RESEARCH REPORT

ON

IMPORTANCE OF FINANCIAL STATEMENTS FOR

MANAGERIAL DECISIONS

A CASE STUDY OF ZANZIBAR SOCIAL SECURITY FUND

A RESEARCH REPORT SUBMITTED TO THE INSTITUTE OF

ACCOUNTANCY ARUSHA IN PARTIAL FULFILMENT FOR THE AWARD OF
ADVANCED DIPLOMA IN ACCOUNTANCY

PREPARED BY: OMAR, ASHA S

PROGRAM: ADA 2006/2007
 CHAPTER ONE

1.0 BACKGROUND TO THE ORGANIZATION

ZSSF is an autonomous board, that established by the act No. 2 of 2005 which is
subjected to the amendment act of No.9 of 1998. ZSSF is under the auspice of the
Ministry of Finance and Economic Affairs of Zanzibar.

Management of ZSSF
ZSSF is governed by the board of trustees which comprises of seven members. These are
the chairman and the managing director of the ZSSF who appointed by the president of
the revolutionary government of Zanzibar, two representatives of employers, one
representative of the employees and two members who’s appointed by the minister of
finance and economic affairs of Zanzibar.

The board of trustees was responsible for decision making at ZSSF which delegates the
day to day management of the fund to the managing director who is the chief executive of
the ZSSF. Also the board was responsible for formulating and to ensure the
implementation of policies.

The principal activities of the ZSSF

The fund principal activities of the ZSSF are:-
 Registration of the employers and the employees.
 Receive all the contributions and other monies that are required to be paid into the
fund.
 Invest the fund contributed in high returns and the minimum risk investment
opportunities.
 Pay pensions, gratuities and other benefits in accordance with the provision of the
Act.
Objective of ZSSF
The objective of the ZSSF is to promote social welfare to its members like old age
benefit, invalidity benefit, maternity benefit and medical care benefit through better
planning, on workers retirement or when cease to work because of ailment of ineluctable
catastrophes.

The vision of ZSSF

ZSSF seeks to become a model-organization, which are client oriented, quality driven
and a financially responsible. It seeks to attain management excellence and to be an
organization that is devoted to insuring high quality in its work processes and service
products.

The mission of ZSSF

To collect, invest surplus funds, to administer retirement, survivor and other benefits for
workers and their families. In carrying out its mission , the ZSSF pays the benefit to right
people, in the right amounts, in a timely manner and it will take appropriate action to
safeguards ZSSF customer’s trust fund.

Location
The ZSSF is located at Kilimani Mnara wa Mbao, six kilometers south of Zanzibar town
(Stone town), which is the famous city of slave market for East Africa. Also it has a sub
office at Chake Chake Pemba.

1.1 INTRODUCTION AND BACKGROUND OF THE PROBLEM

The essential purpose of the financial information was to provide economic agents
together with the information useful for decision making. The information provided, was
utilized in evaluating the performance of organization and rational investment decisions.
The financial information not only the source of information available to decision
makers, but also it’s considered as important because it facilitates the evaluation of the
firm performance.
According to Robert (1995), Decision making as the rational process it needs supporting
information by the managers or decision makers. The manager should have access to
continuously up dated financial statements. The statements are the most important before
decision making. The way the manager was able to see the present situation of the
organization and future situation before making the financial decision, but this is not the
case for some manager.

Decision making which was not relying in the financial information for financial
decisions, is a problem which acute to most of the business and non-business
organization. Many organizations had been collapsed due to poor way of collecting data,
recording of data and lack of enough skills to some accountant at the time of preparation
of the financial statements.

According to IFRS (2003) stated that; the information needs of the recognized group are
not always homogeneous although they tend sometimes to overlap-nor are they universal,
static or always coherent particular interests of the groups that have been identified are
either evolving or are being recognized with passage of time.

The study focused on the uses of financial statements for managerial decisions.
Management as the main user of financial statements depends on this information to
provide solutions concerned with the financial problems. If ZSSF applies the financial
statements when it makes decisions, the decision maker was able to see the present and
future situations of the organizations concerned with the finance.

1.2 STATEMENT OF THE PROBLEM

The organization may have different goals to pursue, and not to generate profit alone. The
organizations can succeed if it achieved its goals in a specified period of time. Some of
the organizations goals may depend upon financial statements on which the managers
used for financial decisions.
It’s surprising that some organizations in developing countries like Tanzania do not
utilized the financial statements effectively for their decision making; because it suffers
from inefficient, inadequate and inaccurate of accounting information which leads the
poor decision making. Also many organizations faced the problem from their
management reliance on financial statements which do not comply with IFRS. This
resulted into losses, which brought the organization to privatization or complete
liquidation of some Company.

Nzomo N.D (1985) argued that, the purpose of financial information and reporting is to
provide useful information for decision making. It facilitates the making of the reasoned
choices among the alternative uses of the scarce resources in the conducting of
commercial and economic activities.

According to IFRS (2004), stated that, the management should select and apply an
entity(s) accounting policies, so that the financial statements comply with all
requirements of the applicable financial accounting standards. Where there is no specific
requirements, management should develop policies to ensure the financial statements
provide information that is relevant to the decision making.

Some experience showed that, there has been late provisions of the financial statements
and presence of errors, frauds and irregularities after the financial statements have been
presented to the public. This hinders the decision maker to make decisions which is
effective, efficient and adequate for the organization.

With the increasing of awareness being given to the vulnerably of the accounting
packages and the information infrastructure has enlarged interests in the security policy
setup and methods to protect valuable information. Hence the decision maker have
confidence with the decisions made when they applying the financial statements.

Thus, the researcher focused to find the reliable links between the financial statements
and the managerial decisions to achieve the organization goals.
1.3 OBJECTIVES OF THE STUDY
The main objective of the study was to explore the importance of financial statements for
decision makers in an organization.
Specifically;
(i) To identify the financial statement used by the management for decision
making.
(ii) To identify the contribution of the financial statements in making decision in
an organization.
(iii) To identify factors which lead to late preparation of the financial statements.
(iv) To suggest measures to be taken for the late preparation of the financial
statements.

