Firms In South Africa Research Articles

Do corporate attributes impact integrated reporting quality? An empirical evidence

PurposeThis study aims to examine the impact of corporate attributes on integrated reporting quality of top 100 listed firms in South Africa.Design/methodology/approachWith a sample of the top 100 listed firms in South Africa, this paper drew insights from the legitimacy and stakeholder theory to examine the impact of corporate attributes on integrated reporting quality. This paper measured integrated reporting quality based on the International Integrated Reporting Council framework of 2013. Corporate attributes were determined taking into consideration three broad perspectives (board committee attributes, firm attributes and audit committee attributes). This paper analyzed the data using content analysis, ordered probit regression and logistic regression method.FindingsResults indicate that board committee attributes, firm attributes and audit committee attributes have a positive and significant relationship with integrated reporting quality. Additional analysis reveals that external assurance contributes to the quality of integrated reporting. The findings empirically revealed that most South African firms have intensified efforts toward the quality and full disclosure of integrated reporting framework.Research limitations/implicationsThe study was limited to a sample size of 100 firms, which is country-specific, however, it sets the tone for future empirical research on the subject matter. This study provides an avenue for future research in the area of corporate attributes and integrated reporting quality in other emerging countries, especially other African countries.Practical implicationsThe result of this study provides practical implications in the areas of good corporate governance, corporate reporting and integrated reporting. The empirical approach used in this study emphasizes the need for corporate organizations to introduce integrated reporting practices into their reporting cycle. The finding implies that non-compliance with integrated reporting by corporate organizations may have an adverse effect on corporate growth, corporate sustainability and corporate reputation in the long run.Originality/valueThe work extends prior research on the subject of integrated reporting in South Africa. Also, this study broadens the application of legitimacy and stakeholder theory in influencing corporate organizations to disclose relevant information that could aids stakeholders’ interest.

Cleaner production, environmental and economic sustainability of production firms in South Africa

Cleaner production (CP) has been confirmed to enhance efficiency in various industries; however, it has not yet been well developed and tested within the sugar production process. Consequently, this study investigated the impact of CP on environmental and financial performance from the perspective of the South African sugar industry. A self-administered questionnaire was used to collect data from 323 respondents. The questions were based on a Likert scale structure. ISO 14001 guided the development of the CP questions. The structural equation model was adopted to analyse the data. The evidence demonstrated that CP has a positive and significant relationship with both the environmental and economic performance of sugar production firms. This suggests that CP has led to better environmental and financial performance in the sugar industry in South Africa. This result is reasonable because these performance elements were the basis of providing sustainable CP. The result is also consistent with the innovation theory, which hypothesises that CP can reduce production waste, which can improve the environmental and financial performance of firms. This result implies that further successful implementation of CP would continue to influence sugar production firms’ performance positively. Therefore, the National Cleaner Production Centre of South Africa must intensify its activities to improve the adoption of CP and change its strategic direction for manufacturing organisations to achieve environmental sustainability and CP. The study is the first of its kind in sub-Saharan Africa, and it may assist and guide policymakers and researchers by providing new information and insights on the environmental and financial effects associated with CP in the sugar industry.

Access to Finance and Performance of Small Firms in South Africa: the Moderating Effect of Financial Literacy

The failure rate of small medium and micro enterprises (SMMEs) is very high in SouthAfrica. One of the challenges faced by SMMEs is inaccessibility to external finance. There is ageneral low level of financial literacy amongst small business owners in South Africa leading to illinformed financial decisions. Financial literacy is an important knowledge resource for financialdecision-making but little research has focused on how financial literacy affects the performance ofSMMEs. The aim of the study was to examine if financial literacy moderates the relationship betweenaccess to finance and performance of SMMEs in South Africa. The cross-sectional survey methodwas used for data collection in a quantitative study. Descriptive statistics, Pearson correlation andhierarchical regression were used for data analysis. The Cronbach’s alpha was used as a measure ofreliability. The findings indicated that the relationship between access to finance and financial literacyis significant. The findings also showed that financial literacy moderates the relationship betweenaccess to finance and performance of SMMEs. Empirically, the study added to the body of literatureon financial literacy, access to finance and performance of SMMEs. Practically, recommendations toimprove the financial literacy of SMMEs are suggested.

