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Item Open Access A systematic literature review on transparency in executive remuneration disclosures and their determinants(MDPI, 2024) Siwendu, Tando O.; Ambe, Cosmas M.There are ongoing debates globally regarding excessive executive compensation, the perceived weak link between pay and performance, and the widening inequality gap. The South African corporate governance code King IV’s Principle 14 addresses the need for fair, responsible, and transparent remuneration. At the same time, the newly enacted Companies Amendment Act No. 16 of 2024 in South Africa emphasizes transparency in compensation, shareholder voting, and responding to shareholder feedback. This study conducts a systematic literature review of 30 articles on the transparency of executive remuneration disclosures and their determinants by analyzing Scopus-indexed articles published between 2010 and 2023, selected through specific keyword searches. The findings suggest an increasing focus on research regarding the disclosure of executive compensation, predominantly conducted in the Global North and primarily framed through agency theory. Studies exploring the factors influencing executive remuneration and the relationship between pay and performance are prevalent, with mixed results generally indicating a positive connection. Firm size emerges as a key factor in transparency, and many studies employ binary scoring to evaluate whether executive compensation disclosure is present. This paper provides valuable insights for investors, analysts, and policymakers and adds to the current understanding of executive remuneration transparency.Item Open Access Algemeen aanvaarde rekeningkundige praktyk vir niewinsgewende organisasies, met verwysing na die NG Kerk in die Vrystaat(University of the Free State, 2006) Rossouw, Jacobus; Van Wyk, H. A.English: Not-for-profit organisations, and thus the congregations and welfare organisations of the Dutch Reformed Church in the Free State, exhibit certain unique characteristics, different from businesses. In essence, the primary objective of not-for-profit organisations is not to realise a profit to be distributed to equity participants (e.g. shareholders), but to meet certain religious, cultural, social and other non-commercial needs of the community. Not-for-profit organisations’ need for relevant accounting standards in fact emanates from their unique characteristics. Owing to the nature of not-for-profit organisations, the users of their financial statements require information (financial and non-financial) which is different from the information required by users of financial statements of businesses. Financial reporting which makes it possible for the users of financial statements of not-for-profit organisations to assess the stewardship of the organisation’s management, is the central focus because management are accountable to the members of the organisation, and also especially to donors. Standards of Generally Accepted Accounting Practice (GAAP) are drawn up primarily for businesses, and specifically to enable users of financial statements of companies in the international capital markets, to make economic decisions. Given this fact, and the unique nature and characteristics of not-for-profit organisations, it follows that Standards of GAAP are neither relevant nor appropriate in the case of not-for-profit organisations. Standards of GAAP therefore cannot be applied indiscriminately to not-for-profit organisations, albeit that appropriate South African legislation (Nonprofit Organisations Act) probably requires compliance with Standards of GAAP. In the international accounting environment, attempts have been made to develop unique accounting standards for small- and medium-sized entities, while unique accounting standards have also been drawn up for government institutions on the basis of their unique accounting needs. The same approach should also be followed for not-for-profit organisations since their unique nature and characteristics also necessitate typical accounting standards. Where not-for-profit organisations do indeed attempt to apply Standards of GAAP, they nonetheless experience problems in this regard. Some of these problems derive from the theoretical irrelevance of Standards of GAAP, while other problems are of a more practical nature. The fundamental problem derives from the question whether the cash or the accrual basis is the most appropriate in the case of not-for-profit organisations. Moreover, “fund accounting” is typical of not-for-profit organisations; however, an accounting standard for treatment of “funds” does not exist. In addition, various problems are also experienced with the recognition of assets, impairments and depreciation of assets, because the definition of “assets” and the recognition criteria do not consider the unique nature of not-for-profit organisations. Various questions exist with respect to the recognitio n of receipts as income. The question in particular is whether donations received for a specific purpose, donations which may only be utilised in future periods, as well as capital donations, should be recorded as income, liabilities or directly as funds. Not-for-profit organisations also experience problems with the recognition of so-called “in natura” receipts, and other forms of income. Given the nature and characteristics of not-for-profit organisations, performance reporting is also problematic because the “profit figure” and other reported financial information often do not capture the real “performance” (i.e. the achievement of objectives) of not-for-profit organisations. Furthermore, certain terminologies in GAAP are also not applicable to not-for-profit organisations. In some countries, accounting standards have been developed and issued specifically for not-for-profit organisations. The standards issued by the United States of America , the United Kingdom, Canada and Australia have been analyse d and compared to establish appropriate accounting principles for not-for-profit organisations. Accounting practice, applied in the above-mentioned countries, was reviewed by means of empirical tests among congregations and welfare organisations of the Dutch Reformed Church in the Free State. Specific aspects that were addressed and which have led to proposals for typical standards of generally accepted accounting practice for not-for-profit organisations are the following: · Presentation of financial statements; · Reporting on the restrictions imposed by donors on the utilisation of funds; · Accounting in terms of a cash basis versus the accrual basis ; · Recognition and measurement of fixed assets and accompanying expenses, such as depreciation and impairments, as well as the recognition and measurement of inventory; · Recognition and measurement of income in general, and in particular, recognition of donations and contributions, “restricted donations received”, and donations “in natura”; · Performance reporting by not-for-profit organisations; and · Aspects related to fund accounting. The core recommendations derive from the position that existing and formal Standards of GAAP should be used as a basis, and these standards should be modified to deal with the typical accounting concerns that pertain to not-for-profit organisations. The accounting profession, not-for-profit organisations, and other stakeholders must take note of the irrelevance of GAAP for not-for-profit organisations, the accounting problems experienced in the context, as well as the need for, and the recommendations made with respect to typical accounting standards for not-for-profit organisations. Like some other countries, South Africa should also play an active role in developing accounting standards which are applicable and relevant to not-for-profit organisations.Item Open Access The audit expectation gap: a private company perspective(University of the Free State, 2023) Church, Ané; Prinsloo, F. E.Differences between what financial statement users expect from external auditors and what the external audit actually delivers, give rise to the widely researched phenomenon of ‘the audit expectation gap’. Most extant research focuses on public, listed companies, the findings of which are not necessarily generalisable to private companies which are subject to audit. By focusing on the ‘evolution gap’ component of the audit expectation gap, this study aimed to determine to what extent the expectations of the users of audited private company financial statements differ from what is delivered by the audit engagement undertaken in accordance with applicable audit requirements, which includes International Standards on Auditing, International Standards on Quality Management, the International Code of Ethics for Professional Accountants by the International Ethics Standards Board for Accountants and relevant legislation, such as the Companies Act of South Africa 2008 and the Auditing Profession Act, 2005.. This qualitative, phenomenological study is positioned in the interpretive, constructivist paradigm, and uses induction as the approach to theory