School of Accountancy (ETDs)
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Item An analysis of the extent of integrated thinking reflected in key performance indicators disclosed by the Top 40 South African listed entities over time(University of the Witwatersrand, Johannesburg, 2024) Ferreira, Claudia Maria PitaThis research explores the extent to which integrated thinking is reflected in key performance indicator (KPI) disclosures. A KPI Integrated Thinking Index (KPI-ITI) is developed to gauge the alignment of KPIs with integrated thinking principles. Indicators of integrated thinking from the academic and professional literature are used to develop a schematic for evaluating the alignment of KPIs with integrated thinking. The application of the resulting KPI-ITI is illustrated using a sample of South African organisations’ primary reports in 2013, 2017 and 2021. Reports are analysed using a content analysis to identify disclosures dealing with KPIs which are evaluated using the schematic. Results are calibrated using well-established integrated thinking proxies. Ten indicators are identified to develop integrated KPIs. The application of the KPI-ITI reveals that, from 2013 to 2021, KPI disclosures evidenced greater integrated thinking application, primarily driven by the increased use of post-implementation reviews, a shift away from financially-focused KPIs and incorporation of the Sustainable Development Goals (SDGs) and multi-capitals in KPI structures. The index developed is calibrated with other integrated thinking proxies supporting its robustness for assessing integrated thinking in performance evaluation structures. The study is among the first to outline formally the dimensions of integrated thinking specifically in the context of KPIs and detail an index which can be applied to evaluate KPIs to evidence integrated thinking, including insights in an emerging economy context. The study is based on KPI disclosure practices by a sample of companies in a single jurisdiction and findings should be generalised with caution. The index offers practitioners, standard-setters and academics an easy-to-apply technique for examining the extent of integrated thinking which can be expanded further into other publicly available information and jurisdictions. The index can inform stakeholders on the aspects to be investigated when assessing whether management is implementing long-term value creation and sustainability initiatives.Item The impact of artificial intelligence on audit quality(University of the Witwatersrand, Johannesburg, 2024) Madotyeni, BanziAudit firms are under pressure to complete high-quality engagements to re-establish the legitimacy of the profession, following several audit failures and the growing repercussions of subpar audit quality. Considering this, firms have started incorporating artificial intelligence technologies into their resource mix to enhance audit quality. Research on the effect of the use of AI on audit quality is limited, despite the growing use of AI technologies in the audit process. This study explores how artificial intelligence (AI) features can improve audit quality in order to address this problem. A mixed-method approach is used in this study, combining correspondence analysis and content analysis. Preliminary links between audit quality themes and AI features were established by conducting a content analysis to analyse the body of literature on audit quality and the use of AI in the auditing process. Following that, a correspondence study was carried out to gather opinions from auditing professionals regarding the perceived impact of AI on audit quality. A correspondence table that linked AI features to audit quality measures was given to the research participants to complete. Using the correspondence table, forty auditing experts shared their viewpoints. The correlation between AI themes and audit quality attributes was evaluated through the analysis of the responses. The results show that the use of AI will have a positive impact on multiple key audit quality elements and enhance overall audit quality. It was discovered that auditors can use AI to analyse all of the available data and do comprehensive risk assessments. Additionally, by automating repetitive audit duties, respondents indicated that AI would free up audit teams to concentrate on more important and high-risk areas that call for professional judgement. It is recommended that audit firms adopt AI to increase the capacity of their resources and the firm’s ability to deliver quality audits. However, while there is a favourable correlation between the use of AI and audit quality, there are some risks and concerns that companies must address before using AI to execute engagements. As one of the first interpretive insights into how AI affects the key audit quality factors, the research contributes to the body of literature on the impact of using AI on audit quality.Item An international comparative analysis of how South Africa can improve its turnover tax regime(University of the Witwatersrand, Johannesburg, 2024) Mbambale-Mathobo, LindelaniThis research report undertakes a comparative analysis aimed at outlining avenues for enhancing the turnover tax regime in South Africa. This analysis will outline existing shortcomings and furnish recommendations to the National Treasury for potential legislative amendments. By juxtaposing and analysing turnover tax systems operative in Australia, New Zealand, Singapore, and India, valuable insights can be collected to inform