1.4 RESEARCH QUESTIONS

The research study answers the following questions:-
(i) What are the financial statements used by the management for decision
making?
(ii) What are the contributions of the financial statements in decision making in an
organization?
(iii) What are the factors which lead to late preparation of the financial statements?
(iv) What are the measures to be taken for the late preparation of the financial
statements?

1.5 SIGNIFICANCE OF THE STUDY

The study has the following significance;
(i) The researcher gained the potential knowledge on the area of the study.
(ii) The study findings help to improve the decisions of the organization to
achieve their stated goals.
(iii) To creates awareness to managers on the role played by the financial
statements for management decisions.
1.6 SCOPE OF THE STUDY
The study was concerned with the Accounting and Finance Department and
Administration and Personnel Department of ZSSF as the case study. The researcher was
required to approach the Managing Director, Administrative and Personnel Manager for
those matters related to the whole organization.

Generally, the researcher utilized substantial time to concentrate on financial statements

and some decisions taken by organization within the period of five years ended
2004/2005.

1.7 LIMITATIONS OF THE STUDY

The study had the following limitations:
1. The main difficult faced the researcher during the study was the confidentiality of
data. The researcher was allowed to access the financial statements only to obtain
secondary data.
2. The funds provided by the sponsor is limited, hence the researcher conduct the
study in accordance to the funds available. Thus, the study was completed in
difficult situation.
3. ZSSF had no underlined policy toward the decision making. This complicated the
researcher on the process of data collection. However the researcher had found
out important decisions based on the financial statement and also the researcher
collected pure primary data so as to tackle such a problem.
4. The researcher proposed to find out financial statements used for decision making
for the past 5 years to the year ended 2005/2006. However the possibility to
obtain those statements for the year 2005/2006 was impossible because the
financial statements are not yet prepared until the researcher finished the study.
Therefore the researcher was able to use the available financial statements to the
year ended 2004/2005.
 CHAPTER TWO

2.0 LITERATURE REVIEW

This involved the review of the previous writings and studies relevant to the problem
being explored. Also includes the previous similar work in the relevant area by quoting
and make citation.

2.1 THEORETICAL LITERATURE REVIEW

2.1.1 Meaning of Financial statements

Dr Maheshwari, S.N (2003) defined financial statements is an organized collection of
data according to logical and consistent accounting procedures. It may show a position at
a moment of time as in the case of balance sheet, or may reveal a series of activities over
a given period of time as in the case of income statement.

According to Pandey, I M (2004) stated that; a firm communicate financial information

to the users through financial statements and reports. A financial statement contains
summarized information of the firm’s financial affairs, organized systematically. It
presents the firms financial situations to the users and to examine the firm’s performance
in order to make decisions.

2.1.2 Meanings of Decision Making

According to Sherkler (1981) stated that; Decision is a choice where by a person comes
to a conclusion about a situation. It represents a course of behavior or action about what
must or must not be done.

According to Ivancevich et al (1997) stated that; Decision making is an entirely human

process, it is fraught with complexities and ambiguities that are reflective of human
beings themselves. By gaining some understanding of the different concept that
researchers have used to understand decision making, the practicing manager can often
avoid difficulties.
According to O’Donnell (1972) define decision making as the selection from among the
alternatives of a course of action- is at the core of planning. Sometimes the managers see
it as their central job because they must constantly to choose what is to be done; who is
to do it; when, where and occasionally even how it will be done.

Gupta (2004) define decision making is the process of choosing a course of action from
among alternatives to achieve a desired goal. It consists of activities a manager performs
to come to a conclusion.

Sometimes the manager received a complaint from the owners concerned with action he
take, thus the manager has to decide what to do, while this may seem a relatively trivial
decision problem.

Decision making is however only a step in planning, even when done quickly and with
little thought or when it influences action for only a few minutes. It is also a part of every
one’s daily living. It should be noted that, decision making is a persuasive management
task, because many decisions depend on financial factors. It is important that the person
concerned with decision making be totally familiar with the processes involved and the
sort of accounting records that should be supplied to decision makers.

2.1.3 The basic financial statements

At the end of each accounting period, each entity was required to prepare the financial
statements which provide the whole operation concerned with the financial matters.

According to Pandey, I M (2004) describe the financial statements and its uses as
follows;

(i) Balance sheet

It contains the information about resources and obligations of a business entity and about
its owner’s interest and the business at a particular point of time. Also it provides a
snapshot of the financial position of the firm at the end of the accounting period.
Uses of balance sheet
 It gives a concise summary of firm’s resources and obligations.
 It is a measure of the firm’s liquidity.
 It is a measure of the firm’s solvency.

(ii) Profit and loss account

It presents the summary of revenues, expenses and net incomes or net loss of the firm. It
serves as a measure of the firm’s profitability.

Uses of profit and loss

 It gives a concise summary of the firm’s revenue and expenses during the period
of time.
 It measures the firm’s profitability.
 To determine the net income or loss from the operation during the period of time.

(iii) Cash flow statements

It summaries the causes of changes in cash position between dates of the two balance
sheets. It indicates the sources and the uses of cash. It is useful for short run planning, a
firm needs sufficient cash to pay debts maturing in the near future, to pay interests and
other expenses.

Uses of cash flow statements

 To know the liquidity position of the firm.
 To know the causes of changes of the firm’s working capital or cash position.
 To know the ability of the firm to pay its long term debt.

2.1.4 Qualitative characteristics of financial statements

According to IFRS (2003) provides that; qualitative characteristics of financial
statements are the attributes that make the information provided in financial statements
useful to users. The four principal qualitative characteristics are;
 (i) Understandability
An essential quality of the information provided in financial statements is that it is readily
understandable by users. For this purpose, users are assumed to have a reasonable
knowledge of business and economic activities and accounting and a willingness to study
the information with reasonable diligence.

(ii) Relevance
To be useful information must be relevant to the decision making needs of users.
Information has the quality of relevance when it influences the economic decisions of
users by helping them evaluate past, present or future events or conforming or correctly
their past.

