SAJAAR Vol. 20

SAJAAR Vol. 20

The Southern African Journal of Accountability and Auditing Research

Volume 20, Issue 1, 2018

Featured Articles

Author: Christo Ackerman and Lourens J Erasmus
Affiliations: 1 University of South Africa and 2 University of South Africa

Source: Southern African Journal of Accountability and Auditing Research, Volume 20, Issue 1, Jan 2018, p. 1 – 12

Keyword(s): Academic journal; accountability; auditing; bibliometric review; SAJAAR; The Southern African Journal of Accountability and Auditing Research

Accreditation: Department of Higher Education and Training (DHET)

Abstract:The Southern African Journal of Accountability and Auditing Research (SAJAAR) is a scientific research journal of the Southern African Institute of Government Auditors (SAIGA). The aim of SAJAAR is to advance scholarly research and debate accountability and auditing-related topics, with preference given to research which focuses on the public sector. SAJAAR has been in existence since 1998, however, has not embarked on a bibliometric review to reflect on its history and development. The research objective of this study was to perform a bibliometric review for regular readers and the broader academic and professional community to reflect on the history of the journal and consider its status and future in terms of auditing and accountability. A bibliometric review is considered a natural and necessary exercise for academic journals.

The study employed a deductive content analysis based on bibliometric characteristics commonly used in literature. The findings reveal a steady increase in the number of annual publications over the 20-year period. The journal maintained a strong focus on internal and external auditing research, particularly in the South African public sector. International collaboration declined and no publications were published from the broader Southern African community. In terms of methodologies, a mix between quantitative and qualitative studies exists, however, most of the latter studies were non-empirical in nature. Limited studies were conducted using a mixed methods approach. The results of the bibliometric review suggests that the journal increase its Southern African footprint by elevating its status and international visibility, include more empirical qualitative studies and invite manuscripts from studies which adopt mixed methods research. This bibliometric review of the history of SAJAAR, presents the journal and its readers with a synopsis of its status, potential growth and a baseline against which future progress can be measured. The results enable readers and regular authors to reflect on further research in auditing and accountability, so that SAJAAR can reflect on its policy and strategy

Author: Michael Harber
Affiliations: 1 University of Cape Town

Source: Southern African Journal of Accountability and Auditing Research, Volume 20, Issue 1, Jan 2018, p. 13 – 27

Keyword(s): Accounting; auditing; audit profession; audit quality; expectations gap; job satisfaction

Accreditation: Department of Higher Education and Training (DHET)

Abstract: In the context of audit quality, this paper intends to explore perceptions of the nature and consequences of a possible decline in the appeal of the South African audit profession. The paper employs an exploratory sequential mixed methods design with primary emphasis on interviews with a select group of experienced audit practitioners who hold senior leadership positions in their respective audit firms. According to the perceptions of audit practitioners, there appears to be a significant and concerning deterioration in attracting the profession as a career of choice which is likely to contribute towards a decline in audit quality if not addressed. A decline in appeal of the audit profession, resulting in young talented accountants to pursue careers elsewhere, as well as experienced talent to leave the profession, will likely impact audit and financial reporting quality in South Africa. Levels of commitment and motivation of existing registered auditors may also be under threat. The primary reasons identified for this alarming trend has been the increasing degree of regulation and risk in the industry, as well as the superior remuneration in alternative careers over the longer term. Regulators and academics need to identify this phenomenon as a major threat to audit quality and respond with additional research to comprehend the exact nature and extent of the concerns being raised by the profession to provide credible solutions. No such research has been conducted in a South African context and the findings have wide applicability in other jurisdictions.

