Session 2

Sources of Data

FOCUS
This session covers the following content from the ACCA Study Guide.

A. The Nature, Source and Purpose of

Management Information
2. Sources of data
a) Describe sources of information from within and outside the organisation
(including government statistics, financial press, professional or trade
associations, quotations and price list).
b) Explain the uses and limitations of published information/data (including
information from the Internet).
c) Describe the impact of general economic environment on costs/revenue.
d) Explain sampling techniques (random, systematic, stratified, multistage,
cluster and quota).
e) Choose an appropriate sampling method in a specific situation.

Session 2 Guidance
Note that this is a theoretical session dealing with a concept of data—its nature, types, complexity
and source.
Familiarise yourself with the miscellaneous classifications of data (e.g. primary/secondary, discrete/
continuous, etc). Use Example 1 to check your understanding of section 1.

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VISUAL OVERVIEW
Objective: To describe sources of information and explain sampling techniques.

TYPES OF DATA
• Quantitative Data v Qualitative Data
• Discrete Data v Continuous Data
• Primary Data
• Secondary Data
• Raw Data v Aggregated Data

INTERNAL SOURCES EXTERNAL SOURCES

• Management Information • Government Statistics
System (MIS) • Professional and Trade Associations
• Accounting Records • Commercial Services
• National and International Institutions
• Company Records
• Financial Press
• General Economic Environment
• Internet
• Uses of Published Information/Data
• Limitations of Published Information/Data

SAMPLING
• Terminology
• Why Sample?
• Stages in Sample Data Collection

SELECTION METHODS
• Random Selection
• Systematic Selection
• Stratified Sample
• Multi-stage Selection
• Non-random

Session 2 Guidance
Understand the different internal and external sources of data (s.2 and s.3), including the type
and nature of data that an entity will be able to collect.
Know why sampling (s.4.1) is required and the steps involved in a sampling process (s.4.2). Use
the Illustrations and Example 2 in section 5 to test your understanding of choosing an appropriate
sampling method.

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Session 2 • Sources of Data F2 Management Accounting

1 Types of Data
1.1 Quantitative Data v Qualitative Data
Quantitative Data Qualitative Data
Is capable of numerical Reflects distinguishing
measurement (e.g. time, characteristic (e.g. gender,
distance, cost, weight, age). colour, nationality).

1.2 Discrete Data v Continuous Data

Discrete Data
This increases "in jumps", i.e.
takes specific (usually integer)
values but none in-between (e.g.
number of children in families).
Continuous Data
Increases continuously to
any fraction of accuracy
(e.g. distance, weight).

1.3 Primary Data

This is data collected by an investigator to be used for a
specific purpose. Therefore, it is more difficult, costly and time
consuming to collect than secondary data.

1.4 Secondary Data

This is not specifically collected for the purpose for which it is
being used but taken from the data of others. It may be entirely
appropriate and wholly adequate to draw conclusions so that the
collection of primary data is rendered unnecessary.
 However, it must be used with care because the background to
its original collection is often unknown.
 Its main attraction is that it is far cheaper and quicker to
obtain than primary data. Internet data, for example, is
immediately available.
1.5 Raw Data v Aggregated Data
Raw Data Aggregated Data
In its original form, this is Collected and summarised in
recorded as received and some way (e.g. rearranged in
unprocessed. order of size, date, etc and/or
grouped in class intervals).

Example 1 Data Classification

Classify the following data:
Solution
(a) Data collected by the Department of Education of
your government which you use for your own survey.
(b) The manufacturer's make of mobile phones used by
your work colleagues.

(c) Data collected from a sample survey.

(d) The speed of a car passing a certain point in the road.

(e) The shoe sizes of your colleagues.

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F2 Management Accounting Session 2 • Sources of Data

2 Internal Sources of Data

2.1 Management Information System

A management information system (MIS) is designed to provide
management with its information needs at every level (i.e.
operational, tactical, and strategic).
 A good MIS provides suitably detailed reports in an accurate,
consistent and timely manner.
 It continuously gathers relevant data (both internal and
external) which is processed, updated and made available to
all who have the authority to access it.
 It incorporates external data into internal data. For example,
the cost of a component purchased for the manufacture of
a product may be a published price (e.g. on a price list) but
the standard cost of the product (as determined by the cost
accountant) will be confidential internal information.

