South Africa Accounting And Corporate Reporting Climate
South Africa Accounting and Corporate Reporting Climate
Letter of Transmittal or Memorandum
This report was conducted in accordance to the agreement to look for prospective candidates to facilitate the expansion needs of Thandiswa mining. In the process of our research we identified Harmony Gold Mining limited as a suitable candidate for the expansion needs for our company. This report encompasses all interest areas that the company should look into before investing, with the investment being in another country it was important to look into the accounting standards in the respective country.
Sincerely,
(Sign)
MR. Justus Otieno ([email protected])
Executive summary
This report look into various factors that would be possible risk factors before an investment is made. The report was commissioned by Thandiswa mining to facilitate its expansion needs and this report will pay special attention the requirements for listing of companies in South Africa. It will also examine the annual and sustainability reports of Harmony Gold mining Limited. The report also examines the political and cultural factors that influence the setting of financial reporting standards in South Africa.
Table of Contents TOC o “1-3” h z u 1.0 Introduction PAGEREF _Toc365552281 h 51.2 Purpose of the Report PAGEREF _Toc365552282 h 51.3 Limitations of the Report PAGEREF _Toc365552283 h 61.4 Assumptions of the Report PAGEREF _Toc365552284 h 62.0 Findings PAGEREF _Toc365552285 h 62.1 Background PAGEREF _Toc365552286 h 62.2 Harmony’s Gold Mining Company Profile PAGEREF _Toc365552287 h 72.3 Harmony’s Gold Mining Limited Annual Report PAGEREF _Toc365552288 h 72.4 Harmony’s Gold Mining Limited Sustainability Report PAGEREF _Toc365552289 h 82.5 Current Financial Reporting Requirements in South Africa PAGEREF _Toc365552290 h 92.6 The Influence of Stakeholders on the Company’s Reporting Practices PAGEREF _Toc365552291 h 102.7 Political Processes Influencing the Setting of Accounting Standards in South Africa PAGEREF _Toc365552292 h 102.8 Cultural Influences on Financial Reporting in South Africa PAGEREF _Toc365552293 h 112.8.2 Power Distance Index PAGEREF _Toc365552294 h 122.8.3 Uncertainty Avoidance Index PAGEREF _Toc365552295 h 122.8.4 Masculinity vs. Femininity PAGEREF _Toc365552296 h 123.0 Conclusion PAGEREF _Toc365552297 h 12References PAGEREF _Toc365552298 h 13
1.0 IntroductionWith the development of world into a global village, the convergence of different cultures is inevitable and hence companies looking for expansion opportunities overseas have to look into various factors before making investments to determine their viability, (KPMG 2009, 3).Financial reporting is a vital aspect for profit making or non-profit making organizations. It forms the backbone of the company because it helps show the financial position of the company against the organizations goals and objectives. It indicates the summaries of monetary data that the organization uses, (Chand et al, 114).
Makeba accounting has been approached by Thandiswa mining to look into their expansion needs. The company has identified South Africa as a choice country. Thandiswa mining is a mining company that specializes in the exploration o base and precious metals.in the process of research Makeba mining identified Harmony Gold mining limited as a suitable option. The subsequent report will look into various factors that support the choice of this company. The report will pay close attention to annual and sustainability reports of the Harmony Gold mining company and the political and cultural influences that shape the financial reporting standards in South Africa. The report will also look into the current requirements for the listing of public companies in South Africa.
1.2 Purpose of the ReportThe main purpose of this report was to look for a suitable candidate to facilitate the expansion needs of Thandiswa mining limited. Another purpose is to give evidence supporting the choice of company, through annual and sustainability reports. It is also to identify the current reporting requirements, recent changes and likely future changes in financial reporting, of public listed companies in South Africa. Another purpose is to identify the cultural influences and political processes that influence the setting of accounting standards in South Africa.
1.3 Limitations of the ReportOne of the major limitations in the process of conducting this report was culture, being from a different country the culture was very different and it took some time before we adjusted. The time to conduct the research was not sufficient to give a detailed view of the organization.
1.4 Assumptions of the ReportThis report assumes that the company experiences no changes in its structure since it was conducted on the basis of financial reports from the year 2012. The report also assumes that the financial reports obtained portray a true and fair view of the company.
2.0 Findings2.1 BackgroundSouth Africa was one of the first countries to implement the IFRS standards back in 2005. The accounting profession in South Africa is internationally renowned because during the formative years the accounting professionals ensured that their accounting standards aligned itself with those of the country’s economic needs. The professionals engaged widely and made sure that the process did not isolate international standards. Public awareness has increased over the years as a result of advancement in technology, thus making corporate social responsibility by companies very important in increasing the goodwill of the company. Green accounting is increasing awareness of environmental factors, especially in the mining industry, this in an audacious attempt by people to conserve the environment, (Deloitte Touche Tohmats, 31).