Author: Henriette Scholtz and Suzanne Kieviet
Affiliations: 1 University of Stellenbosch and 2 University of Stellenbosch

Source: Southern African Journal of Accountability and Auditing Research, Volume 20, Issue 1, Jan 2018, p. 29 – 41

Keyword(s): Board composition; firm performance; corporate governance; executive directors; independent non-executive directors

Accreditation: Department of Higher Education and Training (DHET)

Abstract: A board of directors is a group of individuals who are elected to act as representatives of the shareholders to establish corporate governance structures and make decisions on major company issues. According to the agency theory, the owners or shareholders of a company rely on the directors of that company to control and respect their interests. This study investigates whether board size and composition influence firm performance for 80 of the Top 100 South African companies as listed on the Johannesburg Stock Exchange from 2013 to 2015. Tobin’s Q and return on assets are utilised as performance measures. The following board composition factors are considered: board size, proportion of non-executive directors, proportion of executive directors and proportion of independent non-executive directors. The study reveals that the proportion of non-executive directors and independent non-executive directors on a board is significantly positively related with firm performance. The study also reveals that board size has an insignificantly negative relationship with firm performance including the proportion of executive directors measured as Tobin’s Q and an insignificantly positive effect on return on assets.

Author: Alastair Marais and Barry Strydom
Affiliations: 1 University of KwaZulu-Natal and 2 University of KwaZulu-Natal

Source: Southern African Journal of Accountability and Auditing Research, Volume 18, Issue 1, Jan 2016, p. 43 – 55

Keyword(s): Agency theory; corporate governance; chief executive officer remuneration; remuneration committee; independence

Accreditation: Department of Higher Education and Training (DHET)

Abstract: Chief executive officer (CEO) remuneration has been the source of much debate both internationally and in South Africa due to rapidly increasing remuneration levels and the apparent lack of a pay-performance link. In South Africa, similar to mature markets, policy-makers require listed companies to establish an independent remuneration committee to oversee executive pay. Despite extensive international investigation, the link between remuneration committee independence and executive remuneration remains unclear while this question is largely untested in the South African context. This paper investigates the relationship between remuneration committee independence and CEO remuneration levels and pay-performance sensitivity using a five-year balanced panel of fifty-two South African companies. No relationship was revealed between committee independence and CEO pay levels. Greater independence does, however, strengthen the pay-performance link when performance is measured as Shareholders’ Return but not Return on Assets. These results are sensitive to how independence is measured. Moreover, companies appear to overstate their committees’ independence. These results reveal that remuneration committees can play a significant role in mitigating agency problems by aligning CEOs interests with shareholders. Consequently, remuneration committee independence should be an ongoing concern for both shareholders and policy-makers.

Author: Sybil Smit, Henriette Scholtz and Nadia Mans-Kemp
Affiliations: 1 University of Stellenbosch 2 University of Stellenbosch 3 University of Stellenbosch

Source: Southern African Journal of Accountability and Auditing Research, Volume 20, Issue 1, Jan 2016, p. 57 – 69

Keyword(s): Integrated reporting; guiding principles; content elements; Johannesburg Stock Exchange

Accreditation: Department of Higher Education and Training (DHET)

Abstract: Corporate communication changed considerably over the last two decades, evolving from separate reports on financial and sustainability performance to integrated reporting. Since South Africa is considered an integrated reporting pioneer, the authors investigated the extent of application of integrated reporting guidelines by locally listed banks for the reporting periods 2011, 2013 and 2015. Annual scores were allocated to each bank to reflect their application of the International Integrated Reporting Council’s framework. Positive developments were noted pertaining to the application of certain guiding principles and content elements. There is, however, still scope for improvement, especially integrated reporting of the small banks. As stakeholders require material information to make informed decisions, banks should focus on providing more substantive details in an integrated manner. Educators should cultivate the integrated thinking philosophy among future corporate leaders.

Author: Jana van Wyk
Affiliations: 1 University of Stellenbosch

Source: Southern African Journal of Accountability and Auditing Research, Volume 20, Issue 1, Jan 2018, p. 71 – 87

Keyword(s): Cognitive computing; cognitive systems; risk management; IT governance; COBIT

Accreditation: Department of Higher Education and Training (DHET)

Abstract: Businesses are utilising software progressively with the ability to learn and make independent decisions. The level of adoption is at various stages of maturity. Cognitive computing, as a new-generation technology combines cognitive science and computer science to create a computing system that mimics the capabilities of a human brain. Cognitive systems provide the opportunity to solve complex business problems; however, they also expose an organisation to significant risks. An organisations governing body is responsible for governing risks and ensure that an effective control environment is implemented. However, in most businesses either the governing body is unaware of the use of cognitive systems, or the governance thereof and its related risks is often disjointed and implemented in an ad hoc manner resulting in all risks not being addressed. The purpose of the study is to develop a comprehensive set of internal control to assist governing bodies to manage significant risks resulting from the implementation and use of cognitive systems, including systems with cognitive abilities.