2.2 Accounting Records

Accounting records are all the records of assets and liabilities and
monetary transactions. They include the "books" (e.g. ledgers
and asset registers) which will most likely be computerised and
the supporting documentation.
 Supporting documentation will include all that is raised
internally (e.g. goods received notes, sales invoices, payslips,
tax returns) and documentation received from external parties
(e.g. invoices from suppliers, tax demands, bank statements).
 Information from existing and potential suppliers of goods and
services will typically include:
 technical specifications;
 retail prices and discounts available;
 terms of delivery;
 payment terms;
 after-sales services;
 product warranties.

2.3 Company Records

Although much of the information created within an organisation
will be confidential (and access to it will be restricted) many
organisations must make certain information public by filing it
with an authority.*
*Limited companies in
 Many listed companies choose to provide much more the UK must file with
information and may publish in an annual report: Companies House an
 key data (e.g. revenue, earnings, expenditure on research, annual return which
dividends per share); includes audited
financial statements.
 mission statement (see Session 18);
 chairman's report (essentially a letter to the shareholders);
 board of management (the chairman and other key
executives);
 investor information (e.g. explanation of stock market
movements, share price, etc);

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Session 2 • Sources of Data F2 Management Accounting

information (e.g. development in

 industry-related
technology);
 "green" issues (e.g. measures to reduce carbon emissions);
 highlights (e.g. new chairman, acquisitions, expansion into
new territories);
 five-year financial summary (e.g. a summary income and
statement and statements of financial position with four
years of comparative information).
 Such annual reports therefore provide information which may
be used to:
 identify key executives (e.g. to "headhunt");
 research companies (e.g. with a view to acquiring);
 improve pre-meeting planning;
 gain competitive intelligence;
 target new customers;
 analyse financials;
 view key industry trends.

3 External Sources of Data

The main sources of external secondary sources are:
 government (federal, state and local) statistics;
 professional trade associations;
 commercial services;
 national and international institutions;
 financial press;
 Internet.
3.1 Government Statistics
A large-scale survey undertaken by a government or international
agency may provide more accurate data than can be obtained
through customised surveys based on relatively small sample sizes.
Information from governments may include:
 population censuses;
 social surveys, family expenditure surveys;
 import/export statistics;
 production statistics;
 agricultural statistics.
3.2 Professional and Trade Associations
Professional and trade associations differ widely in the extent to
which they collect data and disseminate information.
 Trade associations typically produce a trade (members)
directory and a yearbook along with perhaps periodic
newsletters.
 Professional associations tend to publish information more
broadly to a range of stakeholders. For example, ACCA
provides resources for its students, members, learning
partners and employers.

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F2 Management Accounting Session 2 • Sources of Data

Exhibit 1 ACCA

The following are ACCA publications for members including a range of magazines,
factsheets and booklets. Source: http://www2.accaglobal.com/members/publications/

Accounting and Business

ACCA's monthly global magazine for members, which addresses critical issues affecting
the business and finance world and contains the latest in news analysis and features.
Sector specific magazines and booklets
A range of publications tailored to your specific sector of business in the UK and Ireland.
Titles include In Practice, In Practice Ireland, Corporate Sector Review, Public Eye,
Financial Services Review and Health Service Review.
Technical factsheets
A range of factsheets on key technical matters.

3.3 Commercial Services

 Published market research reports and other publications
(e.g. results of clinical trials) are available from a wide range
of organisations which charge for their information.
 Typically, marketing people are interested in media statistics
and consumer information which has been obtained from
large-scale consumer panels.
 The publishing organisation:
 funds the collection of the data (which is wide-ranging in
its content);
 makes money by selling this data to interested parties.

3.4 National and International Institutions

 International agencies (e.g. World Bank, International
Monetary Fund (IMF), Organisation for Economic Co-operation
and Development (OECD), etc) produce secondary data in
abundance.
 National sources include:
 bank economic reviews;
 university research reports;
 medical journals.

3.5 Financial Press

The financial press reports daily, for example, on market prices
of securities of publicly traded corporations and is an important
and influential source of information in many sectors of the
community:
 Investors rely on it for information about how their shares are
performing;
 Stockbrokers are interested in what is happening in the share
market;
 Politicians should see how their policies are affecting the
market (and, in turn, the economy); and
 People in business are interested in how their companies are
perceived and how other companies are performing.

