CHAPTER ONE
INTRODUCTION
A farmer who plants crops expects results. Similarly a student who sits for examination expects result. The same is also true of an investor. For the farmer, the result mighty be communicated to him in the from of a bumper harvest. A result sheet or a report card would usually sulfuric for a student. However, in the case of an investor, then result is communicated through the financial reports.
Financial reports are by 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 transitions of the company and shall be such as to disclose with reasonable accuracy, at the any time the financial position of the company.
In the banking industry, financial reports are od 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 of the results which are of considerable interest to a wide range of individuals and organisations.
So, it become very imperative for reliable information to be circulated t interests parties which can enable them to acquire an essential knowledge of the way in which companies particularly the banks are performing in relation to the public interest. This fact is further educated by the recommendations of the working 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 aim of published financial statement. The committee recommended that:
“The fundamental objective so corporate report are to communicate economic measurement of an information about the resource and performance of the reporting entity useful to those having reasonable rights to such information”.
It is not an over statement when one says that the banking industry in the fulcrum on which the national economy rotates. This mammoth impact upon a country economy therefore makes it a public affair ie everybody in the country has a right to know what such organisations are doing, more so all information, necessary to explain the organisation 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 communication of financial data, especially in describing business profitability and financial position. This information is important because it attempts to portray the economic resources of the enterprises and the financial results, which those resources achieved by its management when those resources have been put to use. It attempts to reveals 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 PROBLEMS
The genuineness of financial reports ahs attracted diverse opinions from different quarters, such opinions can come form the general public, tax authorities, shareholders, creditors with long to short term interest financial analyst and potential investors.
They argue that the financial reports do not usually give an accurate data about the activities of such business concerns, for example, the idea of stating assets at their historical costs 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 are prepared by management’s, the shareholders and other argue that there would usually by some elements of bias on the part of management in the disclose 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 this matter to enable him establish a relationship between financial reporting and performance evaluation in a bank.
1.3 PURPOSE OF THE STUDY
Companies including those in the banking industry have had to face the anerous task of presenting a credible and generally acceptable financial statement in their annual reports, to various people to whom they own such obligations.
The purpose of this study is to:
a. Examine the impact of historical cost convention adopted by banks in stating their balance sheet items, on investors.
b. Find out whether financial reports are prepared to reject inflation in the economy.
c. Find out whether or not management’s financial ineptitude is usually disclosed to shareholders while preparing financial reports.
1.4 RESEARCH HYPOTHESIS