THE IMPACT OF AUDIT REPORT AND INVESTMENT DECISION IN NIGERIA A SURVEY OF SELECTED MINISTRIES IN RIVERS STATE

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Listed companies in Nigeria use financial statement such as audit report etc as one of the major medium of communication with their stakeholders. Therefore, stock market regulators and accounting standards settlers are tying to improve the quality of financial statements in order to increase the transparency level in financial reporting (Vishnani S., Shah B.K, 2008). Financial statement may consist different types of information. Which can be named as financial information/Accounting information and Non-financial information/Non Accounting Information? Accounting Information are information which describes in account for a utility.

It processes financial transaction to provide external exporting to outside parties such as to stockholders investors, creditors and government agencies etc. and non accounting information are information which cannot be measured in monetary terms to make investment decision by the investors. This type of investment is called Ethical investment. Audit export is essential in making sound investment decisions and it will undue the informational asymmetry problem between the firm’s manager and the investors (Hossain, D.M Khan, A., Yasmins I. 2004). Though the investors use non financial information in order to make investment decision, still conventional investors give more weight to financial information. Akintoye (2008) discovered that the quality of accounting information in terms of accuracy adequacy, reliability and mode of disclosure is a major determinant of the level of eiciency of the capital market and other decision tasks. Recent happenings in the Global World however and various empirical studios imposed that accounting information in published financial statement lost their relevance over the period of time. (Ball and Brown 1968, Oyeunde D.T 2009).

The preparation of a company financial statement is regulated by the companies and Allied matter Act 1990 (CAMA 1990) as amended and the accounting standards for example, section 331 of CAMA 1990 provide procedure which management of every registered public limited liability company should follow in preparation of this financial statements. Sections 334 of CAMA 1990 also provide the duties of the directors in preparation of financial statement. In the same vein, section 342 of CAMA 1990 provide reporting standard of the directors of the financial statement prepared. On the other hand, accounting standard set the underlying standard for the preparation of financial statement. The sole aim of preparing financial statement is to report to the shareholders which are the owners of the company on the financial performance of the company. When shareholder receives financial statement of the company they have invested in, most of them simply look to see whether the business has made profit. They are aware of only one thing that is, that the company has made profit. They do not know if it was a “good” profit nor do they know whether these were any difference from the profit in the previous years.