(iii) Reliability
To be useful information must also reliable. Information has the quality of reliability
when it is free from material error and bias and can be depend upon by users to represent
faithfully that which it either purports to present or could reasonably be expected to
represent.

(iv) Comparability
Users must be able to compare the financial statements of an enterprise through time in
order to identify trends in its financial position and performance.

2.1.5 Objectives of Financial Statements / Reporting

The IFRS (2003) provides that;
 The objectives of financial statement is to provide information the financial
position, performance, and changes in financial position of an enterprise that is
useful in making economic decisions.
 Financial statements also show the results of the stewardship of management or
the accountability of management for the resources entrusted to it, in order that
they may make economic decisions.
2.1.6 Uses of financial statements
According to Powers, N (2001) argued that; the financial statements provides a vital
service by supplying the information that decision makers need in order to make
“reasoned choices among alternatives use of scarce resources in the conduct of business
and economic activities.”
So, financial statements provide a link between activities and the decision makers
through;
(i) Accounting measures business activities by recording data about them for
future use.
(ii) The data are stored until needed and then processed to become useful
information.
(iii) The information is communicated, through reports to decision makers.

2.1.7 Guidelines for effective decision making

According to Gupta (2004), Effective decision making implies objective quality of
decision and their acceptance by those who are to execute the decisions. The following
are guidelines for effective decision-making.
(i) Marshall the facts and define the goals: In order to improve the quality of
decisions, all necessary information should be collected. After obtaining the
relevant data the decision-making should defined the goals he seeks to achieve
by making a decision.
(ii) Proper timing: A sense of timing is necessary to make good decisions. If
decisions are delayed, people may not be able to adjust to them. Premature
decisions may not be acceptable.
(iii) Keep the decision flexible: There is a natural tendency to overstress the
finality of the choice made. A decision maker should be prepared to modify or
replace the decision whenever necessary.
(iv) Communication: All decision should be properly announced and explained
in such away that they do not arouse antagonism In order to gain acceptance
and commitment from subordinates, the decision- maker should allow
meaningful participation of peoples.
 (v) Follow through: Once a decision is implemented, the decision-maker should
continuously follow up the decision.

2.1.8 The role of decision making

According to O’Donnell (1972) stated that; It can be seen for any one to act or decide
rationally, requires certain conditions;
(i) He must be attempting to reach some goal that could not be attained without
positive action.
(ii) He must have a clear understanding of the courses by which a goal could be
reached under existing circumstances and limitations.
(iii) The decision maker must have the ability to analyze and evaluate alternatives
in the light of the goal sought.
(iv) He must have a desire to optimize by selecting the alternatives that best
satisfies goal achievement.

2.1.9 Importance of the financial statements for decision making

According to Larson, K.D (1989) stated that financial reporting is the process of
preparing and issuing financial information about a company. It includes more than the
general purpose of financial statement, these are;
(i) Financial reporting should provide information that is useful to present and
potential investors and creditors and other users in making rational
investment, credit and similar decisions.
(ii) Financial reporting should provide information to help present and potential
investors and creditors and other users in assessing the amounts, timing and
uncertainty of prospective cash receipts from dividends or interest and the
proceeds from the sale, redemption or maturities of securities.
(iii) Financial reporting should provide information about the economic resources
of an organization, the claim to those resources and the effects of
transactions, events and circumstances that change its resources and claims to
those resources.
2.2 EMPIRICAL LITERATURE REVIEW
In this part the researcher consider what other researchers wrote on the similar area of the
study.
According to Njau, S.D (2000) in “The objective of financial Reporting Challenge a
head” He concludes that, management and professional firms are still embracing the
stewardship objective while external users are advocating for the decision making
objective. It is there fore suggested that, financial reports be split into two parts, one part
serving the economic decision making purpose. The second group that are conflicting
will be accommodate such preparation of reports will bring consensus on the objective of
financial reporting. In deed, once such consensus has bees established improvement on
such reports has been established; improvement on such reports will be easier and will
make reports more meaningful.

Abeid, S.K (2003) in “The role of information in problem solving” argued that;
traditionally, problem solving function was the domain of managers. A manager is a
person who harmonizes the works of others towards fulfilling a predetermined objective.
Managers are expected to solve problems that arise in their areas but, they do not have to
solve them alone. They have interacted with and involve many personalities like their
bosses, their peers, their subordinates, specialists and customers.

According to Dr Masimba, R.D (1992) in “Limitation of external financial Reporting

in decision making” stated that; through accounting information is not the only source of
information available to decision makers, it is considered important because it facilitates
the evaluation of firm performance and there by enables them to channel their resources
to the most productive enterprise in the economy.
Financial reporting should provide information that is useful to users in assessing the
amounts, timing and uncertainty of prospective cash receipts.
In prescribing the accounting standards the qualitative characteristics of accounting
information is there fore, to provide criteria for choosing between alternative accounting
and reporting methods and disclosure requirements accounting and reporting methods
which meet these criteria are considered more useful for decision making.
He concludes that financial statements as practiced today is intended to provide the
decision makers with part of the information that they need for decision making purposes.
Financial information may help the decision maker to assess the performance of the firm.

Mwita, J.I (1995) in “Business financial Reporting” argued that, the financial reports
are part of the broader set of the firm disclosures that range from the verbal qualitative
responses to shareholder question at the annual meetings to written qualitative
communications. Management has considerable discretion over the content and timing of
the many diverse public reporting it makes. These disclosures can be partial substitutes
for each other with the results of that expansion or contraction in one form of reporting
can affect the supply of information provided in other forms.

The factors that affect the content or timing of the financial statements reporting to the
decision maker include the regulatory forces, market forces and the costs associated with
the disclosure of the financial statements. When using the financial statements
information it is important to recognize that factors, these results in the set of the
information placed in the public domain not always being the timeliest or a un biased
subset of that available to the decision maker.

