the impact of accounting information on management decision making process case study samsung electronic corporation

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THE IMPACT OF ACCOUNTING INFORMATION ON MANAGEMENT
DECISION MAKING PROCESS
CASE TUDY: SAMSUNG ELECTRONIC CORPORATION







BY

BUI THI CAM DUYEN








Graduation Project Submitted to the Department of Business
Studies,
HELP University College, in Partial Fulfilment of the Requirements

for
the Degree of Bachelor of Business (Accounting) Hons














OCTOBER 2011




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DECLARATION OF ORIGINALITY AND
WORD COUNT

I hereby declare that the graduation project is based on my original work except for
quotations and citations which have been duly acknowledged. I also declare that it
has not been previously or concurrently submitted for any other course/degree at

Help University College or other institutions. The word count is 10, 286 words.










______________________
BUI THI CAM DUYEN
17 October, 2011










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ACKNOWLEDGEMENT

This project would not have been made possible without the assistance, support and
encouragement of many people. I wish to take this opportunity to thank all the people

who have helped me during the time of completing the dissertation.
Firstly, I would like to express my deep gratitude to my supervisor Dr. NGUYN
VAN ANH,. she has kindly helped me and supported me all the way through. For
that, I am very grateful.
I also would like to extend my special thanks to managers, accountants, my friends,
and other people who have help me to carry out the survey. I want to thank them for
all their support, interest and valuable hints.

















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THE IMPACT OF ACCOUNTING INFORMATION ON MANAGEMENT
DECISION MAKING PROCESS
CASE TUDY: SAMSUNG ELECTRONIC CORPORATION
By

BUI THI CAM DUYEN
October 2011
Supervisor: Dr. NGUYEN VAN ANH
ABSTRACT
This paper aims to explore factors, which influence the process of accounting
information implementation in the context of developing countries like Vietnam
where the challenging are much more than opportunities, as well as analyze and
explain the change area of methodology and organization of company, after
accounting information implementation. In this research, have finding for both
theorical and practical are more importance. Beside, according the accounting
information will lead to different profits to a company, therefore choosing a suitable
accounting information is very important for managers. In additional, focuses on
some of these tools, including the costing system, profitability, costing tools and
budgeting, which will be presented in this thesis. The costing system contributes to
the available knowledge of costs, building the basis for several decisions, like
determining prices. Profitability is used especially for decisions concerning
discontinuing operations, whereas budgeting deals with the evaluation of investments.
This financial information supports decisions making. Various decision-making
models have been identified in literature to examine this process of decision-making.
Out of this pool a sequential model was chosen to illustrate the decision-making
steps in SAMSUNG ELECTRONIC CORPORATION. This model divides the




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decision-making process into several stages that follow each other. However, it will
be illustrated that the decision-making process in SAMSUNG is a bit more complex
and cannot be easily squeezed into these steps. It will become apparent in this paper

that this process is influenced by many people, making it difficult to determine one
final decision-maker as well as a certain decision-making point. Besides,
experiences, feelings, preferences and other qualitative factors can have an impact on
decisions in SAMSUNG COPORATION.
Nevertheless, financial information affects the decision-making process. In the role
of management accounting information is interwoven and integrated in the whole
decision course, having the ability to influence the process at almost every stage.



















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TABLE CONTENT

DECLARATION OF ORIGINALITY AND WORD COUNT……………….…i
TABLE OF CONTENT……………………………………………………… … ii
ABSTRACT…………………………………………………………………… ….iii
TABLE OF CONTENIS…………………………………………………………….v
LIST OF FINGURES & CHATS………………………………………………… v
Chapter 1 Introduction 1
1.1 Introduction 2
1.2 Problem statement 2
1.3 The objective of research 4
1.4 Structure of research 5
Chapter 2: Literature review 7
2.1 Managerial decision making process 7
2.1.1 Planning process 8
2.1.2 Control process 10
2.2 The importance and impact of accounting information on decision making process
11
2.2.1 Accounting information and its role in decision making process 11
2.2.2 Management accounting and decision making 12
2.3 Financial statements, the importance source of accounting information for manager
in electronics industry. 14
2.4 Tool for decision making 17
2.4.1 Cost accounting system 18
2.4.2 Pricing and competition 20
2.4.3 Profitability 23