potential improvements to South African tax legislation, thereby fostering the advancement of microenterprises within the South African economy. Furthermore, this report aims to examine selected paragraphs of the Sixth Schedule of the Income Tax Act No. 58 of 1962, which governs the administration of microenterprises. It posits that a reassessment of these paragraphs holds the potential to accrue substantial benefits for microenterprises and fortify the overarching tax framework. Ultimately, by furnishing tax legislative recommendations geared towards improving the turnover tax system, this research report seeks to contribute significantly to the sustainability of both the small, medium, and microenterprises (SMME) sector and the broader South African economy.Item The evolution of consolidation accounting: an application of chaos and memetic evolution theory(University of the Witwatersrand, Johannesburg, 2024) Van Zijl, Wayne; Maroun, WarrenMany researchers have explored the evolution of accounting either as a technical and quasi- scientific discipline or as a social construct that both influences and is influenced by history. Some researchers have considered the role played by agency costs, economic pressures, regulation and the complexity of modern business. Other researchers have focused on political lobbying, the socialisation of accountants and the agency they have when applying accounting prescriptions as key evolution factors. The impact of power struggles and acts of resistance have also received much attention. This thesis builds on these earlier works by proposing a novel framework of accounting evolution inspired by two non-accounting theories: Darwin’s theory of evolution by natural selection and chaos theory. Using the case of consolidation accounting, 30 detailed interviews with local and international financial reporting experts illustrate how accounting theory and practice evolve at the macro- and micro-level. In doing so, the thesis helps to reflect how different perspectives highlighted by the prior literature can function concurrently under the proposed framework. The application of chaos theory suggests that consolidation accounting’s macro evolution is characterised by five observations. Firstly, consolidation accounting’s evolution is intertwined with and influenced by other systems, including business practice, taxation regulations, social norms and economic pressures. Secondly, accounting’s future state is highly dependent on its current state. This creates a path-dependency where its trajectory up to a specific point constrains its trajectory after that point. Thirdly, consolidation accounting remains relatively unchanged (stable) until it is disturbed. The presence of feedback loops may amplify or dampen disturbances leading to the possibility of disproportional change. Fourthly, consolidation accounting’s evolution indicates the presence of fractals, where the evolutionary pattern observed at one level resembles that of another. Fifthly, the accounting “rules-of-thumb” that develop over time may more accurately be described as strange attractors that pull accountants towards specific techniques, concepts and disclosures. In doing so, they create a sense or order because they limit the countless possibilities about how transactions and events might be treated. The application of Darwin’s theory of natural selection to non-biological systems is called memetic evolution. Considering memetic evolution of consolidation accounting at the micro-level reflects five core observations. Firstly, memetic evolution explains why accounting’s future state is Page 6 of 217 dependent on its current state. No “new” consolidation accounting technique, concept or disclosure (meme) is truly original but is a modification or recombination of one or more existing memes. Accordingly, consolidation accounting’s future state is dependent on its current state. Secondly, memetics shed additional light on how and what constitute disturbances under chaos theory. Disturbances can arise from changes to related systems, inaccurate inheritance processes, through the active modification of existing memes or the degradation of memes in accountants’ memory. Thirdly, memetic evolution enhances our understanding of feedback loops identified by chaos theory and why radical changes are often rejected in favour of marginal change. Fourthly, memetic evolution exhibits that consolidation accounting’s evolution is about the selfish replication of accounting memes. Consequently, researchers should not assume that currently accepted theory and practice represents the “best” or most “desirable” accounting prescriptions. Supporting chaos theory’s path-dependency, memes use different strategies to “win” the accounting meme selection game and become more prolific. Consequently, the criticism that accounting incentives short-term profit seeking behaviour may not represent a shortcoming of the accounting community but rather the power of evolution by natural selection. Finally, related systems co-evolve creating a complex and chaotic dynamic evolutionary environment. While the focus of the thesis is consolidation accounting, the findings are broadly applicable to accounting evolution in general. For example, the findings suggest that the accounting standard setters may serve the profession better by developing short- to medium-term accounting standards as opposed to striving to set more permanent standards. The findings form the foundation of a new research agenda into the chaotic and memetic