CHAPTER ONE

INTRODUCTION

1. BACKGROUND OF THE STUDY

A financial statement refers to a summary explaining or providing a picture of the financial position/business performance (Atrill & Mclaney 2015) and or activities of a business during a certain period. Generally accepted accounting principles (GAAP) require a company to prepare a full set of financial statements that conform to regulatory guidelines and should be accurate. A full set of financial reports include statements of retained earnings, cash flows and the statement of a financial position (balance sheet). A good financial statement should document information such that it is easy to read and understandable. Presenting a financial statement clearly and professionally, helps companies interpret results and thus plan for a more profitable future. Growth in a business refers to a company expanding its business using its own resources and assets. This growth also depends on the financial statement of the organization. Similarly, a financial statement is a summarized report (Benedict & Elliott 2011) that indicates cooperation’s operating data during a period or its economic standing at a giving period.

Financial statement preparations in a company are usually done by internal accountants, who are directly influenced by the management of the company. Companies make certain decisions based on information from financial statements. Thus, a fraudulent or an erroneous financial statement implies a risk possibility which can cause wrong investment decisions making in an organization. Financial statements of companies are prepared either using generally accepted accounting principles (GAAP), defined by the law on accounting and the law on financial statements, or using international financial reporting standards (IFRS) and international accounting standards (IAS), issued by the international accounting standards board. These standards are not enforceable together; therefore, companies choose one of them for reporting purposes. Investment decisions can be explained as the determination made by directors or management body as to when and how much capital can be spent on investment opportunities.

With the development of industrial and commercial organizations and institutions in various countries has significantly increased benefiting from a range of finance sciences (Rahmani & et al, 2014). Financial reporting in economic units reflects the needs and expectations of various groups of users of the financial statements, such as investors, creditors and others to make informed decisions of economic. Set of financial statements is most significant tool of providing information to outside economic entities. The information provided in this form are useful for users if be transparent. In this regard, reports and financial statements is an important component management information system. Existence of financial information of transparent and comparable is one of the main pillars of accountability executives and the basic needs of decision-makers of economic. Although information can be extracted from various sources, but now the financial statements will form the core of financial information resources, so it should be has good quality (Darabi & et al, 2012). Expansion of public ownership of economic entities that realized in the form of emergence of public companies is a major cause of fundamental changes in the economic environment of recent years. Whatever the quality of financial information provided in such an environment be more favorable, thus users are making economic decisions more effectively. As a result, the financial statements as much as possible should provide most reliable and most relevant information (Mojtahedzadeh & Moemeni, 2003).

In business practice, accounting is identified with the “accounting system”, functioning as a permanently integrated registration and information system that should provide a reliable and clear presentation of the property and financial situation as well as the financial result of the company. According to the Polish balance sheet law, one of the key elements of business entity accounting is preparing financial statements, and in particular cases, also analysing and announcing them. The financial statement is a final element of business entity financial accounting and contains multidimensional data obtained from the accounting books. To a small extent, data from management accounting are also used in preparation of financial statements.

In trying to meet the requirements of the users of financial statements, instruments like presentations as well as disclosure are being used to communicate performance and financial position of an entity (Choy, 2014). There is still a need for presentation as well as disclosure to be included in the Conceptual Framework in order to have clarity and reducing reporting fraud (Choy, 2014). Abed et al, (2016), Miihkinen (2013), Leaz and Wysocki (2015), CastillarPolo and Callardo-Vazquez (2016) and Ramirez, Tejada and Manzaneque (2016) are among scholars who agree that disclosure is an abstract concept that cannot be measured in an unambiguous or precise manner. However, Liesegang and Bartley (2014), Alvarez and Barlevy (2015) and Abraham and Shrives (2014) argue that disclosure may be seen as symbolic window dressing, they are of little use to the readers of financial statements. To catch the attention of investments, corporate are faced with the need to make available financial outcome in line with the requirements of IFRS (Huefner, 2010). The argument was supported by mentioning the implementation of international standards in entity’s reports so as to ensure proper reporting, display real financial situation as well as outcome of performance. Hemphill (2006) state that in line with the concept there are two major assumptions when preparing annual financial reports that are accrual basis and going concern. Eccles and Holt (2005) assert that balance sheet, comprehensive income statements and other reports do not just come into existence; they are prepared in accordance with agreed regulations. Tsalavoutas and Evans (2010) say that European Union Regulation 1606/2002 oblige publicly traded entities to prepare consolidated financial reports in accordance with IFRSs as from January 2005.

