CHAPTER ONE

INTRODUCTION

1.1. Background of the Study

Financial reporting plays a pivotal role in modern business operations, acting as the cornerstone

of transparency, accountability, and informed decision-making. It provides a structured

representation of a company’s financial performance and position, offering critical insights into

revenue generation, cost management, and overall financial health. The process of financial

reporting encompasses the preparation of statements such as the balance sheet, income

statement, and cash flow statement, in compliance with regulatory standards like International

Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP)

(Deegan, 2014). These statements not only fulfill statutory obligations but also serve as a

critical tool for both internal and external stakeholders in evaluating risks, strategizing growth,

and maintaining trust in the organization’s operations.

Financial reporting assumes an even more significant role. Risks in business manifest in

various forms, including financial, operational, strategic, and compliance risks, all of which

can disrupt organizational objectives. Effective financial reporting is instrumental in

identifying and mitigating these risks, as it provides timely and accurate data essential for early

detection of potential vulnerabilities. According to Spiceland et al. (2019), financial reporting

acts as a diagnostic tool, enabling managers to analyze past performance and forecast future

trends. For instance, declining profitability, rising debt levels, or liquidity constraints evident

in financial reports can alert businesses to underlying risks, prompting corrective action before

they escalate into crises. Robust financial reporting fosters a culture of accountability, which

ensures that all business activities are conducted ethically and within legal boundaries, thereby

mitigating reputational and compliance risks.

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The relationship between financial reporting and risk management has garnered significant

attention from researchers and practitioners alike. Scholars argue that transparent financial

reporting not only facilitates risk identification but also strengthens stakeholder confidence, a

critical factor in navigating uncertainties. Healy and Palepu (2021) emphasize that stakeholders

rely on financial reports to make informed decisions about investments, lending, and strategic

partnerships. Accurate reporting reduces information asymmetry, aligning the interests of

management with those of shareholders and other stakeholders. This alignment is particularly

crucial in today’s globalized business environment, where organizations face heightened

scrutiny from regulators, investors, and the public.

Beyond its diagnostic and preventive functions, financial reporting supports strategic risk

management by way of guiding resource allocation and investment decisions. Modern

businesses operate in a dynamic environment characterized by rapid technological

advancements, evolving consumer preferences, and volatile markets. As noted by Kaplan and

Norton (2014), integrating financial reporting with strategic frameworks such as the Balanced

Scorecard enables organizations to align financial goals with broader business objectives.

Financial reporting has significant external ramifications, particularly in terms of regulatory

compliance and market perception. Regulatory frameworks mandate businesses to disclose

accurate and comprehensive financial information, ensuring transparency and protecting the

interests of stakeholders. Non-compliance with these requirements can result in severe

penalties, legal liabilities, and reputational damage, all of which pose significant risks to

business continuity. According to Chen et al. (2018), organizations that prioritize accurate

financial reporting are better equipped to navigate regulatory complexities, minimize legal

risks, and maintain credibility in the eyes of regulators and investors. Furthermore, transparent

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financial reporting enhances market perception, attracting investments and fostering long-term

sustainability. In this context, financial reporting serves as a critical enabler of trust, which is

indispensable for building resilient business ecosystems.

Technological advancements have further amplified the importance of financial reporting in

risk management. The advent of technologies such as artificial intelligence (AI), blockchain,

and data analytics has revolutionized the way financial information is processed, analyzed, and

reported. These technologies enable businesses to identify risks more accurately and respond

to them more effectively, thereby enhancing their overall risk management capabilities. For

instance, blockchain technology ensures the integrity and immutability of financial data,

reducing the risk of fraud and errors (Tapscott & Tapscott, 2016). Similarly, AI-powered

analytics provide real-time insights into financial trends and anomalies, enabling businesses to

anticipate risks and make data-driven decisions. By integrating these technologies into

financial reporting processes, organizations can not only improve efficiency and accuracy but

also enhance their ability to manage risks in a rapidly changing business environment.

Despite its numerous benefits, financial reporting is not without challenges. The increasing

complexity of regulatory requirements, the risk of human errors, and the potential for unethical

practices such as earnings manipulation pose significant hurdles to effective financial reporting.

Moreover, the global nature of modern business adds another layer of complexity, as

organizations must navigate diverse accounting standards, cultural differences, and regulatory

environments. These challenges underscore the need for continuous improvement in financial

reporting practices, including the adoption of advanced technologies, the standardization of

reporting frameworks, and the development of a skilled workforce capable of interpreting and

leveraging financial data effectively. As noted by Ball (2006), achieving high-quality financial

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reporting requires a concerted effort from regulators, businesses, and professionals, all of

whom play a crucial role in maintaining the integrity of financial information.

1.2. Statement of the Problem

Businesses today operate in a dynamic and complex environment characterized by rapid

technological advancements, increased competition, and ever-evolving regulatory

requirements. This complications has heightened the need for robust financial reporting

systems that provide accurate, timely, and reliable information to identify, assess, and mitigate

risks. Despite the critical role of financial reporting in business risk management, many

organizations face challenges such as inconsistent compliance with standards, limited

transparency, and a lack of integration between financial reporting and enterprise risk

management systems (Deegan, 2014). Poor financial reporting practices can lead to severe

consequences, including financial misstatements, loss of stakeholder confidence, and

heightened exposure to operational, financial, and reputational risks. High-profile corporate

failures such as Enron and Lehman Brothers have highlighted the devastating impact of

inadequate financial reporting and weak risk management systems, which emphasizes the need

for organizations to align their reporting practices with risk management frameworks (Healy

& Palepu, 2021).

