KISII UNIVERSITY

AN ASSESSMENT OF THE EFFECTIVENESS OF ACCOUNTING

INFORMATION AS A TOOL FOR MANAGEMENT DECISION FOR UFANISI
RESORT IN KISII TOWN .

AUTHORS

KENYATTA CAROLYN M.

ONDITI OYARO DENIS

NYAMBURA PAUL CHEGE

MUGANDA MELVIN M’MJI.

THIS RESEARCH PROJECT HAS BEEN SUBMITTED FOR PARTIAL FULFILMENT

OF THE REQUIREMENT OF THE AWARD OF DEGREE IN BACHELOR OF
COMMERCE.

APRIL 2019
DECLARATION AND RECOMMENDETION.

We declare this research work is our original and has been never submitted to this institution
or any other for the award of any form of certificate.

NAME REG NO. SIGN DATE

DENNIS OYARO ONDITI CB12/10780/15

NYAMBURA PAUL CHEGE CB12/10810/15

MELVIN MUGANDA M’MIJI CB12/10773/15

CAROLYNE M. KENYATTA CB12/10797/15

RECOMMENDATION BY THE SUPERVISOR

This research work has been submitted for examination with my approval as the supervisor.

Signature Date

K.B ONYANGO

KISII UNIVERSITY
DEDICATION

We would like to dedicate this research work to our beloved parents; Stellah Kemunto, Lucy
Nyambura, Mr m’mji and Mr. Kenyatta for financial and moral support throughout our
study.

ACKNOWLEDGEMENT

We give our utmost thanks to our almighty God for he has provided us with the means to this
end. We will also like to sincerely thank Mr K.B ONYANGO, our supervisor for his
assistance in equipping us with the necessary information regarding to this work of research.
We acknowledge with thanks the role played by our respondents in making this study a
reality and all those who directly or indirectly supported us during our research study period.
CHAPTER ONE: INTRODUCTION
1.1BACKGROUND OF THE STUDY

Most organisations’ Management uses accounting information provided

by their financial managers to make organisation’s decision. Availability
of the accounting information on a timely basis is required for utmost
success of organisation. The decisions made by management leads to the
achievement of the set objectives.
Accounting information is presented in its simplest form so that it can be
understood easily by each member of the organisation.

During decision making, this accounting information is generated from

organisation financial statements that are prepared on a daily basis and
their records kept in books of account which are very crucial as they are
used as tool for
Through use of accounting records kept, decisions for the organisation
are made which aid towards accomplishment of the set objective and
goals of the organisation decision making for the organisations
at the set period and time. This information cuts across areas like
Financial and non-financial information and managerial information.

According to the Royaee et al (1) They defined accounting as ‘’ the

process of keeping adequate records of financial and non-financial
transaction made ,properly and insight analysis and carefully ensuring
that its report to user are timely for decision making ‘’
It is very crucial that the accounting information provided whether
financial, non-financial or managerial information.

The managerial decision in an organisation can be influenced by the of

accounting system in the organisation .An appropriate ,accurate, detailed
and up-to-date data presentation of accounting information in an
organisation shows the output of the organisation in relation to its
decision .

Some of the areas that managers of the organisation use this accounting
information are such as during the planning and budgeting of activities of
the organisation, the determination of salaries and wages of employees,
as the management needs to be keen while deciding.
When management performs such tasks of critical decision making, each
member should be given an active responsibility to participate in
enhancing the decision to be made.

When accounting information is properly analysed, the execution of

those decisions made and their implementation becomes very easy and
this has a lot of positive impact on the performance of the entity.
When an entity lacks financial information, the chances of survival due to
bad decision making are minimal. Accounting information provided also
vital to various interested parties such as stakeholders who have
inactive role making management decisions whereby they depend on
management to make decisions . stakeholders require this information in
order to examine the management’s performance and to ascertain
whether to retain the current management that is if the organisation is
making progress or to fire accordingly where appropriate .Thus ,this
means that the type of information needed by each user depends highly
thereof decision to be made.