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Session 2 • Sources of Data F2 Management Accounting

Although the financial press is a quick and relatively cheap way of

obtaining information, it must be remembered that it is a source
of both:
 facts (as derived from official announcements, etc); and
 opinions (usually expressed in columns written by financial
journalists, politicians, stockbrokers, advisers or other
prominent industry figures).

3.6 General Economic Environment

One of the main reasons for "following the financial news" is to
understand the current economic environment:
 The level of growth in gross domestic product influences
demand for products and services. Management needs
to consider the effect of government actions on economic
growth. For example, an increase in rates of profits tax or
cuts in government spending is likely to lead to a reduction of
aggregate demand in the economy.
 If inflation is high or rising, governments may increase interest
rates in an attempt to control it. This will have the effect of:
aggregate demand in the economy (consumers will
 reducing
spend less because they have to pay higher interest on loans);
 increasing the cost of finance for companies.
 If the domestic currency strengthens as a result of higher
interest rates, exporters may be forced to reduce their prices
and imports will be cheaper.

3.7 Internet
The Internet links the computers of organisations, governments and
even individuals to transmit, exchange and/or receive information
quickly and inexpensively. Much of the information which can be
obtained, however, is not approved before it is made public.
Users of information from the Internet should consider, before
using it, whether it is:
 accurate (i.e. current, comprehensive and with a stated
purpose);
 credible (e.g. authored by a known organisation);
 reasonable (i.e. balanced, objective, moderated, internally
consistent); or
 supported (e.g. corroborated by other sources).
3.8 Uses of Published Information/Data
 Published data is widely used in the exploratory phase of
research. For example, a preliminary analysis of available
data may help:
 in understanding market conditions; and
 identifying lines of inquiry and/or alternative courses of
action that might be pursued.
 Published sources are particularly helpful in defining
populations and in structuring samples to be taken from them.
 Information obtained from published sources is used in decision-
making (e.g. setting prices, deciding whether to make or buy a
product or lease or buy an asset), comparing performance (e.g.
with competitors), negotiating pay settlements, etc.

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F2 Management Accounting Session 2 • Sources of Data

3.9 Limitations of Published Information/Data

Particular attention must be paid to definitions of terms in the
original information. For example, "ownership" of assets may
mean legal ownership and/or physical control (e.g. of a leased Limitations concern
asset). A "billion" may be a thousand million or a million the quality of both
million! the data and its
source and how the
Users of secondary data may require a different level of
data is used.
accuracy than that which was required in its original collection.
Those involved in the original research may have had vested
interests in their findings, resulting in source bias (e.g.
inflating estimates of market shares).
The system of data collection may change over time (e.g.
geographical boundaries may be changed by government
or the basis for stratifying a sample may be altered). Other
factors that may affect the reliability of secondary data
include sample size, response rate, questionnaire design, etc.
Most censuses take place at 10-year intervals, so data from
this and similar published sources may be out-of-date by the
time it is published. Also, the period for which data was first
compiled may have a substantial effect on the nature of the
data (e.g. whether it is a census "snapshot" or collected over
a period).

4 Sampling

4.1 Terminology
Population: the group of people/items about which information
is to be collected. This must be clearly defined (e.g. meaning of
"student").
Sample: a group of items drawn from a population for
examination.
Descriptive Statistics: methods of describing large masses of
data. For example, measures of centrality (e.g. arithmetic mean)
and spread (e.g. standard deviation).
Inferential (analytical) Statistics (covered in Session 13):
methods enabling a conclusion to be drawn from data (e.g.
correlation and regression).

4.2 Why Sample?

 Populations are generally too big and/or individual items
too inaccessible to be examined entirely. Examining whole
populations can be too time consuming and costly.
 The full extent of a population may not be known (e.g. people
with unsuspected diabetes, victims of crime).
 Examination may result in the destruction of items (e.g.
testing flammability).

