AN INVESTIGATION INTO ACCOUNTING POLICIES OF BANKS
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AN INVESTIGATION INTO ACCOUNTING POLICIES OF BANKS
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Since Nigeria’s adoption of the corporate form of business entity, the banking industry has played a significant role in fostering economic growth and development through lending money to businesses and private citizens.
Banks promote financial investment activities by selling their financial securities to the public, who in exchange will only require that the performance be reflected in their financial yearly report.
Izedonmi (2001) noted that banks help to allocate available resources by mobilising funds from productive channels to finance investment activities in productive sectors and increase capital formation.
Through the Statement of Accounting Standard (SAS) and the Code of Corporate Governance, which have established pressing issues on standard of financial reporting by banks,
the Central Bank of Nigeria (CBN) and the Nigerian Accounting Standard Board (NASB) are actively engaged in monitoring banks in Nigeria to ensure that their financial statements are released when required.
Although these accounting standards and their origin, development, implementation, and disclosure have not been properly upheld, it is possible that the policies chosen are unfavourable.
Accounting policies are specific accounting bases used by corporate businesses that are suitable for the presentation of their results and financial position using fundamental accounting concepts, conventions, and principles in order to achieve their goal of a true and fair view of the financial statement since they are to be relied upon by stakeholders.
The most important accounting principles relate to consolidation, segment reporting, foreign currency conversion and translation, investments in subsidiaries, goodwill, depreciation, sales of loans and securities, etc.
Under the application of accounting policies, different firms employ various methodologies. Policy makers from various firms are connected in a network during the policy-making process.
The complexity of accounting principles can have an impact on financial reports. Financial reports occasionally may be based on competing principles, which can lead to criticism of such reports.
There may also be conflicts in how the principles are applied and disparities in how information is disclosed between the principles and the report. According to Kothori and Hope (2003),
the regulatory enforcement or corporate implementation of accounting standards as well as the quality of the standards themselves determine the quality of financial information. Therefore, the standard should be used to develop these policies.
The Nigeria Accounting Standard Board (NASB) has taken this into consideration while developing the statements of accounting standards (SAS) that would direct banks and other business entities in the development of reliable and secure accounting procedures for the effectiveness of reporting in the financial statement.
There haven’t been many studies on the topic, despite how crucial bank financial performance is to investors and stakeholders; this study aims to close that gap by concentrating on the banking industry and examining “the impact of their accounting policies on their financial performance.”
STATEMENT OF THE PROBLEM
The accounting practises of banks have been the subject of prior studies, and the following issues are related to this research:
The accounting standards used by corporate organisations may be overly complicated and contradictory, which could lead to discrepancies between the various standards and financial reporting.
Bank accounting practises harm their financial position because they do not improve operational effectiveness.
The implementation of the accounting standards-compliant accounting policies that banks enacted is not fully met by banks.
Since the bank’s policy-making body does not completely understand the accounting standard, it is required to review the policies since they result in accounting rules that are not up to par.
A substantial item’s accounting policy changing always has an impact on their financial position, either negatively or favourably depending on how favourable the policy is. Therefore, the researchers’ primary focus is on developing solutions to the aforementioned issues.
1.3 OBJECTIVES OF THE STUDY
This study’s goal is to determine the effect of a few particular accounting policies on banks’ financial performance. Research areas include:
To determine whether bank accounting practises improve bank operations
To ascertain how a change in accounting practises may affect banks’ profitability
To ascertain whether accounting practises have an effect on banks’ profitability.
To ascertain whether a manager’s selection of accounting practises complies with accepted accounting standards.
To ascertain the bank’s retention of earnings accounting policies.
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