ABSTRACT

Chapter One: Introduction

1.1 Background of the Study

Generally, the financial statement can also be seen as a summary explaining how a business performed during a certain time frame and what to expect in the future.

Generally accepted accounting principle [GAAP] require a company to prepare a full set of financial statements that conformed to regulatory guidelines and are accurate.A full set of financial report include statement of retained earnings and statement of cash flow.

Good financial statement should document the information in such a way that is easy to read and understand presenting the financial statement clearly and professionally help people interpret the results and plan for a more profitable future. Growth in business refers to a company expanding its business through the use of its own resources and asset and growth also depends on the financial statement of an organization.

Financial statement of companies are prepared either using Generally Accepted Accounting Principle [GAAP], defined by the law on accounting and the law financial statement or using International Financial Reporting Standard [IFRS], and International AccountingStandard[IAS], issued by the international accounting standard board [IASB]. Those standard are not enforceable together; therefor, companies choose one of them for reporting purposes. Investment decision making as used by the researcher is a determination made by director or management as to how, when and how much capital would be spend on investment opportunities. The decision often follows research on financial standard.

Corporate organizations owe a duty to fully disclose matters concerning their activities so as to help investors in making investment decisions. Both large and small organizations in addition to satisfying the legislative requirements turn to maintain existing investors and attract potential ones through the publication of their financial statements. Where the capital stock of corporations is widely held and its affairs are of the interest of the public relations.    

Financial statements of companies are prepared either using Generally Accepted Accounting Principles (GAAP) defined by the law of accounting and the law of financial statements or using the International Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board.Every business prepares statement of comprehensive income (profit and loss account) to ascertain the net result of financial working of the business whether it has earned some income or profit or sustained any loss.         

Gautan (2005) sees financial statement as financial information which is the information relating to the financial position of any firm; when presented in a concise form. Beside statement of comprehensive income and statement of financial position, some other statement are also prepared for deriving certain conclusions.

Financial statements are prepared either using the Generally Accepted Accounting principles (GAAP) defined by the law of accounting and the law of financial statement, or using International Financial Reporting Standard (IFRS) and the International Accounting Standard (IAS). Therefore, companies choose one of them for reporting purpose.

IFRS originated in the European Union after the First World War. IFRS are set of international accounting standard stating how particular types of transaction or event should be reported in the financial statement. IFRS are issued by international accounting standard board (IASB) and they specify how accountant must maintain their reports.                                                                   

IFRS was established to obtain a common accounting language, so that businesses and accounts can understood from company to company and country to country. The main point was to maintain stability and transparency throughout the financial world. This allows individuals investor to make educated financial decisions because they are able to see clearly what has been happening with the institution which they wish to invest.                                                                      

IFRS spread globally to the European and African countries whereby companies were oblige to prepare financial statement base on IFRS. Since IFRS is globally accepted accounting standard of financial reporting, Cameroon financial institution follow this same standard in which CCC PLC Buea is not an exception.

1.2 Statement of the problem

Every business prepares profit or loss account or income statement to ascertain the net result of financial working of the business. Whether end some income or profit or sustained any loss. It also prepares balance sheet to find out the financial position of the business.

Profit and loss account or the income statement, retained earnings statement and balance sheet are known as financial statement.

Gautam (2005) sees financial statement as financial information which is the information relating to a financial position of any firm when presented in a concise and capsule form.

Beside profit and loss account and balance sheet, some other statements are also prepared for deriving certain conclusion.

In our current situation in the society now, the investment decision making community credit company plc. [CCC], has 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 benefit of financial statement there by limiting their knowledge about their financial position and above all their ability to use financial statement to make financial investment decision making.                     

It is for this reason that we search embarked on this study to draw the alarming signal on the impact of the financial statement on the investment decision in an organization.

Besides, most MFls complying with the bookkeeping principle, the have fallen short of living up to the laid down standard, 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 as a result of competition, creativity, innovation.

