As a result of the significant influence of actuaries on policy liabilities and the related earnings in the financial statements of a listed South African long‐term insurer…
Abstract
As a result of the significant influence of actuaries on policy liabilities and the related earnings in the financial statements of a listed South African long‐term insurer, auditors encounter a number of key issues and considerations relating to the incorporation of actuarial expertise in the audit process. Guidance for auditors to address these issues and considerations is discussed in this study. The guidance was developed as a significant element of a wider research project, the objective of which was the development of a best practice framework for the formulation of overall audit strategies for insurance contracts and the related earnings of listed South African long‐term insurers.
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Gaining an understanding of the business and accounting processes of the insurers concerned is a key element of the complex, high‐risk external audits1 of listed South African…
Abstract
Gaining an understanding of the business and accounting processes of the insurers concerned is a key element of the complex, high‐risk external audits1 of listed South African long‐term insurers. In this empirical study, the value chain concept developed by Porter in the 1980s is customised for listed South African long‐term insurers. Furthermore, the accounting support processes that affect the high‐risk components of policy liabilities and the related earnings of these insurers are identified. The generic value chain and list of accounting support processes developed in this study are useful tools to assist auditors in gaining an understanding of the business and accounting processes of these insurers.
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The purpose of this study was to determine current practices for two salient aspects of the audits1 of listed South African long‐term insurers by empirically analysing prevailing…
Abstract
The purpose of this study was to determine current practices for two salient aspects of the audits1 of listed South African long‐term insurers by empirically analysing prevailing practices. First, current practices for the composition of the audit teams responsible for these audits are determined. Thereafter current practice is determined for the proportion of audit time spent by the different specialists on audit teams on the audit of the high‐risk components of policy liabilities and the related earnings. When allocating audit staff and establishing continuing professional development plans for staff the auditors of all listed and unlisted South African long‐term insurers could use the findings of the study as benchmarks.
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S.P.J. von Wielligh and J.P. van den Berg
The objective of this study was to identify the impact of a perceived inadequacy of authoritative South African financial reporting guidance for long‐term insurers, on the basic…
Abstract
The objective of this study was to identify the impact of a perceived inadequacy of authoritative South African financial reporting guidance for long‐term insurers, on the basic financial statement characteristic of comparability. The authors attempted to identify areas of non‐comparable presentation and disclosure and to suggest relevant guidance. To assess comparability, the financial statements of five insurers were evaluated using a checklist specifically developed for this study. This process identified seven main categories of significant non‐comparable presentation and disclosure practices. Solutions were proposed for these areas, based inter alia on existing international literature and guidance.
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The objective of this research is to identify those industry‐specific elements of the financial statements of listed South African long‐term insurers that are potentially exposed…
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The objective of this research is to identify those industry‐specific elements of the financial statements of listed South African long‐term insurers that are potentially exposed to the highest level of inherent risk. Auditors of these companies should focus on these elements to ensure effective and efficient audits. An exploratory literature study was conducted. A questionnaire was subsequently used to identify significant accounts potentially exposed to the highest level of inherent risk. Relative levels of inherent risk were measured using a “Relative Inherent Risk Index” that had been specifically developed as part of this research. The research indicates that policy liabilities and operating profit from long‐term insurance activities are potentially exposed to a significantly higher level of inherent risk than the other industry‐specific elements of the financial statements of long‐term insurers.
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Audits of long‐term insurers are complex, high‐risk engagements. The auditor’s consideration of materiality has a direct impact on the quality of such audits. So far, however, no…
Abstract
Audits of long‐term insurers are complex, high‐risk engagements. The auditor’s consideration of materiality has a direct impact on the quality of such audits. So far, however, no research has been published on the application of materiality in audits of long‐term insurers. This study examines various aspects of planning materiality in the audits of listed South African long‐term insurers on the basis of responses to a questionnaire, taking into account issues identified from the literature reviewed. A number of recommendations are made on the basis of the findings. Largely on the basis of the results of this study, the South African Institute of Chartered Accountants has commissioned a project to revise existing guidance for auditors.
