A CRITICAL ANALYSIS ON THE USE OF FINANCIAL STATEMENT IN ASSESSING THE PERFORMANCE OF AN ORGANIZATION

(A CASE STUDY OF FIRST BANK PLC)

CHAPTER ONE

INTRUDUCTION

1.1      Background Of Study

A farmer, who plants corps, expects result, similarly to student who sits for examination expects results. The same is 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 case 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 any time 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 activities of such business concerns, for example, the idea of stating assets at their historical cost do not favor 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 bias 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 determine if there’s a relationship between financial reporting and performance evaluation of a bank.

1.4              Research Questions

The study has the following research questions as its focus:

1. Has Financial statements of banks influenced your investment decisions?

2. To what extent has financial report help in assessing bank performance?

3. Does financial report indicate banks performance?

1.5   Research Hypotheses

Based 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.

H1: Investment decision based entirely on the financial statements will lead to poor and lazy decisions.

H0: Financial report are not a true in director of banks performance.

H1: 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 through 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 would have been able to establish:

Whether or not the financial reports affects investment in the banking industry.

Whether or not the annual financial report currently reflect the inflationary effects.

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 First 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;