Another pressing issue is the increasing complexity of financial reporting standards, which

often vary across jurisdictions, thus creating challenges for multinational corporations. These

discrepancies hinder the comparability of financial statements and obscure stakeholders’ ability

to assess risks effectively (Ball, 2016). Furthermore, while technological innovations like

artificial intelligence, blockchain, and data analytics offer opportunities to enhance the quality

of financial reporting, many organizations struggle to adopt these tools due to resource

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constraints, lack of technical expertise, and resistance to change (Tapscott & Tapscott, 2016).

This technological gap exacerbates risks, as businesses that fail to embrace innovation are left

vulnerable to fraud, errors, and inefficiencies in their reporting processes.

Compounding these challenges is the issue of information asymmetry, where management has

access to more financial information than external stakeholders. When financial reports are

incomplete, inaccurate, or intentionally manipulated, stakeholders cannot make informed

decisions, leading to adverse outcomes such as poor investment choices and erosion of trust in

financial markets (Spiceland et al., 2019). Regulatory bodies and policymakers have introduced

frameworks such as the Sarbanes-Oxley Act and IFRS to improve financial reporting quality,

yet many organizations struggle to comply fully due to a lack of resources, expertise, or

awareness (Chen et al., 2018). As businesses continue to navigate an increasingly uncertain

and competitive environment, there is an urgent need for a holistic approach to financial

reporting that not only meets regulatory requirements but also serves as a proactive tool for

identifying and mitigating risks. This study seeks to address this gap by exploring the interplay

between financial reporting and business risk management, thus offering insights into best

practices and providing actionable methods to strengthen organizational resilience and

sustainability.

1.3. Objective of the Study

The research work cover The Effect of Financial Reporting on Business Risk Management.

Thus the study aims to:

1. To examine the role of financial reporting in identifying business risks.

2. To analyze how accurate financial reporting supports decision-making.

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3. To evaluate the challenges faced by businesses in aligning financial reporting with risk

management.

1.4. Research Question

Based on the objectives, the following research questions were developed:

i. What role does financial reporting play in identifying business risks?

ii. How accurate is financial reporting to business decision making?

iii. What are the challenges faced by businesses in aligning financial reporting with risk

management?

1.5. Research Hypothesis

H₁: There is a significant relationship between the quality of financial reporting and the

effectiveness of business risk management.

H₂: Compliance with financial reporting standards positively influences organizational risk

mitigation and stakeholder trust.

H₃: The integration of advanced technologies in financial reporting significantly improves risk

identification and mitigation processes.

1.6. Scope of the Study

This study focuses on exploring the relationship between financial reporting and business risk

management, by way of examining how transparent and accurate financial disclosures

contribute to identifying, assessing, and mitigating risks. The research delves into the role of

financial reporting in enhancing decision-making processes, fostering accountability, and

building stakeholder confidence. It covers key aspects such as the compliance of financial

reports with regulatory standards, their alignment with risk management frameworks, and their

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impact on organizational resilience. It examines how financial reporting aids in addressing risks

such as operational inefficiencies, liquidity constraints, and reputational damage, while also

considering the influence of emerging trends like sustainability reporting and technological

advancements.

1.7. Significance of the Study

This study holds significant importance for businesses, regulators, investors, and academics by

shedding light on the critical role of financial reporting in business risk management. For

businesses, the study emphasizes how accurate, timely, and transparent financial reporting can

serve as a strategic tool for identifying and mitigating risks, thereby enhancing operational

efficiency, regulatory compliance, and decision-making processes.

For regulators and policymakers, this study provides valuable evidence on the importance of

strengthening financial reporting standards and compliance mechanisms to protect

stakeholders and promote trust in financial markets. It highlights the need for global alignment

of reporting standards such as IFRS and GAAP to enhance the comparability and reliability of

financial information across jurisdictions (Ball, 2006). Policymakers can use the study's

insights to refine existing frameworks and design new policies that encourage transparency and

reduce systemic risks in the global financial system.

Investors and other external stakeholders will benefit from the study’s focus on the role of

financial reporting in improving decision-making. Transparent and reliable financial reports

reduce information asymmetry, allowing stakeholders to evaluate risks and opportunities more

accurately (Healy & Palepu, 2001). This, in turn, fosters greater confidence in business

operations, attracting investments and strengthening market stability. Furthermore, the study

underscores the importance of technology in modern financial reporting, offering stakeholders

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insights into how advanced tools like artificial intelligence and blockchain can enhance data

accuracy and trustworthiness (Tapscott & Tapscott, 2016).

Academically, this study contributes to the body of knowledge on the intersection of financial

reporting and risk management. By addressing gaps in existing literature, the research provides

a theoretical framework and practical case studies that scholars can build upon in future studies.

The study also highlights emerging trends and challenges in financial reporting, encouraging

further exploration into innovative solutions for overcoming these barriers.

1.8. Definition of Terms

 Financial Reporting: The process of preparing and presenting financial statements that

provide an overview of an organization’s financial performance and position, such as

income statements, balance sheets, and cash flow statements, in accordance with

standardized guidelines like IFRS or GAAP (Deegan, 2014).

 Business Risk Management: A systematic approach to identifying, analyzing, and

responding to risks that may impact an organization’s ability to achieve its objectives. It

includes financial, operational, strategic, compliance, and reputational risks (Kaplan &

Norton, 2004).