For example ;if the senior manager wants to know about their
organisation daily operating costs to control all the operations of their
entity so that they can minimise daily operations expenses and also if
they can want to determine the selling prices of their finished products.
Employees uses these accounting information to ascertain their job
security in future and whether the organisation is in stable financial
position to pay their remunerations and if it’s going to survive in the near
future.
Investor on the other hand ,need the accounting information to know
how the worthwhile of the organisation performance in order to put their
investments to make most profits and lesser losses. Creditors ,needs
accounting information provided by the organisation to determine the
credit worthiness of entity.

Therefore, for the accounting information provided by the organisation

to be useful must be relied upon, should be relevant ,consistent and
should be full of compatibility to enable each and every user see its
importance.
The rational decision made from accounting information makes a critical
theme of this research make that effective accounting information is
crucial tool for decision making for Ufanisi Resort management .Hence,
giving into consideration our independent variable which is accounting
 information and the Dependent variable being human resource,
marketing and budgeting decisions.

1.2:statement of the problem

The adoption of accounting strategy has a strong impact performance of any business .A
business that has adopted an accounting system will have a clear picture of the entire
business transaction on the most simplified manner. Most cases, the performance of the
business can be concluded by only examining the accounting information provided. A
business with well-structured accounting system ends up performing well compared to
those that have not embraced one. This is because, the accounting information provided
helps in decision making process. Better decisions bring about efficiency and accountability
in the business operations. This is as a result of management of income, expenses and other
financial activities within the business. Accounting information provided helps management
keep track of financials transaction such as purchase, sales and liabilities .In this way profits
and losses can foresee and the business adjust to incorporate them. Management decision
should highly relay on accounting information provided although this is the case, there are
challenges attached to this process. Accounting system is complex process to operate and
understand for it to run well, it needs one to undergo training on the same. For this reason,
those who lack this knowledge of accounting are left with alternative of hiring another
person which proves to be expensive since the efficiencies of any business operation relies
on accounting information presented, our worry is how often management relay on the
accounting information presented to them in making decisions.

1.3:OBJECTIVES OF THE STUDY

1.3.1 MAIN OBJECTIVES

The main objective of the study is assessment of the effectiveness of accounting information
as a tool for management decision for Ufanisi resort in Kisii town .

1.3.2: specific objectives

The main objective was guided by the following specific objectives;

1. To investigate the different types of books of account prepared by the Ufanisi resort.

2. To determine whether the books of accounts prepared by Ufanisi resort meet the
required standard i.e. accounting standards (IAS).

3. To ascertain the reliability of managerial decision on the accounting information

provided.
4.to determine the effects of accounting information on overall decision making by
management of Ufanisi resort.

1.4: research questions

The study was guided by the following research questions;

1. What are books of accounting prepared by ufanisi resort?

2. Do the books of accounts prepared by ufanisi resort meet the required standard?

3. What impact does accounting information provided has on decision making of ufanisi
resort.

4. What is the extent of reliability by the management on accounting information provided

in the decision making of ufanisi resort?

1.5 IMPORTANCE OF THE STUDY

This study is important as it is aimed at benefitingvarious parties such as the management,

customers,employees and stakeholders in various ways.

To the management,this study is aimed at helping them to understand the effectiveness of

accounting information and hw provided accounting information can be used to aid decision
making process.

To the customers, this study will help them know that the organization’s transactions can be
relied upon through the compatibility, consistency and relevance of accounting information
provided that aid decisions on improvement of service delivery.

To the employees ,this study will help them ascertain if they have job security in long term
basis and whether the organization is able to remunerate them at all business cycle through
accounting information provided.

To the stake holders, this study will help them determine credit worthiness of the
organization , performance of the organization whether positive or negative and the
worthwhile of the organizations’ revival in the near future.