Author: Philna Coetzee and Dipakiso Msiza
Affiliations: 1 University of South Africa 2 University of South Africa

Source: Southern African Journal of Accountability and Auditing Research, Volume 20, Issue 1, Jan 2018, p. 89 – 100

Keyword(s): Audit committee; cluster analyses; private sector; public sector; best practice; King report; voluntary disclosure

Accreditation: Department of Higher Education and Training (DHET)

Abstract: In modern society, audit committees are perceived as the custodians of accountability and the ‘conscience’ of management and the board. But who holds the audit committee accountable for their actions or non-actions and how do we know what they are expected and are doing? Therefore, the objective of this article was to determine disclosure strengths and weaknesses of the various business spheres (the private sector presented by public listed companies; central government presented by national and provincial departments; public entities; and local government) in relation to each other, by comparing the disclosure and non-disclosure of audit committee to best practice guidelines as stipulated in the third King Report. Annual reports were analysed to establish organisations’ disclosure patterns within each business sphere. The SSPS Twostep clustering component was utilised to conduct the comparison. The results revealed that organisations within other business spheres can learn from the private sector to adhere to the King Report. This result provides the overseers of audit committees’ insight into where a specific business sphere’s disclosure strengths and weaknesses lie and serves as a foundation for future research.

Author: Michael Harber and Daniel Hart
Affiliations: 1 University of Cape Town and 2 University of Cape Town

Source: Southern African Journal of Accountability and Auditing Research, Volume 20, Issue 1, Jan 2018, p. 101 – 113

Keyword(s): Auditing; auditor independence; audit quality; mandatory audit firm rotation; auditor rotation

Accreditation: Department of Higher Education and Training (DHET)

Abstract: The purpose of this study is to utilise field surveys to comprehend South African academics perception of mandatory audit firm rotation (MAFR) as ruled by the Independent Regulatory Board for Auditors in June 2017, including the nature of any possible direct or indirect consequences thereof. The findings reveal that auditing academics perceive the current implemented regulations, practices and standards as adequate to regulate auditor independence. Furthermore, they do not believe that MAFR will improve independence but likely the perception thereof in the minds of the investing public. Academics believe that MAFR will result in a loss of client- and industry-specific knowledge with the outgoing auditor and the new incumbent would experience a steep learning curve in the first year, which presents a significant risk to audit quality. Moreover, there is a perception that MAFR will not lower market concentration. However, uncertainty was expressed regarding its ability to improve transformation in the profession. The study contributes to the ongoing debate whether the efficacy of the various objectives of the regulator with regard to MAFR.

Author: K. Barac and J.T. Mdzikwa

Affiliations: 1 University of Pretoria and 2 University of Pretoria

Source: Southern African Journal of Accountability and Auditing Research, Volume 18, Issue 1, Jan 2016, p. 105 – 117

Keyword(s): Annual report disclosure, Audit committee, Internal audit activity, Internal auditor independence and Top 40 JSE listed companies

Accreditation: Department of Higher Education and Training (DHET)

Abstract: Independence is a cornerstone of the internal audit profession, hence its prominence in the definition of internal auditing. The quality of the audit committee/internal audit activity relationship is important for the enhancement of the independence of the internal audit activity. Using content analysis, this article examines attributes within the audit committee/internal audit activity relationship. Information disclosed in the annual reports of the Top 40 companies listed on the Johannesburg Stock Exchange on the internal audit activity was used during the content analysis. The findings revealed that most companies did not disclose the selected attributes extensively in their annual reports. Since there are no legislative requirements on the extent to which such disclosures should appear in the annual reports of companies in respect of the internal audit activity, the results of this study can be used by the internal audit standard setters to advance their work in this area.