He concludes that, a manager who perceives has the ability to increase the market value
of the firm significantly may be willing to accept a contract that restricts the main sources
of the discretionary compensation to those items where there is congruence.

During the study the researcher focused on how the organization could have made
decisions based on financial statements to achieve their stated goals. By considering the
problems faced the organization, the researcher revealed that, the decision maker might
attempt to reduce potential frustration by making observation of the contribution of
financial statement and their decision taken. This helped the managers to predict present
and future problems.
Also managers had to consider in their decisions, the contingency approach on number of
variables factors, which influenced the organization performance. The managers should
adopt and vary their behavior according to particular situation and the different situation
which may arise at the time of making decisions.
 CHAPTER THREE

3.0 RESEARCH METHODOLOGY

This chapter described how the study was designed and how was conducted. The main
objective of the study was investigate and evaluates the effectiveness of financial
statement for managerial decision making at ZSSF-Zanzibar.

3.1 RESEARCH DESIGN

In conducting this research, a descriptive case study design was used in order to gain
deep understanding of the context of the research, developing skills of evaluating data
and synthesizing ideas. This helped the researcher to produce accurate representation of
the target population. Also the design was progressed because it allowed the intensive
study on small areas. There fore the study was conducted at ZSSF at Zanzibar.

3.2 RESEARCH TECHNIQUES

The researcher used both qualitative and quantitative techniques during the study.
 Qualitative techniques: This technique based on the meanings expressed
through words. The researcher was applied for those non-numerical data or data
that could not been quantified. E.g. competence of managers to use financial
statements for decision making and the factors which hinder the accessibility to
the financial statement.

 Quantitative techniques: This technique used numerical data. The researcher

applied this technique to describe and analyzed numerically the trends of the
application of the financial statements for decision making.

3.3 POPULATION INQUIRY

The targeted population for the study was obtained from the administration and personnel
department, accounting and finance department and employees of the Fund service
department at ZSSF at Zanzibar.
3.4 SAMPLING TECHNIQUE
The researcher used a simple random technique to select the sample. This technique was
applied because each and every item in the population has an equal chance of inclusion as
the sample to represent the targeted population.

3.5 SAMPLE SIZE

The sample size of this study was included the managing director of ZSSF, four (4)
managers from each department i.e. finance department, fund service department,
administration and personnel department and research and compliance department, six
head of sections and nineteen staff from different departments. There fore the total
sample size was equals to 30 respondents.

3.6 DATA COLLECTION INSTRUMENTS

During the study, the researcher was used the following instruments for data collection
process;

Interviews
The researcher was used structured and unstructured interviews to gather relevant
information concerned with the study. The participants of the interviews were the staffs
and head of departments of finance and administration departments of ZSSF. But the
managers were most likely to agree to be interviewed rather than complete the
questionnaires as well as many staff had low level of education in which it was difficult
to understand questionnaires.

Observation
This is a systematic way of recording, describing, interpretation and analyzing people’s
behavior, perception and attitude. This observation was systematically planned to ensure
validity and reliability of data. So, the observation was used by the researcher observed at
the same time attempted to participate fully in different activities of the ZSSF. The
researcher carried out the observation on financial statements of ZSSF to know how
could influence the managerial decisions, preparation of the financial statement and the
factors which leads late preparation of the financial statements.

Questionnaires
The researcher was used a schedule of questionnaires as a tool of gathering relevant data
and information from the study. Both closed questionnaires (“Yes” or “No” questions)
and opened questionnaires (invited free response) were employed. The researcher
administered the questionnaire physically in order to reduce chances of questionnaire
mortality. This style provided an opportunity for the researcher to respond direct to
questions that arose in the course of the administration of the research tool. The
researcher used both English and Kiswahili language due to some staffs was not
understood English language.

Documentation
The researcher was used written material of the organization such as journals, and books,
magazine and non-written materials such as video recording and tape. The researcher
used documentation in order to obtain secondary data necessary to answer research
questions. The researcher was able to read all necessary documents but some of them
were not allowed to be published as they were confidential. The researcher used all
written documents such as books, organizational journal, financial statements of ZSSF,
on which helped the researcher to answer research questions.

3.7 TYPES OF DATA COLLECTED

The researcher used both primary and secondary data. The researcher might collect new
data and also use the past history available within the organization;

Primary data
Primary data are those data which collected afresh and for the first time, thus happen to
be original in character. Primary data was involved direct experience and observation
thus, distortions by other observers were avoided and therefore reliable. These data were
obtained through interview that the researcher conducted, questionnaires formulated by
the researcher and through observation.

Secondary data
Are those data which has been already collected, analyzed and have already passed
through statistical process. The data was collected through documentation methods, these
data have been already collected by others. These data could be collected from internet
and web-pages of different companies, reports, and other published materials.

3.8 DATA ANALYSIS

The researcher made the analysis and interpretation of the findings by using the analytical
method, which enabled the presentation to be more understood and summarized by using
statistical measures and diagrams.
 CHAPTER FOUR

4.0 RESEARCH FINDINGS, ANALYSIS AND INTERPRETATIONS

This chapter represents all the findings that aim at answering the research questions
stated in chapter one. These findings were obtained through reviewing documents,
interview conducted, questionnaires distributed and researcher observation. Also, the
finding of this research was based on the real situation found during the field work and
some ideas from the staff of the ZSSF.

The data collected has been presented mainly in qualitative form and other cases were
presented in a quantitative form in order to come up with accurate information reflecting
the proposed study and to arrive at the conclusion and recommendations.