evolution of accounting. However, there are limitations to the current study. Only purposive sampling 30 interviews were conducted to ensure participants had the qualifications and experience to provide meaningful insights, introducing an inherent bias potential.Item An Exploration of How Fast Fashion Companies’ Sustainability Policies and Practices Align To the Sustainable Development Goals(University of the Witwatersrand, Johannesburg, 2024) Dhanjee, Kamini; Aucock, Michele; Sebastian, AvaniBackground: The fast fashion industry is a significant contributor to environmental and social issues by producing greenhouse gases, generating textile waste and underpaying workers. The voluntary nature of sustainability disclosure in fast fashion corporate reports lacks standardisation and oversight. Consequently, fashion companies tend to emphasise their positive actions and policies. Media reports often present proof of actions that are inconsistent with companies’ reported actions. Purpose: This study explores the Sustainable Development Goals which fast fashion companies disclose in their corporate reports, the level of detail this disclosure and how media reports support or discredit these disclosures. Method: For the top eight fast fashion companies by revenue globally, references to each of the 17 Sustainable Development Goals (SDGs) in corporate reports from 2020 to 2022 and the level of disclosure was explored through qualitative content analysis. The analysis was led by the targets set out for each SDG by the United Nations and a total score was computed for each SDG for each company. Descriptive statistics were calculated to uncover patterns relating to disclosure frequency, disclosure detail, revenue and other company characteristics Results: There has been a persistent lack of disclosure of quantitative and information on performance targets. Commonly reported SDGs are SDGs 1, 5, 6, 7, 8, 12 and 13, demonstrating what fast fashion companies prioritise. The SDGs overall do not garner much media attention, but stakeholders tend to prioritise SDGs 8, 12 and 13. The study provides evidence of the disconnect between disclosure and practice. Implications: This implies that companies view the SDGs as a disclosure checklist with non- binding implications. From a practical standpoint, the absence of regulated Sustainable Development Goal disclosures suggests that stakeholders with an interest in the Sustainable Development Goals cannot depend on corporate reports to inform their decisions.Item Crypto assets as a financial service for VAT: An analysis(University of the Witwatersrand, Johannesburg, 2024) Matabane, Lesego‘Crypto assets’ is an umbrella term referring to digital financial assets (such as Bitcoin) founded on distributed ledger technology. The South African Revenue Service (SARS) defines crypto assets as a digital representation of value that are not issued by a central bank; thus, these assets are traded, transferred and stored electronically by individuals and entities – both natural and legal – for purposes such as payment, investment and various forms of utility (Ukwueze, 2021). The underlying technology behind crypto assets incorporates cryptography techniques (SARS, 2023). Since their inception in 2009, crypto assets have drawn increasing attention from regulators (OECD, 2020), and cryptocurrency has emerged as a novel form of payment in recent years. This development is fuelled by the flaws in the presently dominant payment method of fiat currency, which include the centralised structure of fiat currency, high transaction costs, the time it takes to process payments (especially for foreign transactions) and the need for more confidence in the institutions managing the current monetary systems (Hamukuaya, 2021). This report analyses whether a crypto asset can be classified as a financial service according to the South African Value-Added Tax Act, No. 89 of 1991 (VAT Act) legislation through an assessment of the features of crypto assets (also known as cryptocurrencies) and a comparison of the classification of crypto assets by South Africa to that by other countries. According to the study's findings, South Africa has adopted the strictest approach, excluding "the issue, acquisition, collection, buying or selling or transfer of ownership of any cryptocurrency" by categorising cryptocurrency as financial services under Section 2 of the VAT Act. The analysis also reveals that South Africa's approach to classifying cryptocurrency for VAT purposes is similar to that of other countries. Therefore, this research suggests that South Africa should broaden the investigation into categories such as the source of cryptocurrencies, nature of supply and place of supply transactions that include exchanging cryptocurrency assets for fiat money or other assets, as well as utility tokens when they are used. These suggestions might serve as further evidence that consensus about the VAT consequences of transactions involving cryptocurrency assets is still pending.Item The impact of dividends withholding tax reclaim processes on foreign investment returns: exploring the complexities and challenges(University of the Witwatersrand, Johannesburg, 2024) Maxongo, Vuyowethu Tony; Ndlovu, JaneInvestors continually seek opportunities for portfolio growth, long-term capital appreciation, return on investments, and/or diversification in their investment portfolio. This investor outlook often leads investors to invest in shares outside of their local stock exchange or invest in dual- listed