VALUE RELEVANCE OF FINANCIAL ACCOUNTING STATEMENT IN THE INSURANCE COMPANIES
ABSTRACT
     This research offers a summary of the value relevance of financial accounting theory and its contribution to accounting standard in the insurance setting, but with special emphasis since the work of Ball and Brown (1968). The historic analysis focuses on the research that has been dominating the discipline from the late 1960s. This research evolves from the users’ perspective and their problems (the investor) toward the perspective of the preparers and their difficulties (the manager), covering the two opposite roles of financial accounting: an instrument for making investment decisions and a contracting mechanism. The literature review shows that few contributions of accounting research can be extrapolated to the standard setting process of the value relevance of financial accounting. The intended audience of this paper is comprised mainly by insurance companies who know the fundamental basis of value relevance of financial accounting.
 CHAPTER ONE
INTRODUCTION
BACKGROUND OF THE STUDY
     Financial accounting is a specialized branch of accounting that keeps track of a company's financial transactions. Using standardized guidelines, the transactions are recorded, summarized, and presented in a financial report or financial statement such as an income statement or a balance sheet.
     Companies issue financial statements on a routine schedule. The statements are considered external because they are given to people outside of the company, with the primary recipients being owners/stockholders, as well as certain lenders. If a corporation's stock is publicly traded, however, its financial statements (and other financial reportings) tend to be widely circulated, and information will likely reach secondary recipients such as competitors, customers, employees, labor organizations, and investment analysts.
     It's important to point out that the purpose of financial accounting is not to report the value of a company. Rather, its purpose is to provide enough information for others to assess the value of a company for themselves.
     Because external financial statements are used by a variety of people in a variety of ways, financial accounting has common rules known as accounting standards and as generally accepted accounting principles (GAAP). In the U.S., the Financial Accounting Standards Board (FASB) is the organization that develops the accounting standards and principles. Corporations whose stock is publicly traded must also comply with the reporting requirements of the Securities and Exchange Commission (SEC), an agency of the U.S. government.
     However, in recent times, the value relevance of financial information has been increasingly concerned by the researchers. Value relevance is one of the basic attribute of quality of the financial statements (Francis et al. 2004). High quality accounting information is a pre-requisite for well functioning capital markets and economy as a whole and as such
should be of importance to investors, companies and accounting standard setters (Hellstron 2005). Particularly in order to be relevant accounting information must among others for quick response to user’s needs.
     Investors are not in a position to directly access the performance of the company in which they are intended to invest. They usually depend on the financial statements prepared by the management of the company. Rational investors use those financial reports and disclosures, among other publically available information to assess the risk and the value of the firm.
    Value relevance is defined in the exact as association between accounting amount and security market values. Researches on value relevance of accounting information, its historical development and its comparison among different countries have been increased since the 1990s. More recently studies addressed on the contribution of cash flows, earnings and book value when assessing the value relevance of the firm.
1.2     STATEMENT OF THE RESEARCH PROBLEM
     This study investigates the value relevance of the financial information of the insurance companies in Nigeria. In any country, increase of investment in capital market leads to improve strength of the capital market and development of economy. Investors rely on accounting information in their pricing of shares and companies which provide good quality information have thus an advantage in a lower cost of capital. Investors in developed counties are keen on the financial information of the intended investing companies. So that the investigation of the value relevance on financial information with relevant to the stock prices is important matter for the developing countries like Nigeria. On the other hand, the study investigates what are the value relevance of financial accounting which is  related to the investment and financial decision and how far they are explaining stock returns and prices.
The research therefore, seek to find solution to the following problems.
1.     What are the value relevance of financial accounting which is related to the investment and fanatical decisions?
2.    How far have they explain stock returns and prices?
3.    What is the significant of value relevance of variables among the insurance companies financial accounting statement?
4.    What is the best model for explaining the  value of the firm.
1.3 OBJECTIVES OF THE STUDY
The study is based on the following three main objectives,
 To find out the value relevant of financial accounting statement in the insurance companies  such as book value, earnings, cash flows and firm size in a company
 To identify the most significant value relevant variables among the insurance companies financial accounting statement
 To determine the best model for explaining the value of the firm.
To provide required suggestions to the Accounting Standard Setting bodies
and Investment Consultants to improve the value relevance of financial  accounting statement in insurance companies
RESEARCH HYPOTHESES
H1: There is a positive association between corporate body and consideration of how it should respond to a heightened risks of errors, omissions or manipulation of reported financial result or balance sheet.
H2: Corporate financial reporting helped investors to gauge a firm’s profitability.
H3: There is a significant association between company liquidity and the voluntary use of Internet social report and communication channel.
1.5    SCOPE OF THE STUDY
This work is an empirical study of corporate financial reporting in Nigeria. The study will focus on companies listed on the Nigerian stock exchange.
The sample size will be made up of ten companies. The study will involve assessing the effectiveness of the corporate financial reporting by companies through their websites
1.6     RELEVANCE AND SIGNIFICANCE OF THE STUDY
The significance of this study is to reveal the reveal the value relevance of financial accounting statement in the insurance companies bearing in mind that the rationale for the introduction of  financial accounting report o organization is to present accurate accounting  statements in accordance with corporate policiers, industry practice and regulatory guideline, to assist users in decision making. The study is therefore meant to evaluate  how far this reason behind the introduction of financial accounting has achieved. Other significance of this study are:
1.     To enable users of corporate financial report to have a better understanding of the general working and objectives of financial statement.
2.     To the academicians, it will increase the body of their knowledge.
3.     It will also enable users of corporate financial report to make an evaluation on the relevance of financial statement.
1.7     RESEARCH DESIGN AND METHODOLOGY
This section describes the design and methodological highlights of the study including the sample description, data collection and analysis.
     Two hundred (100) respondents from various insurance companies listed on the Nigerian Stock Exchange.(NSE) as at the end of 2010 were used in this study.
1.8    DATA COLLECTION AND DESCRIPTION.
     Data for this study were collected mainly from the internet. By browsing through the websites of companies in our sample, it was established whether they provide Internet Financial Reports or not. The financial data on size, profitability, efficiency, liquidity, etc were then downloaded from their annual reports or highlights. In addition, the Fact books of the Nigerian stock exchange was accessed to obtain data for the remaining companies, particularly those without websites.
DATA ANALYSIS
     For the purpose of this study, chi- square (x2) test will be used. This is because the chi-square (X2) test is a method of comparing counted data or data measured in a  normal scale in which individuals observations are assigned to categories. The chi-square (x2) formula is given as
Chi square (x2)     X2 = n= (fo- fe )
                      fe