THE EFFECT OF FINANCIAL ACCOUNTING REPORTING ON THE MANAGEMENT OF A BUSINESS (A CASE STUDY OF ROBAN STORE ENUGU)

CHAPTER ONE

Introduction

1. Background of the study

Financial report is a formal and comprehensive statement describing financial activities of a business organisation such as the manufacturing firm. For such a business entity, financial report is a statement that reports all relevant financial information, presented in a structured manner and in a form easy to understand for managerial use for taking prompt and informed decision making related to investment (IASB, 2007a) and also to decision making pertaining to production planning, investment planning, expected returns and performance evaluation.

The financial reports comprises of balance sheet (for determining financial position), profit and loss statement (describes statement of comprehensive income), statement of equity changes (explain the changes of the company’s equity), and cash flow statements (reports on a company’s cash flow activities, particularly its operating, investing and financing activities).

Although, these statements are often complex and may include an extensive set of notes to the financial reports and explanation of financial policies and management discussion and analysis (IASB, 2007b). The notes typically describe each item on the balance sheet, income statement and cash flow statement in further detail. Notes to financial reports are considered an integral part of the financial statements. However, the approaches that the notes and financial statement are presented and reported are critically for investment decision making by existing and prospective investors in order to earn optimal returns on their investments.

This indicates that financial reporting methods in terms of information disclosure pattern, transparency, auditing, reporting standards, regulatory control and flexibility, corporate governance, and financial scandals have influence on investment decision making in any organisation, especially in manufacturing industry with extensive range of investment activities that requires comprehensive financial facts that can be obtained from a financial statement.

The perceived relevance of the financial report is to provide information about the financial position, performance and changes in financial position of a firm that is useful to a wide range of users in making management and investment decisions. These users include managers, directors, employees, prospective investors, financial institutions, government regulatory agencies, media, vendors and general public. Though, these financial reports are often prepared according to national standards, corporate governance, professional ethics, and code of ethics. This to avoid financial reporting fraud and scandals that might hinders effective decision making process by management and other users of reports. The purpose of ethics in financial accounting reporting with expected standards is to re-orientate corporate organization on the need to abide by a code of conduct that facilitates public confidence in their services (Okafor, 2006).

The impact of financial reporting on the corporate performance of a business organization is becoming more apparent to user groups of a financial statement.

Accounting is not an exact science neither are business operations without some subjective and judgmental errors when it comes to reporting them. A financial reporting therefore is a document statement which informs the various interest groups to a business on the operations and performance of their business in a period under review its present state of affairs as well as its anticipated future, in accordance with the statutes. If a financial report is to service its purpose it ought to be characterized by the following.

a. Relevance

b. Understandability

c. Reliability

d. Completeness

e. Objectivity

f. Timeliness

In the accounting process of an organization is to provide the information required to prepare a financial report which shall have the above characteristics then the transaction doing the period must be recorded prompt by and accurately and interpreted in conformity with the Generally Accepted Accounting Principles (GAAP), Statements of Accounting Standard Board (NASB), International Accounting Standard committee and the companies and Allied Matters Act cop LFN (CAMA)

Financial accounting reporting become necessary with the obvious need for accountability of stewardship from the managers to whom investors entrusted their financial resources. The Railway age in the UK. Occurred between 1830 to 1870 and for the first time the world same the emergence of multimillion corporations with large numbers of shareholders. It was a period of disorder but it brought the basis for the present day system of corporate financial report. Financial reporting is a duty of stewardship assigned to the directors of a company by section 334 of the company and Allied Matters Act Cap L20 LFN, equally the mandatory responsibility of companies to keep accounting records derives its strength from section 331 and 382 of the same act. These sections explicitly defined the necessary content and manner in which financial records should be kept.

1. Statement of Problem

Studies has shown that the perceived problem of financial reporting disclosure is the non-compliance to industry corporate governance, ethics and regulatory standard which is prevalent in the Nigerian business environment and the firm’s sector of Nigerian economy, huge financial fraud and scandal occurred in Cadbury Nigeria that led to service disengagement of its managing director and finance director.

This was on the account of manipulating the company’s financial records book padding board of directors to commission the audit firm, price water house coopers to receives and investigate the company’s accounting records.

The investigation confirmed a deliberate overstatement of the company’s financial position over a number of years to the tune of between N13 and N18 billion. The over-statements are directly trace able to those systems abuses, violation of regulatory standards, in particular, deliberate breaches of our accounting systems and controls.

1. Objectives of the study

The aim of the research work is to examine the effect of financial accounting reporting on the management of a business with particular reference to Roban stores Enugu. The specific objective of this research work include the following:

1. To determine the impact of financial accounting reporting on the management of a business.
2. To find out whether neglect of financial accounting information has effect on the business.
3. To examine the relationship between financial accounting reporting and the development of an organization.
4. To examine the various challenges associated with financial accounting informant in an organization. And also proffer possible.
5. Research Question
6. What are the impact of financial accounting reporting on the management of a business?
7. What effect does neglect of financial accounting information has effect on the business?
8. What is the relationship between financial accounting reporting and the development of an organization?
9. What are the various challenges associated with financial accounting informant in an organization. And also proffer possible?
10. Research Hypothesis

The research developed the following research hypothesis

H0: Financial accounting reporting does not have any impact on the management of a business.

H1: Financial accounting reporting has significant impact on the management of a business.

H0: Neglect of financial accounting information does not have any effect on the business.

H1: Neglect of financial accounting information has significant effect on the business.

H0: There is no relationship between financial accounting reporting and the development of an organization.

H1: There is relationship between financial accounting reporting and the development of an organization.

1. Significance  of the study

This research work will be of immense help to:

• It will help the researcher to known more on the effect of financial accounting reporting on the management of a business.
• This study will be a great help to the stakeholders as it will enrich their knowledge on the effect of financial accounting reporting on the management of a  business.
• This will equally help the accounting firms and financial institutions in Nigerian because when they abide by recommendations provided by the research it will help them in time of financial crisis.
• This study will be of a great importance to the country Nigeria as it will help the policy markers to promulgate laws that will guide financial accounting reporting on the management of a business.
• Scope and Limitation of the study

The research work focus on the effect of financial accounting reporting on the management of a business, the area of the research work will be Enugu metropolis.

The researcher in carrying out this study encountered numerous problems, which includes:

I did not have enough to visit the company as money times as many time as required data adequately. The time allotted for the work was not enough. This is because I had to share the time with other academic works of the semesters. This made her unable to cover a lot of interesting areas but therefore limited her research work only at Enugu  metropolis.  Insufficient of research data was also one of the problems faced by the researcher in the cause of this research work. Another constraint to the researcher is that some of the respondents found it difficult to express their view with regards to the subject matter. 

1. Definition of the terms
2. Financial accounting: Financial accounting “is concerned with the recording of transactions for a business enterprises or other economic units and the periodic preparation of various reports from such record”. Financial accounting then can be said to be a systematic gathering, summarizing and reporting of business transaction in monetary terms such that it provide information which permits informed judgment by the users of such information.
3. Information or report: These can be though of as being facts needed or received by a person or group of persons which is or will be useful to him/her. These information or reports may be spoken/written programmed or tele-printed.
4. Management: Management can be defined as the rational selection of courses of action to optimize the interrelationship of ma, materials and money for the survival and growth of the organization. It can be regarded as the “process of getting things done through people”. A person who manages is called a manager.
5. Business: Business is a process whereby human materials and capital resources are combined to earn/satisfy human needs and wants. An entity which carries on such organized efforts is known as a business entity.