Doctoral Degrees (School of Accountancy)

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  • ItemOpen 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.
  • ItemRestricted
    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. ___________________________________________________________________
  • ItemOpen Access
    The sectional title industry in South Africa: enhancing accounting and auditing practices
    (University of the Free State, 2017) Steenkamp, Leandi; Lubbe, D.S.
    𝑬𝒏𝒈𝒍𝒊𝒔𝒉 South Africa has a long and complex history of land and housing problems, and from the late 1800s the South African government administrations spent considerable time and energy on adopting and implementing numerous pieces of land-related legislation in order to address these problems. Sectional title property plays a vital role in addressing this high-priority problem, and can assist in providing much needed residential accommodation for households of all income levels, within commuting distance of employment centres. Close to one million households in South Africa reside in sectional title property schemes. The new so-called third generation sectional title legislation became effective in the second half of 2016. The amendments effected by the new legislation not only remove a substantial number of obsolete provisions, extend consumer protection, and propose to eliminate various problems, but also bring about a number of entirely new requirements, such as the establishment and maintaining of reserve funds. Many of these new legislative changes will have far-reaching implications for the governance, budgeting and financial management of sectional title schemes. Also, many legislative aspects relating to governance, accounting and auditing of sectional title schemes remain contradictory and confusing. Role players in the South African sectional title industry face a number of unique challenges. In the problem statement of this study it is argued that governance-, accounting- and auditing related research on the sectional title industry is relevant, topical and imperative if current governance, accounting and auditing practises is to be enhanced. Following this argument, this thesis aimed to give in-depth overviews of three aspects; firstly, an in-depth overview of risks associated with sectional title for various stakeholders (i.e. owners, trustees, managing agents, auditors and accountants and EAAB-appointed inspectors) from an accounting, governance and auditing perspective; secondly, an in-depth overview of auditing- and governance-specific problems relating to sectional title; and thirdly an in-depth overview of accounting-specific problems relating to sectional title. More specifically, the research objectives were threefold; firstly, to find possible solutions to the above-mentioned problems and to make recommendations in this regard; secondly, to set benchmarks from the analysis of the annual financial statements of respondents over a three-year period that can be of assistance as an industry standard for owners, trustees, managing agents, auditors and accountants rendering a professional service, and so enhance accounting and auditing practices; and thirdly, to identify future research opportunities that falls outside the scope of the study. The literature review of this study covered various legislative aspects relating to the functioning of bodies corporate, boards of trustees, trustee chairpersons, managing agents, sectional title governance, and accounting and auditing of bodies corporate. The literature review paved the way for a detailed analysis of the governance, auditing and accounting aspects relating to a sample of body corporate financial statements. An empirical study was also performed on the sectional title industry in South Africa by way of interviewing a sample of role players in the industry, namely body corporate trustee chairpersons, managing agents of bodies corporate, sectional title accounting and auditing practitioners and EAAB-appointed inspectors. The results of the empirical study and data analysis revealed a great number of risks, practical problems, contradictory and confusing legal aspects as well as uncertainties in the industry. Various solutions to the identified problems and concerns were suggested and practical recommendations were made of which the industry should take note. The empirical findings can also be used as a valuable basis for further research. ___________________________________________________________________
  • ItemOpen 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.
  • ItemOpen 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. ___________________________________________________________________
  • ItemOpen 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.