Warren Maroun

Integrated reporting in South Africa in 2012: Perspectives from South African institutional investors

Purpose - – This paper aims to explore the initial reactions of the South African institutional investment community to the first sets of integrated reports being prepared by companies listed on the Johannesburg Securities Exchange. The research highlights a shift in attitude towards ESG and integrated reporting, initial views on the first sets of integrated reports and obstacles to the preparation of high-quality reports. The study also includes recommendations for preparers. Design/methodology/approach - – Detailed interviews are carried out with 20 experts from the South African institutional investment industry. Interpretive thematic analysis is used to identify themes and principles and construct an initial assessment of the investors’ views on South African integrated reporting. Findings - – The new reporting framework is seen as an improvement on the traditional annual report of South African listed companies. In general, there is more emphasis on non-financial measures and evidence of an effort to integrate financial and environmental, social and governance metrics to provide a better understanding of organisational sustainability. The length of reports, repetition and a check box approach to reporting does, however, detract from the usefulness of the reports and undermine the development of an integrated thinking ethos. Research limitations/implications - – The study is limited to exploring the views of only a single group of stakeholders at one point in time. The reader’s attention is also drawn to the fact that the study was carried out before the International Integrated Reporting Council’s framework for integrated reporting was applied by South African preparers. Nevertheless, its interpretive style allows identification of challenges to effective integrated reporting. Originality/value - – This paper is the first to examine the views of institutional investors and analysts on South African integrated reports. It makes an important contribution to the academic literature by adding to the limited body of research on integrated reporting and corporate governance in an African setting. The study is also important for practitioners seeking to improve the quality of their integrated reports and for academics wanting to understand the problems and possible strategies for addressing these.

“Good” news from nowhere: imagining utopian sustainable accounting

Purpose - – The purpose of this paper is to attempt to provide a ray of hope, in the form of a Morris-style utopian dream of a sustainable world, as a basis for new forms of accounting and accountability in contemporary society. Design/methodology/approach - – The method is four-fold, weaving together an auto-ethnographic approach, a contextual dialogue between accounting academics and lobbyists, a Morris-inspired utopian metaphor and a stakeholder accountability event in the form of oral disclosures written as a song cycle. Findings - – Current efforts at integrated reporting are unlikely to change how large companies do business in order to address the risk of climate change in the short term. If the UN reports on climate change are correct, the authors need to take immediate action. The authors argue that, instead of waiting for climatic disaster to lead to a paradigm shift in corporate practice, “monetisation” of the costs of climate change is one way to encourage integrated thinking and sustainable business models. This relies on existing finance and accounting discourse to create a new “field of environmental visibility” which engenders environmental awareness on the part of the world’s companies and policy makers. Practical implications - – This utopian image may not appear a practicable, realistic solution to current problems but represents a starting point for optimism. It provides inspiration for policy makers to develop better forms of sustainability reporting, more suitable to the accelerating rates of climatic change. Originality/value - – To the authors’ knowledge this is the first attempt to develop Morris’s

Exploring the challenges of preparing an integrated report

Purpose - The purpose of this paper is to add to the limited body of interpretive research on integrated reporting by exploring challenges to preparing an integrated report. This is done using an integrated thinking framework which stresses the importance of an interconnection between sustainability performance, proactive sustainability management and integrated reporting. Design/methodology/approach - Detailed interviews with 26 preparers at 9 South African-based organisations highlight practical issues encountered when producing an integrated report. Findings - Integrated reporting is not consistently seen as a natural part of the business process, despite the relevance of multiple types of capital for organisations’ business models. The new report format is imposed on existing internal processes and reporting protocols which precludes a broad understanding of the purpose of integrated reporting and limits the development of management control systems and a supporting accounting infrastructure. In this constrained environment, reporting guidelines are used as disclosure checklists, stakeholder engagement is limited, systems are not always compatible and data analysis is difficult. Preparers are also unconvinced that integrated reports are taken seriously by investors, further limiting the interconnection between sustainability performance and integrated reporting. Research limitations/implications - Those charged with governance need to ensure that their organisations are identifying so-called non-financial issues as strategically relevant. Sustainability performance targets need to be clearly defined and linked to specific performance indicators. The management control systems and accounting infrastructure must be planned and developed to assist with the monitoring of sustainability performance and, in turn, to inform what information is included in integrated reports. Originality/value - This study answers the calls for primary evidence on how integrated reports are prepared and the associated challenges. The findings add to the limited body of interpretive research on the functioning of corporate governance and accounting systems and offers practical insights for preparers and academics.