development. In-depth interviews were conducted with 20 participants in two financial statement user groups: Management and Shareholders (n=12) and External Stakeholders (n=8), which included participants from banking institutions and the South African Revenue Service (SARS). Data was analysed by using inductive coding to identify codes, which were categorised and synthesised into themes. Four themes emerged from the data. The theme ‘Users of audited financial statements’ identified the users of private company financial statements as members of executive management, shareholders, providers of finance and SARS. The theme of ‘Audit purpose perceptions’ considered those areas typically identified as contributors to the audit expectation gap in public, listed companies. Private company financial statement users shared the expectations that auditors should verify compliance with all laws and regulations applicable to the company and should verify the effectiveness of all internal controls implemented by the company. Participants also expected auditors to detect all errors when underlying company financial records are transferred to the formal set of financial statements, although they did not expect auditors to detect all errors in the financial records itself. Participants, furthermore, expected auditors to play an advisory role where doubt exists over the company’s ability to continue as a going concern. Participants, however, did not expect auditors to detect all fraud, which is the most common expectation in the context of public, listed companies. ‘Audit value perceptions’ addressed factors that participants did not necessarily view as the primary role of the auditor, but which they expected to receive as a consequence of the audit as a value-adding service. This included various forms of advisory services and agency conflict resolution, amongst others. It was also evident from the responses of participants in the Management and Shareholders group that they either misunderstand or have a lower requirement for ‘Auditor independence’ than set by applicable audit requirements. This study underlined the differences between public, listed companies and private companies, emphasising that findings in research on public, listed companies cannot be generalised to private companies. Various factors known to contribute to the audit expectation gap in public, listed companies, were confirmed as not being present in private companies, while additional contributors in the private company context were identified. The findings in this study enable registered auditors, professional accountancy bodies and audit regulators to respond appropriately to the contributors to the audit expectation gap in private companies, which could lead to the improved relevance of private company audits.Item Open Access Audit reports of the Free State provincial departments: an audit and corporate governance perspective(University of the Free State, 2012-07) Crous, Cornelie; Lubbe, D. S.English: This study has been undertaken against the background of public concern regarding the administration and financial management of public finances. Specific attention has been given to the 12 provincial departments in the Free State province. The purpose of this study was to determine whether or not there are trends in the aspects which have led to qualification, disclaimer and emphasis of matter paragraphs in the audit reports of these departments. This study aims to contribute towards the debate on the causes of the financial decline of government financial management and to offer some solutions to these problematic aspects. The literature review in this study focused mainly on the historic development of auditing. This historical overview covered areas in both the public and the private audit sectors and included the following aspects: 1) the development of auditing itself in England, the United States of America and South Africa; 2) the development of the audit report; 3) the development of the audit expectation gap; 4) the development of different forms of business as a key link in developments regarding the need for audits; 5) international harmonisation; and 6) the development of corporate governance as an integral part of auditing. The literature review was followed by a detailed analysis of the audit reports of the 12 provincial departments in the Free State. The aspects mentioned in each of the audit reports, from 2000/2001 to 2009/2010, were summarised and analysed to identify possible aspects that occurred, in each department separately, more than once over this 10-year period. A further comparison was made between the different departments to identify provincial trends. A basic scorecard system was also developed to rate and compare the various departments on their performance as far as audit reports are concerned. Based on the results of the comparison of audit aspects, a questionnaire was developed and distributed to the Members of the Executive Council (MECs), the Chief Financial Officers (CFOs), senior officials, the Auditor-General and private audit firms who also perform audits of public departments. The results of the empirical study, the questionnaire and the interviews indicated that the aspects identified in the document analysis of the audit reports correspond with the views of the interviewees. Aspects such as non-compliance to laws and regulations, insufficient supporting documentation, irregular, fruitless, wasteful and unauthorised expenditure and poor asset management were identified as the main causes of qualified and disclaimer audit reports. The same aspects have also proven to be challenges that the provincial departments need to address within the next three years. In addition to this conclusion, basic recommendations are made for improvement of these aspects in future. This study contributes towards the national debate on the causes for concern in public finance management and possible improvement to the public service in South Africa. This study further contributes towards possibly similar situations in the remaining eight provinces in South Africa in that the provinces may benefit from the aspects identified and the recommendations made to improve their own financial management.Item Open Access Belastingverligting as moontlike aansporingsmaatreël in die grondhervormingsproses(University of the Free State, 2018-12) Kotze, Wilmien; Koekemoer, A. D.English: Many policies have been developed, programmes launched and legislation proclaimed since 1994 to promote land reform in South Africa. The need for land reform is clear from studying its history. Despite a number of policies and legislative decisions over the past 24 years, land reform in South Africa has not been successful thus far. Radical pronouncements and proposed legislation currently circulating show the urgent need for successful land reform. The ruling ANC adopted an official policy of land expropriation without compensation in December 2017, which raises concern if the possible consequences of this policy is analysed. It is, therefore, important that government’s current tax regime is not a hindrance to land reform. To this day, the implications of tax measures on the land reform process has not been investigated. The purpose of this study is to investigate the role that taxation plays in the land reform process in South Africa. Before considering potential tax relief, the factors that are preventing successful land reform, first had to be determined. These factors should be addressed in order to eliminate obstacles in the way of successful land reform. Tax relief, that could possibly address some of these factors, were identified in this study. A literature study was undertaken to identify the factors preventing the success of land reform. The degree to which tax relief supports or inhibits these factors was used as a conceptual framework against which current tax relief was measured. It appears that current tax legislation pertaining to land reform is lacking and there are opportunities for improvement. This study makes recommendations with regard to amendments to existing tax legislation on land reform, as well as general tax lexislation in order to advance the land reform process. A legal doctrinal research methodology is used.Item Open Access Best corporate governance practices: financial accountability of selected churches in the Free State province(University of the Free State, 2016-01) Goodchild, Elmarie; Lubbe, D. S.English: South Africa’s economy tells a daunting story of poverty, economic inequalities, unemployment statistics that have reached an all-time high and the increased threat of receiving a “junk” rating by grading agencies. These realities result in the mounting social and economic ills of society that are amplified by the repercussions of government’s poor record in service delivery. Social services are on the verge of a collapse because they are not properly supported by the government. The insufficient subsidies provided by government, as well as the significant delay or non-payment of subsidies, result in subsidy crises to many social