Accounting information is of great essentiality to any form of business organisation. This is because it is primarily used by the management to evaluate the progress and success of the organisation. Accounting information has to have four basic qualitative characteristics which include; reliability, comparability, relevancy and consistency (Eisen, 1999, p.1). It is because of this that research methodologies are employed to acquire the information. This paper therefore analyses the accounting research methods, sources and evaluation of the accounting information.
Accounting research methods
There are three primary research methods used in the retrieval of accounting information namely, deductive pragmatic and inductive.
Deductive research method
As a scientific research method, deductive research method employs data analysis and reasoning to give the findings of the research. This method uses logic as a basis of arriving at the conclusion. Because of this, experimental data is analysed to make conclusions unlike other methods that rely on theoretical data to make inferences (Eisen, 1999, p.1). This method is given the name top to down method it begins with the general view of the information to the more specific part. That is, it follows the sequence of theory, hypothesis and observations then concludes with a confirmation. At the end this sequence of operations a conclusion is arrived at which is now the findings of the research hence the information.
Inductive research method
This is another of research methods which is the opposite of the deductive method. The difference comes in, in the sequence of procedures followed to reach the conclusion. This method starts with the more specific information and then to the general. It is thus given the name bottom up method. Its sequence begins from observation to pattern and tentative hypothesis then lastly theory. The inductive research method has a higher degree of uncertainty hence the conclusion obtained is not reliable unlike that from deductive approach. As a matter of fact, Inductive approach is used in empirical sciences while the deductive method is applied in formal sciences.
Pragmatic research method
This is another research method used in accounting. It is in other words referred to as mixed methods approach because it lacks a definite procedure or method to get the results. However, the researcher uses the method which they deem as fit for that research (Hopwood et al, 2004, p.142). The most interesting thing about this method is that the researcher selects the appropriate method depending on the data collected and observations made. It has the advantage of incorporating different methods in the research hence leading to triangulation whereby there is ease in navigation from one method to the next.
Human information processing research
Human information processing in accounting is wide scoped entailing reception, storage, integration, retrieval and the use of information from target people (Driver, 2010, p.1). The management and other stakeholders of an organisation use human information processing method to get essential information from the reliable sources. These sources may include the employees of the organisation as well as the other management staff. Since human information is behavioural and individual based, it is prone to many risks which therefore calls for critical analysis before the management can rely on it in decision making.
Sources of accounting information to an investor
Investors are among the important people of the organisation to be provided with the accounting information. This is because they need this information to make the investment decision of whether to buy, hold or sell the stocks of the company. They are able to decide basing on the financial position of the company. The following are possible sources from which the investor can get the accounting information of a company.
These are found in the records of the organisation and include reports such as financial statements, journals, budgets, tax returns of the company among other reports. These reports are more reliable than any other sources because they give the true picture of the organisation by stating its financial position.
Banks and other money lending agencies
Banks and Money lending institutions usually have close relationships with most of the organisations because of the services they offer. From this they are able to establish the credit worthiness of most of their clients on the basis of their previous financial transactions with the organisation (Hopwood et al, 2004, p.102). The only disadvantage of this source of accounting information is that most of these institutions may not be willing to disclose such information.
Other sources credible sources of accounting information include; employees and employers of the company, chamber of commerce in which the business is associated with.
Evaluation of the sources of accounting information
First and foremost, any accounting information must bear the four basic features of reliability, consistency, comparability and relevancy. The users of accounting information may use either or a combination of the sources discussed above in making their decision (Bill and John, 1999, p.76). However, some sources prove to be more reliable than others depending on the credibility of the information they offer.
For example, the organisational reports and statements are the most credible since they clear depict the organisation’s financial position at a specific time. In addition to this, they are reliable since most companies publish their financial statement at each trading period making them available to all. On the other hand other sources such as credit agencies and banking institutions may be reluctant to disclose company’s information and they do, it will be after a hard tussle. Last but not least, some other sources may not be reliable by giving out biased or misleading information which may affect organisation’s reputation by making wrong decisions based on them. Such sources include; related companies, employees of the company among others.
Bill, C. and John, M. Financial Accounting & Reporting. McKeith McGraw-Hill, 2009.
Driver, M. (2010). A human-information-processing approach to strategic change: altering managerial decision styles. Web.
Eisen, P. (1999). Financial Accounting. Web.
Hopwood, A. Et al. (2004). The economics and politics of accounting: international perspectives on research trends, policy, and practice, Oxford University Press, Oxford.