Abstract of Research

This study is centered on assessing the effectiveness of strategies used by commercial banks in Tanzania to deal with earnings management. This study was premised on the fact there is a need for effective strategies to protect the users of financial statements especially in commercial banks against misleading financial statements. Commercial banks are sometimes tempted to manipulate earnings to increase the reported profit or minimize the reported losses.

There is a lot of evidence to suggest that commercial banks engage in earnings management. Examples of earnings management in commercial banks are under-estimation of provisioning for non-performing loans, capitalization of operating expenses, and delaying asset write-offs (Oraby, 2017). Engagement in earnings management may mislead interested parties into believing that certain commercial banks are doing better than their competitors and some goals are being met as required while it’s not true.

Commercial banks represent one of the largest sectors in Tanzania with total assets exceeding TZS 32,460.2 billion (BOT, 2020). Out of the 52 licensed banks, 39 (equivalent to 75%) were commercial banks (BOT, 2020). These statistics demonstrate the strategic importance of commercial banks in Tanzania and the economy in general. Ineffective strategies on the quality of financial statements in commercial banks may cause substantial economic loss due to reduced reliability caused by earnings management. Financial statements are a vital tool for decision making in any organization and to other stakeholders.