Table of contents

1.Introduction

1.1Background of the Study

1.2Statement of the problem

1.3Purpose of the Study

1.3.1Research Questions

1.3.2 Sub-research Questions

1.3.3 Research Objectives

1.3.4 The Hypothesis

1.4Significance of the study

1.5 Scope of the study

1.6 Limitations of the study

1.7 Literature Review

1.8 Research Methodology

1.9 Data Analysing Techniques

1.10 Conclusion

An evaluation of credibility maintenance in financial reporting in Zimbabwe

1.Introduction

In a challenging economic environment, maintaining credibility in financial reporting is difficult,

leading to a trade-off between compromise and confidentiality. This chapter outlines the research
project's methodology, focusing on four main aspects:

1) identifying causes of credibility loss,

2) exploring stakeholder responsibilities in financial reporting,
3) examining challenges in maintaining financial statements
4) assessing the sufficiency of controls for accountability. The research aims to enhance
understanding of credibility issues and provide insights into improving financial reporting
practices.

1.1Background to the study

The volatile nature of the business environment has instilled fear in financial investors, deterring
them from investing in companies. This fear stems from the notable collapses of prominent
organizations like Lehman Brothers in the United States, as well as local firms such as PSMAS, ZBC,
Air Zimbabwe, and ASSAABLOY Zimbabwe Pvt Ltd. As a result, the auditing and accounting
profession has come under intense scrutiny from both regulators and the media. Regulators are
keen on understanding the reasons behind the pervasive reports being generated and disclosed by
organizations to their stakeholders.
The Lehman Brothers collapse has underscored the importance of upholding the credibility of
financial statements and restoring public trust and confidence before it is irreparably damaged.
Market regulators and accountants agree that in order to restore public confidence and certainty,
financial statements must exhibit sound monetary practices and be characterized by robust
corporate governance policies. This entails clear performance evaluation of all stakeholders,
transparent financial reporting in accordance with internationally accepted standards, and
adherence to professional codes of conduct throughout the financial reporting process.

To achieve these objectives, it is crucial for all members involved to embrace three fundamental
concepts:

1. Integrity: This involves genuine, fair dealing and honesty in all financial transactions.

2. Transparency: It entails going beyond the minimum requirements of accounting principles,

governmental standards, or statutory reporting obligations by providing users with comprehensive
information necessary for informed decision-making. Organizations must refrain from engaging in
profit-focused games or window dressing and instead report accurately on the critical value drivers
of their operations.

3. Accountability: Every individual, institution, or firm involved in financial reporting has an

obligation to account for their activities, acknowledge their duties and responsibilities, and disclose
outcomes in a straightforward manner. Each member plays a role in financial reporting and
disclosure and is thus accountable for their contributions.

By embracing and implementing these fundamental concepts, organizations can produce high-
quality financial statements. However, if investor confidence and certainty are lacking, capital for
both long-term and short-term investments will become scarce and more expensive. Potential
investors will seek higher rates of return and greater security to offset the perceived risks associated
with relying on the reports produced by listed companies. The crises witnessed in Asia serve as a
testament to this confidence problem, as foreign investors withdrew their funds due to inadequate
financial information, resulting in a significant setback to the national economy.

1.2 Statement of the problem

Ongoing challenges relating to significant corporate collapses in the United Kingdom, America,
Zimbabwe and others have sadly affected to at least suggest that evidence or proof may exist to
refute the corporate auditor’s basis of the assessment of the “true and fair view” of any organization
‘s affairs.

Certain difficulties and challenges were faced by companies when using data from financial analysis,
hence there is need to examine the sufficiency of the framework that has delivered the uncountable
corporate failures. Some changes have been effected on the reporting process and this has resulted
in some individuals taking advantage of the abnormalities that emerge within the system.
Globalization has also to some extend posed some challenges on the credibility of financial
statements.

Business development and growth calls for the need of consistency in reporting and also
independent auditors to guarantee that there is uniformity at worldwide level as far as conducting
the audits which can be done through the use of the same language at global level and furthermore
to work fully intent on international standards. There is need for all participants to stick to legitimate
and proper corporate governance and to promote high expert guidelines. How then, at this point,
credibility maintenance be achieved? Better understanding by the general society worldwide is
required which can only be achieved through transparency and responsibility by the supply chain.

