Accounting Will Only Be Relevant in Decision Making If the Information It Provides Relates to the Past and It Includes Future Prediction

Topics: Income statement, Financial statements, Balance sheet Pages: 7 (1958 words) Published: July 17, 2010

Accounting, which is also known as accountancy is a “language of business”. It provides financial information about one’s business to the internal and external users such as managers, investors, creditors and etc. Users need information to help in planning, decision-making, evaluating and controlling their business or investment. The information is generally in the form of financial statement where they can show where the money is spent, helps to assess performance over a period and helps to identity problems and opportunities. Users also use the financial information to make resource allocation decisions between and within companies, organizations and public agencies. Accounting involves the process of recording, verifying, and reporting of the value of assets, liabilities, income, and expenses in the books of account. Sub-classification of accounting consists of financial accounting and reporting, management accounting, auditing and taxation.

Decision making is the process of choosing between alternative courses of action using cognitive processes. Accounting systems can aid our decision making by providing information relevant to the decision and to the decision makers. They can aid us in allocating environmental resources. In order to design an effective accounting system for this problem, the process of decision making must be understand. Accounting systems also provide a check for the validity of that information through the process of auditing and accountability.

In this report, we are going to relate Air Asia Berhad with the discussion we have selected. We are using the annual report of 2007 and 2008 to make a comparison related with the topic.


Accounting will be only relevant in decision making when the information provided relates to the past, as well as important for future decision making. Financial documents that are created according to Generally Accepted Accounting Principles (GAAP) to ensure that the information is accurate, reliable, relevant, comparability, timely and complete to give users the best possible picture of the company. It also indicates how to report economic events. The process of achieving the goal of maximizing profits for business become less efficient if its lack of financial information throughout the whole process.

The Financial Statements

The information contains in financial statement works as communications medium provides information about the financial position, performance and cash flows of an enterprise that is useful to a wide range of users in making economic decisions. It also meant that it is crucial in establishing the future potential of the entity. Financial information is generated by the accounting process which is used by many diverse parties. Financial information is used by both internal and external users to assist them in decision making. Internal users are those users within an organization who need financial information to decide how to plan and control daily operations as well as long-term basis. For example, Air Asia’s managers require financial information to make decision for planning purpose which includes setting prices, costs and competitive position. They need to consider adding new flight destinations or routes to the services it provides. The managers predict the estimate the costs of operating the new flight destinations by evaluating the cost data from the past records of costs. Air Asia’s management’s interest is in determining the financial strengths and weaknesses of the business so that performance may be improved. While, business owners use it primarily in evaluating the return they are receiving on their investment. Employees need to evaluate the organization’s financial ability to meet wage demands, which eventually make a decision whether loyal to the organization or work with other better prospect organizations. Other than that, financial information is needed by external users in decision making...
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