CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Each person like every business requires some measures of both financial position and financial performance in assessing his financial conditions. The financial position depicts one’s wealth at ascertain point in time while one’s financial performance describes once.

Financial statements according to Illoumezie (2006:33) are like compasses “which navigators use to locate their bearing and find direction”. People use them to gauge their financial positions at various points in their lives in order to judge their progress towards their financial goals.

Financial statements according to meigs and meigs (1981:28) refers to reports which summarize the financial position and operating results of a business (balance sheet and income statements). It referred to as genera purpose that satisfy the need of many groups generally called stakeholders. These groups are particularly concerned with the risk inherent in and returns provided by their investments, and who require accounting information to enable their assess the ability whether they should buy, hold and sell their investments.

Financial statement are the means of communicating to interested partners information or the resource, obligation and performance of the reporting enterprise in a simple, clear and understandable form to all its user with such attributer of relevance to decision reliability, consistency and comparability materiality efficiency and understandability.

According to information provides continuity in history as quality in monetary terms of economic activities resources and obligations of a business enterprises as well as the various activity that cause a change in the level of these resources and obligation. It is also serves as parameter for evaluating the performance of a business enterprise and as a measuring tool to both the management and decision markers and possible sale of shares by shareholder when actual results deviate from the target objectives. The importance attached to accounting information cannot only be related to management and the government but it also cuts across the cars of the various categories of creditors, employee, and other water cooperate bodies and potentials investors as well.

The annual report and accounts are said to be published owing to the fact. It is being printed and dispatched to each shareholder and any other unfrosted where person on request. The annual reports and accounts are the primary means of communicating vital economic information in the cooperation’s resources and obligation to absentee owners and could be investor by the management. The published financial statement serve as a means of conveying business information to the equity investor groups (shareholders), the loans creditors group, the employee groups, the business contract group, the government and its agencies as well as the general public. It gives a concise and genuine picture of an enterprise profitability trend and its financial position. The information contained in the published financial statement act as a basis for which shareholder maker investment decisions.

Meigs & Meigs (1981: 14) states that the preparation of financial statement is not the first step in the accounting financial statement is not the first step in accounting process. At the close of financial period, the stakeholders such as investors of a company naturally desires to ascertain the following:

(a) The result of the company’s operations for the period.

(b) The resources and hostilities of the company over the period in question.

(c) Wealth created by the company and how it has been distributed.

(d) Financial resources acquired and how they have been a expanded.

Thus, published financial statement prepared under companies and allied matter decree (CAMA) 1990 supplies information about the above. As a matter of fact, shareholders of any corporation would require annual corporate report published about the entity and which must be relevant, sufficient and reliable.

The corporate report published in 1994 by a working paper setup by Accounting Standard Committee (ASC) to be reexamined the scope and aims of published financial reports identified seven user groups to include:

1) The equity – investors group

2) The analysis – advisory group

3) The employee group

4) The creditors

5) The business contact group

6) The government and its agential

7) The public

Bell (1998) identified (15) fifteen information needs of users of financial statements, which art concisely summarized here as the financial need of shareholders in the published financial statement of any business entity. These includes information for

(a) Evaluating the performance of the entity.

(b) Assessing the objectives established previously by its management members or owners.

(c) Evaluating managerial performance, efficiency and objectives including employment, investment and profit distribution plans.

(d) Assessing the liquidity of the entity.

(e) Assessing the economic stability and inevitability of the reporting entity.

(f) Assessing the capacity of the entity to make future realer nation of its resource for either economic or social purposes or for both.

The company’s registrars is union registrars limited 2, Burma Road Apapa Lagos. And there end of accounting year is every 30th June of every year as the case maybe. The company has four branches in Nigeria so far, they have been to grow their turnover at average ratio of 20.7% per year over past five years and they are currently on track to overtake their turnover for the 2011 full year. Based on this result the return on equity improved from 0.17 to 0.31, this leads to an estimated full year return on equity of 0.60. They have a current ratio of 1.56 and a quick ratio of 0.98.

1.2 STATEMENT OF THE PROBLEM

Virtually, every economic entity maintains its records on a historical cost basis. The historical cost figures alone are inadequate. This is because net profit is over stated, the balance sheet does not reflect the current worth of the enterprises and inflationary situation, and the charging of the historical cost of operations to profit and loss account may endanger the maintenance of the operating capital of the entity. It is obvious that the current situation of published financial statement has some limitations. This is because the result of operation (net profit) is a function of accounting standards, policies and conventions adopted by a company and used in the preparation of the financial statements.

The financial statement should provide accurate financial information; which shareholders can effectively manipulate to get the best out of their investment. It is pertinent to say that analysis and interpretation of any financial statement will descend on the adequacy and accuracy of the said statement and how the financial information is being disclosed so as to enable to shareholder make major investment decision such as “if to hold their shares or sell them and invest in bond other than equity”. If they are to buy more share of the same firm, but the problems statements.

i) Some shareholders cannot interpret financial information correctly and cannot be able to make good use of the financial information disclosed to get the best out of their investment.

ii) Company’s concepts, conventions and principles are not capable of meeting the user needs.

iii) Published financial statements do not induce more people to make investment in some companies.

iv) Some shareholders are not oriented before making investment decision.

v) Sometimes the dividend are not satisfactory considering the risk involved in investment.

vi) Some financial statement sometimes guide the investors.

vii) Some financial statement prepared are window dressing.

viii) Some company’s find it difficult to make their financial statement available to the shareholder at any point in time.