CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF STUDY
A farmer, who
plants crops, expects result, similarly to student who sits for examination
expects results. The same 5 also true of an investor.
For the farmer, the result might be communicated to him in
the form of a bumper harvest. It result sheet or a report card would usually
sufficed for a student. However, in the of an investor, the result is
communicated through the financial reports.
Financial reports
are law to be prepared by every limited liability company; these limited
liability companies abound in virtually all sector of the economy.
Every company shall
cause accounting records to be kept. The accounting records shall be sufficient
to show and explain the transactions of the company and shall be such as to
disclose with reasonable accuracy, at anytime the financial position of the
company.
In the banking
industry, financial reports are of great interest to the general public because
the banks directly or indirectly interact with people.
This public
interest has caused companies (including banks) to accept social as well as
economic, financial and legal responsibilities and has created a consequence, a
growing need for the communication of information to account for the results
which are of considerable interest a wide range of individuals and
organizations.
So, it becomes very
imperative for reliable information to be circulated to interested parties
which can enable them to acquire an essential knowledge of the way is which
companies particularly the bank are performing in relation to the public
interest. This fact is further educated by the recommendation of the working
party set up in Britain by the Accounting standard committee in October 1974
under the chairmanship of Derek booth man which took a study of the scope and
aims of publisher financial statements.
The committee
recommended that:
“The fundamental
objectives of corporate report are to communicate economic measurement of the
reporting entity useful to those having reasonable right to such information”
It is not an over
statement when one says that the banking industry is the flume on which the
national economy rotates. This mammoth,
impact upon a country economy therefore makes it a public affair is everybody
in the country has a right to know what such organizations are doing, more so
all information, necessary to explain the organization’s activities fully
should be provided in the annual reports.
One of the most significant aspects of the information
system of business enterprises in an economy is that which deals with the
communicate of financial data, especially in describing business profitability
and financial position. This information is important because it attempts to
partial the economic resources of the enterprises and the financial results,
which have been achieved by its management when those resources have been put
to use. It attempts to reveal how effective management has been in resources
utilization as well as the financial reward available to compensate for risk
taken by various suppliers of capital.
1.2 STATEMENT OF THE PROBLEM
The
genuineness or other wise of financial reports has attracted diverse opinions
from different quarters, such opinions can come from the general public, tax
authorities, shareholders, creditors with long or short term interest,
financial analyst and potential investors.
They argue that the financial reports do not usually give an
accurate data about the actionties of such business concerns, for example, the
idea of stating assets at their historical cost do not favour most investors as
they argue that inflation is not usually taken care of, though the real value
of such assets might have been eroded.
Again since the financial reports prepared by managements,
the shareholders and others argue that there would usually be some elements of
bi as on the part of management in the disclosure of management’s financial
ineptitude.
But in any case the management claims that some inherent
problems would usually affect the accuracy of such reports. It is therefore the
intention of this researcher to delve into the matter to enable him establish a
relationship between financial reporting and performance evaluate in a bank.
1.3 OBJECTIVES OF THE STUDY
Companies including those in the banking industry have had
to face the onerous task of presenting a credible and generally acceptable
financial statement in their annual reports, to the various people to whom they
own such obligations. The purpose of the study is:
a. To determine the various financial reports used by banks.
b. To ascertain the problems of using financial reports to
assess performance of banks.
c. To examine the use of historical cost convention adopted
by banks in stating this balance sheet items on investors.
d. To determine of there’s a relationship between financial
reporting and performance evaluation of a bank.
e. To offer recommendations and solutions on the best way
financial reports could use in assessing bank performance.
1.4 RESEARCH QUESTIONS
a. What impact has financial reporting on bank performance
with respect to the financial position of the bank?
b. How does financial statement assess the bank performance?
c. Does financial reports disclosed financial impetitude of
bank mangers to the shareholders?
d. What are the problems associated in using financial
reports to assess bank performance?
e. How do we know a reliable financial report?
f. Has financial statement of banks influence your
investment decision?
1.5 RESEARCH HYPOTHESIS
Base on the
statement of problem and objections of this research work the following general
hypothesis are formulated:
Ho Investment decision, base entirely on the financial
statement will not lead to poor and lazy decisions.
Hi Investment decision based entirely on the financial
statements will lead to poor and lazy decisions.
Ho The efficiency of financial reports is great affected by
inflationary trends in the economy.
Hi The efficiency of financial reports is not greatly
affected by inflationary trends in the economy.
Ho Financial report are not a true in director of banks performance.
Hi financial reports are a true in director of banks
performance.
1.6 SIGNIFICANCE OF THE STUDY
The banking
industry is a very important sector of the economy. This is because banks can
determine the direction of growth or development of the economy trough the
financial service rendered by banks. The financial services which includes,
funds mobilization, safekeeping and custodianship, funds transfer, foreign
exchange transaction equipment leasing, extension of loans and advances, investment
in securities, bill discounting etc.
Investment key
sector of the national economy of which the banking industry is one becomes a
goal-getters priority. Owing to this, it becomes necessary that financial
reports presented by banks satisfy the need of the users of the reports.
Specially, at the
end of this study, we shall have been
able to establish:
1. Whether or not the financial reports affects investment
in the banking industry.
2. Whether or not the annual financial report currently
reflect the inflationary effects.
3. Whether or not banks follow rigid accounting practices.
The emphasis of
this research is not to discuss the determinants of performance, but to
establish a relationship between financial reporting and performance so that
potential investors is in banking industry may clearly define the stand.
1.7 SCOPE AND LIMITATION OF THE STUDY
The aim of the
study is to examine, the use of financial reporting in assessing banks
performance, however it will be restricted to investigations carried out on
union bank of Nigerian Plc.
To enable the
research have a broad view, the study will not be based on one branch. A study
of some selected branches of the bank will also be carried out.
But in any case,
the following among others are the numerous constraint, while are envisaged;
LITERATURE: The
dearth of related books and journals will no doubt affect the quality of the
research.
TIME: The greatest
employer of man, which is time was not in my favour through I manage it
considering the time allocated to my studies, fellowship and the project.
FINANCE: The
research work generally involves money but considering my stand as a student. I
was limited by financial in achieving my gim of have a population rather I
found my self in using sample size, even visit to my case of study.
RESPONSE RATE:
The information to be analyzed in the study will be limited to those who
would respond voluntarily to the
questionnaire.
PAUCITY OF INDUSTRY:
At the course of my research I come to release that many banks dose not
have any form inter-relationships which make things difficult for me in using
one set of information generated as touching planning and control in UBN to
generalize issues. That leads me into
more research, which will continue even after this profit.
1.8 DEFINITION OF TERMS
OUDITING: The
objective examination of financial statements initially prepared by management
by a third party other than the prepared or used with the goal of establishing
the fairness of representations made therein and reporting on same a guides to
interested users.
ATTEST: To assume responsibility for the fairness and
dependability for the fairness and dependability of financial statements.
BANKRUPT: Inability of person to meet his liabilities as
they mature.
FRAUD: Misrepresentation by a person to be untrue or made
with reckless indifference as whether the fact in true with the intention of
deceiving the other party and with the result that the other party is injured.
FINANCIAL STATEMENTS:
This covers balance sheets, income statement or profit and loss accounts
notes and other statement and explanatory materials.
GOING CONCERN: Continuing in operation for the foresable
future with the assumption that the enterprise has neither the intention nor
the
LIQUIDATION: Process of winding up of a company thereby
brings to an end its corporate existence.
TRUE AND FAIR VIEW: The opinion of an auditor, which depicts
compliance, will generally accepted accounting principles and full of fair
disclose of facts.