organisations. The aftereffect of the subsidy crises is that some old-age homes, children’s homes, orphanages, kids’ shelters, welfare homes, care havens, homes for orphaned HIV/AIDS, to name but a few, are battling to survive. This is an untenable situation as millions of vulnerable South Africans, particularly children and elderly people, are dependent on social organisations for their survival. The shrinking economic resources, the social needs of communities that are left unfilled by government, as well as the reigning subsidy crises, provide fertile soil for churches to be involved in these social challenges. As South Africa is a developing country, the provision of social services by churches are imperative and the government cannot afford to lose the wide range of contributions to social services by churches. The future of some churches are, however, affected by the unprecedented decline in membership, as well as the negative impact of secularisation and migration. Many churches are facing aging members, youth leaving the church and several church buildings are sold due to the battle for financial survival. The challenges faced by churches are amplified by the media being flooded with reports of scandals ranging from 1) alleged financial misconduct amongst some of the most well-known televangelists in the United States of America, the 2) controversial sex scandals in the Roman Catholic Church and 3) many instances of misconduct in church finances. These challenges impose significant threats to the financial sustainability of some churches. In addition, it threatens the sustainable involvement of churches in the provision of social services. The root of all these challenges can be traced back to the concept of corporate governance. As soon as churches have a significant presence and influence in their community, stakeholders will normally take on a role of encouraging and demanding the illustration of sound corporate governance principles by churches. The term corporate governance has evolved to become a mainstream concern amongst all stakeholders in various industries and across the different sectors of the economy. The King Reports have provided, not only in South Africa, but also internationally, the lead in good governance and is generally accepted as the source document for what constitutes sound governance. The abovementioned challenges surrounding churches arouse the concern as to what extent churches should implement sound corporate governance principles, as prescribed by the King Reports. This study consists of a literature component and an empirical component. The aim of the literature study was to provide 1) an overview of the development of corporate governance, with specific reference to the King Reports, 2) a regulatory framework of non-profit organisations and churches and 3) an overview of the relevance of the principles of corporate governance from the King Reports to all types of organisations, and for the purpose of this study, specifically churches. The empirical research component was conducted by means of a semi-structured interview. The principles of good governance as prescribed by the King Reports have been used as the main source in the development of the interview schedules. The aim of the empirical study was primarily to analyse the extent to which corporate governance guidelines are implemented by a selected sample of congregations. The congregations were selected from two denominations, namely the Dutch Reformed Church and the Apostolic Faith Mission Church, in the Free State region. The interviews were used to obtain insight from important role players of the respective congregations. The answers provided by the interviewees enabled the researcher to reach conclusions and make recommendations regarding the implementation of corporate governance principles. The results of this study should assist congregations in enhancing and improving the implementation of corporate governance principles. This should therefore assist congregations in maintaining financial sustainability and in taking up their rightful place in playing an indispensable role in the provision of, amongst others, social services in South Africa. The study is set out in 5 chapters. Chapter 1 provides the introduction to the study, sketching a few of the scandals that the world and churches are currently faced with as a means to illustrate the importance of corporate governance. This is followed, in Chapter 2, by an overview of the development of corporate governance. The chapter also discuss the development of the different sectors in the economy, with specific focus placed on the non-profit sector, of which churches form part. The chapter concludes with a discussion on the importance and relevance of corporate governance in the non-profit sector. Chapter 3 provides an overview of the history and establishment of the two denominations as mentioned, in South Africa, coupled with an overview of the governance structures of the denominations. This is followed by an analysis of the findings gathered from the interview schedules in Chapter 4. Chapter 5 finally consists of the conclusions and recommendations for improvement of corporate governance by churches and further research possibilities.Item Open Access Business ethics in the accountancy profession: a South African perspective(University of the Free State, 2013-01) Lubbe, Nandi; Lubbe, D. S.English: For thousands of years, man has been searching for the meaning of life, especially through philosophy and religion. One of the most important aspects in this search is probably the distinction between what constitutes right (good) and wrong (bad). This has not been confined to the personal/philosophical/religious aspects of life, but has also spread to the business sphere and eventually developed into the academic field today known as business ethics. Probably not a single day passes without the media reporting on unethical behaviour in its various forms in South Africa. The recent Lonmin/Marikana strike and its aftermath has dominated the South African media during 2012 and has already largely been described as the most tragic episode in the history of post-apartheid South Africa. The Lonmin incident is a “classic case study” of unethical conduct which included, amongst others, participation in unlawful and unprotected strikes, excessive police brutality, intimidation of and violent action against workers who reported for duty, malicious damage to property, clashes between labour unions fighting for membership and control of the industry, and poor leadership. Of all the corporate collapses that shocked the business world, Enron and its then auditors, Arthur Andersen, was problably the most infamous and significant due to its widespread international spillover effect. Enron and other unethical economic scandals provide an indication of the gravity and extensive reach of business ethics in the world today. The accounting profession plays such an important role in the global economy that the prevelance of unethical business practices often leads to appeals for an investigation into the competence and ethical behaviour of these professionals, accompanied by a notion that the main cause of the wrongdoings may be traced back to inadequate prominence given to ethics education within the profession. One of the main challenges in presenting business ethics courses is to keep the subject pragmatic and practically applicable – which may be difficult, possibly due to the discipline’s development from philosophy. If the pragmatic and practical focus is not maintained, business ethics may result in a mere philosophical and theoretical course that has little to do with ethical challenges encountered in the real business world. This study consists of a literature compopnent and an empirical component. The fourfold aim of the literature study was to provide 1) an overview of the development of business ethics as a discipline; 2) the viewpoints and requirements of professional accountancy bodies regarding business ethics and business ethics education; 3) an overview of business ethics modules presented by certain South African universities; and 4) the broad theoretical background to the discipline. The empirical research component was conducted by means of a questionnaire. The aim was primarily to determine the insight of four groups of students in business ethics at the beginning of the course as compared to that at the end of the course to establish the possible impact of the course on the ethical reasoning abilitites and perceptions of students. The questionnaire was also developed to also take into account the major requirements of SAICA regarding business ethics courses. The opinions and perceptions of the four groups of students enabled the researcher to reach conclusions and make recommendations regarding the suitability of the current content of business ethics courses. The study is set out in 5 chapters. Chapter 1 provides the introduction to the study, sketching a few of the ethical dilemmas that the world is currently faced with as a means to illustrate the importance of business ethics as a discipline. This is followed by an overview and discussion of the viewpoints and requirements of professional accountancy bodies regarding business ethics and business ethics education as well as an overview of business ethics modules presented by certain South African universities. Chapter 3 provides an overview of the development of business ethics as a discipline followed by an analysis of the findings gathered from the questionnaire (chapter 4). The final chapter consists of the conclusions and recommendations for improvement of business ethics courses and further research possibilities.Item Restricted Corporate governance in South African higher education institutions(University of the Free State, 2017) Crous, Cornelie; Lubbe, D. S.