Abstract

Financial statement is one of the most important tools when it comes to investment decision. As a result of this it has to be critically examined by financial institutions as well as investors. This study is aimed at assessing the impact of financial statements on decision making in financial institution. It also determines the effect which financial statement has on investment decisions. As methodology primary data is was collected from various financial institutions using questionnaires and observations. The data was analyzed using statistical packages for social science programs. This study argues that financial statements has a great impact on decision making in financial institutions.

CHAPTER ONE

INTRODUCTION

1.1 Background of Study.

The complex nature of today’s business world and the transformation of the entire world into  a  global  village  have  been  of  great  concerns  to  managers  of  all  forms  of  business  organizations especial the managers of Bali Central credit union Limbe. According to Ojuigo  (2020),  the  problems  of  managers  are  multi-varied  because  of  the inefficiencies  in the management of poor decision outcomes of these organizations. As diverse as business is, its controllable and uncontrollable factors influence all decisions which ultimately lead to the realization of set objectives. To achieve this, Bali central credit union Limbe management needs reliable, authentic and relevant information from the financial statements to efficiently facilitate decision making.

It must be noted that one of the primary goal of businesses is profit making. Therefore, the drive for profitability is a factor in Bali central credit union Limbe, and managers have a

responsibility of  ensuring  the  ascertainment  of  this  goal.  To achieve  this,  available information from the financial statements of Bali central credit union Limbe must be analyzed, interpreted and used as a basis for decision making (Needham and Dransfield, 2019).

Financial statements provide an overview of a business profitability and financial condition in both short and long term. They are necessary sources of accounting information about companies for wide variety of users. In Bali credit union, there is a need for information.  This  information  needs ranges from  financial, production, marketing etc.

Generally, the larger the organization the greater the management need for information. Financial report plays a vital role in decision making process of Bali central credit union Limbe. The main purpose of financial reports is the provision of financial information as a record making. It has been said that accounting is the language of business. It might also be said that the ability to apply accounting knowledge is critical to success in business.

A business prepares various statements at the end of each fiscal period. These statements summarize the changes that have taken place during the period. For this financial report to be useful, the data must be presented in such a way that the user will recognize, Similarities, differences and trends from one period to another to enable them make decisions. The accounting information contained in the financial statements, when analyzed, enables Bali central  credit  union  Limbe  management to  make  more  informed  decisions.

Financial statement analysis is often considered as a vital tool used in evaluating a company’s  performance and ensuring that decisions are based on facts rather than rule of thumb. The  cause of any financial or operating problem is an event, which produces an effect (the  problem). However, in order to identify the cause and effect, the system, which represents an  indicator of the problem, should be observed. This process is referred to as interpretation (Pandey, 2019). Therefore, financial statements should provide adequate information in all  areas of organization and economic activities; it should be able to disclose clearly the nature  and accurate accounts of the transaction’s fun which the true and fair view financial position  of Bali central credit union Limbe can be ascertained. Financial statement preparations in  Bali central credit union Limbe are usually done by internal accountants, who are directly  influenced by the management of the company. Bali central credit union Limbe 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 Bali central credit union Limbe. 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, Bali central credit union Limbe 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. The decision often follows research on financial statements.

Every Financial institution wants to know the various financial aspects for decision making. The preparation of financial statement is required in order to achieve the objectives of the firm as a whole. Financial institutions owe a duty to fully disclose matters concerning their operations so as to aid the manager in making decisions. Financial statements are written records that convey the business activities and the financial performance of a company. Financial statements are often audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes Chris B. (2021). Investors and financial analysts rely on financial data to analyze the performance of a company and make predictions about the future direction of the

company’s stock price.

The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions. Financial statements should be understandable, relevant, reliable and comparable. Reported assets, liabilities, equity, income and expenses are directly related to an organization’s financial position. Financial statements are intended to be understandable by readers who have “a reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently. According to Abdulshakour, (2020), The financial statements are a key tool to know the financial position of Bali central credit union Limbe, so they must be accurate and reliable before being published by management.

Regarding financial statements Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield have stated in their Intermediate Accounting (10th edition): “Financial statements are the principal means through which financial information is communicated to those outside an enterprise. These statements provide the firm’s history quantified in money terms. Financial statements are considered as the mirror of a business concern because they reflect the working capacity or weakness of a business concern. Financial statements come to the use of various parties. For example, management, investors, banks, creditors, officials, government, business organizations,  consumers,  and  general  masses  are  benefited  from  financial statements. According to Richard (2019), a financial; statement is more than just a snapshot of one’s business’ health that is provided to shareholders or potential investors. It is a powerful diagnostic tool used by business owners to evaluate the strength, weakness and look for the way forward. In the same light, Article8 of the Uniform Act (UA) stipulates that a financial statement consists of funds. They form an invisible whole and they faithfully and sincerely represent the events, transactions and state of affairs throughout the accounting period thus giving a true and fair view of the undertakings assets, financial position and results.

1.2 Statement of the problem

As a current situation in the society of Cameroon, decisions in BALI CENTRAL CREDIT UNION LIMBE have been very slow due to the negligence on the use of financial statement and other important financial records. 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 Micro finance institutes (MFI) 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. Financial statements hold the potential of unravelling the future of MFIs as an integral driver of economic growth and development in low-income economies. Despite the use of financial statements in BALI CENTRAL CRDIT UNION LIMBE, the institution is still unaware of the importance in the frequency and manner of presentation of these statements as far as investments are concerned. Having in mind the fact that financial viability is quite important, what therefore is the role of financial statements in the decisions of micro financial institutions.

1.3 Research Questions

To attain the objectives of this study, the researcher had the following research question,

1. What is a financial statement and what effect does it play in helping managers make decisions in Bali central credit union?
2. What are the various tools used for the presentation of the financial statements?
3. What is its importance to a financial institution?
4. What recommendations could be made as far as the study is concerned?

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