consistent in timing and style, which means investors won't be subject to financial
statements that reflect a company's current financial condition. An organization's performance
is influenced by a variety of internal variables, including size, structure, strategy, compensation
system, information systems, psychological characteristics (e.g., ambiguity tolerance),
employee involvement in control systems, market position, product life cycle (Otley 2016).
FASB's requirements. When lending money to a company, lenders want to know exactly how
much risk is involved, which can be determined by looking at the company's financial
statements. Underwriting the loan will allow the lender to determine how much to lend and at
what interest rates based on this risk level.
CHAPTER 4
RESEARCH METHODOLOGY
4.1 Method
There were three major research methods used, including book studies, analysis, and
design studies. Collecting information about books and journals for book studies. By analyzing
the continuous system and identifying company information, the method of analysis is
performed. By combining already existing research data, the main strategy in the research is to
reach a conclusion. Different specialists' views on the issue were reviewed in the research.
Therefore, we used a qualitative approach. Reliable sources were used to collect data. There is
not enough research into how decision-making is conducted through small enterprises,
focusing on the decision-making process, as part of the information flow that sustains
organizational behavior (Mintzberg, 1979). All of these steps are taken from the moment a
potential incentive is perceived until the action is taken. In research on strategic policymaking,
two perspectives have been identified: rationality and politics (Gibcus et al., 2009). The
process of decision making based on rational and knowledgeable activities, in which actors
collect information carefully, develop alternatives, and select the best option to maximize their
usefulness. Reasonable processes are rational processes. However, people are limited in their
abilities to monitor their decisions, which means they can only act rationally if they intend to
do so (Simon, 1957).
This study examines the secondary data of annual report, Journal of accounting and
finance, books on financial reviews and, and research papers all studies which are included in
financial categories (Mugenda, 1999). Such a design provides essential information that can be
good for business decision (Vogt, 2007). A further strength of the study was the statistical
significance of the model variables, increasing its credibility.
A multiple sectors of Pakistan is the unit of analysis and the annual report of these sectors were
included for this study. Butterfield (2016) provided ideas that were incorporated into the
research instrument who focused on the secondary data by relying on annual report. This was
P a g e | 21
important to this study findings and those established in the annual report were compared.
Furthermore, the research instrument was developed on the basis of a literature review from
studies that had already been validated. In order to perform the secondary analysis of the data,
the data for the period 2000-2020 were used. State Bank of Pakistan's data portal and financial
statements are used to collect this information. Since the private and none private sector of
Pakistan have a distinct system of procedures, they are excluded from the sample selection.
are consistent and comparable. The acceptable reliability methods were employed to test the
accuracy of the findings.
CHAPTER 5
DISCUSSION AND ANALYSIS ‘
It is very important for the body responsible for making decisions about an organization
to have accounting information on hand. Without reasonable information, management cannot
make a decision. Real facts and figures are required when making a decision. Every level of
management relies on information to make decisions. Financial statements, such as profit and
loss, costs and earnings, liabilities and assets, provide management with information regarding
the business' financial position. It is for this reason that accounting is so important to
businesses. It is important for Management to have access to statistical data and information
that accounting provides in order to make the right decisions. An accountant's main goal is to
identify a company's profit-loss and financial position by systematically recording financial
transactions in its books.Developing an accounting system, collecting statistical and economic
data, formulating financial principles and financial planning, controlling results in accordance
with plan, determining profit-loss and financial position, interpreting and analyzing accounts
and statements, etc. Accounting has a number of main functions.
Accounting has become a direct part of financial management in the modern age.
As a result of entities, joint-stock companies, and developed means of communication and
international business, the scope of business has greatly expanded that management relies on
accounting information and data for making decisions. The role of accounting is to prevent the
misuse of assets, increase production and profits, control costs and improve the efficiency of
the overall management of a business. In order for a business organization to succeed,
management plays a crucial role. Planning, organizing, collecting business elements,
motivating, coordinating, controlling, and budget are some of the functions of management.
Accounting systems are essential to the successful completion of these management functions.
In accounting, economic events are identified, recorded, analyzed, and presented in order to
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show the financial position of an entity. Financial information is provided by accounting for
economic entities.
coordinate their activities. In addition, it is a great tool for managing purchases with sales,
expenses with income, and sales with receivable realization, etc.
5.1.1The importance of accounting in controlling
Planned and controlled operations are the core functions of modem management.
It is essential to control activities to ensure that they are completed according to plan.
