An analysis on the relevance of published financial statement to decision makers in Zimbabwe.

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Faculty of commerce

Department of accounting and it

Chapter one


An analysis on the relevance of published financial statement to decision makers in Zimbabwe. (A case study of econet wireless Zimbabwe)



  1. Introduction

Financial statements are the most widely used and most comprehensive way of communicating financial information about a business enterprise to users of the information provided in the reports. The main objective of financial statement is to provide the owners and investors, government, employees, Tenders, suppliers, customers, investment analysts and the public to check the performance of an enterprise; compare and contrast past performance to current performance of the organization Moskowitz (2000)

The user groups have a variety of specific information needs and only special purpose financial statement may have the ability to address those needs. The Accounting framework (par. 10) acknowledges that financial statements cannot meet the needs of all these users, but argues that the provision of financial statement that meet the needs of investors will also meet most of the needs of other users.

research has extensively examined the relevance of accounting data in order to assess the usefulness of financial statements to the users Papadaki and Siougle (2007). Published financial statement is defined as relevant if it has a predicted association with equity market values. The study was designed to assess whether the corporate reports are relevant in providing information that is useful to the decision makers. Barth et al (2001).

1.1 Background of the study

In recent times the demand for proper corporate financial disclosure of listed companies was increasing and the failures of large companies registered on the most important stock exchange have exerted extra pressure on listed companies and standard setters for the improvement of the quality of corporate reporting.

The stock exchange commission stated the decline in discipline in corporate annual reporting and press release to the absence of capacity at the Zimbabwe stock exchange from 2007.The results of the IFRS review for the published extracts of financial reporting states that the reporting entity do not display consistency and sometimes appear to report subjective information on which the reader is supplied with information that satisfy their management objectives. It also states that some companies are not complying with the IFRS.

A number of accounting and business failures recorded around the world have promoted criticism on accounting. The decision makers have been in a number of devastating losses due to accounting scandals and bankruptcy in companies which they have stockholding. These situations might be that the corporations have supplied inaccurate information to the decision makers. The recent accounting scandals have led to the loss of confidence in financial reporting practice and effectiveness of corporate governance mechanisms Bartley 2002; Browning 2002; O’Connell, et al. 2005.

Even though endeavors have been put forward to improve the quality financial reporting, it is clear that the quality financial reporting is sometimes biased. In practice, as can be witnessed by a number of accounting scandals and bankruptcies, some companies are still publishing low-quality financial reports and provide misleading information to the public. The quality corporate financial reporting remains the dream of most accountants. It seems to be a myth that the reality of financial reporting is different from what people currently believe.

Nevertheless, we have cases whereby companies window dress their accounts to make it attractive to investors to buy shares or invest in their companies, which in turn results to either loss or collapse of the company at the end of the day. The reason for disclosure of accounting information is to inform the shareholders on the financial implications and effects of the goings on in the organization.

1.2 Statement of the problem

Zimbabwe Stock Exchange is experiencing a lot of overreaction by irrational investors who have no basis for their decisions despite the published financial statement; it was observed that decision makers are drawn into the market in a kind of bandwagon effect, however the question that begs to be answered is whether investors can rely on financial statement information for investment decision making purposes in Zimbabwe.

1.3 Objectives of the study

The main objective of this research work is to examine the relevance of published annual reports of listed companies to decision makers.

The specific objectives of the study are:

  • To examine the extent to which financial reports are used in appraising the overall performance of the company.
  • To ascertain if there exist other determining variables apart from the information provided in annual reports and accounts that influence their investment decision.
  • To ascertain inadequacies if any with the current disclosure practiced in corporate reporting in Zimbabwe.

1.4 Research Questions

To provide a guide in the conduct of the study the following questions are raised:

  • To what extent are financial report used in appraising the overall performance of the company?
  • Are annual report and accounts adequate in influencing thebuy, hold and sell decision of investor.
  • Are there other variables that inform the decision of shareholders to buy, hold and sell equities?
  • Are there current disclosure practices in corporate reporting in Zimbabwe adequate?