𝑬𝒏𝒈𝒍𝒊𝒔𝒉 Several Universities in South Africa, namely the Tshwane University of Technology (TUT), the Walter Sisulu University (WSU), the Central University of Technology (CUT) and Vaal University of Technology (VUT), were placed under administration since 2011 because of poor administration and governance. Examples of the poor administration and governance practices include, among others, the appointment of Vice-Chancellors with questionable qualifications, the payment of exorbitant remuneration to Vice-Chancellors, malfunctioning of the Councils and accusations and rumours of corruption in the National Student Financial Aid Scheme (NSFAS). The continued national student protests in 2015 and 2016 calling for free and quality higher education have placed renewed focus on the problems experienced by Universities. The soundness of the application of corporate governance principles at Universities, therefore, needed to be investigated. Because of this need, the application of corporate governance principles at South African Universities was addressed in this study. The Regulations for Reporting by Public Higher Education Institutions of 2014 require Universities to disclose their application of the King III principles in their Annual Reports. Although these disclosure requirements provide detail disclosure guidance, no international best practices were included. No tool, instrument or framework could be found to test the Universities’ compliance with the Reporting Regulations and King III principles, which further necessitated this study. By using a qualitative research design, this study used a literature review to develop a framework. The framework was based on the guidance in the Reporting Regulations (which contains the principles of the King III Report), international best practices, and the King IV Report. The framework could be used to determine the level of compliance of disclosures found in the South African Universities’ Annual Reports. Although the implementation date of the King IV Report is 1 April 2017, some Universities were proactive in the application of the principles contained in the King IV Report. The developed framework, therefore, includes additional disclosures, contained in the King IV Report, that were excluded from the Reporting Regulations, as a proactive measure in assessing the disclosure of King IV principles in the Annual Reports of the South African Universities. This framework was used in the empirical portion of the study to analyse the Annual Reports of the South African Universities for the 2011 to 2015 financial years. A total of 113 Annual Reports were analysed against the framework. The framework included 536 items based on the Reporting Regulations of South Africa; 140 items related to the changes from King III principles, as contained in the Reporting Regulations, to the King IV Report; and sixty items based on international best practices. Findings of the study suggest that some Universities in South Africa are proactive in the implementation of the King IV Report, although the implementation date of this report is only 1 April 2017. The disclosures of the South African Universities’ application and compliance with corporate governance principles, according to both South African and international best practice, are lacking in detail. The absence of detail disclosures leads to the concerns about the disclosure practices at these Universities as well as the Universities’ commitment to transparency and accountability. The problems experienced in obtaining the Annual Reports of the Universities raise additional concerns in terms of the Universities’ commitment to transparency and accountability. These problems raise concerns as the Universities are largely funded by state subsidies, which make the Annual Reports of each University information that should be publicly available. The results of the application of the framework clearly indicate that South African Universities need to address the quality of the information contained in their Annual Reports. The Council and Committee members need to be better informed of what their duties and functions are in terms of the disclosures in the Annual Reports. Universities should also ensure that the individual, or group of individuals responsible for compiling the Annual Reports is fully aware of the details that should be included in the Annual Reports. The framework developed in this study can be used by the Department of Higher Education and Training, external auditors of the Universities as well as the Universities themselves, to determine the level of compliance with the disclosure recommendations for Annual Reports. It may further be used as a rating system to rate the South African Universities with regards to the application and disclosure of application of corporate governance principles, or as a warning system to indicate shortages in the corporate governance practices of Universities. ___________________________________________________________________Item Open Access Cost efficiency at South African universities(University of the Free State, 2022) Serfontein, Carla; Crousn C.; Smit, van A.Universities are at a crossroads. Globally, the Fourth Industrial Revolution (4IR), expedited by the COVID-19 pandemic, and the looming Fifth Industrial Revolution (5IR) have changed the higher education landscape as we know it. Students can now study at the best universities in the world through technological innovation at a fraction of the cost of traditional university education. Traditional universities have lost their competitive advantage regarding geographic location, relevance, content, and mode of delivery. Universities must adapt to the changing business environment brought about by technological innovation and the 4IR or face the consequences. It seems unavoidable that the enrolments at most traditional universities will decrease significantly in the near future due to increased competition in terms of relevance and more affordable international online education. What happens when students can study more relevant modules for free at the best institutions in the world? What happens to universities if student numbers decline when most university costs are fixed? How will these institutions cover their costs if their funding decreases significantly in an industry notorious for its slow pace of adapting to change? Worldwide it is already happening that student numbers are declining, and universities globally are experiencing major financial sustainability problems (theoretical focus of this study). South African students are poor, with substandard secondary education, seeking relevant, affordable education that will ensure employability. However, all indications are that South African universities failed to meet students’ demands, raising Tuition Fees substantially over the last decade or two and continuing to do so. Declining government subsidies also imply that affordable education is not a given without some drastic changes. The empirical focus of this study was to establish why South African universities had to increase their Tuition Fees over the last decade in times of increasing enrolments and what the potential consequences would be if the student enrolments had to decline in the future. This was the reason why the period of financial analyses was chosen from 2010 to 2019, before the COVID-19 disruption. Traditional universities globally and in South Africa will have to make drastic decisions changing both ‘What’ and ‘How’ they teach. Universities require the thorough application of Management and Cost accounting to obtain relevant and accurate information to aid in their decision-making process to improve their efficiency. However, there exists a gap between the need for universities to apply Management and Cost accounting and the available knowledge on how to use it effectively in the diverse service setting of a university. Therefore, this study's primary objective was to apply Management and Cost accounting principles to assess the efficiency of South African universities as typical service organisations in a disruptive environment. The study used quantitative, exploratory research based on secondary data in the public domain to achieve the primary objective. The Financial Statements from a sample of 16 from the 26 publicly funded universities in South Africa were analysed financially