Author: Tankiso Moloi and Michael Adelowotan

Affiliations: 1 University of Johannesburg and 2 University of Johannesburg

Source: Southern African Journal of Accountability and Auditing Research, Volume 20, Issue 1, Jan 2018, p. 115 – 122

Keyword(s): Annual reports; technical, Vocational, Educational and Training colleges; risk management; risk disclosure index; King III Report on corporate governance; public sector risk management framework

Accreditation: Department of Higher Education and Training (DHET)

Abstract: The Commission of Inquiry into Higher Education and Training (also known as Heher Commission) observed that TVET colleges are faced with numerous challenges, such as leadership, funding, and infrastructure. In a sector that is expected to play a pivotal role in the economy, but simultaneously faces many challenges as highlighted by the Heher Commission, it is expected that any report (such as the annual report) that is broadly acceptable by a range of stakeholders is used as a communication channel to reach and communicate the effects of uncertainties of organisational objectives. The King IV posited that this would enable government, potential students, parents, etc. to make informed assessments of the organisation’s performance, and its short-, medium-, and long-term prospects. This exploratory article, which adopted the content analysis methodology, examines the nature of risks disclosed in South Africa’s Technical, Vocational, Educational, and Training colleges’ annual reports with the aid of a risk intelligence map developed by Deloitte. Annual reports content was analysed to determine whether information on the developed risk measurement index had been documented. The gathered results revealed that these institutions are yet to formulate and implement risk management practices as a process in their activities, since the majority of the institutions had not disclosed major risks in their annual reports. The effect hereof is that these institutions could face challenges which could threaten their ability to render appropriate educational services. Consequently, one of the South African government’s objectives for non-higher education to increase the number of artisans during this decade is impeded. It is argued that if risks are incorporated into decision-making, the objectives are likely to be achieved.

Author: Mario Labuschagne and Houdini Fourie

Affiliations: 1 Nelson Mandela University and 2 Nelson Mandela University

Source: Southern African Journal of Accountability and Auditing Research, Volume 20, Issue 1, Jan 2018, p. 123 – 132

Keyword(s): Auditor; fraud; fraud risk identification; fraud investigation knowledge and skills; expectation gap

Accreditation: Department of Higher Education and Training (DHET)

Abstract: The role of internal auditors is evolving which enables them to provide stakeholders with the assurance and assist organisations to achieve objectives and remain competitive to ensure its future existence. This study was guided by the question whether the Institute of Internal Auditors (IIA) guidance pronouncements provides adequate guidance of the expectations of the IIA, audit committees and organisations (stakeholders) senior management with specific reference to the role of internal auditors in respect of the investigation of fraud. The reviewed literature on the role of internal auditors revealed limited guidance is provided to investigations of fraud, including the knowledge and skills required by an internal auditor. A qualitative research methodology was adopted. The Nelson Mandela University committees, namely: Council, Senate and MANCO served as the case study including a combination of deductive and inductive interpretative analysis methods. Semi-structured interviews were utilised to acquire data from the participants who were randomly selected from the aforementioned units and university. The interviews comprised of three themes, namely: role of internal audit, information expected from internal audits and the role that the internal audit plays to inhibit fraud. The interviews were coded manually through standardised coding methods to analyse the data. After due consideration of the participant’s responses to the themes, it could be deduced that greater awareness was necessary of the role of the internal audit and the services it could provide to organisations and management structures. The results of the analysis revealed that an expectation gap existed in the IIA guidance pronouncements and stakeholder expectations of internal auditor roles with specific reference to investigations of fraud. This study reveals that the IIA’s guidance pronouncements do not provide adequate guidance in respect of the knowledge, skills and competency capabilities in relation to investigations of fraud. The results of the study further revealed that the expected role of internal auditors in an organisation should include the performance of or participation in investigations of fraud.