Sunday, 24 November 2013

THE NATURE AND SIGNIFICANCE OF FINANCIAL STATEMENT IN AN ORGANIZATION, A CASE STUDY OF UNITED AFRICA COMPANY (U.A,C NIG PLC)

                                                 CHAPTER ONE
1.1     INTRODUCTION:
This essay focuses on published financial accounting statements as contrasted to the several forms of analysis, reports and statements prepared for internal use in business organisations, often described as management accounting.
It is thus important to define here what is meant by financial statements and their analysis and interpretation.
A layman might simply refer to financial statements as the summary of the financial affairs of an organisation. The encyclopaedia Britannica broadly defines a financial statement as any report of the financial condition or the financial results of the operations of a business, a government or other organisation”.
Accountants in a more limited sense refer to financial statements as consisting of a balance sheet, an income statement, a funds flow statement and an analysis of other changes in stock holders’ equity. Each of these statements will be examined, analysed and interpreted in detail later in this essay.
The analysis and interpretation of financial statements can be defined as the detailed examination and explanation of financial statements made in order to evaluate the economic condition and operating effectiveness of a firm.
There are several alternative methods use in the preparation analysis and interpretation of financial statements. Each of the methods has their own merits and demerits and they are all widely used in the accounting profession. It is important to mention here that this essay is not directed at standardizing financial statement analysis, as differing conditions require analytical flexibility. But it attempts to throw more light and simplify the techniques used in analysing and interpreting financial statements of business concerns.

1.2     AIMS AND OBJECTIVES
This this research work is generally aimed at explaining the nature and significance of financial statements, the tools and techniques used in analyzing and interpreting them and the problems encountered together with recommended solutions of such analysis and interpretation. The main objective is to assist the various users of the published reports of companies in making their financial and other related decisions. To achieves this purposes, particular reference has been made to a well know Nigerian conglomerate, UAC of Nigeria Plc.
The various users of the financial statements of the above mentioned company that this essay is trying to serve may include the management of the company, Banks and financial institutions, creditors, shareholders, trade unions etc. analysis and interpretations of the financial statements of UAC of Nigeria Plc made in this essay will assist the management in carrying out decisions regarding day to day operation and long - term or strategic plans.
Banks, financial institutions and creditors decide on whether to continue lending the company or not on the basis of the analysis and interpretations of the company’s financial statements.
This essay is also intended to help shareholders and investors make rational decisions about their holdings in the company. The analysis of the past and current financial statements enables the shareholders to decide on whether to maintain, increase or sell their investments in the company.
Trade unions base their arguments for higher wages and more fringe benefits on the results of the operations of the company as reflected in the financial statements. Thus analysis and interpretation of the statements will help assess the viability or otherwise of their argument.
Other possible users, this essay is aimed at serving, may include the government, students and the accounting profession at large. The analysis made many assist the tax authorities in making future analysis of financial statements. It is also intends to help the government in obtaining relevant information for formulating economic policies, especially in this time of inflation.
Finally, this essay is also aimed at furthering research in the field by assisting students and other research organisations in the accounting profession (for example, the Nigerian accounting standards Board) in order to acquire more knowledge and over come problems facing the field.

1.3    PROBLEMS STATEMENTS:
The financial statement takes many forms. The best known of it includes the balance sheets, profit and loss account. This account are produced annually, other include the directors reports and a fund flow statement.
These financial statements are produced by the directors (as manager) to the shareholders (as owners) and a wide range of people who are interested on the annual reports and accounts of the company. The financial statements annual reprts are made to people such as leaders or debentures holders, employees, customers, suppliers, advisers to the company, the government, and the public etc. To all these group of people, they must be sure that the financial statement can be relied upon.
However there might be problems when managers report to owners the report might contains, errors, not disclose fraud, inadvertently misleading, fails to disclose relevant information.

Furthermore, modern company’s might be very large with multi-national activities and subsidiaries. The preparation of such account might be very complex. Taking into cognisance subsidiaries, conventionary legal system and accounting. To avoid these problems, there arise the need for the employment of an expert trained in the assessment of financial information.

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