Management can benefit greatly from accounting.
5.1.2 Accounting Importance Media of Communication
Accountants play an important role communicating business information, management
plans, and information from different departments to other departments. Accounting, for
instance, is considered one of the best forms of communication in today's society when it
comes to providing management with information about purchase and stock, date of purchase,
cost of purchase, and sale price.
Accounting also serves as a means of gathering and distributing information about a business
to various stakeholders.
5.2 Accounting Importance in Budgeting
For a business to succeed, it is essential to prepare various budgets. Budgets require
historical information, which Accounting provides.
5.2.1 Accounting Importance in Professional Advice
Accounting professionals provide valuable professional advice to management for the
development of the business. As business management has become more complex in the
modern age, it has also become more complicated. Accounting plays a very important role in
this regard. Accounting information and data are crucial to the efficiency of management.
Modern organizations include accountants in their management committees. There is a close
relationship between Accounting and Management. The role of accounting in management
cannot be overstated.
1. Provides managers with the information they need to make resource decisions.
Planning, organizing, and controlling financial and operational activities;
2. Assists other users in making investment and credit decisions (employees, investors,
creditors, and others - usually called internal stakeholders).
The majority of these (such as employees' salaries and wages) are also used for accounting
purposes, but many are also required for other reporting purposes (for instance, salary records
may be needed to support employee claims for pensions).
Tax returns are also prepared by accountants using data they collect. Making economic
and financial decisions relies heavily on the information provided by accountants. It is usually
rational decision-making that is based on analysis and comparison of estimates, which
themselves are derived from accounting data and other projections of future outcomes.
Providing information for investors and creditors via external or financial accounting,
reporting, and auditing contributes to the efficient and effective allocation of resources to
enterprises by the capital markets; management accounting, also known as internal accounting,
provides managers with information and input on how to efficiently and effectively use
enterprise resources. There is no external regulation or policy governing the accounting
information used by enterprises in making decisions.
The managerial accountant is, therefore, limited to cost-benefit considerations and his
or her abilities to predict future conditions and events in developing the data and information
that are relevant to enterprise decisions. The Government Accounting Standards Board
regulates and sets reporting standards for state and local government entities. The Internal
Revenue Service, which approves the entity's tax status and with which it must file reports,
imposes various reporting regulations on private entities that are not profit-seeking units.
Recommendation
Accounting information systems should provide information that can be used for the following
purposes:
Plans, controls, and evaluates the activities of an organization by its managers and
account in right direction.
Operating, compensation, and other policies are determined by owners, directors, and
others.
Various entities, including government unions, taxing authorities, regulatory
agencies, and environmental groups, evaluate whether the organization is appropriate.
The company's procedures, policies, and contracts comply with laws, rules, and
regulations, and/or whether any changes are necessary.
A review in a broader way and in all dimensions of current and future commitments
to the organization by current and potential owners, employees, creditors, customers,
and suppliers.
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The evaluations and analyses of enterprises, capital markets, and investors are
significantly carried out by accountants, market analysts, dealers, brokers, mutual
fund managers, and others.
Financial information should be made available to managers in more detail as soon as
possible. In this way, management quality will be enhanced
Conclusion
The research has been dealing with the role of accounting information in decision
making process. The main interest was to find out whether the organizations take into account,
accounting information given to them during decision making process and what has been
observed in the problem on preparation of accounting information and its interpretations. Any
specific organization or any distinct activity has a feature information system which should
provide complete information of the body in sufficient quantities, fair and at the level of
efficiency required by consumers of information. Therefore we believe that the information
system is under the base system object or system, or in other words, economic and social body
and the two entities have a common goal, namely the continuous growth of the basic efficiency
of system. Accounting for the economic information system is both a data source and one of its
basic components. In making decisions accounting must be understood as an information
system that allows the production and dissemination of information for necessary decisions.
We 85 believe that by using information, managers can control entity‟s activity on each field
and can act on it in real time. In terms of modern activities, information becomes very
important within Objective of each activity is to increase the efficiency of basic system, which
is why managers need timely information as concrete as possible for decision-making within
an entity. In the process of evaluating the effectiveness of accounting information in decision
making, it was established that it is still not very clear as to what extent the users of accounting
reports have utilized this information obtained for decision making whereby to some extent the
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management team knows the importance of using these information from the financial
statement reports for decision making, but due to the growth of the company, they become
more involved in work of the company (very busy) and sometimes they ignore using these
accounting information‟s.
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