A CRITICAL ANALYSIS OF THE IMPACT OF FINANCIAL REPORTING ON BANK PERFORMANCE

The purpose of the study is to examine the impact of historical cost convention adopted by banks, on investment and performance appraisal. It is also to find out whether financial reports are prepared to reflect inflation on the economy and finally to find out whether management’s financial ineptitude is usually disclosed to owners while presenting financial reports. The inductive research method will be adopted and the statistical analysts, particularly the chi-square and t-distribution test is going to be use in the analysis of the data from the banks. The finding of the study were that: 1. Some financial statement contained in financial reports influence investment remarkably in banks. 2. The annual reports do not reflect inflationary effects in the country today. 3. The financial reports were prepared adopting a general purpose nature with the assumption that different users of the report have different information needs. Accordingly, the following conclusion were made; Although investors and performance evaluation analysts relied on financial statement in their decisions and appraisal, the reliability of financial reports especially during inflation cannot be assured, owning to the historical cost convention used as a basis for asset valuation by banks. This is because the profits so a accounting year would not usually show a true figure . Therefore, managerial decision of banks based entirely on financial reports will lead to poor and inadequate decisions. The recommendations and suggestion made were based wholly on the outcome of study. For example, on the problem of inflation, it was remanded that the bank should adopt the current cast accounting basis for its financial reporting to ensure credibility and reliability of information, by the various users, given the inflationary realities.