The Accountability and Corporate Disclosure Practices in Tanzania

There is a general agreement that disclosure practices are not random. Yet, knowledge of the factors which they are associated with is far from perfect, particularly in the developing world where the literature in this area is sparse. Developing countries environments are significantly different from the market economies of the west. There is a general lack of effective enforcement system, active stock exchanges and appropriate accounting regulation and training schemes. In order to study corporate disclosure practices and the factors with which they are associated in Tanzania, a random sample of 58 profit-motivated companies was selected and their CARs obtained. The study focused on the 1986 CARs, although, due to data availability problems, CARs for the years 1985-1987 were examined. The four measures of the quality of corporate disclosure were examined. These are the extent of mandatory disclosures, the extent of voluntary disclosures, the timeliness of these disclosures and type of audit opinions. Two indexes were constructed in order to capture the extent of corporate disclosures. One was based on disclosure requirements as stipulated by the National Board of Accountants and Auditors (NBAA) and the Companies Ordinance. The other evolved from a literature review and was refined through interviews conducted in Tanzania. It contains the items considered desirable given the environment but are not prescribed requirements. The timeliness of disclosure was captured by the period between the end of accounting period and the signing of audit report in months. The five possible types of audit opinion were ranked from one (negative opinion) to five (clean opinion). It was observed that, in general, the quality of disclosure practices in Tanzania is unsatisfactory. On the average, the extent of mandatory disclosure is only 50.5%. The average reporting time is 8.1 months, well beyond the legal requirement of six months. It was observed, however, that most CARs receive clean audit reports. Using Spearman's rank order correlation test, Mann-Whitney test, Kruskal-Wallis test and chi2-test, it is revealed that: While the extent of mandatory information disclosure may be used as a proxy for the extent of voluntary information disclosure and vice versa, it is also necessary to examine the timeliness of disclosures and types of audit opinion if conclusions on quality of corporate disclosures are to be drawn. The four measure of quality of corporate information disclosures are associated with different corporate attributes. While types of audit opinion were found to be negatively associated to P/E ratio; timeliness of disclosures were associated jointly to P/T ratio and current ratio, and voluntary disclosures related to asset size and type of accounting firms providing audit services, it was not clear whether timeliness of disclosure is also related jointly to type of corporate governance or type of audit firms. It was also not clear whether the extent of mandatory disclosures is related jointly to type of corporate governance and type of audit firms or just to one of the two factors. The overall explanation of the observed unsatisfactory disclosure practices resulting from the findings of this study is the failure to stimulate demand for accounting information. While disclosure regulatory approach appropriate only to market economies was adopted in Tanzania, the conditions which make it meaningful were not found in Tanzania. Thus, for example, effective financial press, stock exchange and financial analysts are all lacking. More significantly, It was observed that participants in corporate governance in Tanzania do not base the decisions on accounting information.