shares. With advances in technology, cross-border transactions have increased, making it easier for resident investors to purchase shares in foreign markets and for non-resident investors to purchase shares in local markets. Withholding taxes are taxes which are withheld for payments of dividends to shareholders. Dividends withholding taxes, however, have the potential to reduce an investor’s return on investment due to the complexities involved in the process of claiming a refund in instances where dividends tax has been incorrectly withheld. The complexities in the refund process often include the time-consuming process of submitting appropriate documentation to support the claim, the long timeframe for processing refunds, forfeiture of the refund as a result of failing to claim within the specified timeframe, burdensome administrative procedure to be followed, language barriers in claiming a refund in a foreign jurisdiction, unfamiliar legal requirements and the potential for tax authorities to conduct audits and reviews to verify the legitimacy of the refund claim. This research report examines the complexities of dividend withholding tax reclaim processes and the impact on foreign investment returns. To achieve this aim, the research report is grounded in a systematic literature review approach. This approach involves a rigorous analytical methodology that aggregates, interprets and synthesises data extracted from the literature in applicable legislation, book chapters, journal articles and case law. The report analyses a sample of two double tax agreements concluded by South Africa. The first tax treaty is with the Netherlands (SARS 2009), a developed country, and the second tax treaty is with Namibia (SARS 1999), a developing country. The findings of this report indicate that the complexities of the dividend withholding tax reclaim processes significantly impact foreign investors’ returns on investment. The report highlights the need for greater transparency and consistency in these processes, including the reduction of documentation requirements and the development of efficient electronic systems. The report's implications are essential for policymakers, financial institutions, and foreign investors, emphasising the importance of improving the efficiency and effectiveness of dividend withholding tax reclaim processes to support cross-border investmentsItem Does Twitter (now known as “X”) disclosure influence share price?(University of the Witwatersrand, Johannesburg, 2024) Minnaar, Courtney; Sebastian, AvaniAn effective corporate communication strategy is essential for firms to establish and maintain good relationships with capital market participants to ensure continued financial support. Firms are increasingly adopting social media platforms like Twitter as a medium of communication. This study investigates the effectiveness of Twitter as a channel for firms to disclose financial performance and enhance their overall information environment, thereby improving share price performance. In doing so, this study seeks to establish whether JSE-firms that tweet about financial performance experience better share price performance. Additionally, this study aims to determine whether share price performance varies depending on the nature of the news, favourable or unfavourable, contained in the tweets about financial performance. This study employs ordinary least squares (OLS) regression analyses using Twitter and share price data of 148 JSE-listed firms over their 2022 fiscal year. This study reveals a positive relationship between the frequency of firms' tweets about financial performance and changes in share price. Additionally, a positive relationship exists between the type of news disclosed in tweets about financial performance and changes in share price. The findings of this study contribute to Agency Theory, Internet Investor Relations (IIR) and dialogic communication literature, as it provides evidence of the benefits of utilising social media as a dialogic communication channel to effectively communicate with capital market participants to improve the firm's information environment to obtain and maintain their continued financial support.Item Potential improvements to South African research and development tax incentives: lessons from BRICS countries(University of the Witwatersrand, Johannesburg, 2024) Mphephu, Keamogetswe; Ram, Asheer J.The South African government is cognisant of the fact that research and development (R&D) is imperative in stimulating innovation, economic development, and global competitiveness. This has resulted in the government adopting various tax incentives to boost R&D activities. Section 11D of the Income Tax Act 58 of 1962 (Income Tax Act) (Republic of South Africa, 1962) governs the R&D tax incentive, which has evolved since its inception in 2006. The initial plan was for section 11D to come to an end in October 2022. However, in the 2023 Budget Speech, the Minister of Finance declared an extension of ten years for the deadline and simplification of the tax provision to enhance effectiveness. This study will analyse South Africa's R&D tax policies in comparison to selected other BRICS member countries (Brazil, Russia, India, China) and examine possible improvements. Through the research study, several important findings were made. One is that R&D tax incentives play a crucial role in stimulating innovation investment by relieving the financial burden on companies and therefore allowing them to focus their resources on R&D. Another important