and statistically from 2010 to 2019, using both descriptive and inferential statistics. The sampled universities’ Financial Statements for 2010, 2015 and 2019 were gathered and analysed. The descriptive statistics performed considered the composition and growth of the three Revenue streams and Expense categories of the sampled universities applicable to this study from 2010 to 2019. Inferential statistics were applied using inflation and the growth in Teaching Input and Teaching Output units (TIOUs) to calculate a Budgeted benchmark for the related Revenue streams and Expense categories. These Budgeted benchmarks were then compared to the actual amounts of the related revenue and Expense items and the significance of the difference tested. Regression analysis was also applied to determine the impact of TIOU growth on Total Revenue and Total Expenses as well as the relationship between the Difference in Budgeted and Actual Expenses and Actual and Budgeted Revenue. From the empirical part of this study, it seems that universities did not manage their Expenses efficiently. More concerning is the fact that Expenses increased above inflation and the growth in enrolments. This increase was also primarily a result of increases in Indirect costs; thus an Expense category without any causal relationship to the outputs (number of enrolments) at a university. Universities in South Africa further did not deliver on their objective of providing affordable education that will ensure employability since the increase in Expenses (primarily Indirect) was funded by Tuition Fees rising significantly above inflation and growth in enrolments, justifying the call from students in 2015 that #FeesMustFall.Another critical finding from the empirical part of this study is that universities depended on enrolment growth to fund the increase in Expenses. In an environment dominated by fixed costs, an increase in enrolments should not have resulted in a significant increase in Expenses. Universities should have benefited from Economies of Scale, becoming more efficient in the managing of their Expenses, but this does not seem to be the case. The research questions to be answered are what will happen if enrolments start to decline because of factors such as online teaching becoming the norm, or more affordable and relevant education become available? Add the fact that Salaries represent the major Expense at South African universities in a country with some of the strictest labour laws in the world, how long will it take these universities to become financially viable again? This study provides answers to the stated questions and makes recommendations that could assist universities in applying Management and Cost accounting to manage the disruption they are facing.Item Open Access The development and evaluation of risk-based audit approaches(University of the Free State, 2011-11-22) Prinsloo, Jeffrina; Lubbe, D. S.English: The purpose of the study is to trace the development of risk-based audit approaches, in order to understand the complexities and difficulties of these approaches, as well as to evaluate these risk-based audit approaches, with the objective of assisting in the process of improving the risk-based audit approach followed by the audit profession. The only defence auditors have against the anger (or frustration) of stakeholders in instances of corporate failures is sufficient, appropriate audit evidence that proves their innocence. This audit evidence will be the result of a well-planned and performed audit. An audit approach, currently a risk-based audit approach, is therefore a crucial component in the performance of an audit. Changing the risk-based audit approach is a normal consequence of the striving for the improvement and development of the services that the auditing profession provides. In developing the risk-based audit approach, there are certain complexities surrounding an audit that should be considered. The major complexities in the performance of an audit are: first, the expectation gap; second, the uncertainties surrounding the responsibilities of the auditor; third, the provision of reasonable assurance, and fourth, the practical implementation of audit standards. The auditing profession should, during this continuous process of changing the auditing standards and guidance, consider and evaluate changes against the theoretical foundations of auditing to support the credibility of the audit process. The theoretical framework that formed the background of this study is discussed in the second chapter, including the meaning of “risk-based audit approaches”. Audit approaches are discussed that developed before the acceptance of the risk-based audit approach, together with audit approaches that were never followed or accepted by practitioners, and which influenced the development of risk-based audit approaches. The development of the first risk-based audit approach, the statistical audit risk approach (audit risk model) that originated from the Elliott and Rogers model is discussed in the third chapter. The critique on the statistical audit risk approach is summarised and consists mainly of the following: that the audit risk model’s event structure is ill-defined and that the risk components lack independence, which is a basic assumption for the use of the multiplicative formula. The risk components are complex and interdependent and are difficult to assess therefore, practitioners prefer to assess these risk components in linguistic terms e.g. low, medium and high. The multiplicative rule does not provide protection against an understatement of audit risk if the audit outcome space is not completely specified and when a revision of the audit plan is needed. The aggregation of the individual risks is problematic and therefore the audit risk model should be used only for planning purposes. The development of the inherent risk audit approach (audit risk model from a conceptual perspective) is discussed in the fourth chapter. The critique against the inherent risk audit approach includes the unsuccessful decomposition structure of audit risk, due to the interdependency of inherent risk and control risk. The concept of “inherent risk” is also too broad and vague. The business risk audit approach is also discussed in the fourth chapter. This approach was developed by audit firms as an intended improvement on the inherent risk audit approach and is still widely used. The main critique against the business risk audit approach is the lack of a clear link between business risks and possible risks of material misstatement. The “risk-process audit approach” is addressed in the fifth chapter. For the purposes of this study, the name of the current risk-based audit approach is the risk-process audit approach. The reason for this formulation is the emphasis in the audit risk standards on the risk management tasks. The concept of “risk” in the performance of the task of identification of risks is, in essence, a choice in which the auditor has the freedom to choose an approach, and is referred to as “risk of material misstatement”. The concept of “risk of material misstatement” is much broader and different from the suggested definition in the auditing standards, and includes the consideration of potential misstatements according to the assertions on the assertion level (assertion-focus), and lacks conceptual clarity. The criteria for the task of “assessment of identified risks” are as follows: the different types of assertions are used as the criteria for assessing risks of material misstatements through the identification of possible misstatements. The concept of “misstatements” is the criterion used to consider the likelihood of misstatement(s), and the concept of “planning materiality” is used to consider the magnitude of misstatement(s). In the sixth and final chapter of this study, the development of risk-based audit approaches is summarised through a comparison of the risk-based audit approaches. In the future development of the current risk-process audit approach it is suggested that a fourth aspect, the significance of audit procedures, additional to the current nature, timing and extent of audit procedures maybe considered in respect of aspects that influence the response to risks of material misstatement included in the audit plan. Furthermore, the definition of the concept of “risk of material misstatement” could include the assertionfocus. The importance and possibilities of the division of audit planning in the financial statement level and the assertion level is also not yet fully considered. In conclusion, the author believes that the history of risk-based audit approaches has repeated itself and that the development of the risk-based audit approach and changes thereto were not considered against, and based on a sound foundation of auditing theory.Item Open Access The effect of estimates in financial statements(University of the Free State, 2008) Raubenheimer, Elizabeth Johanna; Van Wyk, H. A.The International Financial Reporting Standards (IFRSs) requires a number of accounting estimates for the preparation of financial