CHAPTER ONE
1.1 INTRODUCTION
The aim of this chapter is to bring together views of different relevant literature connected with financial statement analysis in Nigeria. It seeks to discuss the information available in Nigeria and elsewhere as it is considered pertinent to the study. The study analyses the extent to which investors can place reliance on financial statement presented by the directors of the company under view. In order that this will be well placed, a general view of the financial statement is also being considered. It however, not worthy to mention that there is the shortage of materials for analyzing the degree investors can rely on financial statement of companies in Nigeria, as it is a relatively new concept. Consequently, what is being highlighted is the diverse discussion and opinions of various writers and commentators. The present study therefore seeks to bring different views into focus in an attempt to obtain a good understanding of the nature of financial statement preparation and presentation.
1.2 THE CONEPT OF FINANCIAL STATEMENT
Anao R.A. (1989): posited that financial statement is the procedures which has the special aim of ultimately generating of information which would be presented to various interested parties for their respective decision. It is the medium for presenting information which can form certain specified standards with regards to content and style of presentation. These statements are company law, the pronouncement of major professional accounting bodies and in certain cases also the requirement of the stock exchange. Professional Accountants tutors (2002), defines financial statement as the means of communicating toe interested parties information on the resource obligation and performance of the reporting entity, or enterprise. Financial statement shows corresponding figure for the proceeding period. Financial statements are expected to be simple, clear and easy to understand by all users. Barton (1979:273), defines financial statements as a report of financial condition or of the financial result of the operation of the business, a government or other organizations. Neven P. (1984), defines financial statements as the output of an accounting system through which selected information about the entity economic activities can be communicated to management, investors and creditors about the past and present financial statement and forming expectation about performance. Financial statements are the instrument panel of business enterprise in decision-making. They constitute a report on managerial performance attesting to managerial success of fortune an flashing warning signal of impending difficulties to read a complete instrumental panel, one must understood the gauges and their calibrations to make sense out of the array of data they convey. Jenings A.R. (1993:401), says financial statement including the final accounts of their own sake but for the sake of various parties who are interested in different aspects of these statements.
1.3 PURPOSE OF FINANCIAL STATEMENTS
The financial Accounting standard board (FASB) highlighted that, the purpose of financial statement is to provide information that is useful to present and potential investors and creditors and other users in making rational investments, credit ad similar decision. The information should be comprehensible to those who have reasonable understanding of business and economic activities and are willing to study the information with reasonable diligence. They also stated that financial statement should provide information to help present and potential investors and creditor and other users in assessing the amounts, timing and uncertainty of prospective cash receipts from dividends or interest and proceeds from the sale, redemption, or maturity of securities or loan. Since investors cash flow are related to enterprise cash flows, financial reporting should provide information to help investors, creditors and others assess the amounts, timing, and uncertainty of prospective net cash flows to the related enterprise. FASB further stated that, financial reporting should provide information about the economic resources of an enterprise, the claims to those resources (obligations of the enterprise to transfer resources to other entities and owner’s equity) and the effect of transaction, events and circumstance that changes its resources and claims to those resources. Okolie A.O (2004:134), noted that the purpose of financial statements is to provide information about the financial position performance and changes in financial position of an enterprise, that is, it is useful to a wide range of users in making economical decisions he pointed out that financial statement should be understandable, relevant, reliable and comparable. He adds that reported assets and liabilities and equity should be directly related to an organization financial positions and also that reported income and expenses should be directly related to an organization’s financial performance.
1.4 CONTENTS OF FINANCIAL STATEMENT
Remi Aborode (2005), state the following as content of the financial statement;
1. Chairman’s Report
2. Director’s Report
3. Auditor’s Report
4. Audit Committee’s report
5. Statement of accounting policies
6. Notes to the accounts
7. Income statement (profit and loss account)
8. Balance sheet (profit and loss account)
9. Cash flow statement
10. Value added statement
11. Five – year financial summary All this shall be elaborated on, one after the other.