A Critical Analysis Of The Impact Of Financial Reporting On Bank Performance A Case Study Of Union Bank Of Nigeria Plc

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The purpose of the study is to examine the impact of historical cost convention adopted by banks, on investment and performance appraisal. It is also to find out whether financial reports are prepared to reflect inflation on the economy and finally to find out whether management’s financial ineptitude is usually disclosed to owners while presenting financial reports.

The inductive research method will be adopted and the statistical analysts, particularly the chi-square and t-distribution test is going to be use in the analysis of the data from the banks.

        The finding of the study were that:

1.      Some financial statement contained in financial reports influence investment remarkably in banks.

2.      The annual reports do not reflect inflationary effects in the country today.

3.      The financial reports were prepared adopting a general purpose nature with the assumption that different users of the report have different  information needs.

Accordingly, the following conclusion were made;

Although investors and performance evaluation analysts relied on financial statement in their decisions and appraisal, the reliability of financial reports especially during inflation cannot be assured, owning to the  historical cost convention used as a basis for asset valuation by banks.  This is because the profits so a accounting year would not usually show a true figure .  Therefore, managerial decision of banks based entirely  on financial reports will lead to poor and inadequate decisions.

        The recommendations and suggestion made were based wholly on the outcome of study. For example, on the  problem of inflation, it was remanded that the bank should adopt the current cast accounting basis for its financial reporting to ensure credibility and reliability of information, by the various users,  given the inflationary realities.

















Title Page                                                 i

Approval Page                                          ii

Dedication                                               iii

Acknowledgment                                        iv

Proposal                                                   v

Abstract                                                   vi

Table of figure                                         vii

Table of contents                                        viii




1.1   Preamble or introduction

1.2      Statement of problems

1.3      Purpose of the study

1.4      Research hypothesis

1.5      Significance the study

1.6      Research methodology

1.7      Scope and limitations of the study

1.8      Organisation of the study

1.9      Definition of terms



2.0      Review of Related Literature

2.1   Introduction

2.2      Background  of union Banks of Nigeria Plc

2.3      Need for financial reports

2.4      Composition of banks financial report

 2.4.1 The Chairman’s report

2.4.2    The  Directors report

2.4.3    The Auditors report

2.4.4    The financial statement

2.5          Various uses of financial reports and information needs of such users. 

2.5.1        Shareholders

2.5.2        Long-term creditors

2.5.3        Short-term creditors

2.5.4        Government and tax authority

2.5.5        Employees and trade Unions

2.5.6        The management

2.5.7        Analysts / Advisers

2.6              Financial Reporting by Banks

2.6.1        Introduction

2.6.2        The prudential Guidelines

2.7              Performance Evaluation in banks

2.7.1        Efficiency and profitability

2.7.2        Potential and Actual Growth

2.7.3        Loans and Advances.





3.0      Methods and procedure

3.1   Samples  Design

3.2      Samples size

3.3      Sources of Data

3.3.1 Primary sources

3.3.2 Secondary sources

3.4      method of data Analysis and Interpretation



4.0      Data Analysis, Presentation

4.1   Presentation of Data

4.2      Analysis of Data

4.3      Hypothesis analysis and testing

4.4      Interpretation of Result.




5.0      Finding, Conclusion and Recommendation

5.1   Summary of  Findings

5.2      implication of findings

5.3      Conclusion

5.4      Recommendation

5.5      Suggestion for further research












1.1      PREAMBLE

A farmer who plants crops expects results. Similarly a student who sits for examination expects result.  The same  is also true of an investor.  For  the farmer, the result mighty be communicated to him in the from of a bumper harvest.  A result sheet or a report card would usually sulfuric for a student.  However,  in the case of an investor,  then result is communicated through the financial reports.

Financial reports are by law to be prepared by every limited liability  company.   These limited liability companies abound in virtually all sector of the economy.