statements. The purpose of this study is to establish the effect of estimates in financial statements. The possible increases in required accounting estimates in the IFRSs are examined by comparing the IFRSs of 2003 to 2006. With this comparison it is established that the requirements of the IFRSs for fair value accounting is mainly responsible for the increases in allowed accounting estimates. The IFRSs of 2006 is examined to establish the frequency of use of estimates in financial statements. In order to get a better picture of the frequency of use of accounting estimates in financial statements, a list of allowed accounting estimates for each of the components on the Balance Sheet (also referred to as the “statement of financial position”) has been compiled. It is concluded that the components on the balance sheet are to a significant extent influenced by accounting estimates. The literature on earnings management and creative accounting are examined to determine if there is any risk that accounting estimates could be used to manipulate financial statements. This gives an indication of the reliability of accounting estimates within financial statements. It is concluded that the difference between fair presentation and creative accounting seems to be the intention of management which is difficult to assess. The “corporate reporting supply chain” has some responsibilities to prevent and detect creative accounting practices and fraud. These responsibilities can limit the risk that accounting estimates may be used in creative accounting and financial statement fraud. In the wake of some financial disasters, these checks and balances should restore public trust in financial reporting. An empirical study is performed on five companies that form part of the Construction and Materials sector of the JSE to establish the effect of estimates on their financial statements. The study indicated that: • the average percentages of assets, including cash and cash equivalents, of the five companies affected by accounting estimates are 60% for 2004, 60% for 2005 and 59% for 2006. If cash and cash equivalents are excluded from the calculation of assets affected by accounting estimates, the average percentages are 72% for 2004, 77% for 2005 and 76% for 2006; • there is an increase in the number of “estimate” hits from 2004 to 2006 in the financial statements of the five companies in the empirical group; and • the disclosure provided on key sources of estimation uncertainty is however, limited. A number of recommendations are made to limit the risk that accounting estimates could be used for creative accounting purposes. The negative effect of the use of accounting estimates in financial statements is a loss of reliability. The positive effect of the use of accounting estimates in financial statements is that of relevance.Item Open Access Harmonising user needs with reporting requirements of close corporations(University of the Free State, 2004-11) Kruger, Renshia; Van Wyk, H. A.English: The Close Corporations Act requires that the annual financial statements of close corporations must, in conformity with generally accepted accounting practice appropriate to the business of the corporation, fairly present the state of affairs of the corporation at the end of the financial year concerned, and the results of its operations for that year. According to generally accepted accounting practice, the objective of financial statements is to provide useful information about the enterprise to the primary user groups of the financial statements, independent of the size of the entity. The primary user groups of the financial statements of close corporations are the members, SARS and bankers. The recognition, measurement and disclosure requirements contained in the Statements of GAAP do not give rise to cost-effective and useful information being provided to the users of financial statements of close corporations and other small entities, because these users do not require the extensive information provided in general purpose financial statements. Consequently, an accounting standard is required to differentiate between general and limited purpose financial statements. In South Africa, the Limited Purpose Financial Reporting Standards (LPFRS) were developed. The modifications stipulated in this LPFRS mainly relate to the disclosure requirements that were reduced, with only a few alternatives allowed to the recognition and measurement criteria relating to deferred tax and financial instruments. These developments may not be sufficient enough for the purposes of close corporations. Accordingly, the study recommends that a formal, separate set of simplified differential reporting standards be developed for the purpose of close corporations. To be acceptable, the reporting method should meet most of the information needs of the users of the financial statements of close corporations and other small entities, and simultaneously provide cost-effective information that is a fair presentation of the results, taking into consideration the additional costs that may result from adopting differential reporting standards.Item Open Access Internal audit and risk management in South Africa: adherence to guidance(University of the Free State, 2011) Coetzee, Philna; Lubbe, DaveEnglish: governance. Sound corporate governance requires, among other things, that the board should ensure that there is an effective risk-based internal audit. The importance of internal audit within risk management and assisting the board of directors in this regard cannot be over-emphasised. The formal guidance of the IIA should be a starting point for internal auditors when performing their duties. Further applicable and comprehensive guidelines and legislation in this regard are urgently needed. This article aims to obtain input from heads of prominent internal audit functions within the private and public sectors on the role of internal auditing in the management of risk.Item Open Access A maturity level assessment of the use of generalised audit software by internal audit functions in the South African banking industry(University of the Free State, 2016-12) Smidt, Lodewicus Adriaan (Louis); Van der Nest, D. P.; Lubbe, D. S.English: Today’s business practices are characterised by accelerating growth in the use of technology and “big data”. It is almost unthinkable now for any organisation to function successfully without relying on its underlying information technology infrastructure: this is especially pertinent within the banking industry. Banking practices are no longer restricted to one country or jurisdiction but are characterised by cross-border transactions in multiple countries under a plethora of different legal and regulatory frameworks. For this reason, banks are reliant on a global network of data processing and information management systems to provide their core banking services and to enable them to effectively manage the macroeconomic elements of their industry. This cross-border interaction between international banks increases the systemic nature of risk in that in the event that an unwanted incident occurs it will almost inevitably affect more than just a single branch or company. The global financial crisis that occurred in 2007 was evidence of the systemic nature of risk to which the financial industry was (and remains) exposed. It further provided proof that no organisation or bank is too big or too powerful to escape unaffected. It further emphasised that excessive risk taking can be detrimental to the existence of an organisation, which in turn validated the necessity for organisations, and especially banks, to make use of reliable and independent assurance functions. As a consequence of the crisis, the banking industry continues to face ongoing and intense scrutiny by investors, the public and the banking industry’s own supervisors. In addition, increased reliance has been placed on the value that an internal audit function can contribute by enhancing a bank’s internal control environment. Internal audit, as one of an organisation’s independent assurance providers, is tasked with the important responsibility of providing an opinion regarding the effectiveness of governance, risk management and the internal controls of an organisation. However, the internal audit function today has to conduct its duties in control environments that are dominated by information technology and big data. In the same way that organisations’ and especially banks’ business models have been transformed as a result of the increased use of technology and the ever growing generation of and reliance on big data, it has equally impacted the manner in which internal audit is practiced today. This study is therefore motivated by the interest in understanding the use of technology-based tools (more specifically the use of GAS) by internal audit functions in the locally controlled South African banks. This study comprises a literature review and an empirical investigation. The literature review was undertaken to gain insight into the extent and applicability of the use of GAS by the internal audit