 Transparency: The degree to which financial and non-financial information is openly and

accurately disclosed to stakeholders to ensure trust and informed decision-making.

Transparent reporting reduces information asymmetry and builds credibility (Healy &

Palepu, 2001).

 Accountability: The obligation of organizations and their management to provide accurate,

timely, and reliable information to stakeholders, demonstrating responsibility for actions

and decisions that affect the organization’s financial and operational performance (Jensen

& Meckling, 2016).

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 Stakeholders: Individuals or groups with an interest in an organization’s activities,

including shareholders, employees, creditors, customers, suppliers, regulators, and the

community. Stakeholders rely on financial reporting to assess the organization’s

performance and risks (Freeman, 2014).

 Liquidity Risk: The risk that an organization may not have sufficient cash flow or liquid

assets to meet its financial obligations as they come due. Financial reporting highlights

liquidity risks through cash flow statements and other disclosures (Spiceland et al., 2019).

 Compliance: The adherence of an organization to laws, regulations, standards, and ethical

practices. Financial reporting plays a key role in demonstrating compliance with regulatory

requirements and reducing associated risks (COSO, 204).

 Sustainability Reporting: The disclosure of environmental, social, and governance (ESG)

information, which provides insights into an organization’s impact on sustainability and its

efforts to address ESG-related risks (Deegan, 2014).

 Risk Mitigation: Strategies and actions taken to reduce the likelihood or impact of

potential risks on an organization’s objectives. Financial reporting supports risk mitigation

by identifying and highlighting areas of concern (Kaplan & Norton, 2014).

 International Financial Reporting Standards (IFRS): This is a set of globally accepted

accounting standards that guide the preparation and presentation of financial statements,

ensuring consistency and comparability across international borders (Ball, 2016).

 Enterprise Risk Management (ERM): A holistic framework that integrates risk

management into an organization’s strategy and operations, enabling proactive

identification, assessment, and mitigation of risks (COSO, 2014).

 Financial Performance: The measure of an organization’s profitability, efficiency, and

overall financial health as reflected in its financial statements. Strong financial performance

minimizes risks and enhances stakeholder confidence (Spiceland et al., 2019).

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Operational Risk: Risks arising from internal processes, systems, or external events that may

disrupt an organization’s operations. Financial reporting provides insights into operational

risks by highlighting inefficiencies or vulnerabilities (Kaplan & Norton, 2014)

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 CHAPTER TWO

LITERATURE REVIEW

2.1 CONCEPT OF FINANCIAL ACCOUNTING

In the view of Thomas (2014), financial accounting is the process of designing and operating

an information system for collecting, measuring and recording an enterprises transactions

and summarizing and communicating the results of these transactions to users to facilitate

making financial and economic decisions. It states that the first part of the definition relating

to collecting and recording transactions refers to double- entry book-keeping which consists

of maintaining a record of the nature and money value of the transactions of an enterprise.

And the second part of the definition, relating to communicating the results, refers to

preparing final accounts and statements form the books of account showing the profit earned

during a given period and the financial state of affairs of the business at the end of that period.

He also states that the account has been traditionally regarded as the holder of the purse

Strings‟ and responsible for „Safeguarding‟ the assets of the business.

Ferris (2020), defines financial accounting as the field of accounting that is concerned with

the preparation of financial statement for decision makers, such as stockholders, suppliers,

bunkers, employees, government agencies owners and other stockholders. He is of the view

that financial capital maintenance can be measured in either nominal monetary units or units

of constant purchasing power. He states that the fundamental need for financial accounting

is to reduce principal agent problem by measuring and monitoring agents‟ performance and

reporting the results to interested users. He also further to say that financial accounting is

used to prepare accounting information for people outside the organization or not involved

in the day-to-day running of the company. He again says that financial accounting provides

accounting information to help managers make decision to manage the business. He

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concluded that financial accounting is the process of summarizing data taken an

organization‟s accounting records and publishing in the form of annual (or more frequent)

reports for the benefit of people outside the organization. He States that financial accounting

is governed by both local and international accounting standards.

According to Farlex (2022), financial accounting is a branch of accounting involving the

preparation and publication of financial statement earnings reports, and other forms for

disclosure to shareholders, regulations, and any other stakeholders. He went further to say

that financial accounting is necessary for publicly traded companies and some other

corporation. He States that it must be accomplished accordance with the generally accepted

accounting principles or equivalent in different counties. He is of the view the primary

difference between financial accounting and management accounting is the fact that financial

accounting involves explanation to outside parties, while management accounting is

primarily internal. In the opinion of Gautam (2015), company required to prepare its final

accounts, profit and loss accounts and balance sheet to know the net result of working and

financial position at the end of the financial period. He states that section 211 of India

companies Act 1956 requires that final accounts of a company shall give a true and fair view

of the state of affairs of the company on a particular data and profit or loss of the company

for the period (generally a year) ending and on the date of balance sheet. He went further to

say that final accounts are to be prepared and presented in accordance with schedule V1 of

the India companies Act 1956.

In the view of Ranjan (2022), in financial accounting is a useful tool to management and to

external users such as shareholders, potential owners, creditors, investors, employees and

government. He states that financial accounting provides information regarding the result of

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its operation and the financial status of the business. He explained some functional areas of

financial accounting which include.

 Financial Transaction: He explained that accounting as a process deals only with those
transitions which are measurable in terms of money. Anything which can not be expressed

in monetary terms does not form part of financial accounting, however, Significant it is.