VII

Chapter3: Research and Methodology 25
3.1 Research objective 26
3.2 Research approach 26
3.3 Data collection 27
3.3.1Primary data 27
3.3.2 Secondary data 28
Chapter 4: Case study 29
4.1 Samsung background 30
4.2 Company vision and strategy 31
4. 3 Case study analysis 31
4.3.1 Accounting applied in Samsung Company 31
Chapter5: Conclusion and recommendation 47
5.1 Conclusions: 48
5.2 Recommendations 49
5.3 Limitation of study. 49
5.4 suggestions for future research 50





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LIST OF TABLE AND FIGURE


Table 1: Structure cost of the Samsung Company 33
Table 2: the different prices of electronics customer of three companies

Samsung, Sony and LG 35
Table 3: the different price of two companies Samsung and Sony 37
Table 4: competitive positioning of Samsung in DRAM market 39
Figure 1: target costing 22
Figure 2: revenue structure of product 43
Graph 1: adapted from DRURY’s model (2000) 8
Graph 2: adapted from DRURY’s model (2000) 19






















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Chapter 1 Introduction
1.1 Introduction
1.2 Problem statement
1.3 The objective of research
1.4 Structure of research
Chapter one cover the whole picture about the idea of this paper, these help manager
and user easy to link each other between the accounting information and
management decision making process. This also covers the structure and introduction
about the topic as well as related issues.














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1.1 Introduction
Nowadays, in the industry, accounting information is more and more importance.
And decisions making is part of our life. In the competitive environment and develop

manufacturing, reliability accounting information is important for all business, like
manufacturing business, service business and merchandise business. Considering
organizational to organization, this is the main functions and actions of management.
Decision-making and management are usually regarded as belonging together as
management in the company often makes the main decisions of the organization. The
diversity managers will make the different decision with the different information
and report, so making decision will depend on manager’s policy. To have successful,
organization are need to make decisions, also to implement the right ones. A decision
is concerned with the selection of an action often out of a number of alternatives. To
make the right decision, manager needs any guidance to making decision, which is a
part provided by information assemble by management accounting. In fact, there are
many factors that influent to the management decision making, but in this contention,
put only to the intention on the importance and impact of accounting information in
decision making process.
1.2 Problem statement
In this project, the main idea related to the impact of accounting information on
decision making of manager. The accounting information includes information
applied to make ready financial statements that report the effects and financial
position of an organization in order to help manager better making decision. Owners
and manager use this information to argue about the results and effects of business
operations also make decision about their management. External users such as
suppliers, tax authorities, creditors also applied accounting information for their




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decision making, i.e. judging whether the business will be able to return loans, pay
for goods sold, whether taxes are paid correctly, etc. Management accounting tool

also applied are may have contributed to some scale to the beneficial decision.
Thereby, the company needs to analyze their ability, benefit, costing. Besides, they
also need to consider to the factor that may be influence such as economy, sociality
and environment. So there are some problems statements of the paper as follow will
be discuss.
First, what is accounting information and which and how accounting tools will be
used?
Second, how does the organization use accounting information in the decision-
making process?
Third, we examine several reason why accounting information are importance in the
decision making process in the case study of Samsung electronics.
- If accounting information is adjective by manager that are decision making
are under viewing a transformations in the accounting information that shall
not affect on his decision.
- The notion of accounting information hold by decision maker base on his
idea or his opinion on what and how accountants will and accounting system
determine weights significant attributes and how characteristic of agents
affecting and affected by a decision, this will affect the weight when any
information is available given to accounting information in the decision
process.




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- A good of information is an element important to determine the weight of
accounting information to the decision maker when decision making process.
As deeper analysis of this thesis, this will reply above these questions to orient
for the firms want to use accounting information to decision making and which

want to adoption or implementation of accounting information.
1.3 The objective of research
Accounting information is the main factors that directly affected to the assets,
profitability, and development of the company. Moreover, accounting information
including information are applying to prepare financial statements which account the
results and financial position of a business to help manager make the right decision.
Hence, management accountings are playing a smarter role in the performance of the
entity. Accounting information is a tool that is very useful; it is used by all most of
company in all over the world. For instance, in Toyota motor sale (TMS), they have
very successfully in the motor industry because of measuring, evaluating and
rewarding performance. Toyota Motor sale’s area and general manager’s are
measured and evaluated by accounting information Wagner, the firm group vice
president for Toyota sale. Wagner use the performance of a region as a measure of
performance of a regional and general manager is checked through various means
that includes the balance scorecard. The balance scorecards have become fertile
fields of theories and scholastic research, as time past of balance scorecard was
altered by various individual and in depending on the need of environment. The
balance scorecard was introduced to measure whether the activity of the company is
meetings the objective. The balance scorecard use financial and non financial
measure. With the balance scorecard TMS was able to see the financial situation and