profession, and more specifically the internal audit functions of the locally controlled South African banks. The literature review indicates that the use of GAS by internal audit functions is still at a relatively low level of maturity, despite the accelerating adoption of information technology and generation of big data within organisations. The literature review was then followed by empirical research. The results of this empirical study also confirm that the maturity of the use of GAS by the internal auditors employed by locally controlled South African banks is still lower than expected, given that we are now fully immersed in a technological-driven business environment. The empirical research component was conducted using a structured questionnaire. The structured questionnaire was developed to collect data regarding the use of GAS by the internal auditors employed by locally controlled South African banks, and specifically to address the following objectives: (1) To measure the existing practices of internal audit functions in the locally controlled South African banking industry regarding the use of GAS, against a benchmark developed from recognised data analytic maturity models, in order to assess the current maturity levels of the locally controlled South African banks in the use of this software for tests of controls; (2) To explore and identify the purposes for which GAS is presently being used by these internal audit functions; and (3) To develop recommendations that may assist internal audit functions in the locally controlled South African banking industry to reach their desired maturity levels. Opinions and perceptions were obtained from 9 of the 10 heads of internal audit departments that comprise the locally controlled segment of South Africa’s banking industry. This high response rate enabled the researcher to reach meaningful conclusions and make recommendations regarding the current preferences and applications of GAS employed by these internal audit functions. In addition, the results of this study have provided a deeper understanding of the current level of maturity of the use of GAS by the internal auditors employed by locally controlled South African banks. In addition, the results provide useful insights for internal audit practitioners, GAS vendors, professional auditing bodies (such as the IIA and ISACA), academia and researchers.Item Open Access Die openbaarmaking van finansiële instrumente in die finansiële state van mikro-gelduitleners(University of the Free State, 2000-05) Jasper, Zuleka; Van Wyk, H. A.English: Since 1992 the micro lending industry experienced significant growth. The industry is now in the position where it forms an integral part of the financial sector in South Africa. Very little formal research has been undertaken in die micro lending industry. It appears that no research what so ever has been done with respect to the financial presentation by micro lenders. It is very important to understand the micro lending industry. A short overview of the industry, as well as an overview of the regulatory body: the MicIO Finance Regulatory Council, are presented in this thesis. The purpose of financial reporting is to provide information to the stakeholders of an entity. In the South African context the King report is the most important document that defines and addresses the term stskeholder. In chapter 12 of the King report it defines stakeholders as /I any person, entity OI interest gIOUp that has some association with the en terprise," It was found necessary to identify the most important stakeholders of micro lending entities due to the wide span of the term stakeholders. The following stakeholders were identified as being the most important: o The owners o The suppliers of long term funds o The loan debtors o The employees. Stakeholders need sufficient information to make informed decisions. The quality of this information is imperative. Financial statements are the main source of information. It is important that the information in these financial statements are of outstanding quality. A number of business types are found in the micro lending industry. This study has shown that the most important and often used types are the close corporation and the company. Both the Company's Act and the Close Corporation's Act refer to Generally Accepted Accounting Practice (GAAP) as the basis for financial presentation. However, the interpretation of the term does not necessarily mean that statements on GAAP need to be applied. Fortunately this position is changing. This thesis was thus based on the assumption that reference to GAAP in die Company's Act and Close Corporation's Act means that statements on GAAPhave to be applied. The core of the study involves a discussion of the presentation requirements regarding the financial instruments that have been identified during the empirical study. Special reference was given to AC12S - Financial instruments: disclosure and presentation. The definitions in this document were detailed as it was used as a measure to identify the financial instruments included in the financial statements of micro lenders. The following financial instruments were identified: o Bank and cash balances o Debtors (other than loan debtors) o Loan debtors o Long term loans ,0 Creditors. In view of all relevant statements, legislation and corporate requirements a wide-ranging summary including all relevant presentation requirements regarding financial instruments have been incorporated. In the second section of the thesis the scope and results of the empirical study are discussed. The empirical study was performed on a sample of close corporations and companies that have been registered or provisionally registered with the Micro Finance Regulatory Council. The selected micro lenders' financial statements were analysed to establish the degree of compliance with the proposed financial reporting requirements. The writer thoroughly believes that the micro lenders' financial statements do not comply to the prescribed financial reporting requirements and leave much to be desired. Substantial enhancement is of crucial importance before these entities will effectively address the needs of all their stakeholders.Item Open Access Performance of first-year accounting students: does time perspective matter?(University of the Free State, 2013) Joubert, Hanli; Viljoen, Marianne; Schall, RobertEnglish: Academic failure of first-year accounting students is a national and international problem. Existing research is inconclusive regarding the causes for the failure and does not make provision for the possible influence of dominant time perspectives on performance in accounting. This article investigates whether time perspective has an effect on the performance of first-year accounting students. A quantitative non-experimental predictive multivariate design is used and confounding variables are taken into consideration. The results of the study indicate significant relationships between performance in first-year accounting and gender, age and a past-negative time perspective. The most significant result of this study is that a past-negative time perspective, together with an unfavourable psychosocial background, might have led to failure in first-year accounting. It is suggested that students with a negative time perspective be identified and encouraged to participate in support programmes at the university.Item Open Access Professionele aanspreeklikheid van ouditeure teenoor derdes op grond van nalatigheid(Faculty of Law, University of the Free State, 2004) Strauss, P. M. S.; Jansen, R-M.; Lubbe, D. S.English: People in the professional occupations such as auditors, lawyers, architects and engineers have a duty to treat their clients with solicitude. This duty arises from the nature of their calling and from the professional service that they offer their clients. This has led to the situation where members of the professions have increasingly been held responsible for damage suffered by third parties as a result of the neglect of their professionally inherent obligation of solicitude. Fraud scandals, such as those of Enron in the USA and Masterbond, PSC Guaranteed Growth and Tigon locally, have once again caused the focus to fall upon the professional responsibility of auditors.The question that is increasingly being asked is: when and under what circumstances will an auditor be held responsible towards a third party in his professional capacity for the negligent performance of his duties? For the purposes of this article, the focus will only be placed on the responsibility of the auditor on the grounds of his duty to report in terms of section 300 of the Companies Act. The distinctive rules and also the specific application of the general principles of delict in such cases are discussed in this article.Item Open Access Public sector accountancy education at South African universities(University of the Free State, 2021-10) James, Sitembele; Crous, C.; Joubert, H.This study has been undertaken against the perceived insufficiency of public sector accountancy education and research at