1. STATEMENT OF THE PROBLEM

Most organizations are still ignorant of the benefits of financial statement, thereby limiting their knowledge about their financial position and above all their ability to use financial statements to make important investment decisions. For this reason, it was very important for the researcher to carry out a proper study and research on this issue, to point out the alarming signal on the impact of the financial statement in investment decisions in an organization. Incidentally, bookkeeping as a practice is a necessary pointer of strength and weakness in a business entity, however, the level of business management expertise and financial reporting skills necessary for sound decision making has been way below the conventional standards expected. Also, most organization complying with the bookkeeping principles have fallen short of living up to the laid down standards, but to satisfy the mandatory and statutory requirement. Subsequently, this has further raised the urgency to provide technical support and management training needs, to the operators in this sector to cope with the ever-growing demand for new and existing players in the industry because of competition, creativity and innovation. It is to this regard that the study is based on the use of financial statement in assessing the organizational productivity

1.3 AIM AND OBJECTIVES OF THE STUDY

The study seeks to analyze the use of financial statement in assessing the organizational productivity. The objectives of the study are:

1. To determine the relationship between financial statement and the organizational productivity
2. To identify the types of financial statement in an organization
3. To evaluate the essence and structure of the financial statement
4. To identify the factors affecting the use of financial statement in assessing the organizational productivity

1.4 RESEARCH QUESTIONS

The research questions are:

1. What is the relationship between financial statement and the organizational productivity?
2. What are the types of financial statement in an organization?
3. What is the essence and structure of the financial statement?
4. What are the factors affecting the use of financial statement in assessing the organizational productivity?

1.5 STATEMENT OF THE HYPOTHESIS

H0: there is no significant relationship between financial statement and the organizational productivity

H1: there is significant relationship between financial statement and the organizational productivity

1.6 SIGNIFICANCE OF THE STUDY

The study on a critical analysis on the use of financial statement in assessing the organizational productivity will be of immense help to all business owners and corporate organisations towards the use of financial statement in assessing the organizational productivity. The study findings of the study will also establish a correlation between financial statement and the organizational productivity. The study will also serve as a source of information to higher institutions and other researchers and contribute to the body of the existing literature on a critical analysis on the use of financial statement in assessing the organizational productivity.

1.7 SCOPE OF THE STUDY

The study covers on a critical analysis on the use of financial statement in assessing the organizational productivity

1.8 LIMITATION OF THE STUDY

TIME CONSTRAINTS: One the challenges experienced by the researcher is the issue of time; the research will simultaneously engage in departmental activities like seminars and attendance to lectures. But the researcher was able to meet up with the deadline for the submission of the project.

FINANCIAL CONSTRAINTS: Every research work needs funding; however lack of adequate funds might affect the speed of the researcher in getting materials for completion of the project

1.9 DEFINITION OF TERMS

FINANCIAL STATEMENT: Financial statements are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to understand.

ORGANIZATIONAL PRODUCTIVITY: Organizational productivity is the efficiency with which a company converts inputs (labor, materials, time) into outputs (products, services) to achieve business goals. It measures how effectively resources are used to drive profitability and competitiveness. Key drivers include technology, culture, employee engagement, and, according to YouTube, YouTube structured workflows and goal-setting frameworks