The study found out there was a great importance of financial statements for managerial
decisions for the organization like ZSSF. The study revealed that any decision must
supported by proper, reliable and adequate source of information, each has a different
criteria to achieve that objective and follow up its implementation

4.1 THE FINANCIAL STATEMENTS USED BY ZSSF FOR MANAGERIAL

DECISION MAKING

The study revealed that, at the end of each accounting period, ZSSF prepared the
financial statements according to Tanzania Accounting Standards (TAS) and audited by
Tanzania Audit Corporation (TAC). These statements were used by ZSSF for financial
decisions. These are;
(i) Balance sheet,
(ii) Income and expenditure ,
(iii) Cash flow statement.
 (i) Balance sheet
The study revealed that, ZSSF prepared the balance sheet at the end of each accounting
period which showed the financial position on what it owned and what it owed. Also it
showed the resources and obligations of the fund. The financial position of the ZSSF was
improved, on which the fund had a total of Tshs 20,047,488 as the asset employed while
the ZSSF obligations was Tshs 42,818,332 for the year 2004/2005. Also the balance sheet
provided the liquidity position of the organization. Thus, the researcher measured the
organization ability to meets its current obligations on time by using the following ratios;

Table 1: Computation to show the liquidity ratio at ZSSF

Ratios 2004/2005 2003/2004
Tsh Tsh
Current ratio
Current asset 16,327,027,110 13,429,999,014
Current liabilities 42,818,332 285,897,928
= 381.3 = 47.0
Quick ratio
Current asset – Stock 16,327,027,110-5,216,482 13,429,999,014-7,429,087
Current liabilities 42,818,332 285,897,928
= 381.2 = 46.9

Source: ZSSF Annual Report 2004/2005

The researcher discovered that, the liquidity ratio of the ZSSF was liquid enough to pay
its maturing obligation on time. The table 1 above shows that, the current ratio was the
above the normal average of 1.5. The ratio for the year ended 2004/2005 was 381.3
which is higher than of 47.0 of the year 2003/2004. This implies that, ZSSF was liquid to
promise future prosperity to its members.
 (ii) Income and expenditure
The study revealed that, the income and expenditure information provides the operational
results of ZSSF during the year, which shows the total income and total expenditure. The
excess of income over expenditure is surplus while excess of the expenditure over
income is deficit. The annual report of ZSSF for the year 2004/2005 showed the total
income received was Tshs 909,363,441/- and the total expenditure paid was Tshs
568,891,198/-. This indicates that ZSSF earned the surplus of Tshs 340,472,243 which is
equivalent to 37.4%.

Figure 1:

TREND OF SURPLUS EARNED FROM 2000/2001 TO 2004/2005

700.00

600.00
SURPLUS EARNED ('000,000)

500.00

400.00

Surplus earned

300.00

200.00

100.00

-
2000/2001 2001/2002 2002/2003 2003/2004 2004/2005
YEARS

Source: ZSSF Annual report from 2000/2001 to 2004/2005

The researcher realized that, the surplus for the year 2004/2005 was declined as presented
in figure 1 above. This was caused by the rapid increase of the financial and
administrative expenditures, the falling of the amount collected as penalties from the
government and other non compliant members, lack of strong internal control system and
the decrease of the amount received from the government as a subsidy.

(iii) Cash flow statement

The researcher observed that cash flow statement for the year was prepared to show the
net increase or decrease of cash and cash equivalents from operating, investing and
financing activities. The cash flow statement of ZSSF for the year ended 2004/2005
showed the decrease of Tshs 222,811,251/- which makes cash and cash equivalents at the
end of the year to Tshs 216,422,003/-. This study revealed that, this statement provides
the conjunction with the rest of other financial statements, on which the information
provided enabled the board of trustees and the entire management to evaluate the net
changes of the organization and its ability to affects the amounts and timing to cash flows
in order to adapt the changes of circumstances and opportunities.

Moreover the study was observed that, the ZSSF prepared notes to account for the
purpose to provide the description about those items shown on the balance sheet, income
and expenditures and the cash flow statements. Also it provides non financial information
which does not measured in monetary terms like as, capital commitments and contingent
liabilities.

TABLE 2: THE FINANCIAL SATETEMENTS PREPARED AT THE END OF

ACCOUNTING YEAR

Opinions on    
 
influence Yes No TOTAL

RESPONSES 27 3 30  

In percentage 90 10 100  
(%)

Source: Researcher at ZSSF 2006/2007

The results from the respondents showed that 90% of the total respondents respond as the
financial statements prepared at the end of accounting year. This implied that, ZSSF
adherence the policies of the NBAA to prepare the financial statement at the end of the
year.

TABLE 3: THE FINANCIAL STATEMENTS ARE PREPARED AT THE

REQUIRED TIME

Opinions on    
 
influence Yes No TOTAL

RESPONSES 9 21 30  

In percentage 26.67 73.33 100  

(%)

Source: Researcher at ZSSF 2006/2007

The researcher wanted to know if the financial statements of ZSSF are prepared at the
required time. The results of the respondent’s reveals that financial statements were not
prepared at the required time as evidenced by 73.33% of the total sample. The researcher
discovered that, the delay of the financial statements at ZSSF was caused by many factors
which include lacks of computerized system, over workload and shortage of staff at the
accounting and finance department. These results the delay in decision making by the
management due to lacks of necessary information. The study revealed that management
does not take any appropriate action ensure the financial statements are prepared at time.
4.2 THE CONTRIBUTIONS OF THE FINANCIAL STATEMENTS FOR
DECISION MAKING AT ZSSF
The study revealed that financial statements considered being the most important sources
for the financial decisions of ZSSF as represented by the table 4 as follows;

TABLE 4: THE CONTRIBUTION OF THE FINANCIAL STATEMENTS FOR

DECISION MAKING IN AN ORGANIZATION

Opinions on
influence High Moderate Low TOTAL

RESPONSES 19 9 2 30

In percentage
63.33 30 6.67 100
(%)

Source: Researcher at ZSSF 2006/2007

From table 3, the contribution of the financial statements for decision making in an
organization give the following results. The total sample respond high was 63.33%,
moderate was 30% and low was 6.67%. The study revealed that the financial statements
have a great importance for decision making at ZSSF.