universities, locally and internationally, while the need for public sector accountancy exists. The purpose of this study was to test the perception whether universities in South Africa are responding adequately to the accountancy-related educational needs of the public sector. This study aims to contribute towards the limited literature that exists on public sector accountancy education in South Africa. The study may contribute towards discussions at universities about the inadequacy of public sector accountancy education and research. The literature review in this study focused on public sector accountancy education internationally, covering first world (Australia, the USA, New Zealand) and third-world countries (Ghana and Nigeria). The literature also included discussions about the public sector financial management reforms in South Africa through the relevant enacted laws. In addition, further discussions about accounting education, distinguishing between private sector accountancy education and public sector accountancy education, the current state of public sector accountancy education and the related unique skills were provided. The literature review was followed by a detailed analysis and comparison of the technical competencies on the SAICA and SAIGA competency frameworks. As a result, similarities and differences were identified between the technical competencies in the two frameworks. Based on the results from the analysis and comparison of the two competency frameworks, an interview schedule was developed and used to guide the discussion with the key role-players in the private sector audit firms, public sector institutions, the AGSA and two universities in the Eastern Cape to gather their opinions about the research problem. The role-players included the Audit Partners, Senior Managers and HoDs at the institutions mentioned above. The results of the empirical study, which included the document analysis and the semi-structured interviews, were aligned. The key findings from the study indicate:• the SAICA competency framework is business orientated, while the SAIGA competency framework is public sector orientated; •the public sector environment is highly regulated, and therefore its financial management processes and financial reporting frameworks are governed by the Constitution, MFMA, PFMA, Treasury regulations and GRAP, Modified-Cash Standards and IPSAS; • the highly regulated public sector environment contributes to accountancy professionals such as CA(SA)s being less attracted to the public sector for fear of reputational damage and a loss of jobs because of non-compliance with the related laws and regulations; • the transition from the private sector to the public sector accountancy environment is difficult for accountancy graduates when assigned to public sector assignments, owing to their lack of understanding of the public sector environment. Additionally, the university accountancy programmes are more private sector aligned than public sector aligned; • the public sector accountancy is perceived as specialised owing to its uniqueness; • a call was made by the participants for an increased focus on development of public sector accountancy education, through SLPs, public sector accountancy courses within existing accountancy programmes and undergraduate and postgraduate qualifications by universities, focused on public sector accountancy; • the proposed inclusion of the public sector content by SAICA on its new CA2025 competency framework is viewed as insufficient to address the inadequacy of public sector accountancy education; and • public sector accountancy is not the same as public administration. This study makes the following recommendations as a means to address the above-mentioned findings: • universities should increase the level of awareness of the public sector environment in their accountancy programmes. Additionally, the SAICA-accredited programmes should do more than is required in terms of the inclusion of the public sector content per the new CA2025 competency framework; • courses focused on public sector accountancy should be designed and included in the existing accountancy programmes. These courses could be compulsory or elective; and • owing to the perception that public sector accountancy is a specialist area, universities should expand their programme qualification mix, to include public sector-focused accountancy programmes at undergraduate and postgraduate levels, for example a Bachelor of Accounting (public sector specialisation) and a Postgraduate Diploma in Public Sector Accountancy. These qualifications would increase the number of competent public sector accountants. Finally, a conclusion is provided for the study. This study activates the debate and discussion around the research question in South Africa when the SAICA competency framework was amended to consider the importance of the public sector.Item Open Access Regsrekeningkunde-opleiding van prokureurs in Suid-Afrika : enkele empiriese bevindings : kroniek(Faculty of Law, University of the Free State, 2001) Lubbe, D. S.; Raubenheimer, E.; Britz, R.Item Open Access A risk-based audit model for internal audit engagements(University of the Free State, 2010-11) Coetzee, Georgina Phillipina (Philna); Lubbe, D. S.English: Many factors have played and are still playing contributing roles as to why internal auditors need to perform internal audit engagements more effectively and efficiently. The internal audit profession finds itself within a rapidly changing environment. The external factors affecting the profession include the various pieces of new guidance and legislation that are constantly being issued, the current global financial crisis, the occurrence of corporate and public scandals and the increased globalisation of the business environment, to name but a few. Internal factors within the organisation include management’s increased demand for internal auditing to add value, the enhancement of coordination between all the various assurance providers, such as the external and internal auditors, and the increased role of internal auditing in assisting with the management of risks that threaten the achievement of the organisation’s objectives. Within this environment the internal audit profession is growing at a tremendous rate, but at the same time it is reported that there is still a scarcity of competent internal auditors, especially in the fields of information technology and risk management. The Institute of Internal Auditors, as the governing body of the profession, is attempting to address this need by continuously issuing new professional guidance and performing research studies to provide its members with information and direction. This study investigates the evolution of the internal audit profession as well as the concepts of corporate governance and risk management, and the role of internal auditing within these fields. It specifically focuses on how internal auditors can incorporate risk in the execution of an internal audit engagement to improve their methodology; thus performing engagements more effectively and efficiently. A comprehensive literature review was conducted on these topics and a preliminary risk-based internal audit engagement model was developed based on the literature. Thereafter, organisations in both the private and the public sectors in South Africa were examined via a maturity scorecard to determine which organisations were risk mature. The top five risk mature organisations in each sector were included in the second empirical study, with the main objective of obtaining input from their chief audit executives to refine the initial risk-based engagement model. Lastly, the model was tested in a practical scenario, using a case study approach, to determine whether there may be improvements in the execution of the internal audit engagement. The results of the three empirical studies were then used to finalise the model. The study concludes that the risk-based internal audit model can be used during the planning phase of an assurance engagement, improving the process as follows: • Areas with medium to high operational risks are included in the planning of the internal audit engagement. • Low-risk areas are not included in the planning phase other than on a surprise basis according to the internal auditor’s professional judgement. • High-risk areas (inherent risk) that remain high after appropriate controls have been implemented (residual risk) are reported to management on a timely basis. The use of this model will ensure that internal auditors focus on the areas that need urgent attention and not waste time on areas that are comparatively insignificant. This will mean that scarce internal audit resources can be allocated to areas where they will add the most value to the organisation. Although it was not a main objective of this study, it was found that the risk management framework and processes, and to a lesser extent the role of internal auditing regarding risk-related aspects within the public sector, need improvement to be in line with legislation, other guidance and best practices.