Developing a conceptual model of influences around integrated reporting, new insights and directions for future research

Purpose This paper aims to develop a conceptual model for examining the development of integrated reporting, relate the articles in this Meditari Accountancy Research special issue on integrated reporting to the model and identify areas for future research. Design/methodology/approach The paper uses a narrative/discursive style to summarise key findings from the articles in the special issue and develop a normative research agenda. Findings The findings of the prior literature, as well as the articles in this special issue, support the conceptual model developed in this paper. This new conceptual model can be used in multiple ways. Originality/value The special issue draws on some of the latest developments in integrated reporting from multiple jurisdictions. Different theoretical frameworks and methodologies, coupled with primary evidence on integrated reporting, construct a pluralistic assessment of integrated reporting, which can be used as a basis for future research. The new conceptual model developed in this paper can be used as an organising framework; a way of understanding and thinking about the various influences; a way of identifying additional factors to control for in a study; and/or a way of identifying new, interesting and underexplored research questions.

Risk disclosures by South African listed companies post-King III

The introduction of principles on the governance of risk in the King Code on Corporate Governance (King III), coupled with the drive for more integrated models of reporting, has highlighted the need for effective communication of risks and risk-management strategies to stakeholders. To date, however, there has been little research on trends in risk disclosure practices by large firms listed on the Johannesburg Stock Exchange (JSE). As such, this research adds to the body of integrated reporting literature by examining changes in the extent of risk disclosures by these companies from 2010 to 2012. The research finds that, although there has been an increase in disclosure over this period, there is a possibility of reporting on the governance of risk being a compliance-based exercise rather than an example of effective stakeholder communication.

Perceptions of justice as a catalyst for whistle-blowing by trainee auditors in South Africa

Purpose - – This study aims to use organisational justice theory to examine variations in the propensity of trainee auditors in South Africa to blow the whistle internally on misconduct by an engagement leader. Design/methodology/approach - – Three vignettes describing high and low states of distributive, procedural and interactive justice are presented to a sample of trainee auditors. A questionnaire is used to gauge the likelihood of trainees blowing the whistle after taking into account a number of control variables. Preliminary results are analysed using parametric Findings - – The study finds that the likelihood of trainee auditors reporting an engagement leader for misconduct increases when there is a high level of distributive, interactional and procedural justice. Gender, age, seniority, the importance of religion and performance ratings does not appear to have an effect on the propensity to whistle-blowing. Research limitations/implications - – The growing importance of an effective mechanism for reporting malfeasance is reflected in both the academic and professional literature. Prior research has found that ensuring high levels of organisational justice is one means of promoting whistle-blowing in a professional setting. This paper argues that the same applies to trainee auditors. In turn, this suggests that audit firms wanting to implement sound audit quality control practices should be mindful of how their whistle-blowing policies are implemented and perceived by their junior staff. Originality/value - – This paper is the first to apply organisational justice theory in a South African setting with specific reference to trainee auditors. As such, it makes an important contribution to the literature on whistle-blowing. The findings should also be of interest to the audit profession when seeking to implement effective quality control and monitoring systems, as required by the relevant professional standards.

Interpretive and critical research: Methodological blasphemy!

Critical and interpretive research styles are often qualitative and more subjective than statisticallybased positive techniques. As such, critical and interpretive methodologies are less highly regarded by the academic establishment and are often relegated to the footnotes of postgraduate courses. After all, is there really a need to train prospective accountants and managements in ‘softer skills’? This critical essay argues that changes in accounting and business mindsets are moving critical and interpretive research styles into an era of greater recognition. Rather than be driven by positive tradition, management-based research needs to be more aware of practical realties and post graduate students need to be trained accordingly.

