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.
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