Accounting research is alive and well at the University of Pretoria (UP) and, most importantly, is making a positive impact on society, not only in South Africa but all the way to Washington.

These were among the ideas expressed by Professor Elmar Venter, head of UP’s Department of Accounting, during his inaugural address on 20 August. An inaugural address is a formal event for newly appointed professors or those who have been promoted to full professor.

Prof Venter’s wide-ranging address, titled ‘The role of accounting research in standard setting and policy’, went all the way back to the origins of double-entry bookkeeping – which medieval Italian merchants invented in the 12th century and the Dutch popularised for state administration in the 1700s.

Pausing there, he recalled how accounting and accountability had kept 17^th-century Holland’s head above water.

“With approximately 30% of Holland below sea level, Holland would be lost if the dikes broke and the water came in. Therefore, good municipal management became a matter of life and death, which provides one reason why the Dutch took accounting and accountability seriously,” he said. “If funds and public works were mismanaged, water would swallow regions and many would die.”

Moving on to the 21st century, he said “as long as accountability is needed, accounting will continue to be a cornerstone of civil society”, adding that accounting is constantly evolving to respond to societal needs.

UP research attracts international attention

“The 2024 Global Risk Report of the World Economic Forum suggests that useful information and accountability will be required on environmental, technological and societal issues,” Prof Venter said. “Accountants have already responded to this need through sustainability reporting standards, which require disclosure on sustainability risks and opportunities relevant to capital providers’ resource allocation decisions.”

However, research has shown that investors attach lower valuation rates to economically equivalent disclosed amounts than recognised amounts. “In addition, disclosure lacks the rigour of the double-entry system,” he said. Even though the International Integrated Reporting Framework (IIRC Framework) already recognises six forms of capital, sustainability reporting might remain a secondary consideration to recognised financial performance unless all forms of capital are recognised in a form to which double-entry accounting can be applied.

Accounting researchers, including Prof Venter and his PhD students, have been applying their minds to the issue of how to enhance integrated and sustainability reporting standards.

Some of this work has caught the attention of the world’s most prominent capital market regulators and standard-setting bodies, such as the International Accounting Standards Board (IASB) and the Securities and Exchange Commission (SEC) of the United States.

On 6 March 2024, the SEC adopted rules to enhance and standardise climate-related disclosures by public companies and in public offerings. Among the sources the SEC cited was an unpublished paper on the relationship between integrated report quality, stock price synchronisation and companies’ proprietary costs, which Prof Venter had co-authored with four international accounting scholars.

The work for this paper commenced in 2017 and is currently under third-round review at an academic journal. Such long-time lags are not unusual in the accounting field. “I will admit that some projects require more perseverance than others,” Prof Venter said.

Similarly, in a paper prepared for the IASB Board to make decisions on its Primary Financial Statements project, IASB staff cited another UP study. That was in January 2021, approximately seven years after the study had been published. “Ultimately, the project resulted in the 2024 release of International Financial Reporting Standards 18 (IFRS 18), ‘Presentation and Disclosure in Financial Statements’.”

What future accountants need to know

He emphasised how important it is for accounting students to grasp the societal context of the accounting profession.

“I like to ask accounting students about the role of accounting in society, and why they want to become accountants. I am often met with blank stares, or with motivations that concern me. If future accountants do not have a solid understanding of the purpose of accounting in society, and values and work ethics that are consistent with that purpose, we should not be surprised when yet another accounting scandal leaves investors, including pensioners, robbed of their livelihood,” he said.

“Therefore, at the Department of Accounting, we have the Accounting Matters campaign, in which we regularly remind our students and ourselves what accounting is about,” Prof Venter said. Essentially, he added, it entails using analytical, reflective, critical thinking and problem-solving skills to transform complex transactions into useful information for decision-making.

“Ultimately, good decisions contribute to a prosperous society.”