Elmar R. Venter

The accounting profession's influence on academe: South African evidence

Purpose - – This paper aims to examine the influence of academics who are members of the profession on academic institutions. Design/methodology/approach - – An analytic autoethnography of the influence of accounting academics who are members of the profession on South African universities, supported by publicly available information, such as policy and other documents, web sites, and published material; documentation the authors are able to gather as participants; and formal and informal interviews the authors conduct with academic managers. Findings - – The paper finds that profession-identifying academics create and maintain rules and structures within academe, rules and structures that suit the profession. Managers who are members of the profession identify more closely with the profession than with their university. The analysis reveals the mechanics of this influence, as well as the consequences. Originality/value - – The paper contributes to theory by synthesizing the creation of profession-inspired institutions framework and the maintenance of an institutions framework into a single framework. It also applies the theory by providing an example of a profession creating and maintaining institutionalization in an adjacent institution. The findings have implications for academia in cases where academic staff members are members of professional bodies, such as engineering and law faculties. The insights highlighted here may also be of interest to Australasian, UK and US accounting academics, because the literature contains evidence of pressures from professional bodies there.

The timing of the recognition of a liability for secondary tax on companies in accordance with international financial reporting standards

United States Generally Accepted Accounting Practice (“US GAAP”) generally requires taxes to be measured at the rate applicable to distributed profits, while International Financial Reporting Standards (“IFRS”) requires the undistributed rate to be used. This current conflict between US GAAP and IFRS has particular relevance in South Africa, which has a dual tax system as a result of Secondary Tax on Companies (“STC”) being levied when a company distributes its profits. Currently, under US GAAP, South African companies would be required to raise a liability for the tax that would become payable on the future distribution of profits, while under IFRS, this is only recognised when the profits are distributed. The objective of the study is, therefore, to consider the timing of the recognition of a liability for STC. The literature study has indicated strong arguments for both the recognition of a liability for STC prior to the declaration of a dividend and the non-recognition of a liability for STC prior to the declaration of a dividend. The empirical study, however, concluded that the recognition of a liability prior to the declaration of a dividend is not appropriate, as a majority of the respondents believe that no “past event” has occurred and therefore the definition of a liability in terms of the IASB Framework is not satisfied. The results of the empirical study, however, also indicate that if the “past event” hurdle could be overcome, uncertainty exists as to whether the recognition of a liability for STC prior to the declaration is appropriate. This is as a result of mixed opinions among the respondents as to whether the “probability” and “measurability” criteria, in terms of the IASB Framework, could be satisfied prior to the declaration of a dividend.

Recognising an STC liability versus recognising a deferred tax asset for unused STC credits according to the IASB framework : a comparison

South African companies have, in the past, not recognised an asset for unused Secondary Tax on Companies (“STC”) credits. AC 501, Accounting for “Secondary Tax on Companies (STC)”, which is effective for annual periods beginning on or after 1 January 2004, now requires South African companies to recognise a deferred tax asset for unused STC credits, to the extent that it is probable that an entity will declare dividends of its own, against which the unused STC credits can be utilised. In terms of AC 501 and IAS 12 (AC 102), Income Taxes (the local and international accounting standard on income taxes), the recognition of a liability to pay STC has to be postponed until the declaration of a dividend. Some accounting commentators have indicated that they find it anomalous to recognise a deferred tax asset in respect of unused STC credits, while no liability is recognised for the STC that would be payable on the future distribution of retained earnings. The objective of the study is to consider whether it is conceptually anomalous to recognise a deferred tax asset for unused STC credits while no liability is raised for the STC that would become payable on future dividend declarations on profits already recognised in the financial statements. The study concludes that it is conceptually anomalous to recognise a deferred tax asset for unused STC credits when no corresponding liability is raised.

Tax transparency reporting by the top 50 JSE-listed firms

As a result of increased regulatory focus on a number of firms’ tax behaviour, tax compliance is now recognised as a source of reputational risk. Transparency on the reporting of tax related matters in public corporate reports could mitigate a firm’s reputational tax risk. In this study, we develop a framework to evaluate tax transparency in such reports. This framework is then applied to the corporate reports of 50 large firms in South Africa to identify the performance of these firms in terms of the framework. We find that 86% of the firms comply with more than 70% of the mandatory tax reporting requirements. We also show that 50% of the firms are transparent regarding their disclosure of tax strategy and risk management, tax figures and performance, their total tax contribution and the wider economic impact of their tax behaviour.

Integrated Thinking and the Transparency of Tax Disclosures in the Corporate Reports of Firms

The purpose of our study was to link two global corporate developments, namely integrated thinking and the transparency of tax disclosures. The International Integrated Reporting Councils long-term vision is for integrated thinking to be embedded in mainstream business practice, facilitated by integrated reporting. The development of the transparency of tax disclosures was driven by tax avoidance practices of multinational companies. The vision of embedding integrated thinking into mainstream business and the increased focus on the transparency of tax disclosures have developed independently, but thus far there has been no serious consideration of how they may be related. We argue that there is a natural relationship between these two developments. We use PwCs (2014) framework for measuring the transparency of tax disclosures and apply the framework to the corporate reports of a sample of 45 large firms. We use regression analysis to test the association between the transparency of tax disclosures in corporate reports and integrated thinking and find them to be positively associated.

The role of accounting and the accountancy profession in economic development: A research agenda

A widely held view in the accountancy profession and the donor community is that accounting and the accountancy profession play an essential role in economic development. However, our review of the academic literature finds limited empirical research evidence on the relation between accounting and the accountancy profession and economic development, including specifically whether any such relation is causal, and if so, the direction of the causality. Entities, including those comprising the donor community, policymakers, and professional accountancy organizations (PAOs), need evidence on the question of whether and how the accountancy profession contributes to economic development. Such research could assist donors in evaluating the outcomes of interventions aimed at building the capacity of PAOs in emerging and developing economies and inform future interventions. We summarize the limited academic research addressing the relation between PAOs and economic development and present insights from two roundtables facilitated by the International Association for Accounting Education and Research. We identify research opportunities and research design considerations. We hope our paper will stimulate accounting researchers to advance this literature.

Applying the probability recognition criterion to recognise a deferred tax asset for unused ‘secondary tax on companies’ credits

According to AC 501, Accounting for ‘Secondary Tax on Companies (STC)’, a deferred tax asset for unused STC credits is recognised if it is probable that an entity will declare dividends against which unused STC credits can be used. This study examined the dividend declaration profile of companies recognising a deferred tax asset for unused STC credits to satisfy AC 501. In a literature review, the term ‘probable’ was analysed, showing that future dividend declarations are only regarded as ‘probable’ if their likelihood is 64% to 79%. A survey revealed that 45% of the surveyed companies with unused STC credits recognised a deferred tax asset for unused STC credits in their 2004 financial statements, and therefore believed they had satisfied the probability recognition criterion in AC 501. The survey also showed that companies that recognised a deferred tax asset have a dividend policy shareholders are familiar with, and most declare dividends annually. These two indicators can help assess the probability of future dividend declarations.