The following were the contributions of the financial statements for decision making:-

(i) To improve the performance of the ZSSF

The study revealed that, the performance of the ZSSF was improved due to the increased
of the member’s contributions which is equivalent to 7.9%; also the beneficiary was paid
their benefit on monthly basis. The ZSSF operations were increased due to the increasing
of the employment opportunities, inspection and the growth of the economic activities.
 (ii) To facilitates the investment decisions
The ZSSF use the financial statement for investment decisions. The researcher observed
that, ZSSF prefer to invest on the short term rather than long term investments, because it
could be easy to manage properly. The study observed that ZSSF makes actual
evaluation of the potential investment before and after its approval through taking into
consideration four qualitative characteristics of the area to be invested, these are; safety,
liquidity, yield and the ability to create social and economic utility. For the year
2004/2005 ZSSF total investments were as represented below;

Figure 2:

THE INVESTMENT PORTFOLIO 2004/2005

Treasury bills

Government stock

25% Fixed deposit Equity

investment
50% Equity investments

3% Real estate
14%
1% 5% 2% Loan

Overall

Source: ZSSF Annual report 2004/2005

(iii) To know the financial position

The researcher observed that ZSSF used the financial statements to know its financial
position which the management applied for predicting, comparing and evaluating the
organization earning power. The balance sheet provides a picture of the fund wealth,
obligations and the liquidity position. The income and expenditure, measured the
profitability, while the cash flow statement used to know the net increase or decrease o f
cash during the year.
 (iv) To determine the solvency
The study revealed that the financial statements were used to determine the solvency of
the ZSSF. The study observed that ZSSF maintains its solvency by ensuring the
expenditure was minimized and the income was maximized through preparing monthly
report which shows the total contributions of receivable from government, private and
parastatals, thus it become easy to determine those who don’t remit their contributions.

(v) To measure the liquidity position

The study revealed that the liquidity position of the ZSSF provides a picture about the
ability of the current asset over the current liability to pay the maturing obligations. The
organization used different approach to manage its liquidity through preparing the
periodic report known as “Performance report”. This report was prepared by the fund
service department and accounting and finance department which enable the management
to take decisions about the liquidity of the ZSSF.

(vi) Proper utilization of the fund resources

The researcher observed that the financial statements used in judging the management
ability to utilize organization resources effectively to achieve their stated goals. The
ZSSF used different approaches to utilize their resources effectively and ensures there is
no misappropriation of these resources through; proper records were kept, authorization
at the time of acquiring or disposing the asset, allocation of duties to the appropriate
person and valuation of the asset at the end of each accounting period.

(vii) To prepare the budget

The study revealed that ZSSF used financial statements for preparation of the budget.
Budget is used as a vital tool to control the expenditure of the ZSSF. The budget is
prepared in order to estimate the expenditure for each item which might be incurred or
earned during the year. The budget is prepared with the reference of the previous
financial statements, and then makes an estimate for that year. This helps the organization
to control the increase of expenditure, which leads the organization to operate at a deficit
and leads to the deterioration of the firm performance.
The researcher asked the respondents that, if the organization decisions based on the
financial statements emphasize the success of ZSSF to meet their stated goals. These
opinions had been analyzed so as to know how financial statements could have a positive
influence towards the decisions of the organization. On the analysis the study come up
with the following results;

TABLE 5: DECISIONS BASED ON THE FINANCIAL STATEMENT

EMPHASIZE THE SUCCESS OF ZSSF TO MEET THEIR STATED GOALS

Opinions on
More than Approximately Less than
influence TOTAL
50% 50% 50%

RESPONSES 9 17 4 30

In percentage
30 56.67 13.33 100
(%)

Source: Researcher at ZSSF 2006/2007

Result from the evaluation of the organization by the respondents discovered that,
decisions taken by management using the financial statements emphasize the success of
ZSSF to meet their stated goals approximately 50%. The researcher observed that, not
only the financial statements can emphasize the success of ZSSF but also non financial
information was applied to make the managerial decisions to achieve their desired goals.
 4.3 THE FACTORS WHICH LEAD TO LATE PREPARATION OF THE
FINANCIAL STATEMENTS

The study revealed that, the financial statements were not prepared at the required time
thus; hinder the management to make decisions on time. These are;

(i) Lack of computerized system

The study revealed that the financial statements of the ZSSF were prepared manually
instead of using the computerized accounting system. Thus it takes time to prepare the
statements due to accessibility of the data was difficult, the data are not secured because
it may become lost in one way or another.

(ii) Failure to comply with IFRS

The researcher realized that the financial statements were not prepared according to the
International financial reporting standard (IFRS). These limits other users of these
statements to make comparison between ZSSF financial statements and other
organizations because it lacks rules and regulations of preparing accounts set up
internationally, on which Tanzania has opted to immigrate from TAS to IFRS with effect
from 01.07.2004.

(iii) Lack of sufficient knowledgeable staff

The researcher observed that most of ZSSF staffs have insufficient knowledge and the
experience of the work they undertook, thus the reliability of the statement was
uncertainty. Also the numbers of staffs are low compared to the work assigned especially
to the accounting and finance department.

(iv) Lack of underlined policy towards the decision making

The study reveled that, at ZSSF there were no underlined written policy toward the
decision making by using the financial statements. Thus the decisions at ZSSF were made
basing on quarterly reports prepared by each department and the available financial
statements.
Moreover, the researcher ask the respondents if the management make clear to all staff if
they make decisions by using financial statements to attain its objectives. The results are
as follows;

TABLE 6: THE STAFF AWARENESS ABOUT THE MANAGERIAL

DECISIONS TO ATTAIN THE ORGANIZATION OBJECTIVES

Opinions on    
 
influence Yes No TOTAL

RESPONSES 11 19 30  

In percentage 36.67 63.33 100  

(%)

Source: Researcher at ZSSF 2006/2007

The evaluation of the respondents shows that 63.33% of the respondents say “No” and
36.67% says “Yes”. This implies that; the management did not make clear to all staff if
they make decisions by using financial statements to attain its desired objectives and the
members of the organization were not involved in decision making at the ZSSF.

4.4 THE MEASURE TO BE TAKEN FOR THE LATE PREPARATION OF

THE FINANCIAL STATEMENT

The management of the ZSSF took an appropriate actions to solve those problems which
hinder the accessibility to the financial statements, but some of the problems, no measure
had been taken like as preparing the financial statement at the required time. However
ZSSF provides the following solutions to the problems;
 The organization should invite the tender to install the computerized system to
operate; this includes installation of accounting package for accounting and
finance department. This will help the financial statements to be prepared at the
required time and accurately.