2.2 Harmony’s Gold Mining Company ProfileHarmony gold mining company is one of the largest gold mining companies in South Africa. It was incorporated and subsequently registered as a public company in South Africa in 25 august 1950. In the financial year 2012 harmony reported a production of gold of 1.27Moz. It is a renowned company in South Africa, having employed over 40000 people in the year 2012. The company has its headquarters in Randfontein, South Africa and has branches in Papua New Guinea. The company has ten underground mines in the Greenstone Belt and Witwatersrand Basin. Harmony also has an exploration portfolio that pays special focus on high prospective areas in Papua New Guinea. The company aims to achieve the production of 1.7 million ounces of gold by the year 2016, (Harmony 2012, 81).
2.3 Harmony’s Gold Mining Limited Annual ReportThe annual report was for the financial year 2012, and was audited by the PricewaterhouseCoopers. This report was prepared in accordance to the IFRS accounting standards. It was reported that due to the handing down of the judgment by supreme court of appeal on the matter of the mining ring-fencing by South Africa revenue service (SARS), taxation credit that was reported in the consolidated income statement increased to R123 million from R60 million. The credit deferred tax from this sum was R154 million which had a debit of R94 million from normal taxation. The headline earnings per share and the diluted headline earnings per share also increased to 565 SA cents and 563 SA cents respectively, from 14 SA cents per share.
The increase in the net profit for the year was R2 645, while net profit from continuing operations increased from R60 million to R2 053 million. As a result, the total earnings per share (EPS) and the diluted earnings per share increased from14 SA cents per share to 614 SA cents per share and 612 cents per share respectively. The total comprehensive income for the financial year 2012 increased from R60 million to R4 232 million. This caused a positive effect on the retained earnings since it increased to R3 307 million from R3 247 million. Receivables from income and mining taxes reported a drop from R211 million to R118 million. This resulted to a decreased being reported in deferred tax liabilities to R3 106 million from R3 260 million, (Harmony, 2012).
2.4 Harmony’s Gold Mining Limited Sustainability ReportHarmony gold mining limited pays special attention to sustainability reporting, this is due to the fact that the company recognizes the impacts of the business on the natural environment and the surrounding communities. The company also appreciates that the impact as a result of neglecting this aspect may have long term sustainability of the company. The company strategy was designed in such a manner that it is aligned to environmental legislation and policies that are in the country. The company has also made drastic changes in the improvement of mineral and non-mineral waste management, mine closure and the environmental reporting procedures, (WWF-World Wide Fund, 3). The company recorded a reduction of 58% in CO2e per ton that was milled in the year 2012. This is in comparison to the year 2008 where the company produced 0.44t CO2e per ton milled. The company also recorded a reduction the usage of fresh water by 64% in the year 2012 which was 38 011 mega liters of fresh water. This is compared to the fresh water consumption of 2008 which was 104 763 mega liters. The company recorded an improvement of 50% in water recycling. This was measured against the total water requirement. The company also recorded a reduction of 11% in the emission of CO2 in the year 2012, (Harmony, 2012, 56).
2.5 Current Financial Reporting Requirements in South Africa The apartheid experienced in South Africa created a big vacuum between the rich and the poor especially the black community. Certain policies and measures had to be instituted to make sure that the marginalized people were catered for in terms of giving them a platform to get equal opportunities to advance themselves. In South Africa companies are required by law to adhere to standards of the IFRS. South Africa began an aggressive campaign called the Black Economic Empowerment (BEE) that included aspects of the affirmative action. The South African government also instituted a policy on Previously Disadvantaged Persons (PDP), this mainly focused on the mining sector. These policies changed the financial reporting landscape of South Africa.
The black economic empowerment policy is a policy that was instituted by the government to address issues on inequalities that came about after the apartheid. This was achieved by giving previously marginalized groups such as the blacks, Indians and the coloreds of South African decent economic privileges that were not previously accorded to them. These measures include employment preferences, preferential procurement, ownership and skill development, just to mention a few, (Seagal, 28). The BEE also incorporated aspects of the affirmative action, as it pays special recognition to advancement of black women. The South African government instituted checks and measures to ensure that companies adhere to these stipulated standards. For example the government incorporates the use of the balance scorecard to measure the companies’ scores in terms of BEE. For example, companies that score poorly in this provision have their score on measures reduced, while companies that adhere to these provisions are given bonus points.
In the policy on Previously Disadvantaged Persons (PDP), it is required that mining companies give compensation to the communities that they displace. This is in terms of monetary compensation, ownership and management positions.
2.6 The Influence of Stakeholders on the Company’s Reporting Practices
Stakeholders are the owners of a company and they play a vital role on how the operations of the organizations are conducted. Stakeholders include all the parties that form the organization from shareholders, management, employees, the government, customers and the surrounding communities. In South Africa lobby groups, the government and the political clout are very important stakeholders because they advocate for the rights and privileges of the other stakeholders. The stakeholder theory, states that the degree of importance of a stakeholder determines if his/her expectations are factored in within the organizations structure. In most cases if the stakeholder is very powerful their expectations on how the financial reporting should be conducted is incorporated within the company, (Busacca, 10). For example, the South African government passed a stringent legislation on environmental practices that require organizations to reduce the impact of their operations on the environment.
