THE OBJECTIVES OF FINANCIAL STATEMENTS AND THERE USEFULNESS TO THE GENERAL USER GROUPS

By

ODUKWE EMMANUEL .I.

Presented To

Department of Accountancy

ABSTRACT

There is a global confusion and misconception in identifying the objectives of financial statement and their usefulness to the general user groups in an office. Some accountant appear not to be aware of the objectives of financial statement in the execution of their accounting duties.

Many bodies and individuals like "R. J. Chambers, David Alexander and the National Association of Accountants" had accentuated on the objectives of financial statements in an organization long before I intended to carry out a survey of my own on the same issue.

It is on this background, that I therefore, conducted a research with a view of appraising, vindicating, exposing and making clearer the objectives of financial statements of accounting in the mounding office activities, and there usefulness to the general user groups in particular.

This research work will therefore throw some light on the many years old confusion and controversial issues on. What the financial statement is, its objectives and usefulness to the user groups.

TABLE OF CONTENT

TITLE PAGE II

APPROVAL PAGE III

DEDICATION IV

ACKNOWLEDGMENT V

ABSTRACT VI

TABLE OF CONTENT VII

CHAPTER ONE

1.0 INTRODUCTION 1

1.1 OBJECTIVES OF THE STUDY 2

1.2 SIGNIFICANCE OF THE STUDY 3

1.3 LIMITATIONS OF THE STUDY 4

1.4 DEFINITION OF TERMS 4

CHAPTER TWO

2.0 LITERATURE REVIEW 7

2.1 OBJECTIVE OF FINANCIAL STATEMENT 7

2.2 USERS OF FINANCIAL STATEMENT 8

2.3 TYPES OF INFORMATION'S REQUIRED BY USERS OF FINANCIAL STATEMENTS

2.4 CHARACTERISTICS OF USEFUL INFORMATION11

2.5 USEFULNESS OF FINANCIAL STATEMENT TO GENERAL USER GROUPS

CHAPTER THREE

3.0 SUMMARY OF FINDINGS 16

3.1 CONCLUSION 17

3.2 RECOMMENDATION 18

BIBLIOGRAPHY 20

CHAPTER ONE

1.0 INTRODUCTION

Percentage analysis and ratio analysis was developed to provide an efficient

Means by which a statement user can identify the important relationship between items in the same statement and trend in financial data. Percentages and ratios simplify the evaluation of financial conditions and past operating performance.

The information is used primarily to forecast a firm's ability to pay its debts when due and to operate at a satisfactory profit level. However, because the analytical techniques are almost limitless - and so are the user's special interests and objectives - the choice of proper ratios and percentages must fit their purpose. For example, some users of financial statements are concerned with evaluating the firm's ability to meet its current obligations and still have sufficient cash left to carry out its other activities. In other words, they are concerned about the firm's liquidity. The focus of this type of investigation is generally on the firm's current assets and current liabilities.

Other users, such as long-term creditors and stockholders, are also concerned with the firm's liquidity but, in addition, are interested in a firm's ability to pay its long-term obligations. This aspect of the analysis is concerned with the solvency of the firm. In a solvency analysis, the statement user assesses the financial structure of the firm and its prospects for operating at an earnings level adequate to provide sufficient cash for the payment of interests, dividends and debt principal.

1.1 OBJECTIVES OF THE STUDY

The aim of embarking on this study is:

i. To identify the objectives of financial statements

ii. To find out who are the users of financial statements

iii. To ascertain the relevant information required by the users of financial statements.

iv. To identify the characteristics of useful information

v. Finally, to identify the usefulness of financial statement to its users.

SIGNIFICANCE OF THE STUDY

The researcher has got interested in this topic, not necessarily because he has worked intensively with any company before or to fulfill a necessary requirement but to identify the useful recommendation towards the objective of financial statement in business.

Some people are scared from the intermediary business of frustration. There are so many young men today who are prepared to make a career in financial statement companies, in spite of its challenges and difficulties, but have been frustrated half way by some of these financial companies.

Some companies whose name sounds big to the public are really big for noting. They find it very difficult to pay out salaries and commission for a reasonable length of time. The accountant who delay the payment of salesman commission must be regarded as a serious impediment to sales performance.

LIMITATIONS OF THE STUDY

The research work has some constraints, which affects the effective and efficient discharge of our duties. Time being a common factor to every human being is not on our side. Classroom studies are being done so this happens to be a setback to this work.

Lack of finance happens to be another factor which hinders the effective discharge of this work as there is the difficulty of transportation from place to place so as to collect data for the research work.

Sanity of data happens to be another set back to the effective discharge of this study as the information obtained are not sufficient to the relevance of this research work.

Finally, the attitude of people I meet during the research work, some felt reluctant in giving relevant information needed, others demand for money for any information they gave.

DEFINITIONS OF TERMS

The following terms used in this study should be taken to mean the following:

FINANCIAL STATEMENTS

Financial statements may be defined as a set of report prepared by a company in line with regulatory statutes and for the information of all groups that have one interest or another in the company.

RATIO AND PERCENTAGE ANALYSIS

Ratio and percentage analysis are tools used to examine significant relationship, measures proportional relationship between two different financial statement amounts.

LIQUIDITY

Liquidity refers to a company's ability to meet its currently maturing debts.

CURRENT ASSETS

Current assets are resources owned by an entity that are reasonably expected to be realized in cash or used up within one year from the balance sheet date or during the normal operating cycle of the business, whichever is longer.

CURRENT LIABILITIES

Current liabilities are those short-term debts at the balance sheet date that are expected to be paid out of the current assets listed on the same balance sheet.