Department of Accountancy
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Browsing Department of Accountancy by Author "Oseifuah, E. K."
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Item Embargo Efficacy of fraud triangle model in the detection of fraudulent financia reporting in South African Municipalities(2024-09-06) Tshikovhi, Ambani; Oseifuah, E. K.; Reynolds, A. B.The purpose of this study is to investigate the efficacy of the - Fraud Triangle Model - in the detection of fraudulent financial reporting in South African Municipalities. Fraudulent financial reporting and misappropriation of assets tend to undermine investors’ confidence in audited financial statements. Prior studies have reported the high financial cost of fraudulent financial reporting from municipalities and the subsequent impact on capital and financial markets. The Auditor General, South Africa, (AGSA) has lamented over the high number of irregular, fruitless and wasteful as well as unauthorised expenditure in South African municipalities, over the past decade. This study uses the fraud triangle model as the theoretical framework to investigate the underlying causes of fraudulent financial reporting in all 257 municipalities - Local, District and Metros - in South Africa over a six-year period - 2015/16 to 2020/21 financial years; the data was analysed using the binary regression model. The findings revealed that the fraud risk factors are correlated with the occurrence of fraudulent financial reporting. Additionally, the study found that the three fraud risk factors - pressure (proxied by financial leverage and liquidity), opportunity (measured by capital expenditure), and rationalization (proxied by total accruals and quality of external audit ) - have significant positive associations with the occurrence of fraudulent financial statements. The findings of the study provide new insights into the existing body of knowledge on financial statement fraud in the context of South African municipalities.Item Embargo Formulation of weighted disclosure indices and its application in evaluating accounting disclosure and financial performance of listed firms(2024-09-06) Abasi, Alex Kwame; Oseifuah, E. K.; Munzhelele, N. F.This research studied listed firms in South Africa and Ghana. The purpose was to formulate two novel weighted disclosure indices for evaluating accounting disclosure in financial statements, and apply them in a multivariate regression analysis together with agency costs and economic value-added metric, to study listed firms on the Johannesburg Stock Exchange (JSE) and the Ghana Stock Exchange (GSE). This concept was motivated by the dearth of weighted disclosure indices in literature for measuring accounting disclosures. Two weighted disclosure indices have been developed and have been proposed to be used by researchers and practitioners, to evaluate the level of clarity or vagueness in financial statements disclosure and listed firms` compliance level to International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). These newly-formulated methods were then applied to investigate the level of clarity or vagueness and compliance level of listed firms on the JSE and the GSE. Applying the scale scoring and dummy scoring techniques, and portfolio weight method, this study formulated these two novel weighted disclosure methods - WDIscales and WDIdummy - which can be used to evaluate both the clarity or vagueness and a firm`s accounting disclosure compliance level, using information disclosed in their audited financial reports, on their websites and on regulator`s website. Applying the agency theory, the study delved further and applied two agency cost variables, namely, expense ratio (agency cost1) and asset turnover (agency cost2), examined their relationship with the novel weighted disclosure indices, liquidity, and employed economic value added (EVA) as proxy for financial performance. The findings indicate a very strong positive significant correlation of 97% (GSE-54.1%) between WDIscale and WDIdummy. It also found a very strong positive significant 92% correlation between WDIscale and UDI as well as 92% (GSE-72%) correlation between WDIscale and PUDI. Further analysis found a positive significant 94% (GSE-81%) correlation between WDIdummy and UDI as well as positive significant 94% (GSE-81%) correlation between WDIdummy and PUDI. These confirms their consistency with the existing indices. The analysis found that firms that increased their disclosure clarity also increased their compliance levels. Findings derived from the descriptive statistics indicate that the mean weighted disclosure index scale score (WDIscale) was found to be 26% with 52% maximum score for JSE-listed firms and 34% mean for GSE-listed firms with 57% maximum score. The implication is that disclosure clarity is about 52% whereas vagueness constitutes 48% for JSE firms. This implies that information asymmetry account for about 48%. This means certainty represent 52%, but the 48% information asymmetry represent uncertainty to investors. For GSE-listed firms, the 57% clarity represent certainty in decision making for investors whereas the remaining 43% represent uncertainty and therefore information asymmetry. Conclusions drawn from these findings is that the JSE-48% and the