A CRITICAL ANANLISIS OF THE USE OF FINANCIAL REPORT IN ASSESSING BANK PERFORMANCE

CHAPTER ONE

INTRUDUCTION

1.1  BACKGROUND TO STUDY

A farmer, who plants corps, expects result, similarly to student who sits for examination expects results. The same 5 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 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 anytime 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 actionties of such business concerns, for example, the idea of stating assets at their historical cost 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 prepared by managements, the shareholders and others argue that there would usually be some elements of bi as 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.