1.3Purpose of the Study

This research project aims to investigate credibility loss in financial reporting, emphasize the
importance of maintaining credibility in financial statements, and propose steps to uphold investor
confidence. It seeks to identify the reasons for credibility loss and highlight its consequences. The
study will provide practical recommendations for enhancing transparency, strengthening
regulations, improving corporate governance, and promoting professional standards in financial
reporting to ensure sustained investor confidence.

1.3.1 Research Questions

How can credibility be maintained in financial reporting?

1.3.2 Sub research Questions

In order to successfully address the research question, sub research questions have been illustrated
beneath

 What are the causes of the loss of credibility in financial reporting?

 What are the obligations of each participant in the financial reporting?
 Who is to be blamed for the credibility loss?
 What are the advantages to an organization from increased transparency?
 What action is required to conquer credibility loss in the financial reporting process?

1.3.3 Research objectives

Financial backers or investors do not know of who to trust any longer, no true serenity, hence need
for research focused on :

Investigating and identifying the reason for credibility breach

Identifying the responsibilities and obligations of stakeholders in financial reporting

Identifying the benefits that are gained by the company for increased transparency .

Identifying and examining possible mitigation procedures that organization can do to overcome
credibility loss .

1.3.4 The hypothesis

Companies (from outer viewpoint) are not completely revealing or disclosing the information that is
required by independent auditors and financial experts to do analysis for authentications.

The management is preparing the financial information thereby misleading to the external auditor
and financial expert’s perception.

The previous and current high inflation rates have made the future unpredictable to all stakeholders
and partners.

1.4 Significance of the Study

This research aims to shed light on the causes of credibility loss in financial reporting and propose
alleviation techniques to enhance investor confidence. It also seeks to clarify the distinction between
compromise and confidentiality in relation to disclosure requirements. The study intends to provide
insights into maintaining the credibility of financial information and promoting transparency in
reporting to foster investor certainty and confidence.

1.5 Scope of the Study

1. Causes of credibility loss: Investigate and analyze the underlying factors that contribute to
credibility loss in financial reporting. This could involve examining issues such as fraudulent
practices, inadequate internal controls, misleading disclosures, or insufficient regulatory oversight.

2. Alleviation techniques: Explore and propose techniques or strategies that can be implemented to
mitigate credibility loss and enhance investor certainty and confidence. This may involve suggesting
improvements to corporate governance practices, strengthening regulatory frameworks, enhancing
audit procedures, or promoting transparency and accountability in financial reporting.

3. Differentiation between compromise and confidentiality: Examine the distinction between

compromise and confidentiality in the context of disclosure requirements. Clarify the ethical
boundaries and obligations of financial reporting professionals when disclosing information,
ensuring that confidentiality is not used as a means to compromise the accuracy and transparency of
financial statements.

4. Impact on investor confidence: Assess the consequences of credibility loss on investor confidence
and the broader financial ecosystem. Analyze how credibility issues can affect investment decisions,
market stability, and overall economic growth, and propose measures to restore and maintain
investor trust.

5. Practical implications and recommendations: Provide practical recommendations and guidelines

for organizations, regulators, auditors, and other stakeholders to enhance credibility in financial
reporting. These recommendations could include best practices, policy changes, or procedural
improvements that promote transparency, integrity, and accountability.

1.6 Limitations of the Study

The scope of the study should consider the following limitations and challenges:

1. Incomplete information and data: Acknowledge that the study may face limitations in obtaining
complete and accurate information from selected respondents. Some respondents may lack
knowledge or fail to acknowledge their lack of knowledge, which can impact the quality and
reliability of the data collected.

2. Lack of collaboration from respondents: Recognize that attitude problems or unwillingness to

cooperate from selected respondents may hinder the research process. This can affect the ability to
gather comprehensive data and insights from key stakeholders.

3. Restricted access to confidential information: Consider the possibility of limited access to

confidential information that could be valuable for the research. This may restrict the depth of
analysis or understanding in certain areas, particularly if organizations are hesitant to share sensitive
data.