The study is also expected to equip more knowledge that can be used with other similar
organization in Kisii county and its environments to improve their performance on various
areas accordingly. This is because in this study the use of accounting information is very
crucial in the decision making by management in operations of Ufanisi Resort; hence on
other similar industries, therefore this study forms a basis of future studies as it provides
new and improves data that already exists by adding value to the existing body of literature.
It also aims at making recommendations on this study for further studies thus forming a
basis of study for future researcher.
1.6 Scope and justification of the study

The study was conducted at Ufanisi Resort in kisii town;kisii county.Ufanisi resort is a
service industry aimed at providing different services to its customer such as food stuff
sevices,accommodation,swimming and hall for social meetings and gatherings.

The study was conducted between january and april 2019.

1.7 Limitation of the study

i. The sample size was confined to the management of Ufanisi Resort due to
the limited resources.
ii. Some of the respondent were un willing to give information thinking that
their identity would be revealed and this would be disadvantage to the job
security

1.8 Assumption of the study

i. The researcher assumed that the respondent gave true information tha can be
relied upon in the study.
ii. The researcher assumed there was great interdependence between accounting
information and managerial decision process.

1.9 DEFINITION OF TERMS

ACCOUNTING

ACCOUNTING INFORMATION

DECISION MAKING PROCESS

 CHAPTER TWO

LITERATURE REVIEW

2.1:Theoretical Review

Signalling theory

The signalling model was first proposed by Brennan and Copeland [5]. In this theory, financial
information cannot be overemphasized to be one of the means through which the passage of
information is successfully made to users (especially from managers to stockholders). A hypothesis
was built by Fama et al. [6] which suggest that the announcement of splits by a company could
foster the reduction of any asymmetric information in existence between stockholders and
management. Olaleye et al. [7] explained in their article that the signaling hypothesis suggests that
an announcement of a stock dividend conveys new information to the market. An examination of
Foster and Vickrey’s paper on daily returns around announcement dates in 1978 was made by
Pathirawasam. The motive primarily lies in the determination of whether the announcement of
stock dividend influences investor’s expectation in the area of future firm’s prospects. The analysis
covers for 82 stock dividend announcements, the daily market model residuals during those
announcement days. News announcements and cash dividend announcement for 3 days of
declaration were used to control the sample. Arthurs et al. [8] discover from their findings that
signaling and initial public offerings (IPOs) supported the signaling theory and can be used to further
explain the signaling theory with regard to bonus issues and stock splits. During the announcement
of bonus shares and stock splits, the necessary signals before the announcement, breeds in
shareholders’ and other user’s sensitisation. Therefore, the existence of these splits in a company
denotes its effectiveness and efficiency in operation and as a result, tells greatly on its huge markup
potential. It is also issued by managers in order to ensure confidence is restored and retained to a
large extent by the company. This act therefore, necessitates an increase in the number of its
shareholders.
 Appropriate disclosure of accounting information serves as a great signal to its users as it could be
used in making a more effective decision for the company. This study found this theory most
relevant as it provides theoretical support for the objective of the study.

Clark theory of profitability

The analysis of a profit-less economy and its key features constitutes the early postulation of Clark’s
theory. The comparison of a profit less economy with a profit-generating economy resulted in the
identification of significant differences that indicate the causes of profit. Adesina et al. [9] have
asserted that ‘static state’ denotes a profit- less economy where market is assumed to be perfect
and all factors are constant with resistance to change. Here, the absence of monopoly and
entrepreneurial efforts, perfect mobility and all impediments to perfect competition are dissolved. A
relevant change in the number of populace and per capital income will equally bring about a
corresponding dwindling in income and interest rates and the resulting effect on the economy will
necessitate a settling back to a static state. According to Clark theory, competition has the tendency
to eliminate profit or loss and bring the value of economic goods to equality with their cost. Real
economies as noted by Clark will, however, not buffer such changes instantaneously as there will
necessarily be a time lag. Adesina et al. [9] have claimed that profit is hence a transitional
phenomenon, untransformed increments of wages and interest. Its temporary nature demands from
the entrepreneur a dynamic endeavour to seek out or generate opportunities on which he can
capitalize. This process is summed up in Clark's statement that dynamic forces, then, account today
for the existence of an income that static forces will begin to dispose of tomorrow. Since change is
the representative of cause of profit according to Clark’s analysis, entrepreneurs are encouraged to
closely be on the lookout for any threatening changes as it emanates in the economy. Also, timely
information to enable them monitor the change as it occurs in the economy is essential.