Many businesses have failed because of little consideration of accounting information in decision making. It is for this reason that the researcher embarked on, to investigate the role of accounting information on decision making in micro finance and looking at some of the information’s used by management in making a decision.

Despite the use of financial statement inCommunity Credit Company PLS [CCC], the institution is still unaware of the importance in the frequency and manner of presentation of these statement as far as investment are concerned. Having in mind in fact that financial viability is quite important, what therefore is the role of financial reporting n investment decision making in Micro Financial Institutions [MFI]?

Research Questions:

1. What is the current state of financial reporting practices within microfinance institutions (MFIs) operating in the Buea Municipality?
2. How does the quality and transparency of financial reporting impact investment decision-making by stakeholders in MFIs?
3. What are the key factors influencing the relevance and effectiveness of financial reporting in guiding investment decisions within MFIs in Buea?

Objectives:

1. To assess the quality, transparency, and timeliness of financial reporting practices within microfinance institutions in the Buea Municipality.
2. To examine the extent to which financial reporting influences investment decision-making by stakeholders, including investors, regulators, and MFI management.
3. To identify the challenges and opportunities associated with financial reporting in microfinance institutions and propose recommendations for enhancing its relevance and effectiveness in guiding investment decisions.

Hypotheses:

1. H₀: There is no significant variation in the quality and transparency of financial reporting practices among microfinance institutions in the Buea Municipality. H₁: Microfinance institutions with more transparent and timely financial reporting practices are perceived more favorably by investors, leading to increased investment inflows.

2. H₀: The relevance of financial reporting has no significant impact on investment decision-making by stakeholders in microfinance institutions. H₁: Stakeholders rely heavily on financial reporting information to assess the financial health, risk profile, and growth potential of microfinance institutions, influencing their investment decisions accordingly.

3. H₀: External factors such as regulatory requirements and technological constraints do not significantly affect the effectiveness of financial reporting in guiding investment decisions within microfinance institutions in Buea. H₁: Regulatory mandates, technological advancements, and institutional capacity play a critical role in shaping the relevance and effectiveness of financial reporting practices within microfinance institutions, influencing investment decisions by stakeholders.

SIGNIFICANCE OF THE STUDY

  A financial report is a significant tool/ document because investors and regulators rely on accounting information to managerial decisions. Consequently, financial data that are inaccurate or misleading can cause readers and users to make wrong investment or regulatory calls.                                         

Additionally, this study helps companies prepare financial statement under similar accounting principle.  Create an awareness with respect to the great impact accounting reporting has on investment decisions. Again, it serve as a reference document for future researcher interested in this line of studies.                             Also, the study aids people who intend to open companies to know the importance of accounting information to management decision making.

The study also helps to better understand why every operating organization needs an accounting system.

It equally creates an awareness with respect to the great impact of accounting information on decision making.

Other significance.

Furthermore, the study helps to know the differences between practical and theoretical work and to have a good knowledge of the various accounts operating in CCC PLC Buea.

 In addition, it is hoped that, it may act as a working tool to the organization where some of the recommendations may serve as solutions to some problems faced by CCC PLC Buea.

To the shareholders.

This study will be of significance to shareholders because, proper investigation of the key accounting information contain in the financial statement will undoubtedly enhance efficient and effective investment decisions.

To the bank.

It will be an immense benefit to banks by improving the banking performance and will also help them to take a good decision.

To the organization.

This piece of work will assist the organizations to maximize the positive effects of financial statements on investment decision making, it will also help in the efficient allocation of resources that have alternative use as well as increase productivity thereby, uplifting the living standards. It will also review the improvement in the organisations handling the accounting information and equally show the ways through which improvements can be accomplished.

To financial analysts.

This study will be of immense benefit to financial analysts because, it reveals what actually should form the basis of shareholders investment decisions.

To potential investors.

This study will help investors have a broader knowledge on investment decision making.

To the student.

This study will serve as a reference to students of these noble institution and students of other schools who may wish to further research study of this nature.

To the government.

The study will enable the government to bring out possible solutions which will enable the government to improve on the financial statement