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Session 2 • Sources of Data F2 Management Accounting

4.3 Stages in Sample Data Collection

The stages in a statistical enquiry are illustrated as follows:

Define Problem
• Define population

Design Sample
Draft Questionnaire
• Sample size
• Conduct pilot survey
• Selection method

Collect and Check Data

• Code responses for tabulation

Organise, Analyse and

Interpret Data
• Tabulate/graph, etc

Report Findings
• Recommend a course of action

5 Selection Methods*

5.1 Random Selection If conclusions

relating to the whole
A random sample is selected in such a way that all items have an population are to be
equal chance of being included in the sample (e.g. using random drawn, samples must
number tables or random number generator). be free of bias.

*The syllabus refers to the selection methods described in this

section as "sampling techniques". Remember, "sampling" is an
entire process which starts with defining a population and ends
with drawing a conclusion about the population. The ways in which The derivation of
a sample may be drawn are just one stage in the process—the random samples is
selection method. not examinable.

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F2 Management Accounting Session 2 • Sources of Data

 To use this method:

 the number of items in the population must be known;
 itmust be possible to match each item in the population
uniquely against each random number generated;
 random numbers should not be duplicated.

Illustration 1 Random Sample

A sample of 100 invoices is to be selected from the 5,000 invoices

referenced A1611 to A6610. A random integer generator is used to
select 100 numbers between 1611 and 6610 for sample selection:

6162 6082 4860 5465 5971

3308 5326 4259 4656 3379
5319 1920 3407 4494 4351
2794 4609 2722 3143 1867 Simple random
2343 5067 5155 5928 5938 sampling is most
appropriate when the
5912 5686 4042 3321 5901 entire population from
6340 1757 2684 3266 1728 which the sample is
6230 2660 3115 2886 6596 taken is homogeneous.
2384 2508 5584 3697 3615
3701 2184 3399 2880 5503
3025 5469 5889 1898 4528
3752 6480 5299 5852 6553
3263 4213 4036 6296 4573
4262 6292 2079 5047 4413
5536 5139 5628 4646 1862
5905 3223 4841 2317 4333
3996 1957 5970 3682 2457
6493 4892 3695 4890 4191
5317 1913 4902 6363 4849
3362 1837 6515 3934 2430

 Because of the time it takes to sort the random numbers and

match each to an item "quasi-random" methods are often
used in practice. For practical purposes they are considered
random.

5.2 Systematic Selection

This quasi-random method uses a constant interval between items
selected from a random start. It is also called "interval" sampling.
The interval may be:
 a number of items (see Illustration 2); or
 a monetary value (see Illustration 3).

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Session 2 • Sources of Data F2 Management Accounting

Illustration 2 Systematic Selection—

a Number of Items
A sample of 100 invoices is to be selected from the 5,000 invoices in Illustration 1.
5,000
Select every = 50th invoice
100
Start at a random point between 1 and 50, e.g. 22.
So, select the 22nd invoice followed by the 72nd, 122nd, etc until 100 have been
selected. Because the first invoice in the population is numbered A1611, this will
correspond to selecting invoice numbers: A1632, A1682, A1732 and so forth.

Illustration 3 Systematic Selection—

a Monetary Value*
A sample of 100 invoices is to be selected from the 5,000 invoices in Illustration 1.
Invoices range in value from $10 to $1,200. A higher proportion of the monetary
value of the invoices will be examined if a value-weighted selection is made from
the monetary value of the population which is $2.15m.
$2,150,000
Interval is therefore = $21,500
100
Start at a random point between 1 and $21,500, e.g. $1,900.
The invoices will be summed in order. The first invoice selected will be the one
which takes the cumulative amount to $1,900 (i.e. contains the 1,900th $). The
next one selected will contain the 23,400th $ and so on.

Systematic selection is widely used in audit sampling (i.e. the

application of audit procedures to less than 100% of items in
order to form a conclusion on the population).

5.3 Stratified Sample *Systematic selection

based on monetary
If there are factors which divide up the population into identifiable value is also called
sub-populations ("strata") with different characteristics, a more cumulative monetary
representative sample of the population may be obtained by amount or "CMA"
selecting items within each sub-population ("stratum"). selection.

The proportion of each stratum in the sample should be the same

as in the population.

Illustration 4 Stratified Sample

A quality controller wishes to check, for defects, the output of a product which
is manufactured on three machines. Machines A, B and C have outputs of
100, 60 and 40 units an hour, respectively. To obtain a total sample of 60
items, the quality controller takes 30, 18 and 12 items from machines A, B and
C, respectively. This will provide a more accurate estimate of defects in the
population than if 60 items were randomly selected.