GSE-43% vagueness indicate a reduced understandability of the financial statements. Comparative analysis of the mean weighted disclosure index dummy score (WDIdummy) found that JSE-listed firms scored 40% mean with 75% maximum score whereas GSE-listed firms scored 47% average with 70% maximum. The implication is that although GSE-firms recorded marginally higher average scale score, total compliance to reporting standards was higher (75%) among JSE-listed firms than GSE-listed firms (70%). Compliance level is therefore high in both contexts but clarity is not as high as compliance level. Consistent with prior studies, application of these disclosure indices found that disclosure clarity is low among listed firms. Again, it was found that liquid firms disclosed with higher levels of clarity and low levels of vagueness and firms audited by any of the global big four global accounting firms disclosed with higher clarity and their compliance level in terms of WDIdummy, PUDI and UDI were also higher. Firms with lower agency cost (higher asset turnover) tend to increase their level of financial disclosure. Consistent with agency theory, an increase in agency costs diminished liquidity, but lower agency costs increased liquidity. Consistent with the free cash flow theory, this study found that an increase in liquidity induced an increase in agency costs. Further and contrary to prior studies, the analysis found that agency cost1 does not reduce disclosure clarity nor disclosure compliance level, but liquid firms disclosed with higher levels of clarity and low levels of vagueness in conformance with the signaling theory. An increase in expense ratio (increase in agency cost1) leads to a decrease in asset turnover (an increase in agency cost2) and an increase in agency cost1 leads to an increase in financial distress. An increase in agency cost1 leads to a decrease in economic value added to investors` wealth. An increase in agency costs led to a decrease in market value added to firm value. But agency costs do not automatically impede financial performance. Firms audited by the global big four accounting firms tend to have lower agency costs. EVA was found to increase liquidity, increase return on capital employed and reduce the possibility of financial distress. An increase in liquidity was found to lead to an increase in economic value added. An increase in disclosure compliance was found to lead to an increase in EVA. Finally, although an increase in disclosure clarity was found to not increase EVA, an increase in compliance to IFRS and IAS was found to cause an increase in EVA.Item Embargo International Financial Reporting Standards for Small, Medium and Enterprises (IFRS for SMEs) and the quality of financial reporting: Some evidence from the Limpopo Province(2024-09-06) Sirembe, Ndivhuwo; Moyo, V.; Oseifuah, E. K.Small and Medium-sized Enterprises (SMEs) play a vital role in the South African economy. South Africa's Companies Act (71 of 2008) requires companies to follow either full International Financial Reporting Standards (IFRS) or IFRS for SMEs. IFRS for SMEs was introduced by the International Accounting Standards Board (IASB) in 2009 as an alternative framework for eligible entities, offering an option instead of the complete set of IFRSs. Despite the introduction of IFRS for SMEs, there has been no comprehensive examination of its impact on the financial reporting quality (FRQ) of SMEs in South Africa. This study aimed to provide in-depth insights into the quality of financial reporting by SMEs in the Limpopo Province since the adoption of IFRS for SMEs in South Africa. The study sampled twenty accounting firms, selecting five from each municipality to handle Annual Financial Statements (AFS) for five SMEs each, resulting in a total of 100 SMEs. Since there is no universally agreed-upon metric for assessing FRQ, the study used three previously employed measures and an aggregate measure. This approach served two purposes: firstly, to account for all facets of FRQ as a single proxy might fall short, and secondly, to enhance the generalisability of our findings. Ordinary Least Square (OLS) Regression analysis was employed to investigate the period post-IFRS for SMEs adoption. This investigation spanned two periods: the initial five years (2010-2014) and the last five years (2015-2019), with the objective of assessing whether FRQ improved over time. Several models were examined using linear regression to analyse the relationship between independent and dependent variables. The analysis was conducted using STATA 15 software. The study’s findings offer evidence that precise accrual recording and the adoption of IFRS for SMEs have positively impacted the financial reporting quality of SMEs, leading to increased earnings levels and improved accounting conservatism. Furthermore, the findings accentuate the importance of adhering to accrual accounting principles and embracing standardised reporting practices for SMEs, as these contribute to the overall credibility and utility of financial information for stakeholders. This study offers valuable insights to accounting standard-setting bodies, professional associations, SME accountants, owners, investors, and academics, enhancing their understanding of IFRS for SMEs’ impact on SME financial reporting quality.