The Economy In South Africa Accounting Essay

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

South Africa has an emerging economy, and as such has incomplete and imperfect markets. The objectives of the firms operating within the country should thus encompass the interests of all stakeholders. This will help overcome the market failure. The fitting definition for the emerging countries is therefore that Corporate Governance is concerned with ensuring that the firm is run in such a way that society's resources are used efficiently.

There have been changes in the way in which the business is conducted and the context in which it operates. These changes are interdependent and reflect trends such as:

Change in the companies Act (South Africa)

Adjustment in the King code


Expectations of corporate transparency

Changes in policies around the world in response to financial, governance and other crises

Against the backdrop of this, it was found that reporting has evolved in separate, disconnected documents and critical interdependencies between strategy, governance, operations and financial and non-financial performance are not made clear. Integrated Reporting brings together the material information about an organization's strategy, governance, performance and prospects in a way that reflects the commercial, social and environmental context within which it operates. It provides a clear and concise representation of how an organization creates value for all the stakeholders, now and in the future. It caters for both emerging and the emerged economies.

Boards need high quality and timely information to help them make decisions. Therefore, effective reporting to stakeholders is a key responsibility. Thus management information needs to be integrated across the reporting supply chain so that the board can receive the key information used within the organisation to support the strategic decision making.

Requirements for Integrated Reporting

King III defines an integrated report as "a holistic and integrated representation of the company's performance in terms of both its finance and its sustainability". It clearly states that the report may not necessarily be presented as a single document. It further mentions that a truly integrated report should be presented in a single document and that should it encompass more than one document, the documents should be made available at the same time and disclosed as an integrated report.

An integrated report should contain the following information:

Annual financial statements

Directors report

Directors statement of responsibility

Management and directors commentary

Report of the audit committee

Sustainability report

Risk disclosures

IT reporting

Remuneration report

Statement by the Company Secretary

Terms of reference of committees

Ethics statement

Section 30 (3) of the Companies Act requires the annual financial statements to include a report by the directors with respect to the state of affairs, the business and profit or loss of the company, or of the group of companies, if the company is part of a group, including any matter material for the shareholders to appreciate the company's state of affairs; and any prescribed information.

King III recommends that the board should report on the effectiveness of the system of internal controls in the integrated report. In order for the board to be in a position to make this statement, internal audit should, on an annual basis, provide the board with a written assessment of the effectiveness of the system of internal controls and risk management. This statement of responsibility includes the responsibility for the internal financial controls described in the section related to the audit committee report below.

According to the discussion paper on the framework for integrated reporting, "The current reports on annual financial performance, sustainability and governance disclosure often fail to make the connection between the organisation's strategy, its financial performance and its performance on environmental, social and governance issues. Much of what is currently reported tends to be backward-looking and fails to provide stakeholders with sufficient information to make a meaningful assessment regarding the organisation's ability to create and sustain value over the short-, medium- and long-term". It further highlights that the decision-making within organisations and by investors is often heavily reliant on financial information, and thus this information may not give true reflection about the company.

The integrated report should provide sufficient information to allow stakeholders to make an informed decision. In order to achieve this, management and the directors, usually in the form of the Chairman's and CEO reviews, should provide commentary that sheds light on the activities of the entity during the year across all aspects of its economic, social and environmental performance. This may be provided within the CEO and Chairman's report and may also be contained within each of the individual sections that deal with these issues.

The report should provide the information on historical financial information and operating reviews as well as information which is forward looking. In the case of Turner & Townsend, the only financial information provided was the historical information.

The report should give the strategic direction and should discuss targets, risks and opportunities to be addressed going forward in the medium to long term. It should highlight both the positive and negative impacts of the company's interaction with its stakeholders during the course of the year. There was no mention of the company strategy in the case of Turner & Townsend and no target, risks nor are opportunities discussed going forward in the annual report. The only mention on the strategy is in relation to the success of the implementation past ten year strategy.

It is worth noting that the integrated report is the culmination of a process that begins with corporate values, strategy and the decision making philosophy of the company. There is no mention of the company values on the Turner & Townsend report. The board has responsibility not only to shareholders but also to other stakeholders, who make up the business, social, civil as well as natural environment in which the company operates. It is for this reason that the board's approach to decision making should be comprehensive and balanced and this should be reflected in the integrated report.

Turner & Townsend (Pty) Ltd Reporting Structure

Turner & Townsend is one of the leading programme management and construction consultancy companies that support organisations that invest in, own and operate assets. The company's global footprint is in 32 countries and specialises in property, infrastructure and natural resources sectors worldwide. The company has just released the Annual Financial report and the Corporate Social Responsibility report for the 2011-212 financial year.

The Turner & Townsend report is structured into the following sections:

Chairman's statement

Chief Executive's report, Client Delivery

Building capability

Corporate Social Responsibility

Finance Director's report

The report was consolidated at the global level. Thus most of the focus is on the Head office (HO). The report does not cater for the reporting at subsidiary level in other countries.

In the Chairman's statement, the comment was made about the implementation of the strategy, but no mention of the strategy and of the operational model was made. The company prides itself on the awards received in different countries that it operates in. Corporate social responsibility is touched on extensively, thus highlighting the repetition in reporting. Under the chairman's statement, the board members (at HO level) are introduced and there is no transparency about their academic qualifications. The report touches slightly on the previous experiences of some of the directors, and thus there are inconsistencies in reporting. In the statement, a snapshot of financial reporting is given and some activities on the key customers are mentioned in brief.

The Chief Executive's report focused on the growth of the company, the client base and it states the success of the company's implementation of the ten year strategy.

The financial reporting on the Finance Director's report is backward looking with the reporting looking on the past two years. This is not in line with the required standard of integrated reporting that is required by the King III report.

The information on the report of the audit committee, sustainability report, risk disclosures, IT reporting, remuneration report, statement by the Company Secretary, terms of reference of committees, and the ethics statement was not available at the time of the release of the two reports. Thus Turner & Townsend is still failing to conform to the standards of the integrated reporting. It would be advisable if the organisation would consider reporting at the subsidiary level first, and then integrate all the reports at the holding company level.