CHAPTER ONE

INTRODUCTION

1.1      Background to the Study

Corporate financial report provides fundamental information to a wide range of groups; its main

purpose is to provide information which is supposed to give a true and fair view of the

management’s stewardship, company’s performance and financial position for the various users

of the information to make informed economic decisions (America Accounting Association,

1961). Financial reporting is the process by which corporate entities provide interested parties

(users) with information on their transactions during an accounting period (Mbobo & Ekpo,

2016). Among the interested parties are shareholders, creditors, tax authorities, customers,

financial analysts, and lenders. The parties need quality financial reports for economic decision

making.

Financial report is one of the major means that corporate management uses in communicating

financial information for a given period. In this regard, the International Accounting Standard

(IAS 1) states that the purpose of financial reporting is to provide information about the financial

position, financial performance and cash flows of an entity that is useful to a wide range of users

in making economic decisions. Such information is communicated through financial statements.

Ibadin and Dabor (2015) stated that financial statements show the results of the management’s

stewardship of the resources entrusted to it by revealing economic information on assets,

liabilities, equity, income and expenses, including gains and losses; contributions by and

distributions to owners in their capacity as owners; and cash flows. Such information, along with

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other information in the notes, assists users of financial statements in predicting the entity’s

future cash flows and, in particular, their timing.

Moreover, accounting information contained in the financial statements is one of the very

essential information needed by various stakeholders especially investors for making informed

economic decisions. Investors in search of investment avenues use the accounting information

contained in the financial statements of the intended investing company in pricing of shares.

Market participants seek high-quality financial reporting or information to mitigate information

asymmetry as such quality information should be a pre-requisite for a well-functioning capital

market. Thus, companies that provide high-quality information have an added advantage in their

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