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In this article, modifications are suggested for the current format of the cash flow statement, which is prescribed by AC 118, in order to address ambiguities and improve…
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In this article, modifications are suggested for the current format of the cash flow statement, which is prescribed by AC 118, in order to address ambiguities and improve comparability. This redefinition of activities, together with the alteration of the layout, leads to a better explanation of the cash‐generating function of an enterprise. The authors argue that the separation of the cash flow for the maintenance of the existing resource base and the cash flow for the expansion thereof, is essential information in a model for the prediction of the future cash flow generation of a company. The resultant increase in the accessibility, reliability and utility of cash flow reporting should enhance users’ economic decision making and liberalise financial information. The modifications proposed in the article can therefore assist standard setters to improve financial reporting.
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Bonolo Maggie Thobejane, Beatrice D. Simo-Kengne and John W. Muteba Mwamba
The purpose of this paper is to evaluate the performance of 191 equity unit trusts in an emerging market, South Africa over the period from February 2006 to January 2016, which…
Abstract
Purpose
The purpose of this paper is to evaluate the performance of 191 equity unit trusts in an emerging market, South Africa over the period from February 2006 to January 2016, which captures different market conditions (pre-global financial crisis, crisis and recovery periods). Besides testing for managerial ability, both cross-sectional regression and the non-parametric rank correlation test are used to test whether the performance generated by unit trusts does persist.
Design/methodology/approach
To evaluate the managerial ability of portfolio managers, two widely used methods, the Treynor-Mazuy (1966) model and Henriksson-Merton (1981) model, are employed. Both models test whether portfolio managers have stock selection and market timing ability. The cross-sectional regression and the rank correlation test are implemented which account for both parametric and non-parametric approaches of persistence testing, respectively.
Findings
Weak evidence of stock selection as well as market timing ability was found. Moreover, most of the unit trusts are reported to have insignificant coefficients. When testing for performance persistence using returns, the Sharpe ratio and the Sortino ratio as performance metrics, the overall results also revealed weak evidence of persistence that is equally spread across winning and losing funds.
Originality/value
While research on unit trusts’ performance has been conducted in emerging economies, little has been done in testing for managerial ability in general and in South Africa in particular. Moreover, the research tends to focus more on one class – Equity General. This paper extends the performance literature by testing whether portfolio managers in the South African equity unit trusts industry have stock selection and market timing ability.
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This article assesses the state of cash flow reporting by listed South African industrial companies in order to evaluate whether the users of financial statements can accept them…
Abstract
This article assesses the state of cash flow reporting by listed South African industrial companies in order to evaluate whether the users of financial statements can accept them as being reliable and use them as a tool to compare the operating performance of various companies. As the cash flow statement has been in use since 1989, it was envisaged that compliance would be high. However, it was found that there are several companies that deviate from some of the requirements of AC 118 regarding cash flow statements.
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Daniël Coetsee and Nerine Stegmann
The purpose of this paper is to examine the profile of accounting research in the two academic accounting research journals in South Africa (Meditari Accountancy Research and SA…
Abstract
Purpose
The purpose of this paper is to examine the profile of accounting research in the two academic accounting research journals in South Africa (Meditari Accountancy Research and SA Journal of Accounting Research) during the ten‐year period from 2000 to 2009.
Design/methodology/approach
The archival research method is applied, which analyses existing data (in this case the articles published in the South African (SA) accounting research journals) to come to research conclusions. The research method used to analyse the related articles in the SA accounting research journals is based on various international studies. The following dimensions are assessed: authorship; research field; the nature of the research; and research methods. Authorship is classified by institution, and the top seven authors by relative contribution are also identified. Both empirical and theoretical work are classified separately in different research methods.
Findings
These different dimensions provide a broad‐based review of the current profile of accounting research in South Africa.
Research limitations/implications
Other refereed academic articles in the field of accounting have been published in non‐accounting specific SAPSE‐approved journals. These articles are also excluded from the scope of this research since the journals in which they are published have not been established by accounting academics specifically.
Practical implications
The motivation for doing this research is to identify the current profile of accounting research in South Africa that could be used as a basis for future research‐related development.
Originality/value
Knowledge of the profile of accounting research in South Africa could provide opportunities for scholars to expand identified research areas and explore methods that are currently under‐developed in the South African accountancy research field. The paper also acknowledges the contributions by the most prolific authors in the identified journals.