South African governance legal framework for corporate disclosures and reporting: Part 2 — Mandatory financial disclosure and reporting

• Citation: (2023) 35 SA Merc LJ 213
• DOI: https://doi.org/10.47348/SAMLJ/v35/i2a5
• Published date: 26 March 2024
• Pages: 213-231
• Author: Schoeman, W.
• Date: 26 March 2024

SOUTH AFRICAN GOVERNANCE LEGAL

FRAMEWORK FOR CORPORATE

DISCLOSURES AND REPORTING:

PART 2 — MANDATORY FINANCIAL

DISCLOSURE AND REPORTING

WERNER SCHOEMAN*

Lecturer, Mercantile and Labour Law Department, University of Limpopo

Abstract

In this second part of this article, I focus on the efficacy of the

framework for mandatory financial disclosure and reporting. In

particular, I investigate the governance of auditors within the

corporate jurisprudence. Independence of auditors remains contentious

in the light of the funding model of the regulator, functioning of audit

committees and the connection between directors and companies.

Keywords: corporate governance legal framework, directors, mandatory

financial disclosure and reporting, auditors, audit committees, Independent

Regulatory Board for Auditors, Committee for Auditor Ethics, Committee

for Auditing Standards and Investigating and Disciplinary Committees

IINTRODUCTION

Auditors thrive on selling their services as a means of testing the

effectiveness of controls, resulting in an escalating need to create

controls that can be audited.

1

Accordingly, controls are progressively

designed to answer the question whether they can be audited, and not

whether they are likely to be effective control mechanisms. The

propagation of these controls and the subsequent audit generate so

many controls that, because of their sheer quantity, it becomes

increasingly diff‌icult to establish which controls are probably effective.

2

Among other factors, fraud and corruption prompted governments to

increase compulsory performance-based rules and information

*B Comm LLB (PU for CHE) LLM (UL) LLD (UP).

1

Cunningham, ‘The appeal and limits of internal controls to f‌ight fraud, terrorism, other

ills’ (2003) Boston College Law School Public Law and Legal Theory Research Paper 18 1at3.

2

Cunningham, (2003) Boston College Law School Public Law and Legal Theory Research

Paper 18 1at3.

213 https://doi.org/10.47348/SAMLJ/v35/i2a5

(2023) 35 SA Merc LJ 213

© Juta and Company (Pty) Ltd

disclosure rules in an attempt to improve compliance with standards.

3

Accordingly, mandatory state-based standard setting evolved into a

variety of legal and regulatory standards that can be imposed to ensure

compliance with good corporate governance.

4

The only effective way for directors and auditors of a company to

discern their various functions is to uphold ethical values,

accountability, fairness, and transparency.

5

Unfortunately, the collapse

of Steinhoff International Holdings Ltd in 2018, and the collapse of

other large corporations and banks, is proof that current local and

international disclosure systems still do not offer suff‌icient (or any)

guarantees to stakeholders in the corporate realm, which highlights the

little progress made in improving current corporate disclosures and

reporting practices.

6

As illustrated in part 1 of this article,

7

four different classif‌ications of

corporate governance codes exist. The detailed corporate governance

provisions that are enacted in the law itself

8

serve as the mandatory

f‌inancial reporting regulations in South Africa. In this article, I focus on

assessing the eff‌icacy of the framework for mandatory f‌inancial

disclosure and reporting.

The intimate relationship between directors, on the one hand, and

internal and external auditors, on the other, will have a def‌inite inf‌luence

on the conduct of auditors in the exercising of their duties.

9

Auditors

prepare the f‌inancial statements of a company for presentation for the

directors to present to the shareholders as part of their corporate

disclosure and reporting responsibilities.

10

3

Sarfaty, ‘Regulating through numbers: A case study of corporate sustainability reporting’

(2013) 53(3) Virginia Journal of International Law 575 at 576.

4

Horrigan, ‘21st century corporate social responsibility trends — an emerging

comparative body of law and regulation on corporate responsibility, governance, and

sustainability’ (2007) 4 Macquarie Journal of Business Law 85 at 87.

5

Botha, ‘Evaluating the social and ethics committee: Is labour the missing link? (Part 1)’

(2016) 3 THRHR 580 at 582.

6

Schoeman, ‘Corporate governance in South Africa — more bark than bite’ (2019)

Turf‌loop Law Conference University of Limpopo 1 at 6.

7

Schoeman, ‘South African governance legal framework for corporate disclosures and

reporting: Part 1 – Voluntary sustainability reporting’ (2022) 34 SA Merc LJ 268–292.

8

Wymeersch, ‘Enforcement of corporate governance codes’ (2005) European Corporate

Governance Institute Working Paper Number 46/2005 1 at 2–3, available at http://ssrn.com/

abstract=759364, accessed on 10 April 2019.

9

PricewaterhouseCoopers Incorporated v National Potato Co-Operative Ltd 2015 JOL 32954

(SCA) para 63.

10

Sections 29 and 30 of the Companies Act 71 of 2008.

https://doi.org/10.47348/SAMLJ/v35/i2a5

(2023) 35 SA MERC LJ

214

© Juta and Company (Pty) Ltd