 Recording of Information: Accounting, as an art of recording financial transactions of

a business concern, these is a limitati9on for human memory. It is not possible to

remember all transitions of the business. Therefore, the information is rcorded in a set of

books called journal and other subsidiary books and it is useful for management in its

decision making process.

2.1.2. TYPES OF FINANCIAL ACCOUNTING

Ama (2023) opines that they are two types or methods of financial accounting namely cash and

accrual. Although they are distinct, both method rely on the same conceptual framework of

double –entry accounting to record, analyze and report transactional data at the end of a given

period, such as a month, quarter or fiscal year.

 Cash Accounting
He is of the view that adopting cash accounting enables business owners to focus only on

corporate transactions involving cash, other economic events, those with no monetary input

don’t matter because they don’t make it into financial statement. Under the cash accounting

method, a corporate book-keeper always debits or credits the cash account in each journal

entry depending on transaction. To record customer remittances, for example, the book-

keeper debits the cash account and credits the sales revenue account.

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 Accrual Accounting
He States that under accrual method of accounting, a company records all transactional data

regardless of monetary inflows or outflows. In other words, this accounting type incorporate

the cash accounting method, but goes beyond it to take into account all transactions making up

a corporation’s operating activities. In a financial dictionary, “accruing” means accumulating

an item and recording is as legally binding even though no cash payment takes place. The

phrase “accounts payable” and “accounts receivable” perfectly illustrate the concept of accrual.

Accounts payment also known as vendor payables, represent money a business owns vendors

at a given point in time. The entity accrues the payables until is settles the underlying debts.

The same analysis applies to customer receivable; the other names for account receivable which

represents money clients own a business. He states that while cash accounting is distinct form

accrual accounting, both types interrelate in the fact that they help a company produce a quarter

of complete and law abiding financial data summarizes at the end of a given period. These

include a statement of financial position, a statement of profit and loss, a statement of cash

flows, and a statement of change in shareholder’s equity.

 Regulatory Compliance
Although government agencies, such as the internal revenue service, accept cash accounting

data reporting, the accrual method holds more prominence in the market place. This is

especially true for publicly traded companies that must use the accrual method of accounting

to record and report economic events. Failure to do so might invite the wrath of shareholders

and the Scrutiny of the United States Securities and Exchange Commission.

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2.1.3. DIFFERENCES BETWEEN BUSINESS ACCOUNTING AND FINANCIAL

ACCOUNTING.

The major differences between business accounting and financial accounting according

to Browne (2022), is that financial accounting is focused on meeting external financial

standards, whereas business accounting is focused on meeting internal business needs.

Related to this is the fact that financial focuses on the financials of the overall organization,

whereas business accounting typically focused on one two specific segments of a business.

Another major difference is that financial accounting exclusively user historical data and

business accounting typically focuses on helping to make decisions about the future.

According to him, the uses for the two different types of accounting also lead to the dichotomy

that the data and results related to financial accounting must be exact and verifiable, whereas

in most cases business accounting involves making estimates and trends that can be produced

in a timely fashion for decision making.

 FUNCTIONS OF FINANCIAL ACCOUNTING

In the view of Thomas (2014), the functions of financial accounting include.

 To maintain accuracy in recoding: Double–entry book-keeping is generally regarded

as the most accurate method of bookkeeping primarily because each transaction is

entered in the books twice. This duplication referred to as a form of internal check,

highlights any errors.

 To meet the requirement of law: the law in the form of Companies Act, states that
companies must keep proper records of their transactions. There is no legislation that

specially requires sole traders or partnerships to keep records of their transactions.

However, when the Inland Revenue makes a demand for income tax on self-employed

person, it usually ask for more than business proprietors would pay if they present

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 accounts showing their profit for he year. There is thus a financial incentive for sole

traders and partnership to maintain proper records.

 To present final account to the owners of the business: These comprise a profit and loss
account showing the amount of profit for the period and a balance sheet showing the

financial position at the end of that period.

 To present the financial reports and analysis: this include the use of ratios to evaluate
the following matters:

a) The profitability of business

b) The level of activity and productivity

c) The solvency and liquidity position

d) The efficiency of credit control procedures

e) The efficiency of stock control procedures

f) The efficiency of any loans on the business’s profitability and financial stability.

2.2. USERS OF ACCOUNTING INFORMATION

Various data that are gathered and communicated by the accounting system for assistance in

making decision regarding future actions. Users of accounting information accounting to

Wild (2023) Include:

 The infernal parties within the organization

 The external parties outside the organization

He grouped an organization into commercial and government (public) under commercial

organization, the internal users are made up of the management and employees. The

management require accounting information to assist them in decision making and control of

activities. The decision made are as regards to the operations, planning, co-ordination,

production, marketing and pricing besides other activities. The role off accounting information

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is geared towards efficient management which is used to maximize the benefit of both the

manufacturers and the consumers. It should be noted that the internal users would require

accounting information in other to ascertain the various regulatory compliance, that the actual

expenditures are in accordance exist for the protection off public assets. Whereas the external

users will require accounting information to ascertain financial viability, planning, controlling,

decision making and appraisal of management performance etc. who use the information to

assess the value of their investment. The external users of accounting information to asses the

ability of the company to meet her financial use the accounting information to determine the

level of investment they would advise their client investors to put into any company and

whether they will yield light profit with less risk. The Security and Exchange Commission (Sec)

would use the information to ascertain if the company is perfuming well or not in the stock

exchange market.

