The usefulness of a set of financial statements for bank managers : a local case study

Abstract

Purpose: Bank managers as lenders, are major users of financial information in Malta. They exercise this role, especially when they are faced with a loan proposal by a prospective borrower taking the perspective of a private limited liability company. The research objectives of this dissertation will revolve around how bank managers perceive the usefulness of financial statements when facing this situation. Design: A case study research methodology was used, in order to accomplish the objectives of this study. The case chosen was a local commercial bank. Primarily, a number of semi-structured interviews were carried out with twelve bank managers. Secondarily, the literature with respect to the emerging findings was reviewed. Findings: Financial statements provide a comprehensive picture of the operations and performance of a company, which the bank manager would need to evaluate before making decisions. Despite this, according to bank managers there is an issue, which is obstructing the pivotal aim of financial statements, i.e. decision-usefulness. The high incidence of earnings management in a set of financial statements, exercised with the underlying aim to reduce the value of the tax expense, caused to belittle the reliance upon this information for bank managers' decisions. This in turn is also affecting the bank managers' recognition of the accounting profession. Conclusions: This situation is arising into a conflict between the two major user groups of financial information in Malta, bank managers as lenders and the government. Moreover, it is not only impacting the user group's reliance on financial information but also tampering the accounting profession's reputation. Implications: The profession is to engage with its members and society at large to improve ethical standards which would eventually improve bank managers' perception of the accountancy profession. The presentation of information which is truthful and fair to reality is inherent to the behaviour and value of honesty of its preparers, as well. Only then, the financial statements can reach their ultimate objective of decision-usefulness as indicated in the established conceptual framework.