Abstract
M.Comm. (International Accounting)
A historical review of the regulation of financial reporting and the implementation of legislation indicates that changes to regulation governing financial reporting have generally been revised in response to an economic failure. The history of regulation can be traced back to the beginning of the nineteenth century, and regulators continue to strive towards an efficient and effective system of regulation of financial reporting.
One component of regulation comprises the stakeholders who favour regulation that provides them with maximum protection in ensuring the transparent reporting of accurate and reliable financial information on a timely basis. Another component of regulation consists of those who favour regulation that results in minimal costs being incurred in the preparation and publication of financial reporting.
Financial regulation as we know it today has been influenced by significant historic events that have taken place over the last decade. This study analyses the changes to legislation governing the financial reporting in South Africa that have been affected. The legislation analysed includes the Companies Act, No. 71 of 2008 (new Companies Act), the listing requirements, and the King Code and Report of Governance in South Africa (King III). As the primary objective, this study evaluates the legislation with the view to concluding whether or not the affected changes result in more effective regulation, in protecting the interest of stakeholders, with minimal costs being imposed on the reporting companies.
Previous regulation research indicates that two regulation theories have been developed, namely the pro-regulation perspective and the free market perspective. The research on the regulation of financial reporting suggests that regulators are yet to reach a consensus on which perspective to adopt in the establishment of a system of regulation with respect to the regulation of financial reporting. This study provides a thorough review of the literature on financial regulation and the various theories developed over the years in reaching the secondary objective of the studying which is to reach a conclusion on whether or not the South African regulators are adopting the pro-regulation perspective or the free market approach in the establishment of a system of financial regulation. This study finds firstly that although some inefficiencies still exist in the in the legislation governing the regulation of financial reporting in South Africa, the legislation is still considered to be effective in achieving the objective of financial reporting. Secondly, this study finds that a mixture of the pro-regulation and free market approach is being applied by regulators in amendments affected to the related legislation.