Usefulness Of Accounting Information For Managers And The Company To Take Better Decisions

Project Description

Discuss about the Business Project Plan.
 

Usefulness of Accounting Information for Mangers and the Company to Take Better Decisions

Project Aim: The project aims to identify the usefulness of accounting information in taking better business decision by the managers of a company.

Background of the Project: Accounting records provide information for the financial year on the overall performance of an organization. It helps the company to work efficiently, meet the legal requirements and create a better stakeholders relationship. Accounting information is used by the small and medium sized business organization as well as large organization that provide a clear understanding of financial data. Financial statement is the most important element of the accounting information that is prepared at the end of the financial year and helps in taking business decisions in a better way (Christensen, Nikolaev & Wittenberg, 2016). Managers face several problems in taking better business decisions like not involving the adequate participation of shareholders and other organizational members. The management also does not involve sufficient time to find the appropriate solutions for the problems.   

In case of Wesfarmers Limited the owners and management has been accounted as the largest company in the Australian market. That company has managed to expand its business in different countries other than the Australia. It is because of the fair decisions and best business strategies with the help of accounting information related to the previous and current financial years. In the financial year 2015, the company had earned revenue of around $62,447 million while in the year 2014 it was around $60,181 million. Such increase in the gross revenue shows the effective business operating strategy by the management of the company (Home – Wesfarmers, 2016). Accounting information is a procedure of collecting business operation data related to different departments for determination of the performance of the company in a financial year.

However, the company also faced some of the criticism regarding the business decisions on using a phosphate substance for producing the products. The same has been declared in the annual report back in the year 2012 that affected its financial statements. Hence, it is essential to take wise decisions for operating business to maintain its growth and sustainability (Home – Wesfarmers, 2016). 

Accounting of a company represents the performance of the business operation with respect to its revenue, expenditures, investment, liabilities and other essential details. Accounting is a recording and recognition of business transactions with transparency and accuracy that enables the company to move in the right direction. Due to the fair representation of accounting data, management of Wesfarmers Limited could expand its business in the right direction even after the controversy (Home – Wesfarmers, 2016). Some of the essential usefulness of the accounting information is described as under:

• Performance of management: The most common use of accounting information is to measure the performance of the business operations. Financial statements are the essential element of accounting information that reflects the profits and losses earned by the company along with other necessary information (Huian, 2015). The users of the financial reports of the company can gather information about the company’s capital investment, fixed assets, current assets, liabilities and advances. It also presents various financial ratios that define the position of the company in each of the business segments. Information on the current ratio, capital gearing ratio, interest coverage ratio, sales ratio, fixed assets to sales ratio and other relevant ratios in different areas of operation of the business.
• Create Budgets: In order to operate a business effectively, the management is required to prepare a financial budget. To prepare a budget statement accounting information is used to get a detailed analysis on different functional areas. Budgets are prepared to forecast and plan the business operations so that the resources are used in the most effective manner. At the same time costs of production of goods and services can be controlled that helps in generating maximum revenue. Accounting information of previous years is used for the purpose of comparison and formulating the percentage to forecast increase/ decrease trend in the financial as well as production part (Cassar, Ittner & Cavalluzzo, 2015).
• Business Decisions: Most critical and important usefulness of accounting information is in making better business decisions. It includes decision on expanding the business, investing in new assets or equipments, using the economic resources or reviewing latest opportunities. Accounting information also provides the analysis of cost incurred or to be incurred in using various resources for operating the business. Such costs in turn help in comparing with the potential income from the new opportunities during the financial inquiry for the future years (Andon, Baxter & Chua, 2015).
• Investment decisions: Accounting information plays an important role for the purpose of investment on part of the external stakeholders. Small shareholders, large investors, banks, venture capitalists and other investors review the financial statements of the company that involves financial activity. The accounting information on different aspects like company’s turnover, subscribed capital, investment on fixed assets, liabilities and other related information are being gathered to employ money in the form of investment (Williams & Ravenscroft, 2015). For this purpose capital budgeting statement is prepared that requires sound knowledge in accounting principles and standards.