2.3 CONCEPT OF FINANCIAL REPORT

Financial report according to Igben (2017), is the “Communication of financial

information useful for making investment, credit and other business decision”. Such

communication includes general purpose financial statement, balance sheet, equity reports,

cash flow reports and notes to these statements. He states that financial report serves as a lot

of useful purpose to different users namely, shareholders, creditors, banks government agents,

employees, potential investors and management of the entity itself. He is of the view that the

effectiveness and efficiency success of an enterprise has a strong link with the quality of

reports available for decision making. Therefore financial reports should provide adequate

information in all areas of the organization and economic activities.

In the view of wild (2023) financial report summarizes financial information to help

you make decisions. He states that financial reports are formal records of a business financial

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activities which provides an overview of firm’s profitability and financial condition in both

short and long term. This consists of four related accounting reports that summarized the

financial resources, obligation, profitability and cash transaction of the firm. These four basis

accounting reports are balance sheet, income statement, cash flow statement, statement of

retained earnings; there are also notes to account.

2.2.1. OBJECTIVE OF FINANCIAL REPORTING

Thomas (2014) states that financial reports provides information to investors, creditors, and

others who commit fund to a firm. He also states that the financial Accounting Standard

Board, the official rule – making body in the private sector, has established a bros set of

financial reporting objectives to guide the financial reporting process. Here are the

summaries of these objectives and their relationship with the principal financial statement.

 Financial reporting should provide information useful for making rational investment
and credit decisions. This general–purpose objective states simply that financial

reporting should be aimed primarily at investors and creditors and should strive to be

useful to these individual in their decisions.

 Financial reporting should provide information to help investors and creditors assess the
amount, timing and uncertainty of cash flows. This objective flows fun the first by

defining “useful” information more fully. It state that investors and creditors are

interested primarily in the cash they will receive from investing in a firm. Those cash

flow are affected by the ability of the firm to generate the cash flows.

 Financial reporting should provide information about the economic resources of a firm
and the claims on those resources. The balance sheet satisfies this objective.

 Financial reporting should provide information about a firm‟s operating performance

during a period. The income statement accomplished this objective.

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 Financial reporting should provide information about how management has discharged
its stewardship responsibility to owners. Stewardship refers to the prudent use of

resources entrusted to a firm. No single statement helps in assessing stewardship. Rather,

owners assessing stewardship using information from all three financial statement and

the notes.

 Financial reporting should include explanations and interpretations to help users

understand the financial information provided. Supporting schedules and notes to the

financial statement satisfy this objective.

2.2.2. CONCEPT OF REPORTING

The practice of financial reporting has been subject of controversy for a long time now, as

attempt to reduce this contrives and its attendants criticizing the three concept have been

developed for financial reporting namely:

(i) The Stewardship concept

(ii) The decision making concept

(iii) The general users concept.

 The stewardship concept: this concept recognized ownership and stewardship and
therefore, states that accounts should be prepared by steward in such a way that is can

show and assure the owners of concern that assets entrusted to their care are safeguarded,

well managed and that authority delectated to them is freely accounted for.

 Decision Making Concept: This concept extend the stewardship accounting further to
involve making the report relevant for decision making by shareholders and investors.

Shareholders and investors are likely to optimize their investment funds if company

reports are capable of producing future performance and conditions.

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 The General User Concept: This concept of financial reporting maintains that all parties
with interest in the business have a right to in information about such a business activities.

2.2.3. TYPES OF FINANCIAL REPORTING

Harker (2023), maintained that in the business world, there are various types of financial

reports which are prepared accounting to the standard reporting format and the prevailing

legal requirements. He opined that the following types of financial reports are used in

practice.

(i) Annual Financial Reports:

One of the responsibilities imposed on a corporation is to report at least annually to the

shareholders. The content of this report that are among corporations but for corporations that

are publicity held, the corporate annual financial report will include:

 The profit and loss account

 The balance sheet

 The fund flow statement

 The value added statement

 The cash flow statement

(ii) Interium Financial Report:

Those are used to provide periodic current reading on the financial position of the business

to the shareholders. These reports are usually submitted to the shareholders on a quarterly

basis.

a. Securities and Exchange Commission Reporting;

The Securities and Exchange Commission refers to all corporations subject to its

jurisdiction to file audited annual report with the commission.

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 b. New announcements:

Where financial press releases on the financial well-being of firms which are

quoted on the stock exchange. This information consists of data on sales and earnings

for the quarter or year.

c. Financial Service:

The interested external investors may also have recourse to one or more of the

several commercial financial services that tabulate information for a large number of

corporations and compile it in as easily useable from. He state that generally, financial

reporting could be classified under internal and external reporting. Internal reporting is

associated with the provision of information for management purpose and the external

reporting is used to describe the process by which information is made available to

groups other than management.

2.2.4. COMPONENT OF ANNUAL REPORT

Needles, B., Powers, M. & Crosson S. (2018), states that an annual reports a letter to

stockholders, a multi- year summary of financial highlight, a description of the company,

management‟s discussion and analysis of the company’s operating results and financial

condition, the financial statements, a statement about management’s responsibilities, and the

auditors report.

 Letter To The Stockholders: Traditionally, an annual report being with a letter

in which the top officers of the corporation tell stockholders about the

company‟s performance and prospects.