Contingency theory

Contingency theory suggests that the incorporation of a less-rigid design of accounting information
system (AIS) should be promoted by an organization in order to be strategically prepared for any
influence which may arise from environment, and organizational structure that poses threat to an
organization. Accounting information systems also need to adapt to the specific decisions being
considered. In other words, accounting information systems need to be designed within an adaptive
framework. Multi-divisional structure recognizes the unique environmental uncertainty facing
different product market environment under a structure, it is highly important that top management
possess the best predictive information model divisional environment. Sub-unit managers not only
have a better understanding of local environments, but are also in a position to react more quickly to
the information. The transmission of information from the superior down to lower cadre is suitable
in a centralized environment which is subject to predictability. However vertical information flows
also lead to information compression and time delays as information travels up the hierarchical
level. Therefore, there is a need for a good system in place to ensure easy access to this information
and the subsequent usage towards ensuring the formulation of a good decision for any business
organisation.

2.2: Empirical Review

In the financial management of the small enterprise investigated by Ismail [17] emphasized the
positive correlation of the common belief that better financial information means better control and
higher chance of success. This information is generated from the system (i.e. accounting system) by
accountants in charge, is incorporated in the financial statements. Ratios (financial) analyzed from
the financial statements constitute an element of this information. Therefore, there is need for
proper incorporation of this system into manufacturing companies operation as it tends to make
company operation difficult especially in areas like; performance evaluation, customer classification,
possible future performance forecast, etc. A study conducted theoretically by Woodruff coupled
with some statistical inferences, titled: The Systematic Access for Analyzing the Market
Opportunities purports to demonstrate essentials of Product Demand Analysis-PDA. PDA is
fundamental in the economic activity involving the definition and identification of feasible
opportunities (investment) towards emerging the users (especially investors) in making realistic
estimation of the profits. One of the vital recommendations for the study based on result obtained
was to refrain users (especially investors) from investment in unproductive and unprofitable market.

Financial statements are well-structured and easily understood statements of a business enterprise,
which helps to faithfully represent the overall condition (mostly financial) and state of operation of a
business, necessary for possible estimation by its users for various strategic or short term based
decision. Some of the basic statements as required by relevant standards include:

• Statement of Financial Position (formerly called Balance Sheet): This shows and emphasize
basically on the asset, liabilities and equity of a particular business concern over a given period of
time

. • Income statement; also referred as profit or loss statement, helps to show the realization of an
entity’s income by duly consideration of the stocks (both opening and closing), goods purchased and
relative sales made for the year. It is presented to inform the users better on the income generated
at a particular time.

• Profit or Loss account; The company’s operation is given an analytical consideration here by
comparing various relevant expenses made at a given period of time against the income realised to
get the net income or profit for the year.

Statement of changes in equity; Explains the changes in the company earnings over the reporting
period. It reports on a company's cash flow activities; particularly it’s operating, investing and
financing activities.

Several studies showed that the reduction of over investment could also be enhanced by a proper
presentation of quality financial statements by companies. Agboola et al. [7] suggested that efforts
should be made to incorporate qualitative information necessary for boosting the financial reporting
of a business as it helps in increasing investment efficiency by encouraging investments in highly
feasible projects, reducing investments in less feasible projects, and ensuring proper accountability
of investors' wealth. In this regard, Biddle et al. [19] provide empirical evidence that high-quality
financial reporting among firms reporting under U.S. GAAP increases investment efficiency. For a
sample of private firms in emerging markets over the period 2002-2005. Chen et al. [20] also find
that financial reporting quality positively affects investment efficiency. Collectively, the studies noted
above suggest that an accounting choice (e.g. historical cost accounting with strict impairment rules)
characterized by more timely loss recognition will reduce over-investment.