Every company shall cause accounting records to be kept.  The accounting records shall be sufficient to show and explain the transitions of the company and shall be such as to disclose with reasonable accuracy, at the any time the financial position of the  company.

In the banking industry, financial reports are od great interest to the general public because the banks directly or indirectly interact with people.

This public interest has caused companies (including banks) to accept social as well as economic. Financial and legal responsibilities and  has created a consequence, a growing need for the communication of information to account of the results which are of considerable interest to a wide range of individuals and organisations.

So, it become very imperative for reliable information to be circulated t interests parties which can enable them to acquire an essential knowledge of the way in which companies particularly the banks are performing in relation to the public interest. This fact is further educated by the recommendations of the working set up in Britain by the accounting standard committee in October 1974 under the chairmanship of Derek Booth man which took a study of the scope and aim of published financial statement.  The committee recommended that:

“The fundamental objective so corporate report are to communicate economic measurement of an information about the resource and performance of the reporting entity useful to those having reasonable rights to such information”.

It is not an over statement when one says that the banking industry in the fulcrum on which the national economy rotates.  This mammoth impact upon a country economy therefore makes it a public affair ie everybody in the  country has a right to know what such organisations are doing, more so all information, necessary to explain the organisation activities fully should be provided in the annual reports.

One of the most significant aspects of the information system of business enterprises in an economy is that which deals with the communication of  financial data, especially in describing business profitability and financial position.   This information is important because it attempts to portray the economic resources of the enterprises and the financial results, which those resources achieved by its management when those resources have been put to use. It attempts to reveals how effective management has been in resources utilization as well as the financial reward available to compensate for risk taken by various suppliers of capital.



The     genuineness of financial reports ahs attracted diverse opinions from different quarters, such opinions can come form the general public, tax authorities, shareholders, creditors with long to short term interest financial analyst and potential investors.

They argue that the financial reports do not usually give an accurate data about the activities of such business concerns, for example, the idea of stating assets at their historical costs do not favour most investors as they argue that inflation is not usually taken care of, though the real value of such assets might have been eroded.

Again, since the financial reports are prepared by management’s, the shareholders and other argue that there would usually by some elements of bias on the part of management in the disclose of management’s financial ineptitude.

But in any case the management claims that some inherent problems would usually affect the accuracy of such reports.   It is therefore the intention of this researcher to delve into this matter to enable him establish a relationship between financial reporting and performance evaluation in a bank.


Companies including those in the banking industry have had to face the anerous task of presenting a credible and generally acceptable financial statement in their annual reports, to various people to whom they own such obligations.

The purpose of this study is to:

a.    Examine the impact of historical cost convention adopted by banks in stating their balance sheet items, on investors.

b.   Find out whether financial reports are prepared to reject inflation in the economy.

c.    Find out whether or not management’s financial ineptitude is usually disclosed to shareholders while preparing financial reports.




Based on the statement of problems and objectives of this research work, the following general hypotheses are formulated:

Ho -Basing investment decision entirely on the financial
        statement will not lead to poor and lazy decisions.

Hi -  Investment decision base entirely on the financial
        statements will lead to poor and lazy decisions.

Ho- The preparation of financial reports by the banks do
not have any inflationary effect problems, hence
suitable for investment decision and performance

Hi-   Inflationary effect problems exist in the preparation of

        financial reports by the banks and hence not suitable

        for investment decision and performance evaluation.




        The banking industry is a very important sector of the economy. This is because banks can determine the direction do growth or development of the economy through the financial service rendered by banks.  The financial services which includes, finds mobilization, safekeeping and custodianship, funds transfer, foreign exchange transactions, equipment leasing, extension of loans ad advances, investment in securities, bill discounting etc.

        Investment in key sectors of the national economy f which the banking industry is one  becomes a goal-getters priority.  Owning to this, it because necessary that financial reports presented by banks satisfy the need of the users of the reports.

