Doctoral Degrees (School of Accountancy)
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Browsing Doctoral Degrees (School of Accountancy) by Author "Lamprecht, Christiaan"
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Item Open Access A financial reporting framework for South African listed companies under business rescue(University of the Free State, 2016) Lamprecht, Christiaan; Van Wyk, H. A.𝑬𝒏𝒈𝒍𝒊𝒔𝒉 Companies listed on the JSE are required to prepare annual financial statements in terms of IFRSs on the basis of a going concern assumption. This assumption implies that the company will continue to exist in the foreseeable future. In financial statements based on this assumption, assets and liabilities are measured using a mixture of measurement bases: some measurements are based on historical costs and some on current values. However, when liquidation is imminent or the company has no alternative but to liquidate, the IFRSs does not prescribe an alternative to the going concern assumption. Nevertheless, if there is an underlying assumption of liquidation it is presumed that certain elements in the financial statements will be measured at liquidation values. The South African Companies Act allows a company in financial distress to apply for business rescue, the aims of which are to reorganise the company’s affairs in order for it to continue to exist on a solvent basis or, if that is not possible, to render a better return for creditors and shareholders than under immediate liquidation. However, because financial distress indicates that technical or commercial insolvency is imminent, a company under business rescue is not necessarily a going concern but neither is it in liquidation. Thus, the appropriate underlying assumption to use when preparing its financial statements, as well as the supporting measurement bases for its assets and liabilities, is problematic. In such cases, neither the application of IFRS and assumed going concern status, nor the liquidation basis may provide the most decision-useful information to the users of financial statements. The aim of this research was to develop a financial reporting framework for a South African listed company under business rescue, with specific reference to the underlying financial reporting assumption that should be used, and the measurement bases of assets and liabilities that would be preferable in a business rescue context. Owing to the exploratory nature of the research aim, the research design was a-theoretical using an inductive mode of reasoning. In this study, the discovery of theory relates to identifying an appropriate underlying assumption to use, supported by context-specific measurement bases for assets and liabilities. The research instrument was based on a comprehensive literature review of various aspects that influence the financial reporting of a South African listed company under business rescue. Empirical primary data were collected by way of a structured research questionnaire and analysed using statistical and content analysis methods. The respondents consisted of senior business rescue practitioners, JSE-accredited auditors, heads of departments of accounting and auditing at various universities and other IFRS experts. The empirical results in this study provide indicators for assessing the going concern status of a company under business rescue and point to the existence of a period of uncertainty during which a company may not be considered a going concern, but the alternative, namely, an underlying assumption of liquidation, is also not yet applicable. The results therefore revealed an uncertain period in the life of a company under business rescue that is not currently considered in the theory of accounting. An underlying assumption is accordingly suggested that fits in between going concern and liquidation. It is recommended that this underlying assumption be called 'company under business rescue'. The empirical results further show that the needs of the users of a listed company’s financial statements change when it enters business rescue. Users now prefer current values, specifically those based on exit prices, to measure the assets and liabilities. This indicates a preference for an exit-price-based, current-value accounting model. The empirical results of this study culminated in a financial reporting framework for a South African listed company under business rescue. ___________________________________________________________________