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ACCOUNTING INOFRMATION

Introduction and Overview


Data and Information

Data is the raw material for data


processing. Data relates to facts, events,
figures and transactions.
Information is data that has been
processed in such a way as to be
meaningful to the person who receives
it.
Data Classification

Quantitative data
i.e. data that is capable of being measured
numerically, e.g. the standard labour hours
required to produce a unit of output, invoice
amount owed to a supplier etc.
Qualitative data
is that data not capable of being measured
numerically and may reflect distinguishing
characteristics; e.g. the grade of labour used
to produce the unit of output.
Data Classification
Discrete data
i.e. data that can only take on specific fixed
values, e.g. the actual number of customers a co
can have at a particular time could be 35 but not
35.3.
Continuous data
i.e. data that takes any numerical value e.g. a
debtors control a/c balance is Ksh 8451.521
Data Classification

Primary data
is data collected for a particular enquiry in
hand, e.g. to establish a std time for
accounting activity, accountants would be
observed performing a ‘value adding’
activity.
Data Classification

Secondary data
collected by a trade association from a
number of firms and comprising trade
association statistics would become
secondary data when used by a firm in the
sector making an enquiry of its own
Classification of information
Strategic – that information relating to the
longer term planning strategic focus of the
business.
e.g. Strategic information would relate to the
longer-term strategy on the company’s market
share, which in turn forms the production plan.
This plan would be used to predetermine the
level of investment required in capital
equipment in the longer term. This process
which ‘compels planning’ would lead to
investigating new methods for the technology.
Classification of information

Tactical – that information used in short


term planning and decision making
within an organization.
I.e. could include short-term Financial,
production or performance budget for 12
months.

Operational – that relevant day-to-day


decision making
Qualities of Accounting Information

Quality information is that, which when


used, ‘adds value’.
Relevant for the purpose

Information should always be relevant to


the issue being considered. Irrelevant
information or sections in financial
reports, can have adverse effect on the
understanding of the information by the
user.
Completeness

I.e. all information required for decision-


making should be made available. There
must be close co-operation between the
information provider and the end user.
Therefore, all factors influencing
decision-making should be included.
Accurate for the Purpose

Managers rely on information to


effectively manage their ‘value adding’
activities. For example, to satisfy the
VAT regulations, a VAT invoice must be
accurate to the nearest cent. However,
the aged debtors list would contain
rounding to the nearest Ksh.
Confidence

I.e for information to be used effectively


by the managers, the users must have
confidence in its source.
It should be supported by the fact that
the source was reliable in the past and
there is a good and clear channel of
communication between the provider
and the user of the information.
Communicated to the right person

Managers should receive information to


carry out their defined tasks. Such
information should be communicated to
the right person at the right time within
the organization.
Timely

For effective decisions to be taken,


information needs to be reported to
management on a timely basis.

For example, a budgetary control or


standard costing report containing
adverse variances would need to be
timely for managers to take immediate
corrective action.
Communicated in an appropriate
channel

For a manager to use the information


effectively it must be transmitted in the
communication process. The process
takes many forms and the channel
selected must take account of nature,
purpose, speed and requirement of the
user.
Volume

The detail and volume of the information


communicated should be consistent with
the need of the user.

The information should focus clearly on


the issue and main points highlighted
and not ‘clouded’ by superfluous and
excessive volume.
Understandable
The level and skill of the manager is
important. Managers need to continually
update their skills through training for them
to fully understand their role in a
responsibility accounting environment, and
to interpret the management accounting
reports.
The provider of the info;n also needs to
choose the style and language appropriate
to the user.
Cost Effective

That is the costs of providing information


must not outweigh the ‘value added’
benefits derived from its use.
USES OF ACCOUNTING INFO’N

1. Decision Making
Information reduces uncertainty in decision
making. Adequate information on possible
alternative solution to a problem will make the
decision maker to make the right choice.
2. Performance control

Information on targets/objectives for an


org’n, an individual actual performance
etc will form a basis for assessing the
performance of a department/ unit/ an
individual in an organization.
3 Planning

I.e setting future goals based on current


information.
4. Historical evidence

Provides historical evidence support in


auditing financial task
5. Communication

Information provides a mechanism for


communication hence helps in directing,
organizing, coordinating etc.
Users of accounting information
Investors Trade unions
Lenders Management
Suppliers
Customers
Employees
Government
Members of the
public
How Accounting Information Assists
to Gain Competitive Advantage

Competitive advantage is the profitable


and sustainable position.
It exists in the minds of customers, who
believes the value they will receive from a
product or service is greater than both the
price they will pay and the value offered by
the competitors.
Strategies (for achieving Comp adv)
1. Cost leadership – I.e. being the lowest cost
producer in the industry.
Accounting systems support this strategy by:
Facilitating cost reductions e.g less accountants
employed as a result of computerization of accounting
system.
Allowing better resource utilization e.g. providing
accurate stock info’n allowing lower inventories to be
held hence low costs to the org’n.
Some AIS support JIT systems (reduce costs)
1. Differentiation:- differentiation is a firm's ability to
distinguish its products/service from the rest of
the market.
If a product or service is perceived as unique, the
firm can extract an above-average profit.
AIS has contributed on this by automating the
traditional accounting system hence hence
differentiating on info’n. Users of a/c info’n can
access higher quality info’n presented in variety of
ways to make quality decisions.
1. Focus:- this involves innovation strategy used
in creating a new product/service or in altering
a process
The possibility of online monitoring of
transaction accounting data and the use of
sophisticated modeling and drill down analysis
tools may result to a better product or service
to be produced /service for the customer
Accounting info as a Resource
Reasons that make accounting
information to be considered as a
resource.
Costs: i.e. accounting information incurs
costs to collect, process and store
It generates revenue: e.g. Accounting
information can generate capital flows
through shareholders buying more shares in
the company. Also audit firms thro booking
can generate income.
Accounting info’n can be stored just like any
other resource.
Decisions made as a result of accounting info’n
can give an org’n a competitive edge.
Accounting info’n requires to be managed just
like any other resource.