lesson is that streamlining application procedures and providing convenient access to R&D tax incentives play a critical role in promoting high levels of participation and effectiveness. Although the Department of Science and Innovation has taken steps to enhance R&D tax incentives, there remains room for improvement to align them with international best practices. Aligning with international best practices will enable South Africa to improve its R&D tax provision by encouraging innovation and attracting domestic and foreign investment.Item The implementation and practical issues of loan loss provisioning under IFRS 9 in South Africa(University of the Witwatersrand, Johannesburg, 2024) Muroyiwa, Deysel Tichakunda; Brahmbhatt, YogeshPurpose: The study conducts a thematic evaluation of IFRS 9 by focusing on the assessment of credit risk and loan loss provisioning. The aim of the study is to investigate the post- implementation and practical issues that are currently being faced when accounting for ECLs under IFRS 9. This study makes a valuable theoretical contribution by providing primary evidence on the operationalisation issues of loan loss provisioning under IFRS 9. More specifically, this investigation could be beneficial for standard setters, regulators as well as banks, and other financial entities. Research methodology: The study employs a qualitative research approach and semi- structured interviews were conducted as the primary means of data collection. Using both purposive and convenience sampling techniques, a total of ten participants were selected to take part in the study. The data gathered during the interview process was transcribed, analysed, and interpreted using thematic data analysis. Four themes emerged from the data analysis procedure, which are: i) Transitional process; ii) Impact of the transitional process; iii) Governance, processes and controls, and; iv) IFRS 9 impairment modelling judgements. These themes were analysed using verbatim extracts obtained from the interviews. Findings: The study elaborated on two main recent evolutions of financial instrument systems, namely IAS 39 and IFRS 9. Under IAS 39, the research highlighted that there is no recognition of expected losses stemming from future events. Financial institutions were required to deal with losses only after the occurrence of a negative event, already affecting credit quality. The recently introduced IFRS 9, which came into force in January 2018, marked a paradigm shift from incurred loss to expected loss but differed at the moment at which expected losses are recognized as it demanded to account for the expected losses in the next 12 months as long as the asset did not show a significant increase in risk, thereby triggering the recognition of the ECL for the remaining lifetime. The importance of applying reasonable judgement guided by and within conceptual or standard-level boundaries was also discussed in the study. It was also argued that IFRS 9 places great responsibility on the judgement of prudential supervisors mostly because of their role in ensuring the accurate use and implementation of IFRS 9. Their role mostly involves a thorough assessment of banks to determine whether appropriate credit risk management practices are implemented, assessing whether the calculation and measurement of loan loss provisioning are adequate, evaluating whether adequate policies are in place for the early identification of problem assets, and ensuring whether there is consistency in the application of the new accounting standard across institutions. With regards to the issue of preparedness in the transition to IFRS 9, the respondents outlined many activities such as workshops, presentations, and training by various experts in the accounting, statistical, economic, and actuarial fields to better prepare users of IFRS 9. Although numerous benefits come with the implementation and transition from IAS 39 to IFRS 9, entities also faced huge challenges. This was unanimously revealed by all the participants as they were in complete agreement that the implementation of IFRS 9 was far more complex than that of IAS 39. These challenges include issues in data and modelling, systems infrastructure, governance and control, cost, and vagueness. Following the challenges been faced, the study also revealed the importance of governance and controls through which financial institutions have to strike the right balance between building a sustainable revenue proposition and ensuring regulatory compliance. The study also revealed 3 key judgement areas of IFRS 9 that have been applied in the impairment of ECLs. Because financial institutions were given latitude to make different judgements when modelling IFRS impairment provisions, the researcher identified that there is alignment and divergences in the identified judgements areas. These judgement areas include the applicable definitions of default, the determining factors in SICR and the structure of forward looking macroeconomic variables. There are also divergences and inconsistencies present in the application of certain key judgement areas in IFRS 9 impairment modelling that was highlighted by some of the participants Originality Value: Studies that pertain to the post-implementation and practical issues of loan loss provisioning under IFRS 9 in South Africa are by no means exhaustive and very limited in number. This study, therefore, contributes to the limited body of interpretive, non-positivist financial reporting research being performed in South Africa.