        Specially, at the end of this study, we shall have been able t establish:

1.     Whether or not the financial reports affects investment in the banking industry.

2.     Whether or not the annual financial report currently reflect the inflationary effects.

3.     Whether or not banks flow rigid accounting practices.

The emphasis of this research is not to discuss the determination of performance, but  to establish a relationship between financial reporting and performance so that potential investors in the banking industry may clearly define their stance.



The sources of data for thus work are simply primary and secondary sources.  Primary data will be obtained through questionnaire and interviews.  The secondary data on the other hand will be collected from the review of available documents, such as textbooks, seasonal papers, business publications in forms of magazines, journal and newspapers.

The statistical tools to be used in the analysis of data are simple percentage, chi-square test and distribution test.  These are used to suit the  nature of  the research and to ensure that the result of the analysis will be objectives as possible.



The aim of this study is to examine the impact of financial reporting on banks performance, however it will be restricted to investigations carried out on union Bank of Nigeria Plc.

To  enable the research have a broad view, the study will not be based on one branch.  A study of some selected branches of the banks will also be carried out.

But in any case, the following among others are the numerous constraints, which are envisaged:

Literature:    The dearth f related books and journals will no doubt affect the quality of this research.

Time:   I foresee time posing as a clog in my wheel.  This is evident upon the fact that I have some other courses, which are scrambling of my limited time.   In a nutshell the time available of this work is so short that it mighty undoubtedly affect the quality.

Finance: The problems envisaged to be caused by inadequate finance cannot be overemphasized this is because the paltry sum that was given to me cannot make any headway.

Again the cost of materials coupled with the unreasonable fares charged by motorist would not help matters, as I shall have to run around to scout for materials.

Responses rate:   The  information to be analyzed in this study will be limited to those who would respond voluntarily to the questionnaire.

Cooperation:  In carrying out this types of work, one cannot rule out the possibility of a non-challant attitude from officers and employees of the bank who may feel  that they will be leaking the secrets of the banks by allowing me access to such information, which I require.



The study contain five chapters organized as follows:

Chapter one which gives a prelude to the study, discusses the statement of problems, purpose of the study, research hypotheses, significance of the study, research methodology organization of the  study and finally definition of terms.

Chapter two is the main body of the research work with components of literature review.

Chapter three describes the research method and procedures use in the research work.

Chapter four deals with the presentation and analysis of the gathered data in line with the hypothesis earlier posited.

Chapter five relays the summary and conclusion, gives recommendations and offers suggestion for further improvement based on the outcome of research analysis.



Auditing:  The objectives examination of financial statement initially prepared by management by a third party other than the party which prepares or uses it with the  goal of establishing the fairness of representation made therein and reporting on same as a guide to interested users.

Attest:  To assume responsibility  of the fairness and dependability of financial  statements.


Bankrupt:   Inability of a person to meet his liabilities as they mature.


Fraud: Misrepresentation by a person t be untrue or made with reckless indifference as to whether the fact is true with the intention of deceiving the other party and with the result that the other party is injured.


Financial Statement:  This covers balance sheets, income statement or  profit and loss accounts notes and other statements and explanatory materials.


Going Concern: Continuing in operation for the foreseeable future with the assumption that the enterprise has neither the intention not the necessity f liquidation or curtailing materially the scale of its operations.


Liquidation:  Process of winding up of a company thereby bringing to an end its corporate existence.


True and Fair View:  The opinion of an auditor which despise compliance with generally accepted accounted principles and full and fair disclosure of facts.











1.          Anthony and Michael Gutter, Financial Accounting,  Teach Yourself Book,,  Hoddex and Stoughton Britain P. 305


2.          Companies and Allied Matter Decree 1990 Part XI  sec.




3.          T.  A Lee, Company Financial Reporting Issues and
        Analysis, Thomas nelson an sons Ltd.



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A Critical Analysis Of The Impact Of Financial Reporting On Bank Performance A Case Study Of Union Bank Of Nigeria Plc