Whistle-blowing by external auditors in South Africa

Purpose - – The purpose of this paper is to explore how notions of disciplinary power manifest themselves in audit regulatory developments. When it comes to research on the relationship between audit quality and regulation, much of the prior scholarly work has kept to the positivist tradition of quantitative analysis under the guise of “economic rationality”. In contrast, this research takes an interpretive approach to provide an alternate and unique perspective, using motifs of Foucauldian power and control to illuminate the operation of external regulation in a South African setting. The paper examines what may be loosely described as a mandatory whistle-blowing duty imposed on external auditors. Design/methodology/approach - – Detailed interviews with some of South Africas leading corporate governance experts are used to highlight the disciplinary effect of an auditors duty to bring reportable irregularities to the attention of an independent regulator. Findings - – Blowing the whistle on irregularities contributes, not only to increasing the information made available to stakeholders, but to creating a valid expectation of auditors serving the public interest by enhancing a sense of transparency and accountability. Elements of resistance to panoptic-like control are, however, also present suggesting that, in part, the regulation may simply be creating the illusion of active reporting. Research limitations/implications - – The research relies on a relatively small sample of subject experts and does not provide a complete account of regulatory developments taking place in South Africa and abroad. Additional research on the role of whistle-blowing in an external audit setting is needed focusing particularly on similarities and variations in interpretations of reporting by auditors from the perspective of more diverse stakeholder groups. Practical/implications - – Mandatory reporting of irregularities by auditors can provided additional useful information for stakeholders and may contribute to demands for more effective reporting by auditors. Social implications - – Arms-length regulation of the audit profession should not be seen only as a means of improving audit quality and the utility of audit reports. Powerful social forces are also. This research demonstrates how laws and regulations have a potential disciplinary effect on the audit profession that contributes to a restoration of confidence in the audit process after it is best by scandals, even if motifs of power and control are somewhat illusionary. Originality/value - – This research addresses the need for more detailed analysis of precisely how mechanisms of accountability and transparency operate in the broader corporate governance arena. The paper also contributes to the calls for more detailed, context-specific studies of audit. Finally, this paper is one of the first to employ a critical theoretical perspective on audit in an African setting, responding to the need for contextual, methodological and theoretical eclecticism in the area of corporate governance research.

Whistle-blowing by external auditors: Seeking legitimacy for the South African Audit Profession?

Highlights • The research provides one of the first interpretive accounts of auditing in an African setting.• An institutional-inspired perspective on auditing in South African is provided focusing on a duty to bring reportable irregularities to the attention of an independent regulatory body.• At the heart of this whistle-blowing requirement are claims to pragmatic, moral and cognitive legitimacy.• The findings provide further evidence in support of claims to auditing being a social construct and, like most institutions, both able to confer legitimacy while also being dependent on claims to legitimacy for continued existence. Abstract Auditing is often cited as playing an important role in managing agency-related costs and, accordingly, being integral to the sound functioning of capital markets. There may, however, be more to the attest function than a technical rational practice. By virtue of relying heavily on claims to technical expertise, professionalism, prudential judgement and public confidence, auditing is both a source of legitimacy for organisations and, paradoxically, dependent on claims to legitimacy for its continued existence. From this perspective, recent regulatory developments, purportedly enacted to increase arms-length control over the profession, may not only be about improving perceived audit quality and practice but also about ensuring continued faith in the well-established ‘rituals’ of the assurance function. A reporting duty imposed on South African external auditors, akin to whistle-blowing, is used as a case study to explore this perspective. In doing so, this paper contributes to the scant body of interpretive research on auditing, simultaneously offering one of the first insights into auditing regulation from an African perspective.

South African Auditors Blowing the Whistle without Protection: A Challenge for Trust and Legitimacy

South Africa is one of the few countries in the world where auditors of financial statements are required to whistle‐blow on transgressions of a client. This statutory duty places the auditor in a dilemma. On the one hand, a failure to blow the whistle is a criminal offence. On the other hand, compliance with the legislation, in good faith, does not automatically afford the auditor protection against civil claims. Under the lens of legitimacy theory, external regulation has an important role to play in legitimising accounting and auditing systems but, in order for legislation to effect meaningful change, it is paramount that it be accepted as legitimate and worthy of trust in its own right. In this context, the need for improved levels of protection against civil liability for auditors has received increased attention in the United Kingdom and the United States. Here, auditors are already afforded some protection against civil claims in connection with more limited duties to whistle‐blow. Despite the increasing acceptance of the idea that such protection is instrumental in improving the effectiveness of the audit industry, this study shows that South Africa lags behind its international counterparts in this regard. As a result, the essence of the South African auditors whistle‐blowing duties as an instrument of legitimisation is questionable.