2.7 Political Processes Influencing the Setting of Accounting Standards in South AfricaThe political economy theory states that politics, society and economics are interdependent. With the tremendous effect that financial reporting has on the society at large, it is inevitable for it to be a political process, this because it involves many stakeholders, within a county’s economy. In the formulation of financial reporting standards parties affected are allows to make submissions to try and influence the regulatory process. This helps the process to incorporate the different sets of values, norms and expectations that the society holds. South Africa to be the first country to adopt and implement IFRS in 2005 has ensured that it incorporates high standards as set out by the SA GAAP. With the harmonization of accounting information the transparency levels in South Africa increased and this helped boosts investment levels.
2.8 Cultural Influences on Financial Reporting in South AfricaSouth Africa has a complex culture composed of people who speak different languages. The country has as many as 11 national languages reflecting the diverse cultural composition that makes it very hard to successfully apply a set of universal standards. Policies such as BEE, affirmative action, and PDP have been rolled out to address issues cultural inequalities. These policies have impacted heavily on financial reporting in the country. According to Madeleine (2013), indicators such as the level of education, religion, and language play very important role in the shaping of a peoples cultural norms. These norms impacts the way companies do business, companies from Australia must first learn and adopt local cultures in order for the to successfully do business. In essence, cultural indicators such as education, religion, and language have an impact on accounting standards that a country adopts. While using Hofstede (1980) six cultural dimensions, the impact of South African cultural practices on accounting standards is described below. In a nutshell, the South African culture is receptive to international accounting standards, and therefore Australian mining companies such as Thandiswa will experience less resistance.
2.8.1 Individualism vs. Collectivism
South Africa is a highly individualist country that pursues transparency and accountability especially in the reporting of business activities. This individualistic culture encourages individuals to work hard so as to earn higher positions in the corporate world. This creates healthy competitions and efficiency in financial reporting and accountability.
2.8.2 Power Distance IndexSouth Africa is largely a hierarchical society where those occupying lower positions in the corporate ladder have a higher respect for those in higher positions. This creates a friendly environment for foreign countries to exercise prudence in financial reporting because every employee has a duty to obey orders from higher authority.
2.8.3 Uncertainty Avoidance IndexThe South African culture score slow marks in embracing eventualities such as innovations. The citizens fear the future and are most likely to be contended with the status quo rather than makes efforts to learn the future. This makes the South African culture more conservative insofar as embracing new accounting standards goes. Australian mining companies should therefore firstly learn the local culture before beginning their operations in the country. Nevertheless, low uncertainty avoidance score makes South Africa a good investment destination for foreign companies that are willing to learn and adjust their accounting standards.
2.8.4 Masculinity vs. Femininity
South Africa is a masculine society where those in positions of power have a firm control over those occupying lower positions of power. This makes the process f management and leadership to be effective because everyone has well defined responsibilities. Overall, masculine societies experience sound financial reporting because of the clear separation of duties and roles.
3.0 ConclusionThis report has examined the factors that would make harmony gold mining limited a suitable candidate for the expansion needs of Thandiswa mining. The report conducted has also looked into annual and sustainability reports of the company. Cultural influences and political processes have been examined to see its influence on the setting of financial reporting standards. It also highlights the current requirements for financial reporting standards for public listed companies in South Africa.
ReferencesBusacca, Madeleine, (2013).”Corporate Social Responsibility in South Africa’s Mining Industry: Redressing the Legacy of Apartheid”. CMC Senior Theses. Paper 632.
http://scholarship.claremont.edu/cmc_theses/632Empowerdex, 2006. “The Codes of Good Practice, Finding a Balance”. An Empowerdex Guide [online]. http://bee.sabinet.co.za/codes/empowerdex_summary.pdf
Deloitte Touche Tohmats, (2003). “ Financial Reporting in the Global mining industry: A srvey of twenty-one leading companies”. Deloitte Touche TohmatsHarmony Gold Mining Limited, (2012). “Harmony sustainable development report 2012”. Harmony Gold Mining Limited. www.harmony.co.za
Hofstede, G. (1980). “Cultures’ consequences: International differences of work related values”. Beverly Hills, CA: Sage.
KPMG, (2009). “The application of IFRS: Mining”. KPMG limited.
Nick Seagal, (2000). “A Perspective on the South African Mining Industry in the 21st Century”. An independent report prepared for the Chamber of Mines of South Africa by the Graduate School of Business of the University of Cape Town in association with Genesis Analytics
Parmod Chand, Chris Patel and Ronald Day, (2008). “Factors Causing Differences In The Financial Reporting Practices In Selected South Pacific Countries In The Post-Convergence Period”. Asian Academy of Management Journal, Vol. 13, No. 2, 111–129, July 2008
Publications.
WWF-World Wide Fund, (2012). Financial Provisions for Rehabilitation and Closure in South African Mining: Discussion Document on Challenges and Recommended Improvements (Summary). WWF-World Wide Fund
