RESEARCH METHODOLOGY
5.5 The measuring instrument
5.5.2 Question choice
5.5.2.4 Threshold
In view of the fact that the threshold for differential reporting varies widely from one jurisdiction to another (refer to chapter 4), and as the South African authorities and standard-
setters are currently exploring differential corporate reporting options (refer to chapters 3 and 4), South African RA&As' views of the suitability to twelve hypothetical corporate entity types (see table 5-1 below) of selected statements of SA GAAP (see table 5-2 below) were analysed.
The primary questions in this section were in respect of twelve hypothetical entities varied by size, legal structure and user base, as set out in table 5-1 below. The choice of entity type was informed primarily by the prior research of Holmes et al (1991) modified for the South African context and extended to include user base.
Respondents were given a listing of twelve statements of SA GAAP (detailed in table 5-2). All statements of SA GAAP were not included in the questionnaire, as this would have made completion of the questionnaire too onerous. As differential corporate reporting is already effectively in existence in respect of those statements of SA GAAP with which unlisted entities are not required to comply, all such statements of SA GAAP were excluded. With the exception of AC 137, statements of SA GAAP that are industry specific were also excluded. AC 137 was included as agriculture is an important and widely distributed industry in South Africa, and the author therefore believes that most RA&As would have clients that are subject to AC 137.
Table 5-1 Hypothetical entities
Entity A: JSE Securities Exchange listed company with an annual turnover of R3 000 million (Hereinafter: Big JSE listed).
Entity B: JSE Securities Exchange listed company with an annual turnover of R60 million (Hereinafter: Small JSE listed).
Entity C: Public company that is not listed on the JSE Securities Exchange with an annual turnover of R3 000 million (Hereinafter: Big public unlisted).
Entity D: Public company that is not listed on the JSE Securities Exchange with an annual turnover of R60 million (Hereinafter: Small public unlisted).
Entity E: Private company with an annual turnover of R300 million whose financial statements are made available only to its shareholders and attached to its IT 14 tax return (Hereinafter: Big private no users).
Entity F: Private company with an annual turnover of R300 million whose annual financial statements are widely distributed to various users including: its shareholders, its bankers and other financiers, its franchisor, SARS, other government agencies, etc (Hereinafter: Big private with users).
Entity G: Private company with an annual turnover of R600 000 whose financial statements are made available only to its shareholders and attached to its IT14 tax return (Hereinafter:
Small private no users).
Entity H: Private company with an annual turnover of R600 000 whose annual financial statements are widely distributed to various users including: its shareholders, its bankers and other financiers, its franchisor, SARS, other government agencies, etc (Hereinafter: Small private with users).
Entity I: Close corporation with an annual turnover of R300 million whose financial statements are made available only to its members and attached to its IT14 tax return (Hereinafter:
Big CC no users).
Entity J: Close corporation with an annual turnover of R300 million whose annual financial statements are widely distributed to various users including: its members, its bankers and other financiers, its franchisor, SARS, other government agencies, etc (Hereinafter:
Big CC with users).
Entity K: Close corporation with an annual turnover of R600 000 whose financial statements are made available only to its members and attached to its IT 14 tax return (Hereinafter:
Small CC no users).
Entity L: Close corporation with an annual turnover of R600 000 whose annual financial statements are widely distributed to various users including: its members, its bankers and other financiers, its franchisor, SARS, other government agencies, etc (Hereinafter:
Small CC with users).
Table 5-2 Relevant SA GAAP
AC 102- AC 105- AC 108- AC 112- AC 116- AC 118- AC 123 - AC 125- AC 126- AC128- AC 129 - AC 130- AC 132- AC 133- AC 135- AC137-
- Income taxes*
- Leases*
- Inventories*
- Accounting for the effects of changes in foreign exchange rates*
- Employee benefits*
- Cash flow statements
- Property, plant and equipment*
- Financial instruments: disclosure and presentation**
- Related party disclosure - Impairment of assets*
- Intangible assets*
- Provisions, contingent liabilities and contingent assets*
- Consolidated financial statements and accounting for investments - Financial instruments: recognition and measurement**
- Investment property*
- Agriculture*
in subsidiaries
* Respondents indicated the appropriateness of the presentation and disclosure separately from the recognition and measurement requirements.
** Respondents indicated the appropriateness of the presentation and disclosure separately from the recognition and measurement requirements collectively AC 125 and AC 133.
requirements
requirements in respect of
To determine their perceptions of the suitability of the requirements of SA GAAP to different corporate entities, and thereby to determine what RA&As perceive the appropriate threshold/s for differential corporate reporting to be, RA&As were asked to indicate whether they consider the presentation and disclosure requirements of the twelve selected statements of SA GAAP listed in table 5-2 to be appropriate for each of the twelve corporate entities listed in table 5-1.
The question was repeated in respect of the recognition and measurement requirements of each of the selected twelve statements of SA GAAP. Respondents were also asked to indicate whether they considered the following to be appropriate for each of the twelve entities listed in table 5-1:
• the requirement of AC 118 to present a cash flow statement;
• the requirement of AC 126 to present related party disclosures; and
• the requirement of AC 132 to prepare consolidated financial statements.
Chi-square tests for significant differences between each of the twelve entity types were performed, that is, sixty-six entity type pair-wise comparisons, to identify significant differences, if any, in the responses to each of the twenty-seven applicability scores, that is, twelve presentation and disclosure plus twelve recognition and measurement plus three whole standards of SA GAAP. As a basis for overall comparison, these results are further analysed as follows: i) a frequency table, with a maximum of twenty-seven chi-square scores for each of the sixty-six entity type pair-wise comparisons that are significant at the ninety-five percent confidence level and ii) the arithmetic mean of the twenty-seven chi-square values for each of the sixty-six entity type pair-wise comparisons. Read together, these tables should provide a clear indication of RA&As' perceptions of the appropriate threshold/s for differential corporate reporting in South Africa.
The results of this aspect of this research are important as consideration of the perceived applicability of SA GAAP to the twelve entity types tested may assist the South African authorities and standard-setters in establishing the South African differential corporate reporting threshold/s.