A Critical Analysis Of The Use Of Financial Report In Assessing Bank Performance (A Case Study Union Bank Of Nigeria Plc)

Project and Seminar Topics with material for Banking and Finance

A Critical Analysis Of The Use Of Financial Report In Assessing Bank Performance (A Case Study Union Bank Of Nigeria Plc)


The purpose of this study was to examine banks, on investments and performance appraisal. It was also to ascertain the problems of using financial reports to access performance of banks and finally to determine 17 there’s a relationship between financial reporting and performance evaluation of a bank.

The inductive research method was adopted and the statistical analysts, particularly the chi-square and t-distribution test were used in the analysis of the data collected from the bank.

The findings of the study were that:

  1. Source financial statement contained in the financial reports influence investment remarkably in banks.
  2. The annual reports do not reflect inflationary effects in the country today.
  3. The financial reports were prepared adapting a general purpose nature with the assumption that different user as of the report have different information needs.

The following conclusions ere made:

Although investors and performance evaluation analyst relied on financial statement in their decisions and appraisal, the reliability of financial report especially during inflation cannot be assured owing to the historical cost convention used as a basis for asset valuation by banks. This is because; the profits of an accounting year would not usually show a true figure owing to the courage effect of inflation. Therefore, managerial decision of banks based entirely on financial reports will lend to poor and inadequate decisions.

The recommendations and suggesting made were base wholly on the out come of the study, for example, on the problem inflation, it was recommended that the bank should adopt the current cost accounting basis for its financial reporting ensure credibility and reliability of information, by the various users, given the inflationary relatives.

Chapter One


1.1 Background of Study

A farmer, who plants corps, expects result, similarly to student who sits for examination expects results. The same 5 also true of an investor.

For the farmer, the result might be communicated to him in the form of a bumper harvest. It result sheet or a report card would usually sufficed for a student. However, in the of an investor, the result is communicated through the financial reports.

Financial reports are law to be prepared by every limited liability company; these limited liability companies abound in virtually all sector of the economy.

Every company shall cause accounting records to be kept. The accounting records shall be sufficient to show and explain the transactions of the company and shall be such as to disclose with reasonable accuracy, at anytime the financial position of the company.

In the banking industry, financial reports are of great interest to the general public because the banks directly or indirectly interact with people.

This public interest has caused companies (including banks) to accept social as well as economic, financial and legal responsibilities and has created a consequence, a growing need for the communication of information to account for the results which are of considerable interest a wide range of individuals and organizations.

So, it becomes very imperative for reliable information to be circulated to interested parties which can enable them to acquire an essential knowledge of the way is which companies particularly the bank are performing in relation to the public interest. This fact is further educated by the recommendation of the working party set up in Britain by the Accounting standard committee in October 1974 under the chairmanship of Derek booth man which took a study of the scope and aims of publisher financial statements.

The committee recommended that:

“The fundamental objectives of corporate report are to communicate economic measurement of the reporting entity useful to those having reasonable right to such information”

It is not an over statement when one says that the banking industry is the flume on which the national economy rotates. This mammoth, impact upon a country economy therefore makes it a public affair is everybody in the country has a right to know what such organizations are doing, more so all information, necessary to explain the organization’s activities fully should be provided in the annual reports.

One of the most significant aspects of the information system of business enterprises in an economy is that which deals with the communicate of financial data, especially in describing business profitability and financial position. This information is important because it attempts to partial the economic resources of the enterprises and the financial results, which have been achieved by its management when those resources have been put to use. It attempts to reveal how effective management has been in resources utilization as well as the financial reward available to compensate for risk taken by various suppliers of capital.

1.2 Statement of the Problem

The genuineness or other wise of financial reports has attracted diverse opinions from different quarters, such opinions can come from the general public, tax authorities, shareholders, creditors with long or short term interest, financial analyst and potential investors.

