A Critical Analysis of the Use of Financial Statements in Assessing the Performance of an Organization (a Case Study of First Bank Nigeria)
Chapter One
OBJECTIVE OF THE STUDY
The major purpose of this study is to examine the critical analysis of the use of financial statement in assessing the performance of an organization. Other general objectives of the study are:
- To examine the role of financial statement in assessing the performance of an organization.
- To examine the nature of financial statements of an organization.
- To examine the impacts of financial statements on investment decision making in an organization.
- To examine the extent to which financial statement aid investors in making investment decisions in an organization
- To examine the relationship between financial statements and organization performance.
- To recommend ways of making investors understood the financial statements before making investment decisions.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
INTRODUCTION
Fraud in financial reporting has been explained differently by researchers and practitioners. Elliott and Willingham (1980) see financial reporting fraud as executive deceit: “The deliberate fraud committed by management those injury investors and creditors through materially misleading financial statements.” Apart from those who commit their money into the firm, also those the firm owes, them that examine the financial records are also affected by the fraud. They could be affected by losing money, position, integrity etc, (Rezaee, 2005). Deception in financial reporting appears in various means which includes over reporting income by acknowledging unearned revenue, increasing the value of asset, and improper expense recognition (Arthur 2014). Financial report scam like increase in income that does not go along with cash and sudden consistent growth in sales will automatically indicate a “red flag.” Everette (2012) defined red flag as a warning sign in the financial statement which should be notice or dealt with. Financial statement fraud is the deliberate fraud committed by management that injures investor and creditors with materially misleading financial statement (Kerwin 1995) cited in (Khahn 2009). Misstatement or accounting irregularities in financial statement can arise from error or fraud (Kwok 2005). It is therefore important to differentiate between financial statement error and financial statement fraud. Financial statement error refers to unintentional misstatement in financial statement, including the omission of an amount or a disclosure. The financial report is the basic instrument in assessing the general activity of the firm and usually adopted as a means of getting early warning sign concerning the poor performance of the firm, (Mensah, 1984; Gentry, Newbold and Whitford 1985; Beaver, 1996; Wu and Jung-Zhi 2004). Nevertheless, the reoccurrence of financial fraud involving firms from the manufacturing industry is an indication that traditional financial distress warning system has not been effective as an early detecting tool. This have led to many researchers advocating for the use of indicators to check fraud and risks associated with the manufacturing industry, (Dechow et al., 1996; Beasley, 1996; Ward and Foster 1997; Abbott et al., 2000). Hence, this research adopted the theory of monetary distress alert and firms’ debt obligations inefficiency to develop fraud models for the manufacturing sector. Nevertheless, the reoccurrence of financial fraud involving firms from the manufacturing industry is an indication that traditional financial distress warning system has not been effective as an early detecting tool. This have led to many researchers advocating for the use of indicators to check fraud and risks associated with the manufacturing industry, (Dechow et al., 1996; Beasley, 1996; Ward and Foster and Ward 1997; Abbott et al., 2000). Hence, this research adopted the theory of monetary distress alert and firms’ debt obligations inefficiency to develop fraud models for the manufacturing sector. Previous research concentrated on Beaver (1966) and Altman (1968) which introduced single and multiple discriminant analysis to evaluate whether monetary conditions are healthy. Other researches also centered on the predictability of some models like logistic model and reversed propagation neural network, (Martin, 1977; Ohlson, 1980; Zmijewski, 1984; Zavgren, 1985; Coats and Fant, 1993). The single model for analysis of variable may not be used to determine multifaceted variations. In the same way, representations developed by MDA may not be a good assessment tool for threat incidence. Fraud detection in the manufacturing industry depends heavily on the application and development of early warning sign models that has the capacity of revealing the possibility of a fraud which may not be easily seen in the financial statement. Previous research had recommended the prediction ability of neural network which is practically preferred to common statistical approaches (Malhotra et al., 1999; Salchenberger et al., 1992; Chen and Huang, 2003; Baesens et al., 2005; Wang, 2009). This research adopted monetary indicators, public governance and fund flow variables to develop models on financial data fraud checks; with the application of logistic estimation
DEFINITION OF FINANCIAL STATEMENTS
