CHAPTER ONE

INTRODUCTION

An organizational environment in which the right information is provided to the right people at the right time in an understandable format is conducive to sound decision making. Prickett (2007:23) concurs that individuals need more than simple access to information, “they need to be able to make sense of it, focus on the relevant areas, priorities sources, grasp key facts and, above all, reduce the time needed to do it”. This implies that for information to be useful, it must have certain qualitative characteristics (see ch 4), such as being understandable, relevant and concise. However, current means of disclosing financial information may provide users (eg investors, creditors, customers, employees, board members and management) with information that is not wanted or needed, or that may not provide them with the timely, relevant, understandable and cost-effective information they need. Financial reporting is the communication of financial information to various users of accounting information to make an investment decision, obtaining credit facilities, and other financing decisions (Wild, Shaw, & Chiappetta, 2009). Furthermore, most financial reports in Nigeria are governed by regulations and standards from various recognized financial regulatory bodies such as the Securities Transaction Commission (SEC), the Financial Accounting Reporting Council of Nigeria (FRCN), Nigeria stock transaction to mention a few. Financial reports are formal and comprehensive statements describing financial activities of a business organization such as the manufacturing firm. It is also a statement that reports all relevant financial information, presented in a structured manner and in a form easy to understand for managerial use and for taking a prompt and informed decision relating to investment (IASB, 2007). The major relevance of the financial report to some users of financial statement is to provide information about the performance and changes in financial position of a firm. These users include managers, directors, employees, prospective investors, financial institutions, government regulatory agencies, media, vendors and the general public. Financial reports are often prepared according to national standards, corporate governance, professional ethics, and code of ethics to avoid financial reporting fraud and scandals that might hinder effective decision-making process by management and other users of reports. The financial reports comprises of balance sheet (now called statement of changes in financial position), profit and loss statement (now called statement of comprehensive income), statement of equity changes (Statement of changes in equity, the company’s equity), and cash flow statements (now referred to as statement of cash flow activities). On the other hand, Finance is always being disregarded in financial decision-making since it involves investment and financing in a short-term period. Furthermore, it also acts as a restrain in financial performance since it does not contribute to return on equity (Rafuse, 1996). A well designed and implemented financial management is expected to contribute positively to the creation of a firm’s value (Padachi, 2006). The dilemma in financial management is to achieve the desired trade-off between liquidity, solvency and profitability (Lazaridis, 2006).The subject of corporate financial performance has received significant attention from scholars in the various areas of business and strategic management.

Business organizations are faced with numerous problems which affect the efficiency of their operations. These problems could range from unavailability of reliable accounting information on which to base their managerial decision to manage ignorance of these factors, knowledge of which could have otherwise enhanced the operations of the business, especially as regards to planning of financial transactions both in the present and in the near future. Also, most entrepreneurs do not have training experience in financial management and are reluctant in seeking expert advice and assistance. This often leads to business growth and development restriction and business failure. As a result of these factors, they are not able to project or even give an estimate in successive future periods. These constraints make it impossible for small scale entrepreneurs to take advantage of available investments (both long and short term investments) and alternative sources of capital which could improve the entire scope of the business. Basically the problem is that most small scale businesses do not draw financial plans as regards to their activities.