 ZSSF should adapt fully and apply the IFRS through providing regular training,
seminars and conference the staffs of Accounting and Finance department. This
ensures the financial statements were prepared to meet the needs of the different
users of the financial statements.

 To increase number of the staffs who is competent and knowledgeable in the

department. This will reduce the workload among the staffs especially in
Accounting and Finance department.

 ZSSF should introduce the policy towards the decision making in the
organization.
 CHAPTER FIVE

5.0 CONCLUSION AND RECOMMENDATIONS

5.1 CONCLUSION
The researcher concludes that the managerial decisions depend on both financial and non
financial information. The financial information was prepared at the end of each
accounting period, thus any financial decisions must be supported with the financial
statements which prepared on time and accurately in order to achieve the managerial
decisions which emphasize the success of the organization to meet their stated goals.

Also the study had found out that the financial statements were not prepared at the
required time, this hinders the decision maker to make decisions at the appropriate time
as evidenced by the views of 73.33% of the total sample. Moreover the study had found
out that non financial information were applied to facilitates the decision making process.

The researcher discovered that the board of the trustees was held their responsible
effectively to ensure smooth operation of the fund, providing the benefits to the members
and to ensure ZSSF achieve its stated objectives. Also the board needs to make clear to
the staffs about the decision taken as well as its implementation.

Hence the researcher concludes that ZSSF considered the funds to be the most important
resources for the operation of any activities. Thus the management realized the
importance of the financial statements to make those decisions based on the financial
matters through combining financial and non financial information to facilitate the
achievement of the organization goals.
5.2 RECOMMENDATIONS

The researcher provides the following recommendations for the whole organization
which is necessary to achieve their stated goals.

 The ZSSF must be used management by objectives style. This is a phrase which is
used to describe a style of management which attempt to relate organizational
goal to individual performance and development through the involvement of all
level of management. Thus the management must provide the knowledge to the
staffs as well to the public on what are going to do on a particular period of time.
 The management and the board of trustees should be responsible and accountable
for those limitations and weaknesses that were organizational oriented, because it
may lead to the organization to suffer with the liquidity distress.

 The management of the ZSSF should be accountable to establish strong internal

control system which is helpful to safeguard the cash and the resources, not only
to the accounting and finance department but also for the whole organization.
Also the responsibility and duties of the internal auditor should be clearly
specified.

 ZSSF should establish the performance appraisal system to its staffs. The staff
that performed better than others should be motivated. So the researcher
recommends that performance appraisal should be carried out in each department
to determine the best employee of the year who performed well, this will
encourage the staff to increase the productivity of the work.

 Special computerized system should be installed to enable the accountant to

prepare the financial statements at the required time and also to ensure the
accuracy of the statements and timely preparation of the financial statements.
 To increase different training programs, short courses and seminars to the staffs of
the accounting and finance department especially prepared by NBAA, in order to
gain new knowledge concerned with the financial matters.

 The number of the staffs who are competent in accounting department must be
increased, by taking into consideration their skills and experience in performing
their duties in relation to the task assigned.
6.1 BIBLIOGRAPHY
Abeid, S.K (2003), The Accountant vol 15, NBAA, Dar-es-salaam.
Gupta, (2004), Management theory and practice, Sultan Chand & sons,
New Delhi, India.
IASB (2003), International Financial Reporting Standards (IFRS),
London, UK.
IASB (2004), International Financial Reporting Standards (IFRS),
London, UK.
Ivancevich et al, (1997), Management quality &competitiveness, Mc Graw- Hill,
New York, USA.
Larson, K.D, (1989), Financial Accounting, Irwin Inc, USA.
Maheshwari, Dr S.N ,(2003), Principles of Management Accounting, A.S offset
Press, Delhi, India.
Masimba, Dr R.D(1992), The Accountant vol 5, NBAA, Dar-es-salaam.
Mwita, S.I (1995), The Accountant vol 8, NBAA, Dar-es-salaam.
Njau, S.D (2000), The Accountant vol 12, NBAA, Dar-es-salaam.
Nzomo N.D (1985), Financial Accounting, Kenya literature bureau, Nairobi, Kenya
O’Donnell (1972) Principles of Management: An analysis of Managerial functions,
5th ed, Mc Graw-Hill, Kogakusha, Tokyo, Japan.
Pandey, I M (2004), Financial Management 8th Ed, vikas Publishing House,
New Delhi, India.
Powers, N (2001), Financial Accounting, Houghton Mifflin, USA.
Robert, H (1995), Decision making Process, University of Missowi Career,
New York,USA.
ZSSF, Annual Report 2004-2005
ZSSF, Annual Report 2003-2004
ZSSF, Annual Report 2002-2003
6.2 LIST OF APPENDICES
Appendix 1: Letter of requesting cooperation
Appendix 2: Questionnaire.
Appendix 3: Organization structure.
Appendix 4: Balance sheet.
Appendix 5: Income Statement.
Appendix 6: Cash Flow Statement.
Appendix 7: Notes.