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problem of the company and it was able to see how this affects the non financial
aspect of the firm.
Management accounting has been developed in recent year, and accounting
information is more importance with every company, special in developing countries

like Vietnam. This research aim is to discuss the practicable use of accounting
information. The discussions is about whether use accounting information has an
influence on firm’s activities and performance, and how company can accept
information in accounting system. The aims of research are to analyzes the chance
and threats when choose the accounting information in Vietnam, so, the companies
can minimizing the risk for themselves by solving the matter based on the theory of
this method. The failure also the success of using wrong and right information of any
company also will be considered to avoiding the material will be meet mistake when
management makes the decision.
1.4 Structure of research
There are five chapters in this research, in each chapter has own major problem.
Chapter one introduces about any problem of the research. It identified the research
question, purpose, objectives, and the significant and the structure of the project.
Chapter two gives the relevance of literature review. Specifically, it gives the
information about accounting information, decision making process, management
accounting, chapter two also covers the tool of decision making that indicate the
impact and importance of accounting information in management decision making
process.




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Chapter three presents research methods. It is orient by theories and data will be
collected and analyzed.
Chapter four will discuss by the case study: Samsung Electronics Corporation in
Vietnam.
And the last chapter will summarized the main ideal of research, and conclusion
derived contribution of this research to existing body of knowledge. Beside, the

limitation of research will be discuss and tells more about the future research
opportunities.









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Chapter 2: Literature review
2.1 Managerial decision making process
2.1.1 Planning process
2.1.2 Control process
2.2 The importance and impact of accounting information on decision making
process
2.2.1 Accounting information and its role in decision making process.
2.2.2 Management accounting and decision making
2.3 Financial Statements –The Important Source of Accounting Information for
manager in electronics industry.
2.4 tool for decision making
2.4.1 Cost accounting system
2.4.2 Pricing and competition
2.4.3 Profitability
2.5 Requirements of Investors about the Quality of Accounting Information
Disclosure
In chapter two will provide information about accounting information, managerial

decision making process and accounting tools. Understanding about managerial
decision making process, cost accounting also accounting information can helps
managers know what kind of information and how much of information need to
make efficient decisions.
2.1 Managerial decision making process
Decision can be made in any ways depending on different purpose of various group
or organization. Based on Drury’s model the steps in this may be used as a whole




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picture for the decision making process, it is very useful in defiance of decision type
and maker. (Holsapple, C.W., Whinstone, A.B).
Drury’s model includes seven stages; planning process belong to the decision making
process, it may be described as “making choices between choices”. “Control
process” is the last step of decision making process, which should measure and
correct the material performance of the alternative chosen.



Graph 1: adapted from DRURY C (2000)
2.1.1 Planning process
In today, the competitive business environment are very high, so the company should
be engage the strategic planning process that clearly defined about the objective,
strategic, value of the company on both internal and external situation.
We will discuss five steps in the strategic planning process:

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The first steps will defined about the goals and objective, with the guiding
direction, the decision maker will estimate the desirability of fixed way of action
compared with any another. The objective of the company should be challenging but
achievable. Besides, they should be measure so that the company can monitor its
progress. And from economic point of view profit maximization for the company’s
owner or shareholder assets should be the main objective.
The second steps are finding for choosing course of action, manager has to
find for chosen courses of actions that make it may be achieve the goals. The change
of external environment also usually has more potential risk and new opportunity. So
the company must know the ability also the limitation in order to the company can be
achieved with a higher profitability success. The most importance and also the most
difficult on the management decision making process that is the entity should
concentrate on product of themselves and the market development.
The third steps is gather data about alternative, to attain the superior
profitability, the company should make a competitive advantage. In this step,
management accounting information contributes a large importance. Based on the
collect of data and costing information, and management accounting can able to
predict likely effect on decisions such as the change in value, price change…as
potential growth rate, profit in market share, areas of activities, and more important
information is compose for every idea.
The next step is the select qualify alternative course of action, the selection that
“best satisfies the target of an organization” (Idem) will be accepted. The strategy
implementations are based on the programs, budgets and procedures. If the main aim
is profit maximization, all choice should be listed in terms on differences in profit.