1.5 Significance of the Study

The significance of this research work is to give an empirical analysis of corporate annual report and account and its relevance to users of financial statements. The research would give the researcher a comprehensive understanding on how financial statements can be used by users to make informed judgment and decisions. The study is also highly significant to stakeholders as they need accurate information to predict future performance by identifying the factors in financial report. This work will definitely add to the body of existing knowledge and a guide for other researchers who will carry out research on this subject matter, particularly in areas that will not be addressed in the study.

1.6 Formulating Hypothesis

Basing on the statement of the problem, the following null hypothesis were empirically formulated and tested on the analysis of the relevance of annual reports to the decision makers.

H0: That published financial statement has no importance in the investors’ decision making.

H1: That published financial statement has greater importance in the decision making by the users.

1.7 Assumptions

  • The research is going to be successfully carried out in the allocated time
  • The information gathered from samples, respondents and any other source will be correct
  • Econet Wireless Zimbabwe will operate on a going concern concept thus operate in the foreseeable future
  • Data from respondents will be adequate to deduce findings and conclusions

1.7 Delimitations

This study is limited to the published financial statements and their relevance to users of financial statement, with special reference to Econet Wireless Zimbabwe, Masvingo and shall cover the period of 2010 to 2013. The population comprised all stakeholders. From the population, a sample of 30 was obtained through the simple random selection technique.

1.8 Limitations of the study

This study has been undertaken in spite of the cynicism that dogged the study right from the conception which constituted limitation to the researcher and these are:

  • Due to the high level of confidentiality in the organisation nowadays not all sources relevant to this research is accessed. However the researcher resorted to the use of other sources of information like the accounting manual.
  • Some respondents were not being able to respond freely due to work commitments therefore the researcher followed them in order to access the information.
  • Secondary data contained some elements of bias so on this respect the researcher put more reliance on primary data.
  • Several expenses were involved in this work hence there was limited resources available to the research due to poor economic condition that was not enough to take care of high transportation cost, stationery, public relations and cost of typing this work and binding.
  • Budget








printing, photocopying

and typing







telephone charges





sundry expenses




The researcher will seek donations from the organisations and also source funds from relatives and friends to finance the research process budget.

1.9 Definition of terms

  • Accounting: This is the presentation of systematically developed and accurately recorded financial reports about an entity engaged in economic activity to users of such report, interpretation and analysis of such report to achieving their various needs.
  • Annual Report: Is a detailed report on a company’s operations throughout the preceding year. This is intended to give shareholders and other stakeholder’s information about the company’s activities and financial performance.
  • Investors: They are the owners of the business and they need financial information to assess the effectiveness of the management in running the business and the likelihood of risk if any.
  • Accounting Standards: In a nutshell, these are rules which indicate the basis of recording, presentation or valuing an item.
  • Relevance:
  • Financial statements: these are documents prepared by the management of the company to communicates its performance to the shareholders and other users
  • Investment; this means the forfeiture of the present resource for the future. It is the commitment of present resources for future return.
  • Information-these can be said to be the facts needed or received by a person, or group of person, or group of persons which is or will be useful to them.
  • Decision making- can be defined as identifying alternatives, evaluating such alternatives and choosing from such alternatives. It can be viewed as the very fabric of which organised activity is made.

1.10 Organization of the study

Chapter one concentrated on a brief description of the background to the study, statement of the problem, objectives of the study, research assumptions and delimitation of the study and ends with an organisation of the study.

Chapter two will focus on review of related literature. It focuses on previous work done by others writers and researchers on “the relevance of published financial statements”. A study of this magnitude required a thorough and critical evaluation of relevant literature centred on the following concepts of the problem: the empirical review and justification of the study.

Chapter three will look at the research methodology used in the research process and the justifications thereof. The chapter will focus on the research design, case study, survey method, population and sample, questionnaires, interviews, validity of the instruments and reliability of the instruments.

Chapter four will concentrate on data presentation and discussion of the research findings on the research topic. It analyses the primary data in the form of responses from questionnaires and interviews, and also secondary data.

Chapter five will present the summary, conclusions and recommendations. These summaries the major concerns of the research study as highlighted in chapter one, methods used and the implications of the findings, also posing questions for future research.

1.11 Chapter summary

Research topic was drawn, followed by a brief background of the problem. Guiding questions were outlined. Limitations and operational definitions were given. The next chapter, which is chapter two, seeks to appreciate what other authors are going to say theoretically and empirically about the relevance of published financial statements to the decision makers