They argue that the financial reports do not usually give an accurate data about the actionties of such business concerns, for example, the idea of stating assets at their historical cost do not favour most investors as they argue that inflation is not usually taken care of, though the real value of such assets might have been eroded.

Again since the financial reports prepared by managements, the shareholders and others argue that there would usually be some elements of bi as on the part of management in the disclosure of management’s financial ineptitude.

But in any case the management claims that some inherent problems would usually affect the accuracy of such reports. It is therefore the intention of this researcher to delve into the matter to enable him establish a relationship between financial reporting and performance evaluate in a bank.

1.3 Objectives of the Study

Companies including those in the banking industry have had to face the onerous task of presenting a credible and generally acceptable financial statement in their annual reports, to the various people to whom they own such obligations.

The purpose of the study is:

  1. To determine the various financial reports used by banks.
  2. To ascertain the problems of using financial reports to assess performance of banks.
  3. To examine the use of historical cost convention adopted by banks in stating this balance sheet items on investors.
  4. To determine of there’s a relationship between financial reporting and performance evaluation of a bank.
  5. To offer recommendations and solutions on the best way financial reports could use in assessing bank performance.

1.4 Research Questions

  1. What impact has financial reporting on bank performance with respect to the financial position of the bank?
  2. How does financial statement assess the bank performance?
  3. Does financial reports disclosed financial impetitude of bank mangers to the shareholders?
  4. What are the problems associated in using financial reports to assess bank performance?
  5. How do we know a reliable financial report?
  6. Has financial statement of banks influence your investment decision?

1.5 Research Hypothesis

Base on the statement of problem and objections of this research work the following general hypothesis are formulated:

  1. Ho Investment decision, base entirely on the financial statement will not lead to poor and lazy decisions.
    Hi Investment decision based entirely on the financial statements will lead to poor and lazy decisions.
  2. Ho The efficiency of financial reports is great affected by inflationary trends in the economy.
    Hi The efficiency of financial reports is not greatly affected by inflationary trends in the economy.
  3. Ho Financial report are not a true in director of banks performance.
    Hi financial reports are a true in director of banks performance.

1.6 Significance of the Study

The banking industry is a very important sector of the economy. This is because banks can determine the direction of growth or development of the economy trough the financial service rendered by banks. The financial services which includes, funds mobilization, safekeeping and custodianship, funds transfer, foreign exchange transaction equipment leasing, extension of loans and advances, investment in securities, bill discounting etc.

Investment key sector of the national economy of which the banking industry is one becomes a goal-getters priority. Owing to this, it becomes necessary that financial reports presented by banks satisfy the need of the users of the reports.

Specially, at the end of this study, we shall have been able to establish:

  1. Whether or not the financial reports affects investment in the banking industry.
  2. Whether or not the annual financial report currently reflect the inflationary effects.
  3. Whether or not banks follow rigid accounting practices.

The emphasis of this research is not to discuss the determinants of performance, but to establish a relationship between financial reporting and performance so that potential investors is in banking industry may clearly define the stand.

1.7 Scope and Limitedation of the Study

The aim of the study is to examine, the use of financial reporting in assessing banks performance, however it will be restricted to investigations carried out on union bank of Nigerian Plc.

To enable the research have a broad view, the study will not be based on one branch. A study of some selected branches of the bank will also be carried out.

But in any case, the following among others are the numerous constraint, while are envisaged;


The dearth of related books and journals will no doubt affect the quality of the research.


The greatest employer of man, which is time was not in my favour through I manage it considering the time allocated to my studies, fellowship and the project.


The research work generally involves money but considering my stand as a student. I was limited by financial in achieving my gim of have a population rather I found my self in using sample size, even visit to my case of study.

Response Rate:

The information to be analyzed in the study will be limited to those who would respond voluntarily to the questionnaire.

Paucity of Industry:

At the course of my research I come to release that many banks dose not have any form inter-relationships which make things difficult for me in using one set of information generated as touching planning and control in UBN to generalize issues. That leads me into more research, which will continue even after this profit.