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The selective that seems to achieve the goal best should then be picked by the
decision makers.
And the last step is the implementation of decision, it includes defined
parameter to be measure, defined target value for those measured, perform
measurements, compare measured result to the pre-design standard, and make
necessary changes. All decision will be complex investigation and put into through
financial plan.
2.1.2 Control process
Control process is statistic process and engineering discipline that deals with
architecture, mechanisms, and algorithms for maintaining the output of specific
process within a design range.
Beside, control process is continuous flow between comparing, measuring and action.
There are two steps are establishing performance standard such as: compare actual
and plan outcome, responding to divergences from plan,
With the compare actual, plan outcome: The family budget department provide the
present figures for each month to the management group As seen in the test part
the management team looks at the picture and compares them every month. So the
financial department plays an importance role in general issues areas and also in
terms of measuring the own performance between the control process. Profit is most
commonly used to feedback-tool. It allows for a comparison of different stages and
an assessment of their performances.
In the next step, responding to divergence from plan: the functions in accounting
control are plays a leading role to indentify whether or the firms is moving in the
right direction. The managing director further added that sometimes it is difficult to
admit a mistake.

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When management accounting in the company provides information to supports the
steps on the process of the decision-making, somehow, they may be seen as collected
and classify through the decision making process. Moreover, the control processes
also are difficult without the data share out from the financial department, which
compares between planned and actual outcomes. Thus, it helps in gathering data
about possible selective, and actual financial information about the possible
outcomes and finally it gives financial feedback during the implementation and in the
future.
2.2 The importance and impact of accounting information on decision making
process
2.2.1 Accounting information and its role in decision making process
Accounting is commonly concern with recognition dealing and recording the
historical financial of the transaction in a company, so the main concentrates on
accounting information of present financial events, but not events in the future
(Hogget, Edward, & Merlin, 2006). Though, accounting information is not an event
in the future, this information is usually used as a leading to later estimates of the any
alternative nets effect. Managers on the organization often wish for know which or
what kinds are being done thus, this information are very important for manager to
do decision for the afterward plans, then they need continuous fast updated
information in order to control whether actual performance in objective.
Beside, accounting can be identified same as the process of estimating, recording
and communicating economic information to authorized informed rules and
economic decisions. The basic objectives of accounting are to help persons in an
organization make economic decisions. Moreover, accounting information provides
the basis elements for decisions making of resource allocation.

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In the economic activity, Accounting information’s are also seen as financial
information. All economic entities for example, government agencies, business,
families, charitable entities need information because they are very useful for making
economic decisions about those entities activity.
The financial information is needed when making economics decision. It
concentrates on the real events. For the aim on decision making process, the past is
use as an instruct to future estimates of the after-effect of any choices. With the use
of both internal decision maker and external decision maker, the accountant may
support important in the domain of investigating, interpreting, budgeting, and
communicating.
2.2.2 Management accounting and decision making
Management accounting is an unusual subset of accounting essential mass up in
house needs of business, they offer information about financial also any other
information of all levels of management (including CEO, manager, account
managers, or general managers) in an business organization to assist them to go their
planning, controlling, and decision making responsibility.
The activity of management accounting are usually cost volume profit and cost
behavior relationship, manager often make decision for financial control and plan
through incremental analysis, budgeting, capital budgeting, flexible budgeting for
redeem evaluation, the established of manufacturing coast, costing systems,
accounting and referring for business segment operation.
Decision making on management accounting
Decision-making is the main on managerial function. Manager makes decision
which can be distributed like marketing, production, and financial. In addition, it also

classify like strategic and tactical or long run and short run. A major goal of the




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decision-making is to achieve best condition use of capital or deposits of the business.
Doing effective decision claims qualify information and unusual analysis of the data.
In addition, decision-making could be simply defined as choosing a course of behave
from any selective. If no alternatives, then there is no decision is required. One
assumption seen as basis of the best decision related to sale or least amount of cost.
The duty of manager wills helps management accountant to find the best solution.
Making investment decision
The systems to evaluate the investment project are usually found on the quantitative
information and provide quantitative indicators. However, both quantitative and
qualitative factors are considered to make decision. Thus, although capital
investment is not common made in without an assessment by using several systems,
the decision will not made alone on the main of this assessment between alternative.
Other factors (Crothers, D. (2004)) that need to considered , this is the aims of the
business, the on hand of financial resources, the cash flow effects and business
incorporation into the whole cash budget and non-quantifiable cost, qualitative
elements and benefits