5.4 Multi-stage Selection

A multi-stage random sample can be constructed by taking a
series of simple random samples in stages.
This often is more practical for "on location" analysis (e.g. door-
to-door surveys).

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F2 Management Accounting Session 2 • Sources of Data

For example, the steps might be:

1. A large geographic area (e.g. UK) is first divided into smaller
regions (e.g. counties) and a random sample of these is collected.
2. A random sample of smaller areas (e.g. boroughs) is taken
from within each of the regions chosen in the first stage.
3. A random sample of even smaller areas (e.g. wards) is taken
from within each of the areas chosen in the second stage.*

5.5 Non-random
*The number of steps
Alternative sample selection methods may be used when random in multi-stage selection
or quasi-random methods are not feasible (e.g. due to constraints will depend on how
of cost or time or the whole population not being known). small the areas are
needed for the purpose
5.5.1 Quota Sampling of the study.
The method of selecting a quota of subjects is widely used in opinion
polling and market research. Interviewers or canvassers are each
given a quota of subjects of specified type (e.g. to select 20 adult
men, 20 adult women, 10 teenage girls and 10 teenage boys).

Illustration 5 Quota Sampling

An internal auditor checking sales invoices to ensure that they are

correct might select, for example:
5 invoices < $100
15 invoices in the $100–$2,000 range
30 invoices > $2,000

5.5.2 Cluster Sampling

 The entire population is divided into small areas ("clusters")
from which a random sample is selected.
 All items in the selected clusters are included in the sample.
 It is typically used when:
 a researcher cannot get a complete list of the members of
a population but can get a complete list of "clusters" within
the population;
 when a random sample would produce a list of subjects so
widely scattered that the cost of surveying them would be
prohibitive.

Example 2 Selection Methods

Suggest the most appropriate selection method in each of the following situations:

Solution

(a) Population groups are spread across distant cities.

(b) Whole population is available.

(c) Demographic groups are to be investigated.

(d) A stream of representative people is available

(e.g. in the street).

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 Summary
 Data may be quantitative or qualitative; discrete or continuous; primary or secondary; raw or
aggregated; or internal or external.
 Internal sources of data and information include the management information system (MIS),
accounting records and company records.
 A good MIS provides reports which are suitably detailed, accurate, consistent and timely.
 There are many external sources of data (e.g. government, publications, the Internet, etc)
which are widely used in research, decision-making and performance evaluation.
 Limitations of published information concern the quality of both the data and its source and
how the data is used.
 Sample selection is only one stage in the sampling process. Samples must be free of bias if
conclusions are to be made about the population.
 Simple random sampling is most appropriate when the entire population from which the
sample is taken is homogeneous.
 Quasi-random selection methods include systematic, stratified and multi-stage.
 Quota sampling and cluster sampling are non-random sampling methods.

Session 2 Quiz
Estimated time: 15 minutes

1. State the major difference between primary and secondary data. (1.3, 1.4)

2. State THREE characteristics of a strong management information system. (2.1)

3. List SIX items of information that may be published in an annual report. (2.3)

4. List SIX external sources of data. (3)

5. Describe the limitations of published information and data. (3.9)

6. Explain why it is important to sample. (4.2)

7. Identify and describe FOUR sampling methods. (5)

Study Question Bank

Estimated time: 30 minutes

Priority Estimated Time Completed

Q3 Sample Selection 30 minutes

Additional
Q4 Public Opinion

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 Session 2

EXAMPLE SOLUTIONS

Solution 1—Data Classification

(a) Data collected by the Department of Education of Secondary

your government which you use for your own survey.
(b) The manufacturer's make of mobile phones used by Qualitative
your work colleagues.
(c) Data collected from a sample survey. Primary

(d) The speed of a car passing a certain point in the road. Quantitative and continuous

(e) The shoe sizes of your colleagues. Discrete

Solution 2—Selection Methods

(a) Population groups are spread across distant cities. Cluster

(b) Whole population is available. Simple random

(c) Demographic groups are to be investigated. Stratified

(d) A stream of representative people is available Systematic

(e.g. in the street).

Although other methods might be used, these are the most suitable in the absence of further information.

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