CRITICAL ANALYSIS OF THE USE OF FINANCIAL REPORT IN ASSESSING BANK PERFORMANCE
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CRITICAL ANALYSIS OF THE USE OF FINANCIAL REPORT IN ASSESSING BANK PERFORMANCE
A CRITICAL ANALYSIS OF THE USE OF FINANCIAL REPORTS IN ASSESSING BANK PERFORMANCE INTRUDUCTION
1.1 BACKGROUND OF THE STUDY
A farmer who planted corps expects results, just as a student who waits for an exam does. The same five points apply to an investor.
The farmer may be informed of the outcome in the form of a bountiful harvest. A pupil would normally be satisfied with a result sheet or a report card. However, in the case of an investor, the outcome is disclosed via financial reports.
Every limited liability business is required by law to prepare financial reports; these limited liability corporations can be found in almost every area of the economy.
Accounting records must be kept by every organisation. Accounting records shall be sufficient to demonstrate and explain the company’s transactions and shall be such as to disclose the company’s financial situation with reasonable accuracy at any time.
Financial reports in the banking business are of tremendous interest to the general public since banks deal with people directly or indirectly.
This public interest has caused companies (including banks) to accept social as well as economic, financial, and legal responsibilities, resulting in a growing need for information communication to account for results that are of significant interest to a wide range of individuals and organisations.
As a result, it is critical that credible information be disseminated to interested parties in order for them to gain an understanding of how corporations, particularly banks, are operating in relation to the public interest.
This reality is reinforced by the proposal of the working party established in Britain by the Accounting Standards Committee in October 1974, chaired by Derek Boothman, to investigate the scope and objectives of publisher financial statements.
The committee suggested 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 exaggeration to say that the banking industry is the flume around which the national economy revolves. This massive impact on a country’s economy makes it a public matter since everyone in the country has a right to know what such organisations are doing, and all information necessary to fully explain the organization’s actions should be published in yearly reports.
One of the most important aspects of a business enterprise’s information system in an economy is the communication of financial data, particularly in explaining firm profitability and financial condition.
This information is significant because it aims to segment the enterprise’s economic resources and the financial results generated by its management when those resources are put to use.
It tries to indicate how effective management has been in utilising resources, as well as the financial reward offered to compensate for the risk incurred by diverse capital suppliers.
1.2 STATEMENT OF THE PROBLEM
The authenticity or otherwise of financial reports has elicited a variety of viewpoints from various sources, including the general public, tax authorities, stockholders, creditors with long or short-term interests, financial analysts, and potential investors.
They argue that financial reports do not always provide accurate information about the activities of such businesses. For example, the idea of stating assets at their historical cost does not appeal to most investors because inflation is not usually taken into account, even though the real value of such assets may have eroded.
Again, as financial reports are created by managements, shareholders and others believe that there is generally some degree of bias on the part of management in the disclosure of management’s financial ineptitude.
However, management says that some inherent issues would normally undermine the accuracy of such reports. As a result, this researcher intends to investigate into the subject in order to develop a link between financial reporting and performance evaluation in a bank.
1.3 OBJECTIVES OF THE STUDY
Companies, notably those in the banking industry, have had the onerous duty of providing a credible and generally recognised financial statement in their annual reports to the many people to whom such responsibilities are owed. The study’s goal is to:
a. To identify the numerous financial reports that banks utilise.
b. To identify the issues with utilising financial reporting to evaluate bank performance.
c. To investigate the usage of the historical cost convention by banks in reporting balance sheet items to investors.
d. Determine whether there is a link between financial reporting and bank performance evaluation.
e. To provide advice and answers on the best approach to use financial reports to monitor bank performance.
1.4 RESEARCH QUESTIONS
a. What effect does financial reporting have on bank performance in terms of the bank’s financial position?
b. How do financial statements evaluate a bank’s performance?
c. Do financial reports reveal to shareholders the financial ineptitude of bank managers?
d. What are the drawbacks of using financial reporting to evaluate bank performance?
g. How do we determine if a financial report is trustworthy?
f. Have bank financial statements influenced your investing decision?
1.5 RESEARCH HYPOTHESIS
The following broad hypothesis are made based on the problem definition and objections of this study work:
Ho Investment judgements based solely on financial statements will not result in poor or sloppy decisions.
Hi Making investment decisions only on the basis of financial accounts will result in bad and sloppy conclusions.
Ho Inflationary developments in the economy have a significant impact on the efficiency of financial reports.
Hi Inflationary developments in the economy have little effect on the effectiveness of financial reports.
Ho Financial reports do not accurately reflect a bank’s performance.
Hi financial reports are an accurate indicator of the bank’s performance.
1.6 SIGNIFICANCE OF THE STUDY
The banking industry is a vital part of the economy. This is because banks can influence the direction of the economy’s growth or development through the financial services they provide.
Financial services include fund mobilisation, safeguarding and custodianship, fund transfer, foreign exchange transaction equipment leasing, loan and advance extension, investment in securities, bill discounting, and so on.
Investment in critical sectors of the national economy, including the banking industry, has become a priority for goal-getters. As a result, financial reports produced by banks must satisfy the needs of the users of the reports.
Specifically, by the completion of this research, we will have established:
1. Whether or not financial reports influence banking industry investment.
2. Whether or whether the inflationary effects are currently reflected in the yearly financial report.
3. Whether or not banks adhere to strict accounting practises.
The goal of this research is not to explore the factors that influence performance, but to establish a link between financial reporting and performance so that future investors in the banking industry may clearly define their position.
1.7 SCOPE AND LIMITATIONS OF THE STUDY
The study’s goal is to investigate the use of financial reporting in assessing bank performance, although it will be limited to investigations conducted on Union Bank of Nigeria Plc.
The investigation will not be based on a single branch in order for the research to have a broad scope. A study of several of the bank’s branches will also be conducted.
However, among the several constraints that are anticipated are the following:
LITERATURE: The scarcity of related books and journals will undoubtedly have an impact on the quality of the research.
TIME: The greatest employer of man, time, was not in my favour, but I managed it by allocating time to my studies, fellowship, and project.
FINANCE: Generally, research work includes money, however given my position as a student. I was financially limited in attaining my goal of having a population, so I ended up using sample size and even visiting my case study.
RESPONSE RATE: The information analysed in the study will be confined to individuals who willingly reply to the questionnaire.
PAUCITY OF INDUSTRY: During my investigation, I discovered that many banks do not have any type of inter-relationships, making it difficult for me to generalise concerns using a single piece of information generated as affecting planning and control in UBN. This prompts me to conduct additional research, which will continue even after this profit.
1.8 DEFINITION OF TERMS
OUDITING: The objective assessment of financial statements created by management by a third party other than the prepared or used with the goal of determining the fairness of representations made therein and reporting on same as a guide to interested users.
ATTEST: To accept responsibility for the fairness and dependability of financial figures.
BANKRUPT: A person’s inability to meet his liabilities as they mature.
FRAUD: Misrepresentation by a person that is untrue or made with reckless disregard as to whether the fact is true with the goal of fooling the other party and causing injury to the other party.
FINANCIAL STATEMENTS: This category includes balance sheets, income statements, profit and loss accounts, and other statement and explanatory documents.
GOING CONCERN: Continuing to operate in the foreseeable future despite the fact that the firm has neither the intention nor the ability to do so.
LIQUIDATION: The process of winding up a firm, which ends its corporate existence.
TRUE AND FAIR OPINION: An auditor’s opinion that depicts compliance will follow generally accepted accounting rules and be full of fair disclosure of facts.
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