Integrated Report Quality: Share Price Informativeness and Proprietary Costs

Our study addresses whether integrated report quality, IRQ, is positively associated with greater price informativeness and the extent to which the greater price informativeness is diminished when firms have higher proprietary costs of disclosure. In integrated reports, firms integrate financial and non-financial information to explain how it uses financial, manufactured, intellectual, human, social and relationship, and natural capitals to create value. Financial statements and sustainability information are key to integrated reports. Based on firms in South Africa, which mandates integrated reporting, we find IRQ is significantly negatively related to synchronicity, and, thus, positively related to price informativeness. This finding indicates higher quality integrated reports enable investors to make more informed decisions and, thus, allocate capital more efficiently. All twelve IRQ components are negatively associated with synchronicity, eleven significantly so. Thus, most dimensions of IRQ, and integration of financial and non-financial information, including sustainability information, contribute to greater price informativeness. Synchronicity and IRQ are significantly less negatively related for firms with higher proprietary costs, particularly costs associated with growth opportunities and intangible assets. For firms with these costs, IRQ is insignificantly associated with synchronicity. Our study informs the rapidly changing standard-setting landscape for integrated financial and non-financial information, particularly sustainability information.

Understanding regional value chains through the interaction of public and private governance: Insights from Southern Africa’s apparel sector

Regional value chains (RVCs) and South–South trade are increasingly considered key features of 21st-century globalisation. This article investigates how RVCs are shaped by the interaction of private and public governance. It evaluates how this interaction unfolded in Southern Africa’s apparel RVCs, exploring trade, investment and labour regimes across three levels of analysis: national, regional, and global. The paper draws on trade data, secondary literature, and interviews with suppliers and institutions in Eswatini and Lesotho (the largest exporters to the region), and lead firms in South Africa (the largest regional importer). The findings underline the critical role of public governance in shaping retailers’ and suppliers’ participation in RVCs through: (i) regional ‘trade regimes’ protecting regional exporters from global competitors, and recent shifts in global trade regimes; (ii) national and regional ‘investment regimes’ facilitating investment flows from South Africa to Lesotho and Eswatini, and the more recent shift of US-oriented suppliers towards regional markets; and (iii) ‘labour regimes’, including lower wages, less comprehensive labour legislation and weaker trade unions in Lesotho and Eswatini compared to South Africa. The article concludes by considering the policy implications of the interaction of private and public governance for existing and future RVCs in Sub-Saharan Africa.

Headquarters site selection preferences: occupiers’ perspectives

PurposeThere are multitudes of sites and buildings offering various services to their occupiers. Studies highlight that companies choose sites and buildings that enable business’ growth and competition. The purpose of this paper is to explore occupiers’ perspectives on headquarters (HQs) site selection preferences with reference to the public listed firms in South Africa’s eight metropolitan municipalities.Design/methodology/approachA literature review was conducted to understand site selection preferences in other countries to inform the current study. Empirical data were collected using a sequential mixed-method approach using interviews and a survey. Semi-structured interviews were conducted first with the executives/management and also personnel who are involved in site selection decisions. Purposive sampling technique was used to select one company per industry to be interviewed. The information gathered from interviews informed the survey that was distributed online using Qualtrics software to all public listed firms located within the eight metropolitan municipalities in South Africa. Thematic analysis was used for analysing the interviews, whereas self-explicated conjoint model was used for the survey.FindingsThe results reveal that HQs as occupants of space prefer facilities that have good security and security systems, backup generators, air conditioning, parking facilities, energy management, access to the internet, efficient water supply, quality meeting places, cleaning services, the condition of the premises and disabled-friendly facilities. In addition to these preferences, HQs also prefer sites that are accessible. From this study, aspects that are unique to South Africa’s case are around security and security systems. The higher the crime levels, the higher is the demand on HQs to provide security and security systems for not only for their premises but also their employees. The current water and energy outages are also affecting HQs resulting in companies preferring facilities with an efficient water supply and having backup generators.Research limitations/implicationsThe research only focussed on public listed firms located within the eight metropolitan municipalities. The findings may/may not apply to the HQs of non-listed firms and also to those situated outside the metropolitan municipalities. Owing to this, the results cannot be generalised. Further studies are needed to explore preference by industry with larger sample size.Practical implicationsThis study provides insights on HQs site selection preference levels from the context of South Africa as a developing country. The insights would be useful to companies within the South African context to better understand their contextual dynamics and for companies seeking to do business in developing countries. Apart from companies, this study would also be beneficial to policymakers in creating enabling policies for companies, property developers to build facilities that embrace aspects preferred by occupants and investors to understand the preferences of HQs in the selection of sites for their operation.Originality/valueIn a developing country such as South Africa, there are limited studies on HQs site selection preferences; therefore, this study is one of the few studies bridging the knowledge gap. This study adopts a marketing approach to understand corporate real estate phenomenon.

