CHAPTER
ONE
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 as depict one’s point
weal in financial performance describes once.
Financial statements according to Illoumezie
(2006:33) are like compasses “which navigators use to 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.
According to Anayaogu
(2002:14) financial accounting provides information to eternal decision makes
such as shareholders government, creditors, employees etc, these are people
with whom or from whom money is ultimately paid or received. Anayaogu (2002:20)
also states that records of financial accounting includes
various ledges accounts, profits and loss accounts, balance sheet and other
financial records. These records are intended to show the strength, progress,
portability, management effectiveness and stewardship.
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 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.
However, the account
days of pre-colonial administration, the preparation and publication of
financial reports used by owner managers for internal control and cost
determination. This inter became. Inadequate role to increase completely of
business organization. At the onset of industrial revolution, trade begins to
increase and expand. This necessitated employing managers to manage the
business on behalf of the shareholders. Managers positions now necessitated
companies to prepare and publish a financial report that would reveal to the
owners (shareholders) the operational state and financial position of the
company and how the capital contributed by the shareholder had been utilized in
the realization of the set out objectives of the company.
The company Act 1963
outline that every registered business organization should maintain and submit
audited financial statements every year during the annual general meeting (agm)
where. It is laid to the members. This is in consonance with the provision of
schedule two of the companies and allied matter decree of
1990 which states internally that the form and contents of published financial
statements and with the accounting standard issued from time to time by the
Nigeria Accounting Standard Board (NASB).
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:
·
The
resources and hostilities of the company over the period in question.
·
Wealth
created by the company and how it has been distributed.
·
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:
a. The
equity –investors group
b. The
analysis –advisory group
c. The
employee group
d. The
creditors
X.
The
business contact group
Y.
The
government and its agential
Z.
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
Evaluating
the performance of the entity.
Assessing the objectives established previously by
its management members or owners.
Evaluating managerial performance, efficiency and
objectives including employment, investment and profit distribution plans.
Assessing
the liquidity of the entity.
Assessing
the economic stability and inevitability of the reporting entity.
Assessing the capacity of the entity to make future
realer nation of its resource for either economic or social purposes or for
both.
Estimating the future prospects of the entity which
respect to dividend payment remuneration and other cash outflows and
predicating future levels of investment, production and employment.
Predicting, compressing and evaluating potential
cash flow
Guinness Nigeria is a
Nigerian Brewery founded in 1962. It engages in brewery, packaging and marketing of spirits,
wines and beer in Nigeria. It offers its products under
Guinness Foreign Extra Stout (1962) Guinness Extra Smooth .
(2003) Malta Guinness (1990) Harp Lager Beer
(1974) Gordon’s Smirnoff Ice (2006) and Satzenbrau (2006). The company was incorporated in 1950 and it’s
headquartered at 24 Oba Akra Avenue Ikeja industrial estate, Ikeja Lagos
Nigeria.
Guinness and unlevered
are the main shareholders, although some of the shares are locally owned.
Guinness Nigeria plc is a company that believes in enriching its community.
This it has achieved by embarking on laudable corporate social responsibility
projects in several communities. In Nigeria these projects are water of life
initiative, which currently provides potable water of over 500,000 Nigerians
spread across several rural communities from Northern to Southern Nigeria.
The company was listed
in exchange market in the year 1965, with its managers/ directors. Engr.
(Chief) R.A. Alabi, OON (Chairman) Mr. N. Blazquez (vice chairman) Mark R.M.
Taylor (MD/CEO) and B.A. savage (OMD) of Guinness Nigeria Plc, and so many
other staffs.
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 a invest in bond other than equity”;
¯
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.
¯
Company’s concepts, conventions an
meeting the user needs.
¯
Published financial statements do not
induce more people to make investment in some companies.
¯
Some
shareholders are not oriented before making investment decision.
¯
Sometimes the dividend are not
satisfactory considering the risk involved in investment.
¯
Some
financial statement sometimes guide the investors.
¯
Some
financial statement prepared are window dressing.
¯
Some company’s find it difficult
available to the shareholder at any point in time.
1.3
Purpose Of The Study
This research was
undertaken to find a better solution to the research problem(s) already
existing in this area of study. It is therefore imperative to establish some
guiding steps and principles in decision making process which will ensure that
a given objective is not defeated and to find out if the financial information
that emanate from the published finance statements makes any meaning to
investing public.
a)
To know whether the information in the
financial reports of companies and other financial information areas are
understood and used for investment decision making.
b) To
ascertain the extent the company’ capable of meeting users/ investors needs.
c) It
is deemed to state categorically and in clear terms that the influence of
corporate reporting to investment differences in accounting methods and how
financial statement deficiency affects the investors (shareholders).
d) To
ascertain the extent published financial statement induced more people to
invest in companies.
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