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2.3 Financial statements, the importance source of accounting information for

manager in electronics industry.
The purposes of financial statements are providing useful information about the
financial position, performance and changes of financial position in business
organization which is useful for variety of users and manager in making economic
decisions.
The following are the main financial under accounting standard:
 The balance sheet
The balance sheet is one of the financial statements that are very important to
business; it reflects overall value of existing assets and a part of assets formed of an
organization at a fixed time. By balance sheet, manager or every user analyses,
evaluates the potential and future prediction.
 Income statement
Income statement tells ingorm the business activities and results of business
operations. Through the result income statement, managers hold financial
information as profit, cost of goods sold, interest, revenue, etc. are apply to count the
financial ratios as bias for recount the financial situation of an organization. Manager
will seeks suitable information and help company make decision investment.
 Cash flow statement
Operating activities, financial activities and investing activities that cash flow
statement provided are three main activities to generate and use money.
Manager using cash flow statement to assess the quality and result of income that
entity generates. It helps managers discard doubles about the use of accounting
method to make profit for the company.




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Two point of information are disclosure under public companies in accordance

with Vietnam accounting standard.
Firstly, are periodical disclosures of information? Within 10days from the date of
expiry of deadline for finished the annual financial statements, a public company
need disclosure information about its annual financial statements by an independent
auditing firm which satisfies practicing conditions in accordance with regulations of
ministry of finance.
The subject matter of information to be periodically disclosed about financial
statements are the following:
 If public entity is a parent company of other entity, the disclosure of annual
financial statement will cover the financial statements of parent entity as well
as consolidated FS in suitable with the learning objective accounting.
 The dates to completion of annual financial statements are in ninety (90) days
from the last days of accounting period in accordance with learning objective
accounting.
Secondly, extraordinary disclosures of information, a public company have made
special disclosure information amongst twenty four hours of the occurrence of one of
the following events:
 Temporary suspension of business;
 There is change in personnel of the firm (such as member of managing board,
assembly of controllers, and board of the general director or chief
accountant).
 There must making decision in the general conference of shareholders or the
board of management on share dividends to be paid.




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Public company must also take particular disclosure information amongst seventy

two (72) hours of appearance in the following events:
 The boards of management will make decision on development strategies or
on the day’s business plan of the company; or a decision to renew the
useable accounting network.
 The company receives a notice from court accepting jurisdiction of a petition
to commence enterprise bankruptcy proceedings
When public company disclosure particular information, it have determines the event
happened also its reason, and a plan and solution for make good the problem (if
applicable).
 Financial ratio
Analyzing about financial ratios, it will show full meaning of relationship between
individual values in financial statement. Analyzed this ratio, investor have important
comparisons in order to consider and evaluate the results of business operation in
relation to the overall economy, the key competitors in the domain of industry, and
the previous performance of the business. There is any financial ratio as following:
a. Liquidity ratio
Liquidity ratio provides information about the ability’s firm operation to meets in
short term financial objectives. The expanding provisional credit to the firm is
interested in specifics liquidity ratio. Two popular liquidity ratios are current ratio
and quick ratio.
Current ratio = current asset / current liability
Short term creditor’s risk can be reduced if high current ratio. But, shareholders are
more concern in a lower current ratio to secure that firm’s assets are used to make the
development of business. Standard values are used to estimate the current ratio by




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company and industry. For instant, company in cyclical industry may retain a higher
current ratio in order to keep solvent during recession.
The current ratio remain at disadvantage that inventory may include some items
which have low liquidity ability and the value is not clear. Quick ratio is the best
alternative to estimate the solvency of a company with no inventory of existing asset.
The quick ratio can be calculated as following formula:
Quick ratio = current asset – inventory/ current liability
The current assets would be cash, notes receivable and account receivable. This asset
could be accounted as current assets less inventory. The quick ratio usually regarded
as the acid test.
b. Profitability ratio
Profitability ratio reflects to the success of organization in making profit. It will takes
into account the various individual measures: gross profit margin, return on assets,
return on equity, earning per share, price earnings ratio. The gross profit margin is a
measure as profit earn on sales. The gross profit margin considers the firm’s cost of
goods sold, but does not cover other cost. It is defined as follow:
Gross profit margin = sales – cost of goods sold / sales.
2.4 Tool for decision making
Manager must to know about the cost incurred in an organization. Because of this,
the cost accounting system specifies the costs to produce cargo in a company. So, it
can be seen as the main basic tool in leading decisions, and it will be clarified first.
Lack of information about price, costs, manager would not be established prices or
making investment decisions. Therefore, more and more management accounting
notions continued applied for decision-making is based on the platform cost. Several