Previous studies had paid little attention to the influence of accounting on the management of
inventory while there is dearth of attention on the use of accounting information in making rational
decisions on introduction of new product to the market.
CHAPTER 3: RESEARCH METHODOLOGY

3.1: RESEARCH DESIGN

The study adopted a descriptive survey design to elicit data from the targeted population
.SCHINDLER(2003),a descriptive study is concerned with finding out the what, where and how of a
phenomenon .A survey collected information from a sample by asking questions in order to describe
some aspects or characteristic of the population of which the sample is part of. The descriptive
research was considered because it enabled the researcher to generalise the finding to large
population. In this study the design was useful in investigating the effectiveness of accounting
information as a tool for management decision.

3.2: STUDY AREA

The study area was Ufanisi Resort. This study area was relevant because it is an institution that is
made up of a large human resource and is involved with financial and non-financial activities that
calls for managerial decision.

3.3:TARGET POPULATION

According to NGECHU(2004),A population is a well-defined or set of people ,services ,elements

,events, group of things or households that are being investigated. The targeted population for this
study was 30 employees of Ufanisi Resort which contained ; top management, middle level
management, operational level management and other employees. The study considered census
survey sampling since the target population was not large .COOPER and SCHINDLER
(2003) ,statically ,in sample of at least 30 element must exist .

TABLE 1.0 TARGET POPULATION

Category target population sample population percent

Top level management 7 7 23

Middle level management 9 9 30

Operational level management 13 13 43

others 1 1 4

total 30 30 100

Source authors (2019)

3.4: sampling design

The researchers took the entire population of all the 30 members of management i.e. 7 top
level ,9 middle level,13 operational level and 1 others( auditor)

So the study adopted a census.

3.5 data collection

A structured questionnaire was used to collect primary data and was self-administered from
the respondents. Questionnaire was preferable option because they were a cheap method
produce quick results. They also permit a greater depth of respond and are economical in
terms of money and time. The questionnaire had two broad sections. The first section being
introduction: the researchers introduced themselves, the research topic and respondent
data. The second section entailed the research questions.close-endend were used for essay
coding and analysis while open-ended questions were used to elicit more information from
the responded to complete any missing information.

3.6 validity and reliability

Validity refers to the extent to which the empirical measure adequately reflect the real
meaning of the concept under consideration (Bobbie ,1990).to enhance validity the research
consulted the supervisor of kisii university (K.B ONYANGO,2019) for verification and
appraisal after instruments. The primary data were discussed with the supervisor and
necessary adjustment was made in order to enhance reliability of research instrument.

3.7 ethical considerations

SEKARAN(2003), ethical issues are related to how respondents are treated and how
confidential information is safeguarded during the research process. To ensure the
anonymity of the respondents were asked not to indicate their names. In presentation of
the result of the study, the responses were kept anonymous; in order to uphold the ethical
position the researcher treated the information with confidentiality. The information
provided was used purely for academic purposes.
CHAPTER 4:DATA ANALYSIS, INTERPRETATION AND PRESENTSTION

4.1:RESPONSE RATE

The study found that the rate of reponse from respondent as follows in the table 2.0

Table 2.0:response rate

Instrument frequency percentage

Reached respondent 30 100

Not reached 0 0

Total 30 100

Source:Authors(2019)

The table 2.0 shows that 30 questionnaire were administered. The completed
questionnaires were edited for completeness and consistency. All questionnaires were
issuesed were completely filled hence considered for data analysis and presentation. The
study revealed all target respondendts were reached hence their responses were relied
upon in data analysis.

4.2:general information

4.2.1 :gender of the respondents

The researcher sought to find out the gender of the respondent who were involved in the
study from Ufanisi Resort. The response rate from the field were recorded as in the table 2.1
Table 2.1: gender of respondent

Gender frequency percentage

Male 19 63

Female 11 37

Total 30 100

Source:field data (2019)

Table 2.1 shows that majority of the management of Ufanisi Resort are male ,a clear sign
gender imbalance of ufanisi Resort.