 Financial Highlights: The financial highlights section of annual reports resents

key statistics for at laest a five year period but often for ten year period. It is often

accompanied by graphs.

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 Description of The Company: An annual report contains a detailed description
of the company’s products and divisions. Some analysts tend to scoff at this

section of the annual report because

it often contains glossy photographs and other image-building material, but it

should not be overlooked because it may provide useful information about past

results and future plans.

 Management’s Discussions and Analysis: In this section, management

describes the company’s financial condition and results form one year to next.

 Financial Statements: All companies present the same four basic financial
statements in their annual reports, but the names they use may vary.

 Notes to the Financial Statements: To meet the requirement of full disclosure

and help users interpret complex items, company must add notes to the financial

statements. The notes are considered an integral parts, of the statements. In

recent years, the need for explanation and further details has become so great

that the notes to the financial statements include a summary of significant

accounting policies, generally accepted accounting principles requires that the

financial statements include this summary. In most cases, this summary is

presented in the first note to the financial statements or as a separate section just

before the notes. In this summary, the company tells which generally accepted

principles it has followed in preparing the statements. An explanatory note is the

other notes that explain some of the items in the financial statements.

Supplementary information note in the recent years, the FASB and the SEC have

ruled that certain supplemental information must be presented with financial

statements. Examples are the quarterly reports that most companies present to

their stockholders and to the SEC.

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  Reports of Management’s Responsibilities: Separate statements of
management’s responsibility for the financial statements and for internal control.

Structures accompany the financial statements as required by the Sarbanes –

Oxley ACT OF 2002.

 Reports of Certified Public Accounts: The registered independent auditors

reports deals with the credibility of financial statements. This report prepared by

dependent certified public accountants, give the accountant’s opinion about how

fairly the statements have been presented. Because management is responsible

for preparing the financial statements, issuing statements that have not been

independently audited would be like having a judge hear a case in which he or

she was personally involved. The certified public accountants, acting

independently, add the necessary credibility to management’s figures for

interested for interested third parties. They report to the board of directors and

the stockholders rather than to the company’s management.

2.2.5. ACCOUNTING INFORMATION FOR PUBLIC LIMITED LIABILITY

COMPANIES

At present, the provisions of companies and allied matters decree (CAMD) 1990 now

referred to as „act‟ governs the preparation of financial statement of limited liability

companies in Nigeria. Specifically, published financial statements comprise the following:

 Directors‟ report

 Auditor’s Report

 Statement of standard Accounting policies (SSAP)

 Profit and loss Account (or in the case of companies not trading for profit –income and
Expenditure Account)

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  Balance sheet

 Value added statement

 Cash flow statement

 Notes to the account

 Five year financial summary

2.2.6. STATEMENT OF STANDARD ACCOUNTING POLICIES (SSAP)

An accounting standard is a statement used by the appropriate standard–Setting body

locally or internationally or a specific area or topic in financial accounting, the acceptance/

application of which is mandatory for users of accounting information. Accounting standards

are issued at the international level by the international Accounting standard Board (ASB) for

merely international accounting standard committee (ASC) which they are issued in Nigeria by

the Nigerian Accounting standard Board (NASB). The standard used by the ISB are known as

international financial Reporting Standard (IFRS).for merely international Accounting

Standard (IAS), while those issued by the NASB are known as statement of accounting standard

(SAS). The directors consider that in preparing the financial statements of the company and the

group appropriate accounting policies were consistently applied and supported by reasonable

and prudent judgments and estimates. All accounting standards, which they consider to be

applicable, have been followed.

2.2.7. LEGAL AND AUDIT REQUIREMENT OF FINANCIAL REPORTS

Co-operation laws of all countries lag down the requirements relating to maintenance and

disclosure of account, preparation of annual report, their audit by professional accountants

to shareholders in Nigeria, schedule 2 of the companies Act 1990 lay down the minimum

information to be disclosed in the profit and loss account and the balance sheet. Statement

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of Accounting Standard (SAS2/IASS) also set out the item to be disclosed taking cognizance

of the disclosure requirement of the companies Act 1990 and related regulations.

2.3 CONCEPT OF DECISION MAKING

Decision making according to Ugwu (2023), is defined as the selection of a course of action

from among alternatives. He says that it also involves the actions that must take place before

a final choice can be made. Sociological theory states that decision making is conscious

human process involving both individual and social phenomenon based upon actual premises

that concludes with a choice of one behavioural activity amongst alternatives. He states that

the effective decision require selection of a course of action and certain conditions must be

met before people can be said to act rationally and they are:

 They must attempt to reach a goal that could not be attained without positive action.

 They must have a clear understanding of alternative courses by which a goal can be

reached under existing circumstances.

 They must also have the information and the ability to analyse and evaluate alternatives

in light of the goal sought.

 They must have a desire to come to the best solution by selecting the alternative that

most effectively satisfies the goal achievement.

The providing and analyzing of information is the important role financial reports plays. Once

appropriate alternative had been settled, we are likely to think exclusively of the quantitative

factors. Decision based on sound and actual premises are likely to be veritable and attainable.

2.3.1. TYPES OF MANAGEMENT DECISIONS

In view of Emekekwue (2015), management in a business organization refers to group of

people (managers) who are responsible for day-today-day operation of the enterprise. They are

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responsible for planning, co-ordinating or organizing, controlling and decision making and are

technically referred to as the management team. Management decision is basically in the nature

of solutions to problems. Management is an inseparable part of the other functions of

management as stated above. That it, it will be impossible to make an exhaustive list of different

types of that management decisions of business organization faces because the problem that

give rise to them are varied and wide. However, it is possible to identify this basic types of

management decision.