TABLE OF CONTENTS
Page

Copyright…………………………………………………………………………………iii

Dedication………………………………………………………………………………...iv

Declaration………………………………………………………………………………...v

Acknowledgement………………………………………………………………………..vi

Executive summary …………………………………………………………………......vii

Abbreviations……..………………………………………………………...………….....ix

List of tables……………………………………………………………………………….x

List of figures…………………………………………………………………………......xi

CHAPTER ONE

1.0 Background of the ZSSF………………………………………………………………1

1.1 Introduction and background of the problem………………………………………….2

1.2 Statement of the problem………………………………………………………...........3

1.3 Objectives of the study…………………………………………………………...........5

1.4 Research questions…………………………………………………………………….5

1.5 Significance of the study………………………………………………………………5

1.6 Scope of the study………………………………………………………………….….6

1.7 Limitation of the study………………………………………………………………...6

CHAPTER TWO

1.0 Literature review………………………………………………………………………7

2.1 Theoretical literature review…………………………………………………………..7

2.2 Empirical literature review…………………………………………………………..13

CHAPTER THREE

2.0 Research methodology……………………………………………………………….16

3.1 Research design……………………………………………………………………...16

3.2 Research techniques…...……………………………………………………………..16

3.3 Population inquiry……….. ……………………………………………………….....16

3.4 Sampling techniques…………………………………………………………………17

3.5 Sample size…………………………………………………………………………..17

3.6 Data collection instruments…………………………………………………………..17

3.7 Types of data collected…….………………………..……………………………….18

3.8 Data analysis…………………………………………………………………………19

CHAPTER FOUR

4.0 Research findings, analysis and interpretations……………………………………...20

4.1 The financial statements used by ZSSF for managerial decision making…………...21

4.2 The contributions of the financial statements for decision making at ZSSF………..25

4.3 The factors which lead to late preparation of the financial statements ……………...29
4.4 Measure to be taken for the late preparation of the financial statements…………….30

CHAPTER FIVE

5.0 Conclusion and recommendations…………………………………………………...32

5.1Conclusion……………………………………………………………………………32

5.2 Recommendations…………………………………………………………………...33

6.1 Bibliography………………………………………………………………………...35

6.2 List of appendices…………………………………………………………………...36

COPYRIGHT
© 2007
All rights reserved. No part of the publication of this research report to be transmitted in
any form or stored in any retrieval program either mechanically, photocopy or by any
means without getting the prior permission from the author or the institute of
Accountancy Arusha on behalf.
 DEDICATION
With lots of love to my parents (Mr. Said Omar and Mrs. Mwanzigu Ali) an inspiring
model of courage, strength and determination, I sincerely dedicate this research report to
Said Omar family.
DECLARATION
I hereby declared in the senate that this report is my own work and effort. It has not been
presented at any higher learning institution for the academic award.

Student signature ……………………………. Date ………………..2007

Omar, Asha S.

Supervisor signature………………………….. Date…………………….2007

Mtui, Agnes
 ACKNOWLEDGEMENT

In fact this research is a result of the efforts and the contributions of many peoples. I take
this opportunity to thanks them all. It is difficult to mention all the people who have made
various contributions in this study. However I would like to give my gratitude to the
following;

First of all I would like to thanks God who assisted me mentally and morally for the
whole period of the study.

I would like to give my heartfelt thanks to my supervisor Ms Agnes Mtui who was
helpful in providing her critical comments and guidance towards the organization and the
completion of this work.

My gratitude should go to the IAA academic and supporting staffs for their good
cooperation during the whole period of study.

My sincere gratitude should go to the management of ZSSF for accepting me to

undertake the practical field work and the research study; also I would like to extend my
acknowledgement to ZSSF Accounting and Finance department for their personal and
official capabilities who helped me to complete the research and all staffs for supporting
and providing good cooperation, advice and encouragement during my practical session.

Special appreciation should go to my parents and friends who assisted me mentally and
morally for the whole period of the study.

EXECUTIVE SUMMARY

Decision making is an important task to perform whether to individual, organization,

charities club, government as well as to the family. In organization, the decision maker
comes to a conclusion from the existing problem from different sources of information
including financial information and non financial information. The decision makers and
other interested parties of the financial statements would like to see the results of the
organization and the causes of changes in cash position for the accounting period are
accurately, timely and effectively prepared and well presented.

The financial statements provides the relevant information to different users of that
information for the purpose of making decisions based on the financial position by
looking on different aspects including the profitability ratio, the liquidity position and the
ability of the fund to meets its current obligations.

The study focused on the importance of the financial statements for the managerial
decisions, as a case study which was carried out at ZSSF- Zanzibar. The main objective
of the study was to identify the financial statements used by the management for decision
making, the contributions to the financial statements as well as the factors which hinder
the accessibility to the financial statements at Zanzibar.
The researcher used simple random sampling to select the sample, where by a sample
size of thirty (30) respondents was used. The researcher used both primary and secondary
data. The primary data was collected by using questionnaires, interviews and
observations; where by the secondary data was obtained through documentation by
surveying different manual, books, journals, and organization annual report.

The findings of the study was presented, analyzed, and interpreted by using statistical
tools including histogram, table and pie chart.

The study revealed that any decisions based on the financial matters must be supported
by the financial statements. For the organization like ZSSF needs fund for their daily
operations of any activities. Through the financial statements, ZSSF makes decisions on
different matters such as investment decisions, to measure the liquidity position, proper
utilization of the resources and the ability of the ZSSF to meet the matured obligations.

The researcher concludes that the managerial decision making must be supported by
financial and non financial information. In order for management to solve the problem of
delaying in decision due to lack of necessary information like financial statements,
policies and the procedure should be well communicated to the members of the
organization and punishment should be imposed to enforce those statements to be
prepared on time.
 ABREVIATIONS

IAA Institute of Accountancy Arusha

ZSSF Zanzibar Social Security Fund
IFRS International Financial Reporting Standard
TAS Tanzania Accounting Standard
TAC Tanzania Audit Corporation.
NBAA National Board of Accountant and Auditors
Tshs Tanzania shillings
 LIST OF TABLES
Page
Table1: Computation to show the liquidity ratio at ZSSF…..…………………………...20

Table 2: The financial statements prepared at the end of each accounting year........…....23

Table 3: The financial statements are prepared at the required time………………….....24

Table 4: The contribution of the financial statements for decision making at ZSSF……25

Table 5: The decisions based on the financial statements emphasize the success of ZSSF

to meet their stated goals………………………………………………………...27

Table 6: The staff awareness about the managerial decisions to attain the organization

objective...………………………………………………………………………..29
 LIST OF FIGURES
Page
Figure 1: Trend of surplus earned for 2000/2001 to 2004/2005…………………………21

Figure 2: The investment portfolio of ZSSF 2004/2005…………………………………25