4.2.2: age brackect

The research sought to find out the age brackect of the respondent involvedin ufanisi resort
as in the table 2.2

Table 2.2:age brackect

Age bracket frequency percentage

20 yrs and below 1 3

21-30 yrs 20 67

31-40 yrs 5 17

40 and above 4 13

Total 30 100

Source:field data(2019)

Table 2.2 shows that the majority of management in ufanisi resort falls under age bracket
21-30 yrs which is 67%,followed by age bracket 31-40 yrs which is 17%,then above 40 yrs
with 13% and lastly 20 yrs and below with 3%. This indicate that majority respondent at
ufanisi i.e. the management were of tender age (21-30) hence able to deliver in their
assignment in the hotel.
4.2.3:educational level

The researcher sought to determine the level of education of the respondent invoved in the
study at ufanisi resort. The result is tabulated in the table 2.3

Education level frequency percentage

Post graduate 9 30

Bachelor degree 15 50

Diploma 6 20

Certificate 0 0

o-level 0 0

total 30 100

Source:field data(2019)

It was clear that respondent with post graduate qualification were represented by 30%
,bachelor degree 50%,diploma 20% and there was no body with certificate and o- level in
the management position.

4.2.4:duration of work

The research sought to find out the duration within which the respondent have worked at
ufanisi resort . the result was tabulated in the table 2.4

Table 2.4:duration of work

Duration of work frequency percentage

2 yrs and below 7 23

2-5 6 20

6-10 13 43

11-15 2 7

Above 15 2 7

Total 30 100

Source:field data (2019)

The study sought to find that 23% of management has worked at ufanisi for less than 2yrs,
20% for 2-5yrs,43% for 6-10yrs,7% for 11-15yrs and 7% for 15yrs and above. It was clear
that majority have worked between 6-10yrs.

4.2.5:level of management

Level of management frequeny percentage

Top level 7 23

Middle level 9 30

Operational level 13 43

Other 1 4

Source :field data(2019)

Table 2.4 indicates that 23% of management are top level ,30% middle level,43%
operational level and 4% is others (auditor)

4.3:ACCOUNTING INFORMATION AND ORDERING OF QUANTITY DECISION .

4.4:ACCOUNTING INFORMATION AND RESOURCE MANAGEMENT DECISION.

4.5:ACCOUNTING INFORMATION AND MARKETING DECISION

CHAPTER 5:SUMMARY ,CONCLUSSION AND RECOMMENDATION

5.1:SUMMARY OF FINDINGS

The purpose of this study was to establish the reliance of accounting information in decision
making in the hotel industry. The main objective was to assess the effectiveness of
accounting information as tool for management decision for ufanisi resort in kisii town.the
finding of the study were:majority of the respondent were undergraduate with knowledge
in the field of business and economics which aided them in making effective management
decisions.the study further revealed that accounting information is highly considered while
making decision in regard to quantity ordered. The study also revealed that the accounting
information is used in resource management and in decision regarding marketing of product
and services.

However,they further indicated that,even though management relied on accounting

information in making decision ,objectives and operation of resort has not been realised
100% fully.

5.2:conclusion

In conclusion ,the study has indicated that ufanisi resort relies completely on accounting
information in making their decision regarding the operations of the resort.

This has enhanced coordination among the various department within ufanisi resort.

5.3 recommendation

Based on the study findings’ the study makes the following recommendations:

The management should understand the importance of accounting information in decision

making.

The various department ;accounting department should provide realiable information that
reflects a true and fair view of ufanisi resorts’ operations,since the information provided is
the one relied on by the management for decision making purposes.if information provided
is wrong then management automatically make the wrong decisions.therefore the hotel
should adopt a mechanisms to encourage the use the accounting information and how it
can improve to be effective in the decision making.

5.4:suggestion for further study

The study recommend that further study be done on the followings areas ;challenges facing
the accounting and how they can be addressed,the management awareness on accounting
information in regard to decision making .