THE SOUTHERN AFRICAN JOURNAL OF ACCOUNTABILITY AND AUDITING RESEARCH

Volume 19, Issue 1, 2017

FEATURED ARTICLES

Managing municipal audit compliance through work procedures: A Theory of Planned Behaviour approach

Author: Ogochukwu I. Nzewi

Affiliations: 1 University of Fort Hare

Source: Southern African Journal of Accountability and Auditing Research, Volume 19, Issue 1, 2017, p. 1 – 14

Keyword(s): Theory of Planned Behaviour (TPB); work procedures; local government; municipal audit; audit outcomes; compliance; compliance behaviour

Accreditation: Department of Higher Education and Training (DHET)

Abstract: Trends in the South African Auditor-General’s reports reveal the progressive culture of regulatory noncompliance in municipal audit outcomes. Although there are multiple factors which may result in noncompliance, studies have revealed a link between behavioural dispositions and compliance. This article presents a conceptual framework for a Theory of Planned Behaviour (TPB) based model, aimed at managing municipal audit compliance utilising work procedures. The article utilises study applications of the Theory of Planned Behaviour (TPB) to identify significant behaviour motivators for possible consideration in designing municipal audit-related work procedures. The analysis applies context specific challenges in municipal compliance to develop a verifiable TPB model for audit compliance. The article extends knowledge in municipal audit processes and organisational development in general, by illustrating how work procedures can be utilised to grow compliance. This will contribute towards growing compliance assurance in municipal audits in South Africa.

Effective internal audit activities in local government: Fact or fiction?

Author: Bongani W. Mbewu and Karin Barac

 Affiliations: 1 University of Pretoria and 2 University of Pretoria

Source: Southern African Journal of Accountability and Auditing Research, Volume 19, Issue 1, 2017, p. 15 – 33

Keyword(s): Clean audit; internal audit effectiveness; local government; audit committee; internal audit independence

Accreditation: Department of Higher Education and Training (DHET)

Abstract: In 2009 government set out to achieve clean audits for all government entities. Studies on internal audit effectiveness reveal that an effective internal audit function enhances organisational governance and is considered a significant governance mechanism in the public sector. Since a clean audit is a function of clean governance, an effective internal audit function as a governance mechanism contributes thereto. Limited published research is available on internal audit effectiveness at the South African local sphere of government. This study, which adopted the qualitative approach, investigates the four micro factors which affect internal audit effectiveness of municipalities in the Vhembe district, situated in the Limpopo province in South Africa. The study reveals that there are internal audit resource restrictions, no quality assurance, enhancement programmes and no external quality assurance. The participants held mixed perceptions of the effectiveness of internal audit functions. All internal auditors do not have professional qualifications, consequently, a low status. Management does not comprehend the challenges experienced by internal auditors. The study identifies areas for future research taking into account perceptions of internal audit resources, processes, relationships and the organisation.

Improving skills development in the South African public sector: An internal audit perspective

Author: Kato Plant and Ruby Padotan

 Affiliations: 1 University of Pretoria and 2 University of Pretoria

Source: Southern African Journal of Accountability and Auditing Research, Volume 19, Issue 1, 2017,  p. 35 – 48

Keyword(s): Internal audit; skills; competence; learnerships; skills development; public sector

Accreditation: Department of Higher Education and Training (DHET)

Abstract: Internal auditors have not escaped the skills crisis in South Africa and the need for competent and effective internal auditors in the workplace is increasing. The Institute of Internal Auditors in South Africa (IIA (SA)) has adopted a formal learnership system to develop internal audit competencies in the workplace. Research on internal audit skills development in the public sector is limited. Although the IIA Global issued a competency framework prescribing the specific internal audit competency and skills requirements, the question arises as to how these competencies and skills can be improved in the workplace. The aim of this research is to identify improvement to current skills development programmes for internal auditors in the South African public sector through Kolb’s experiential learning theory as well as the International Education Standards issued by the International Federation of Accountants (IFAC). A content analysis identified a number of current skills development programmes for improvement, such as the use of personal development plans, more specific practical experience requirements, formal assessment of competence and a formal mentoring system. This research is valuable not only to internal audit stakeholders in the South African public sector, but also to private sector stakeholders who consider enhancing internal audit skills and competencies through formal learnership programmes.

Using triangulation to reveal gaps in internal audit’s disclosure practices with focus on its legal and regulatory mandate

Author: Christo Ackermann

Affiliations: 1 University of Johannesburg

Source: Southern African Journal of Accountability and Auditing Research, Volume 19, Issue 1, Jan 2017, p. 49 – 58

Keyword(s): Internal audit functioning; regulatory mandate; triangulation; mixed methods; municipalities; South Africa; disclosure; Atlas.ti.

Accreditation: Department of Higher Education and Training (DHET)

Abstract: In the South African public sector, the existence of internal auditing is legally mandated. However, no compulsory disclosure of its work is required in public annual reports, unlike the external audit of financial statements, which must be disclosed.