Inclusive growth and wage inequality: The case of South African manufacturing exporters

Background: Exporting poses a challenge to the achievement of inclusive growth because there is a discernible wage inequality between exporting and non-exporting firms. The literature shows that exporting firms pay a wage premium relative to non-exporting firms, with the resultant wage gaps having widened over the years in line with expanding global trade. Aim: Limited research has been done on the distribution of wages within manufacturing exporting firms relative to non-exporting firms in South Africa and how wage differentials might contribute to wage inequality. This article disentangles these wage differentials using administrative firm-level panel data. Setting: Exporting and non-exporting firms in the South African manufacturing sector. Methods: By determining the wage differential in a firm at various percentiles, it is found that all employees (across the wage distribution) in an exporting firm earned a wage premium. This premium seemed to increase in magnitude towards the upper tail of the distribution, indicating that the wage differential did contribute to wage inequality. Results: Much of the wage inequality could be explained by the size and labour productivity of a firm. This implies that larger, more productive firms are more likely to be exporters, whereas there was little evidence that wage inequality is driven by either the type of destination country or the quality of export products. Conclusion: The findings suggest that the resultant wage inequality is related to the process of exporting or simply a firm being in the export market. Alternatively, wage inequality could be attributable to a specific type of firm (employing a specific type of person with sought-after skills) that had this (unequal) wage distribution before it started to export.

The link between environmental, social and corporate governance disclosure and the cost of capital in South Africa

Orientation: Ignoring environmental, social and corporate governance (ESG) aspects exposes firms to risks that diminish value, shrink returns and even lead to failure. Firms considering ESG aspects are perceived as less risky by capital providers. Such capital suppliers accept lower returns and lending rates when providing capital to firms with superior ESG practices and disclosure. Research purpose: To investigate the link between ESG disclosure and the cost of capital. Motivation for the study: Although there has been a growing interest in responsible corporate practices in emerging markets, limited research on ESG has been conducted in South Africa. Research approach/design and method: A positivistic paradigm was employed. A sample of 68 firms from six Johannesburg Stock Exchange sectors over the period 2011–2018 (478 firm-year observations) was examined using panel regression analyses. Main findings: A significant negative relationship was observed between composite ESG disclosure scores and weighted average cost of capital (WACC) for both consumer goods and consumer services sectors. In addition, a significant positive regression coefficient was obtained between composite ESG disclosure scores and WACC for firms from the industrials sector. Practical/managerial implications: A growing number of capital providers consider a firm’s ESG practices and disclosures which could offer a firm the opportunity to raise additional sources of capital. Contribution/value-add: Local firms that had improved ESG disclosure seemed to benefit from a lower overall WACC and cost of debt. Equity capital providers, however, seem to perceive increased ESG disclosure as additional risk and require a higher return from such firms in South Africa.

Social media is so easy to share

ABSTRACT Although accounting students are well trained in the field of ethical behaviour, recent technological developments have created challenges in the workplace. Having focused on the concept of virtue ethics and the fundamental principles of ethical conduct imposed by professional accounting bodies, the findings of this study revealed the need to find new ways of engaging students in ethics education in the modern world. Semi-structured interviews were conducted at 22 large, medium-sized and small accounting firms in South Africa, to obtain insight into graduates’ understanding of the concepts of professional and ethical conduct in the workplace. The findings suggest, inter alia, that graduates often fail to realise that there is a fine line between sharing personal and workplace information on social media. Proposed here are practical considerations for academia, professional bodies and employers, towards managing professional and ethical conduct associated with the use of social media in the ever-changing work environments.

Mandatory integrated reporting disclosure and corporate misreporting

PurposeThis paper aims to enrich our understanding of whether mandatory IR adoption lures firm into misreporting or forces them to reduce it.Design/methodology/approachThe empirical analysis is carried out based on the sample containing all publicly listed firms in South Africa. Many different rigorous econometric techniques are adopted to thoroughly evaluate whether corporate misreporting practices increase or decrease following the mandatory adoption of IR.FindingsThe empirical results reveal that mandatory IR disclosure results in a decline in the misreporting practices of firms. The authors further find that as firms increasingly comply with the IR guidelines, especially with the “Content Elements” and “Guiding Principles,” their misreporting levels decrease.Research limitations/implicationsThis study has implications for a wide range of stakeholders, especially for regulatory authorities, international policymakers and regulators, as well as users of integrated reports of listed firms on the Johannesburg Stock Exchange (JSE).Practical implicationsRegulatory authorities should be aware of misreporting determinants to set adequate and fitting corporate reporting standards that restrict the opportunistic behaviour of managers and amend IR guidelines to make them more comprehensible for integrated report preparers, therefore improves the implementation of IR.Social implicationsThis study sheds light on the current state and consequences of IR adoption in South Africa before and after the mandatory IR disclosure requirement, thus, international policymakers and regulators can refer to the critical aspects in our findings when considering whether to support IR mandatory adoption in their markets.Originality/valueThis paper sheds light on the emerging debate over the usefulness of IR and the necessity of mandatorily adopting this new reporting framework. In addition, by showing that the mandatory adoption of IR significantly reduces corporate misreporting practices, we also contribute to the literature on corporate misreporting behaviour.

