CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
According to America Accounting Association, Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgment and decisions by users of information. From this definition, it can be seen that the main objective of accounting is to provide economic information that will enable the users to make decisions. According to Patrick .A. Casabona (2006), Investors and creditors throughout the world base their decision on the information published in various financial and economic reports issued by business entities. The most important of these, are the annual and quarterly reports that depicts an entity profitability and financial condition, which investors and creditors reviews carefully before investing their fortunes. It is therefore, imperative that these reports convey information that reflects the economic reality of an entity in a meaningful, transparent and comparable fashion. Recently however, there have been a host of corporate financial scandals accompanied by fraudulent financial reporting in Nigeria, which have affected the very foundation of corporate financial reporting and investor’s confidence.
Obviously, this had an adverse effect on investor’s confidence in the Global financial reporting process and ultimately on the market values of corporate equity securities. These activities leads to swift actions by Government and their regulatory agencies, i.e. accounting and Auditing standards setter and other financial influential organizations around the world, in other to restore public confidence in the global financial system. The use of different accounting standards by different countries over the years has also had an adverse effects on the flow of investment capital across borders, which has negatively affects international economic growth an security valuations. However, due to economic, political and regulatory developments, progress toward attaining a convergent set of Global financial accounting reports in which users of accounting information base their opinion has to some extent be encouraging.
Financial accounting statements are summaries of monetary data about an enterprise and are used in an attempt to help make informed decision in the present and future. However, financial statement portrays the operation of transaction and other event by grouping them into element according to their economic characteristics. Many entities of the world utilize financial statements, those financial statement may be drawn up for private individuals non-profit organization manufacturers and service industries but it is worth noted, that the these groups that takes much advantage of the usefulness of financial statements are large corporations, governments and the third one which is the topic of discuss “investors”. Financial statement plays a decisive role in each of these entities. Corporations decided how much credit to extend to customers and how much should be distributed to investors as dividends. Investors use company’s financial statement to decide whether or not, it would prove advantageous to invest their fortune money and if so, what percentage to invest.