They include:

STRATEGIC PLANNING DECISION:

This is a process of deciding on the organization, on changes in these objectives and the

sources used to attain these objectives and the policies that are to govern the acquisition and

deposition of these resources. Strategic planning involves choosing objectives and planning

how to achieve is done with a view to long term future, its consequences and result might

also be short-term. Strategic planning decision is largely a process of formulating plans, but

it also include an important element of control. The information needed to arrive at this type

of decision is also known as strategic information.

MANAGEMENT CONTROL DECISION:

Management control decisions are taken within the framework of strategic law and

objectives which has previously been made or set. It ensures that resources are obtained and

used effectively and efficiently in the accomplishment of the organizational objectives.

Efficiency means that resources (input) are put into a process to produce the optimum

(maximum) amount of output. Effectiveness means that the resources are acted to desired

ends. Management control decisions are semi-structured. The type of information required

at this level is tactful information.

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 OPERATIONAL CONTROL DECISION:

This type of management decision that ensures that specific tasks are carried out effectively

and efficiently. It focuses on individual task and is carried out with strictly defined guideline

issued by strategic planning and management control decision. Many operation control

decision can be automated or programmed control. Programmed controls exist where the

relationship between input and output are clearly defined, so an optimal relationship can be

specified for every activity.

2.3.2. EFFECT OF FINANCIAL ACCOUNTING REPORTING ON MANAGEMENT

DECISION

The accountant in the organization of business is a member of the top decision making

process. Although the accounting does not control in terms of line authority (accounting is a

staff function). As chief information officer, he or she is in position to exercise control in very

special way. This through the reporting and interpreting of data needed in decision making. By

the supplying and interpreting of relevant and timely data, the accountant exerts influence on

decision and plays a key part in directing an organization towards objectives.

The effect of financial accounting reporting on management decision according to

Ugwu (2023), is that accounting reports affect financial decision making because money is

the economic fuel that supports business initiatives. He states that most decisions are based

on financial report as business activities revolve around money. It has been emphasized that

in large part, the quality of management decision will be a reflection of the quality of

accounting and other information which it receives. Simply put bad or wrong information

will generally lead to bad decision. The accounting information provided in the financial

report by the accountant is essentially financial in nature, helping management to do

principally three things.

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 Plan effectively and focus attention or plan.

 Direct day-to-day operations.

 Arrive at the best solution to the operating problems faced by the organization.

PLANNING EFFECTIVELY:

The plans of management are expressed as budgets and term budgeting is often applied to

management generally. Budgets are usually prepared on an actual basis (half yearly or quarterly

budgets do exist) and the desires and goals of management in specific quantitative term,

planning is to be followed by physical action. Once the budgets have been set, the board of

directors and the management team will need information inflows that will indicate how well

the plans are materializing or otherwise. Financial reports provides this information need. It

offers all the assistance needed by supplying performance reports that will help the

management focus on problems. The performance reports which reveals the existence of

problems or otherwise, directs on existence of problem or otherwise, direct on the course of

action to be taken by management decision in this regard again, becomes obvious. Financial

report supplied by the accountant as information are a form feedback to management, directing

their attention towards those part of the organization whose managerial time can be served and

where it can be served and where it can be used most effectively.

DIRECTING OPERATIONS

Management has a constant need for information in routine conduct of day-day-day

operations. For example, pricing new items going onto display show will depend on financial

reports to ensure that the price relationship are in harmony with the marketing strategies

adopted by the firm. The work of accountants is the provisions of accounting information

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(the preparation of financial report) and the management are connected in the conduct of

day-to-day operations.

SOLVE PROBLEMS

Information is often a key in the analysis of alternative methods of solving problems.

Financial accounting is generally responsible for gathering the available cost and benefit data

and for communicating. It is a useful firm to the appropriate authority. Decision to either

reduce price or increase advertisement or to do both the face of increasing competition, in

order to maintain market share of its product, a firm will depend on information on the lost

benefit data, provided by the accountant. This information is not often readily available

information, in fact in financial accounting a large amount of special analytical work and

forecasting is done in other needed data like this.

Finally and essentially, financial reporting must be in a summary firm. Accounting

system handles numerous amounts of details in recording of day-to-day transactions. As they

appear, this details may not be of interest to a manager but his interest is in the summaries

that are drawn from the records (financial reports) and it is on these that he or she relies on.

2.3.3. THE IMPORTANCE OF FINANCIAL ACCOUNTING REPORTING IN

ORGANIZATIONS

The researcher holds the view that financial reports of a firm plays a vital role in helping

the interested parties to arrive at his decisions. In-fact it is the raw material for necessary

exercise. The financial reports provides some basis for understanding the business activities

and of course, the past financial performance of such company. To some extent, it indicates

the breakdown of profitability between different areas and the variability of profits.

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 Wild (2018), states that financial reports summarizes financial information which

helps in making decisions. He added that financial reports also helps to predict the future

effects of decisions and it helps to direct attentions, to correct problems, imperfections, and

inefficient as well as opportunities. He maintained that financial reports equally aid public

officers in decision making. Managers and accountants in government agencies, hospital,

universities, school board etc. use financial reports, money must be raised and spent, budget

must be prepared and financial performance must be assessed. They need these financial

reports in order to carry out the above objectives and are done only after the alternatives

course of actions have been considered.