Financial Statements have been widely defined in the extant literature by scholars and experts. According to the Companies and Allied Matters Act 1990 (CAMA), financial statements consists the basic statement of accounts used to convey the quantitative information of financial nature about a business to shareholders, creditors and others interested in the reporting company’s financial condition, result of operation uses and sources of funds. Nwoha (1998) also defines financial statements as reliable financial information about the economic resource and obligations of a business enterprise. Meigs & Meigs (1998) defines financial statement is a logical point to begin the study of accounting. This is because most of the accounting information we see and use every day reflects the terminology and concepts used in these statements. Duru (2012) defines financial statement as a statement which conveys to management and to interested outsiders a concise picture of the profitability and financial position of a business. Concurring with above definitions, we can generally define published financial statement as the audited annual report and accounts of an organization including the balance sheet, profit and loss account and the cash flow statements which gives a summary of the results of operations of a firm, the financial condition of a company or organization for the period represented. It is prepared by the company or organization and duly audited by the company’s external auditor(s) and therefore made public for use by any the interested party. Flowing from the above, the published financial statements should be devoid of any material mis-representation or errors so the all the interested parties can be adequately equipped to make informed decision.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to a Critical Analysis On The Use Of Financial Statements In Assessing The Performance Of An Organization (A Case Study Of First Bank Nigeria)
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information on a Critical Analysis On The Use Of Financial Statements In Assessing The Performance Of An Organization. 200 staff of First Bank Nigeria in Lagos state was selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain A Critical Analysis On the Use of Financial Statements in Assessing the Performance of an Organization (A Case Study of First Bank Nigeria)
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of financial statement on the performance
Summary
This study was on a Critical Analysis On the Use of Financial Statements in Assessing the Performance of an Organization (A Case Study of First Bank Nigeria). Six objectives were raised which included: To examine the role of financial statement in assessing the performance of an organization, to examine the nature of financial statements of an organization, to examine the impacts of financial statements on investment decision making in an organization, to examine the extent to which financial statement aid investors in making investment decisions in an organization, to examine the relationship between financial statements and organization performance and to recommend ways of making investors understood the financial statements before making investment decisions.. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up of managers, marketers, HRMs and junior staff were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Conclusion
In, conclusion the study is able to come up with some reasonable as well as educative price. The combination of the techniques for financial statement analysis brought about the hidden feature of financial statement. By mere looking at financial statement does not give an investor or enough information. Despite the fact that financial statement analysis techniques there all still unresolved issues which remain with the data itself (the financial statement). The effect of inflation historic cost issues are major issue to be talked.
Nevertheless, the study brought to the mind of the researcher an opportunity to under take a wider in the field of financial statement analysis as a basic for performance evaluation. It is suggested that further investigation into heavy current liability carries by the firm should be investigated to identify liquid. In condition, the company First Bank of Nigeria Plc management is sufficient and their performance is quite goes and encouraging it should ‘be emphasis that a continuous assessment of the company performance is important as this will afford the management to mirror their operation and strategies.
RECOMMENDATIONS
Recommendations as regard the management efficiency and performance are presented as suggested by the analysis carried out from the analysis done, the company, first bank of Nigeria Plc, Lacked adequate marketing capital.
- The liquidity ratio calculated for the year covered by the study indicated ability of company’s current asset to efficiency cover the current liability and this effect means that the company may be able to meet its short term obligation when they fall due and this lead to solve situation.
- Most firm with inadequate working capital working capital tied up in stock although the level of stock of a firm depend on the nature of the business investment will move stock and greatly affect the profitability of the country.
- It is recommended that the company should reduce investment in stock or better still increase it stock turnover. In addition, the cash ratio computed for all amount of cash vis a vis current liabilities. If the company is to settle all its current liability with cash it will be unable to do so. Cash as the most current asset which is needed for the operation of any business has to be carefully planed.
- The proportion of total funds provided by outsiders all the year under study.
References
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