Background of the Project

Moreover, the accounting information is useful to expand the business locally, nationally as well as internationally. Similarly, in the case of Wesfarmers Limited, which expanded its business in different territories apart from Australia faced some decision-making problems. The problems that are faced by the management while decision- making may be structured, unstructured, or even semi- structured. In most of the cases, management faces structured problems that involve errors in application of relevant principles and standard while preparing budgets or while estimating investments. These problems eventually affect the management in taking correct decision in operating its business. Hence, the management should have fundamental knowledge and skills on applying relevant accounting principles (Home – Wesfarmers, 2016).

In order to resolve the issue, it is essential to have sound knowledge about the concepts of accounting principles and standards so that there can be accurate application of the accounting data. Application of accounting standards and principles as per International Financial Reporting Standards in preparing the budget statements lead to generate correct and accurate estimation. It assists the managers showing correct net present value (positive/ negative) for the purpose of investment in new projects (Sari, SE & Purwanegara, 2016). If the result shows positive net present value, the managers take steps to move ahead for the investment whereas if the result is negative the investment plan is declined. Further, previous year’s accounting information on the financial statement shows net profit or loss earned by the organization. In addition, it shows the comparative results of two previous years that are used to project trends for future years. Such trend helps the management in planning for payment of dividends, retention of profits, investment for new projects etc. Therefore, accounting information should be incorporated accurately to avoid the errors so that correct and better business decisions can be taken (O’Dwyer & Unerman, 2016).

Following are the research questions that are important in stating the usefulness of accounting information in taking business decisions.

• How does accounting information have impacts on the process of business operation decisions?
• What could be the impact on the performance of business without considering the accounting information?
• What is the usefulness of general accounting standards and principles for preparing the accounting statements that assists in taking better business decisions?
• How does the accounting information helps in taking fair and transparent business decisions to meet the organization’s objectives and policies?
• How does the accounting information helps in taking fair decision for prospect investment to expand the business?

Activities	Week 1	Week 2	Week 3
Identification of the project topic (first day 3 hours)
Setting the objectives of the project (first day 4 hours)
Background research work (first day 4 hours, next two days)
Drafting the research question (fourth day)
Collection and analysis of relevant data (first three days)
Identification of the results (fourth day)
Final project report preparation (first three days)
Submission of the project (fourth day)

Table 1: Gantt chart

Assessment Milestone:

Achievements	Years
Top National Export Award for increase of export sales by 12% in the worst scenario of international market	2009
Improvement in accuracy of systems of capturing incidents by 7.5%	2015
Increase in direct contributions to the society by 12% with total contributions more than $100 million	2015

Table 2: Assessment Milestone

(Source: Home – Wesfarmers, 2016)  

Reference List:

Andon, P., Baxter, J., & Chua, W. F. (2015). Accounting for stakeholders and making accounting useful. Journal of Management Studies, 52(7), 986-1002.

Cassar, G., Ittner, C. D., & Cavalluzzo, K. S. (2015). Alternative information sources and information asymmetry reduction: Evidence from small business debt. Journal of Accounting and Economics, 59(2), 242-263.

Christensen, H. B., Nikolaev, V. V., & Wittenbergâ€ÂMoerman, R. (2016). Accounting information in financial contracting: The incomplete contract theory perspective. Journal of Accounting Research, 54(2), 397-435.

Home – Wesfarmers. (2016). Wesfarmers.com.au. Retrieved 23 July 2016, from https://www.wesfarmers.com.au

Huian, M. C. (2015, December). The usefulness of accounting information on financial instruments to investors assessing non-financial companies. An empirical analysis on the Bucharest Stock Exchange. In 10th International Conference on Accounting and Management Information Systems (pp. 10-11).

O’Dwyer, B., & Unerman, J. (2016). Fostering rigour in accounting for social sustainability. Accounting, Organizations and Society, 49, 32-40.

Sari, N. Z. M., SE, M., & Purwanegara, H. D. (2016). The Effect of Quality Accounting Information System in Indonesian Government (BUMD at Bandung Area). decision-making, 7(2).

Williams, P. F., & Ravenscroft, S. P. (2015). Rethinking decision usefulness.Contemporary Accounting Research, 32(2), 763-788.