In conclusion, a financial report is very important in the firm. It determines the

viability and continuous existence of a firm. It would be difficult to ascertain whether or not

a firm is making profit without a set of complete and up-to-date financial reports. Financial

report helps management to make better decisions, improve efficiency and proper

functioning are the end results.

2.4. Review of Related Literature

The subject of ERM has in recent times received significant attention among risk

analyst and financial analyst because of its ability to reduce earning management, improve

earnings persistence, improve financial and non-financial disclosure and improve earnings

quality (Soliman & Adam 2017; Erin, et al., 2020a). It is believed that ERM adoption will

improve a firm’s share price, increase earnings disclosure and firm value from various

supervisory or regulatory frameworks. Similarly, the research by Pagach and Warr (2021)

observed that a significant positive relationship exists between earnings quality and ERM

system. These studies used various proxies to measure earnings quality such as earnings

predictability, accrual quality, the persistence of earnings and earnings volatility.

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 Furthermore, other related extant studies such as (Cohen, et al., 2014; Erin, et al., 2020b)

revealed that implementation of ERM has influenced the value relevance of accounting

information issues like the predictive value of earnings, earnings management and earnings

volatility. Alviunessen and Jankensgard (2015) described ERM as a central way through which

risk exposure can be managed and a company-wide method of managing information that relate

to management of risk. Likewise, Schaberl (2016) emphasised that ERM is an allinclusive

method of managing risk that is associated with firm’s operation so as to maximize business

opportunities and minimize threats that could diminish shareholders’ wealth and firm’s capital.

Most studies on earnings quality revealed that it serves three important purposes for the

organization. These include (i) ability of earnings to reflect the current operating performance

of a firm (ii) it is a better indicator to assess future operating performance and (iii) its power to

accurately annuitize the value of a firm intrinsically (Liebenberg & Hoyt 2003; Dochew &

Schrand 2004; Okoye, et al., 2017).

In the same vein, COSO (2004) framework revealed that implementation of ERM

allows management to assess the risk elements of all job functions in the organization. This

exercise puts more pressure on managers to disclose transparency information regarding

earnings status. This process will eventually lead to improvement in the financial reporting

process quality as well as earnings quality.

2.5. Theoretical Framework

Theories such as Agency Theory, Stakeholder Theory, and the Enterprise Risk Management

(ERM) Framework provide a foundational lens for understanding how financial reporting

aligns with and enhances business risk management. These theories is chose for this study as

it explains the dynamics of financial information dissemination, accountability, and risk

mitigation within organizational structures and among stakeholders.

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 The choice of Agency Theory, Stakeholder Theory, and the Enterprise Risk

Management (ERM) Framework for this study is rooted in their relevance to understanding the

dynamics between financial reporting and business risk management. These theories provide a

robust foundation for interpreting how financial reporting practices influence risk identification,

mitigation, and accountability, aligning closely with the study's objectives.

Agency Theory is particularly apt for this study because it addresses the fundamental

issue of information asymmetry within organizations. Managers, acting as agents, often possess

more comprehensive knowledge about the organization's financial health than the shareholders

or principals. This disparity creates opportunities for misaligned interests, which can lead to

increased risks. Agency Theory underscores the importance of financial reporting as a

mechanism to bridge this gap by ensuring transparency and accountability. It explains why

accurate and timely financial reporting is vital for reducing agency conflicts and enhancing the

trust of principals in the decision-making process of agents. By applying this theory, the study

highlights how financial reporting strengthens internal control mechanisms and mitigates risks

arising from managerial opportunism.

Stakeholder Theory complements the discussion by broadening the scope of

accountability. Unlike Agency Theory, which primarily focuses on the principal-agent

relationship, Stakeholder Theory acknowledges the diverse array of stakeholders affected by

an organization's activities. This theory is chosen because financial reporting extends beyond

the needs of shareholders to include creditors, regulators, employees, and society at large. In

the context of risk management, Stakeholder Theory emphasizes the role of financial reporting

in providing these parties with critical information about potential risks and the measures being

taken to address them. For example, stakeholders such as investors rely on financial reports to

assess market risks, while regulators examine these reports to ensure compliance with laws and

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standards. The relevance of this theory lies in its ability to frame financial reporting as a tool

for fostering trust and managing expectations among various stakeholders.

The Enterprise Risk Management (ERM) Framework is another cornerstone of this

study because it integrates financial reporting into a broader risk management strategy. This

theory is essential for demonstrating how financial reporting supports the systematic

identification, evaluation, and response to risks across the organization. Financial reports

provide quantifiable data on areas such as liquidity, profitability, and operational performance,

which are critical for the ERM process. By using this framework, the study delves into how

organizations can align their financial reporting practices with strategic risk management

objectives, ensuring a proactive approach to identifying and mitigating risks. The ERM

Framework also emphasizes the interconnectedness of financial and non-financial risks,

making it a relevant choice for understanding the comprehensive role of financial reporting in

safeguarding organizational sustainability.

These theories are chosen because they collectively address the key dimensions of the

study: transparency, accountability, and risk mitigation. Agency Theory focuses on internal

dynamics and managerial accountability, Stakeholder Theory addresses external relationships

and stakeholder trust, and the ERM Framework provides a structured approach to integrating

financial reporting with enterprise-wide risk management. Together, they form a cohesive

framework for exploring how financial reporting practices can enhance business risk

management, ensuring relevance and depth in the analysis.

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