1.8 Definition of Terms


The objective examination of financial statements initially prepared by management by a third party other than the prepared or used with the goal of establishing the fairness of representations made therein and reporting on same a guides to interested users.


To assume responsibility for the fairness and dependability for the fairness and dependability of financial statements.


Inability of person to meet his liabilities as they mature.


Misrepresentation by a person to be untrue or made with reckless indifference as whether the fact in true with the intention of deceiving the other party and with the result that the other party is injured.

Financial Statements:

This covers balance sheets, income statement or profit and loss accounts notes and other statement and explanatory materials.

Going Concern:

Continuing in operation for the foresable future with the assumption that the enterprise has neither the intention nor the


Process of winding up of a company thereby brings to an end its corporate existence.

True And Fair View:

The opinion of an auditor, which depicts compliance, will generally accepted accounting principles and full of fair disclose of facts.

Chapter Five

Findings, Recommendations and Conclusions

This sector deals with the findings and personal opinions of the research bases on data collected from the bank and interview held with some senior officers in Accountancy.

It has to the stated here that the respondents to the questionnaire were qualified people with the necessary accounting background and experience; therefore data collected can be relied upon for the formation of opinions.

5.1 Findings

The analyses of question 2-4 were aimed at revealing the impact of financial statements on investment is banks and this performance appraisal in such banks. It was fund that financial statement of banks influenced most investment decisions. Categorically a mammoth percentage relied on the five-year summary of banks in their performance evaluation.

Furthermore, there as a consensus opinion that financial statements were prepared to satisfy the needs above facts that the major items of financial statement, i.e. profit and loss account, the five-year summary have positive influence on investments and are veritable tools in performance appraisal.

The analysis of question No 5 revealed that, the annual financial reports do not reflect the inflationary effect in the country today; also it is found that the historical cost convention has been adopted for the valuation of assets of the bank. Historical cost with its associated disadvantages of under valuation of assets and the overstatement of profit during a period of inflation could have serious implications on financial reported data in the financial reports could be misleading because of ering value at each transaction. This therefore confirms that annual financial reports do not reflect the inflationary effect in the country today.

Finally, it was found that financial reports meet the requirements of potential investors. This shows that potential investors would definitely have no problem in satisfying its need to make further investments in the bank. Such information as contained in the banks annual reports to satisfy these potential investors to decide on their investments and performance evaluation of the bank include.

  1. Information on earning per share (ESP).
  2. Information on divided per share (DPS)
  3. Information on source and application

5.2 Recommendations

In the light of the need to make financial statement credible and completely reliable, the research makes the following recommendations.

  1. The adaption of the current cost accounting as a basic for the valuation of assets and other monetary items such as debtors, creditors, overdraft, taxation etc is recommended for banks. Under this convention, the bitting of price charges during the accounting periods is removed, and this would enable the financial statements depict a more creditable information for the various users of the statement where historical cost convention is used.
  2. It is the resolve of the research to recommended that profits should only recognized when made, to make for objectivity as this has had a negative influence on investors and performance evaluation analysts.
  3. Finally, the use of the five-year summary may not be able to stand the test of time. It is therefore recommended that a ten-year summary be used. This is to reduce the effect of inflation to the barest minimum.

5.3 Conclusion

The research was carried out to ascertain the use of the financial statement on evaluating performance in the bank, with particular reference to Union Bank of Nigeria Plc.

The analysis of financial disclosed that although investors and performance evaluation analysis reliced on financial statement in the decision and appraisal. The reliability of financial reports especially during inflation as in currently prevalent is not assured as a result of the historical cost convention as a basis for asset valuation; consequently, the use of these reports now in decision-making may lead to inadequate decisions.

5.4 Suggestions for Further Research

It is the view of the researcher that further research can be undertaken in the same area of study in the future. However, he suggests that this should be carried out in another area perhaps in a manufacturing industry or insurance industry with a larger sample size. If this is carried out it would probably expose greater findings.

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