This article adopted a data transformation triangulation design to reveal gaps in the disclosure practices of internal auditing, with specific reference to its legal and regulatory mandate in South Africa. The quantitative and qualitative data was collected on the mandatory work conducted by the internal audit function (IAF), as prescribed by South African legislation and regulations. Dichotomous questions were posed to gather the audit committee members hold on the work conducted by internal auditors. The annual reports of the same municipalities were coded concurrently for the work internal auditors should do. The two data sets were converged to form the triangulation. The results presented in this article reveal that a disparity exists between the work conducted by the internal audit function and what is subsequently reported in public annual reports, that is, with reference to its legal and regulatory mandate. These results could be used as a starting point to motivate mandatory disclosure of the work conducted by the IAF and to embark on further internal audit disclosure research such as establishing the demand for disclosure and its impact through the lens of agency, stakeholder and legitimacy theory. Such disclosure would likely contribute towards increased public confidence and transparency.

Developing an internal audit planning framework at a strategic level by integrating continuous auditing procedures related to automated controls (Part I)

Author: Riana Goosen and Hendrike Olet van Dyk

Affiliations: 1 University of Stellenbosch and 2 University of Stellenbosch

Source: Southern African Journal of Accountability and Auditing Research, Volume 19, Issue 1, 2017, p. 59 – 70

Keyword(s): IT internal audit; King IV; continuous auditing; strategic audit planning

Accreditation: Department of Higher Education and Training (DHET)

Abstract: Modern day internal audit functions are required to evolve at the same rapid pace as the organisations they serve. Historically, internal audit functions provided retrospective assurance, which could result in critical errors or fraudulent activities being detected late. As such, traditional auditing methodologies may no longer be effective in addressing businesses’ changing and emerging risks. The Fourth King Report on Corporate Governance (King IV) positions the internal audit function as a pivotal player in the combined assurance model. A modern audit technique, namely, continuous auditing, could enable internal audit functions to provide such ongoing and timely assurance to governing bodies. However, research has revealed that auditors are not utilising this technique effectively. This article proposes the development of a strategic internal audit planning framework, which integrates traditional and continuous auditing techniques, resulting in an effective, efficient and timely audit being performed.

Developing an internal audit planning framework at an operational level by integrating continuous auditing procedures relating to automated controls (Part II)

Author: Hendrike Olet van Dyk and Riana Goosen

Affiliations: 1 University of Stellenbosch and 2 University of Stellenbosch

Source: Southern African Journal of Accountability and Auditing Research, Volume 19, Issue 1, 2017, p. 71 – 84

Keyword(s): T internal audit; King IV; continuous auditing; operational audit planning; automated controls

Accreditation: Department of Higher Education and Training (DHET)

Abstract: The Fourth King Report on Corporate Governance (King IV) requires governing bodies to exercise ongoing oversight of the management of information and the continual monitoring of the security of information. Although the internal audit function is described as a pivotal assurance provider as part of the combined assurance model, King IV does not provide implementation guidance on these continuous oversight and monitoring recommendations. A modern audit technique, namely continuous auditing, could be a cost effective solution for internal audit functions to provide such continuous assurance. In Part I of this series of articles, a strategic and annual (macro) planning framework was presented, which entailed integrating the annual planning processes for traditional and continuous auditing techniques. The objective of this article (Part II) is to develop a framework to implement continuous auditing techniques at an operational (micro) level, specifically focussing on providing assurance on automated controls pertaining to a specific business process and its underlying IT infrastructure. This will enable internal audit functions to provide ongoing independent assurance to governing bodies on the confidentiality, integrity and availability of information as envisaged by King IV.

Internal audit effectiveness in the three spheres of the South African government

Author: Lourens J Erasmus and Philna Coetzee

Affiliations: 1 University of South Africa and 2 University of South Africa

Source: Southern African Journal of Accountability and Auditing Research, Volume 19, Issue 1, 2017, p. 85 – 99

Keyword(s): Audit committee; cluster analysis; internal audit effectiveness; internal audit stakeholders; management; public sector

Accreditation: Department of Higher Education and Training (DHET)

Abstract: The answer to what an effective internal audit function entails is still eluding the profession, but what is clear is that the needs of prominent stakeholders must be met by internal auditing for them to be deemed effective. This study investigates the potential profiles of the public sector in terms of the internal audit service provided and its effectiveness as perceived by the key stakeholders. It also investigates whether internal audit effectiveness across the three spheres of the South African government are perceived similarly by the head of the function and its key stakeholders, namely, senior management and the audit committee. Cluster analyses was utilised to identify profiles within the data. The results revealed a clear distinction between perceived internal audit effectiveness of the three spheres of government. The study provides a refined overview for the various spheres of government on how their internal audit effectiveness is perceived in comparison to the other spheres.