4. Time constraints and COVID-19 impact: Take into account the time limitations faced during the
research due to the closure of many companies and the researcher's need to prioritize other
responsibilities, possibly resulting from the COVID-19 pandemic. This can impact the ability to
conduct extensive data collection or in-person interviews.
1.7 Literature Review

The scope of the study is focused on understanding the impact of credibility in financial reporting on
investors' decision-making processes and the role of corporate governance in preventing credibility
loss. The researcher's interest and passion for financial accounting drove the selection of this topic.

The study recognizes the significance of globalization and the increased connectivity facilitated by
the internet. This allows for easier access to information and communication with firms operating
worldwide. By considering the global context, the research aims to provide insights that are
applicable to a broad range of firms across different geographical locations.

The justification for studying this topic on a global scale is rooted in the recognition that financial
markets are interconnected, and decisions made by investors can have implications beyond national
boundaries. Understanding how credibility in financial reporting influences investor behavior and
the role of corporate governance in maintaining credibility is valuable for organizations and
policymakers worldwide.

By examining the impact of credibility loss and the importance of corporate governance in a global
context, the study seeks to contribute to the existing body of knowledge in financial accounting and
provide insights that can inform decision-making processes for firms operating in different parts of
the world.

1.8Research Methodology

1.8.1 Research Design

The research design is the blueprint or plan that guides the investigation, ensuring control over
factors that could compromise the validity of the research questions. In this study, a descriptive
research design was considered suitable, primarily qualitative or subjective in nature. Descriptive
research involves providing a precise account of characteristics related to a specific individual, event,
or group in real-life situations.(Polit and Hungler ,1999:155)

Qualitative or subjective research refers to any form of investigation that uncovers findings not
derived from quantitative or analytical methods. Given the constraints of time and resources, the
researcher was limited to techniques that were cost-effective and yielded the most insightful sample
survey. (Strauss and Corb 1990) Qualitative techniques were deemed appropriate because the
research problem under examination pertains to a financial phenomenon with socio-economic
implications for both individuals and organizations.

By employing a descriptive research design and qualitative methods, the study aims to provide a
comprehensive understanding of the research topic, capturing the nuances and complexities of the
financial phenomenon being investigated. It allows for the exploration of multiple perspectives and
the gathering of rich, contextual data that can contribute to a deeper comprehension of the issues at
hand.

1.8.2 Sample Design

A sample size is simply the number or quantity of articles needed in an investigation. Judgmental
sampling has been utilized to decide the decision of the sample. A sample 50 questionnaires was
deemed fitting and only 38 replied compromised of different strata as shown in Table 1.8.2
below
Table 1.8.2
Strata Size
Financial service area 7
Individuals from the audit profession 6
Executive and directors of firms 3
The general public (UZ HACCO students) 15
Media 5
Attorneys 2__
Total 38

1.9Data Analysis Techniques

This includes the selection of a portion of the populace or population to constitute the whole
populace. The delineation was done to successfully test the sample of the population. The
primary benefit of delineating is that it diminishes inconstancy of items within each stratum.

1.9.1 Probability inspecting

The inspecting strategy that offers an equivalent possibility for every respondent to be chosen. It
includes a numerical possibility and the determination of components isn't foreordained.

1.9.2 Non-probability sampling

It includes determination of members through close to home decision instead of numerical
possibility. The members don't have an equivalent shot at being chosen.

1.9.3Convenience sampling
This is a non-probability strategy whereby members are picked because of closeness and that
they are promptly accessible for research purposes. The author utilized this technique as it saves
cost and time.

1.9.4Purposive sampling
As per Robinson (2020) this is an action based strategy where members are purposely picked to
give the necessary information dependent on their capacity to clarify an idea, subject or wonder.
The author utilized this technique in choosing respondents at University of Zimbabwe (HACCO)
students to give the necessary data. This technique was essentially embraced by the author as it
includes choosing individuals who are specialists in the space understudy accordingly assist with
giving rich experiences and pertinent data to the examination issue. Nibbling the researcher to
coordinate effort towards items with the best potential.

1.10 Conclusion
The examination is intended to support credibility in the financial reporting. The motivation
behind this exploration and the guidelines to this research has been laid out. The following
chapter looks at the perspectives of various authors.