AN INVESTIGATION INTO ACCOUNTING POLICIES OF BANKS

BACKGROUND OF THE STUDY: Since the beginning of corporate form of business entity in Nigeria, the banking sector has been playing important role in promoting economic growth and development by way of providing liquidity and capital in form of loans to firms and private individuals, Izedonmi (2001) noted that banks help to allocate available resources by mobilizing funds from productive channels to finance investment activities in productive sectors and increase capital formation, they also promote financial investment activities by selling their financial securities to the public who in return will require mere performance to be reflected in their financial yearly report.
The activity of monitoring banks in Nigeria to ensure that there financial statement are released when due are the Central Bank of Nigeria (CBN) and the Nigerian Accounting standard board (NASB) through the statement of Accounting standard (SAS) and the code of corporate governance which have set pressing issue on standard of financial reporting by banks. Although the formation, development, application and disclosure of these accounting policies and principles has not been fully upheld to as it could be that the policies adopted are not favorable. Accounting policies are specific accounting bases used by corporate firms which are appropriate to the circumstances of the business and suitable for presentation of its results and financial position through the use of fundamental accounting concept, conventions and principles to achieve its objective of a true and fair view of the financial statement since they are to be relied upon by stakeholders. The major accounting policies are in the area of consolidation, segment reporting, foreign currency conversion and translation, investment in subsidiary, depreciation, goodwill, sales of loan and security etc. Different techniques are used by different firm under the implementation of accounting policies. The policy making process involves a network of relationship among policies makers in different firms. The banking sector plays an important role in promoting economic growth and development in any nation. It ensures efficient mobilization of resources, pooling of savings and allocation of funds to the investment outlets. The sector also provides liquidity and capital to firms in their production processes and facilitates a reliable payment system; thus providing a variable platform for an effective monetary policy management. Banks are among the major operators of the national economy. They provide opportunities for financial transactions and manage the financial assets and liabilities of other economic units in a nation. Banks mobilize deposits, provide credits, and offer professional advice to investors and act as agents of government in the implementation of various monetary and macro-economic policies. In Nigeria, banks have been accepted as catalysts to national development. For instance, the Fourth National Development Plan (1981-1985) stressed that the banking system in Nigeria would continue to be encouraged and guided to respond to the challenges of national development. Izedonmi (2001) noted that banks help to allocate available resources by mobilizing funds from non-productive channels to finance investment activities in productive sectors and increase capital formation. According to the author, banks also promote financial integration of the various sectors in Nigeria. This is because funds are mobilized from areas with surplus funds to areas of deficit. Banks are also established to promote national development. For instance Oluyemi (1995) stressed that the Federal Government of Nigeria promulgated a decree setting up Rural Banking Programme (RBP) to stimulate and induce agricultural development in Nigeria.

Despite the usefulness and relevance of banks to national development, the experience in the Nigerian banking sector in the last few decades gives cause for concern. The complexity of accounting policies can takes its on financial report, some times financial report can be based on conflicting policies resulting to criticism of such reports; there may be conflict in the implementation of the policies and disclosure discrepancies between policies and report. The quality of financial information is a function of both the quality of accounting standard and the regulatory enforcement or corporate application of the standards (Kothori and Hope 2003). So these policies should be formulated using the standard. It is on this note that the Nigeria Accounting Standard Board (NASB) develop the statements of accounting standards SAS that will guide banks and other corporate entity in the formation of sound and safety accounting policies for the efficiency of reporting in the financial statement. Despite the importance of financial performance of banks to investors and stakeholders there have been few study on the area so this study is attempt to fill the gap, that is to focus on the banking sector and study “the impact of their accounting policies on their financial performance.