Skills assessments to enhance mergers of accounting and audit firms: A South African case study

Author: Philna Coetzee and Houdini Fourie

Affiliations: 1 University of South Africa and 2 Nelson Mandela University

Source: Southern African Journal of Accountability and Auditing Research, Volume 19, Issue 1, 2017, p. 101 – 115

Keyword(s): Accounting and audit firms; mergers and acquisitions; skills assessment; competencies; internal auditing

Accreditation: Department of Higher Education and Training (DHET)

Abstract: Mergers of any two or more businesses is generally a complex matter, but even more so for organisations that deliver professional services, due to the integration of staff knowledge and skills. When smaller accounting and audit firms merge, this becomes complex because the services that are rendered by the two separate firms may differ. This article investigates the execution of a skills assessment (or audit) to support the merging of two smaller South African accounting and audit firms’ internal audit divisions. A content analysis was conducted to determine the skills required for a firm to deliver a professional service. Thereafter, a case study was used to evaluate the execution of a skills assessment and the contribution thereof to the successful integration of the competencies of the staff. The study reveals that if a skills assessment is conducted with the necessary care and professionalism, it could be useful for reference purposes as part of a due diligence process preceding and following a merger and acquisition.

The fourth E of performance auditing

Author: Catharina E. Gildenhuis and Jacobus O. Janse van Rensburg

Affiliations: 1 University of Pretoria and 2 University of Pretoria

Source: Southern African Journal of Accountability and Auditing Research, Volume 19, Issue 1, 2017, p. 117 – 127

Keyword(s): Performance auditing; three Es; fourth E; economy; efficiency; effectiveness; environment; equity; ethics.

Accreditation: Department of Higher Education and Training (DHET)

Abstract: The vital requisite for performance auditing within the public sector is becoming progressively apparent. This is deemed an essential requirement towards enhancing the operation and functioning of the organisation and facilitating and ensuring accountability. Traditionally, performance auditing focused on economy, effectiveness and efficiency, termed as the ‘three Es’. Recent contentions have advocated that a fourth ‘E’ should be incorporated to expand the scope of performance auditing and to intensify its impact. The supreme audit institutions (SAIs) of a multitude of countries, in association with their public sector internal audit activities, have consolidated additional principles into their performance audit methodology. A literature review revealed that the most frequently incorporated additional principles constituted the environment, equity and ethics. However, it may be contended that an expansion is unnecessary or superfluous considering the principal intent, objective and outcome of performance auditing. This study intends to investigate the issue of whether the foundational principles of performance auditing is adequate or should they be expanded. In an endeavour to determine this, a survey was conducted utilising the expertise of a community of performance audit experts in South Africa. The investigation results revealed that 61.5% of the respondents consider the current principles satisfactory and adequate to address and include the required aspects of the performance audit. However, 46.2% of the surveyed participants deemed the environmental element an eligible element for inclusion as a foundational principle. Ultimately, despite certain SAIs and internal audit activities expanding their performance audit foundational principles, the results of this study revealed that the primary focus should remain on the traditional ‘three Es’, viz. economy, efficiency and effectiveness.

Best practices mobile technology risk assessment and control checklist

Author: Lize-marie Sahd and Riaan J Rudman

Affiliations: 1 University of Stellenbosch and 2 University of Stellenbosch

Source: Southern African Journal of Accountability and Auditing Research, Volume 19, Issue 1, 2017, p. 129 – 145

Keyword(s): Mobile technology; risk assessment; COBIT 5; controls; best practices

Accreditation: Department of Higher Education and Training (DHET)

Abstract: Businesses and employees are utilising compact and portable devices with computing, storage and communication capabilities (commonly referred to as mobile technologies) at a rapidly increasing rate. Consequently, significant incremental risks are introduced into all business processes where mobile technology is utilised. King IV assigns the responsibility for IT risk management to the board of directors, while the internal audit function is tasked with risk assessment and the evaluation of technology controls. They have tools at their disposal such as governance frameworks, standards and practices that assist with this task, but these frameworks are generic and need to be customised to be useful. The research uses COBIT 5 to develop a mobile technology risk exposure and best practices control checklist, as well as an executive controls summary to assist those parties charged with the implementation of governance structures and those charged with its oversight to evaluate an entity’s mobile technology controls.

Accounting research, education and practice: A social practice theory perspective

Author: Lindie Grebe and Elza Odendaal

Affiliations: 1 University of South Africa and 2 University of South Africa

Source: Southern African Journal of Accountability and Auditing Research, Volume 19, Issue 1, 2017, p. 147 – 156

Keyword(s): Accounting; auditing and governance research; Bourdieu; social practice theory perspective; practice; habitus; field

Accreditation: Department of Higher Education and Training (DHET)

Abstract: The article addresses calls to integrate accounting research, education and practice by drawing on social practice theory. The authors draw on the key principles of Bourdieu’s social practice theory, namely, practice, habitus, and field to present a distinct agenda for research to narrow a gap between accounting education and real-world accounting practices. The conceptual article provides propositions and practical implications for researchers, educators and practitioners. This knowledge could add to accountants’ employability at a time when accounting education must change its approach to remain relevant in the global business village.

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