Emerging market currency risk exposure: evidence from South Africa

PurposeThe purpose of this paper is to examine the level of foreign exchange exposure of listed nonfinancial firms in South Africa. The study spans the period January 2002 and November 2015. Foreign exchange risk exposure is estimated in relation to the exchange rate of the South African Rand relative to the US$, the Euro, the British Pound and the trade-weighted exchange rate index.Design/methodology/approachThe study is based on the augmented-market model of Jorion (1990). The Jorion (1990) is a capital asset pricing model-inspired framework which models share returns as a function of the return on the market index and changes in the exchange rate factor. The market risk factor is meant to discount the effect of macroeconomic factors on share returns, thus isolating the foreign exchange risk factor. In addition, the study further added the size, value, momentum, investment and profitability risk factors in line with the Fama–French three-factor model, Carhart four-factor model and the Fama–French five-factor model to account for the fact that equity capital markets in countries such as South Africa are known to be partially segmented.FindingsForeign exchange risk exposure levels were estimated at more than 40% for all the proxy currencies on the basis of the standard augmented market model. However, after controlling for idiosyncratic factors, through the application of the Fama–French three-factor model, the Carhart four-factor model and the Fama–French five-factor model, exposure levels were found to range between 6.5 and 12%.Research limitations/implicationsThese results indicate the importance of controlling for the effects of idiosyncratic facto0rs in the estimation of foreign exchange risk exposure in the context of emerging markets of Sub-Saharan Africa (SSA).Originality/valueThis is the first study to apply the Fama–French three-factor model, Carhart four-factor model and the Fama–French five-factor model in the estimation of foreign exchange exposure of nonfinancial firms in the context of a SSA country. These results indicate the importance of controlling for the effects of idiosyncratic factors in the estimation of foreign exchange risk exposure in the context of emerging markets.

Tax-motivated transfer mispricing in South Africa: Direct evidence using transaction data

This paper provides the first direct systematic evidence of profit shifting through transfer mispricing in a developing country. Using South African transaction-level customs data, I directly test for transfer price deviations from arm's-length pricing. I find that multinational firms in South Africa manipulate transfer prices in order to shift taxable profits to low-tax countries. The estimated tax loss relating to imported goods alone is 0.5% of corporate tax payments. My estimates do not support the common belief that transfer mispricing in South Africa is more severe than in advanced economies. I find that an OECD-recommended reform had no long-term impact on transfer mispricing but argue that the method used in this paper provides a cost-efficient way to curb transfer mispricing.

EFFECT OF DISAGGREGATED COUNTRY RISK SHOCKS ON FINANCING DECISIONS OF THE JSE LISTED FIRMS

Firms in South Africa and other developing countries are facing a rapid increase in capital cost accompanied by an increase in leverage as a result of operating in uncertain environments, which complicate firms’ financing decisions and strategies. This paper examined the impact of rising leverage levels on firm’s cost of capital and the effect of country risk shocks on cost of capital and financing decisions among JSE listed firms. A dynamic panel model estimated with twostep system generalised methods of moments (GMM) was used to analyse panel data from 198 listed non-financial firms. The results suggest that the rising debt levels of JSE listed firms are negatively associated with weighted average cost of capital and cost of debt. Cost of equity was found to be an increasing function of firm leverage. High financial risk was found to be associated with an increase in cost of capital, high political risk associated with an increase in cost of equity and weighted average cost of capital (WACC), while an increase in economic risk is associated with high WACC and cost of debt. The study establishes that disaggregated country risk shocks significantly affect firms financing decisions. Keywords: Cost of capital, Leverage, Country risk components, GMM

Procena unutrašnjih determinanti praksi ekološkog izveštavanja koje primenjuju preduzeća u regiji Podsaharske Afrike

This paper comparatively analyzes the internal determinants of environmental disclosure practices among firms in Sub-Saharan Africa (SSA). To achieve this, secondary data on the characteristics of the measures of the board and the characteristics of the audit committee were obtained from a sample of 60 companies from across the region (20 each from Kenya, Nigeria and South Africa). The regression technique was used to analyze the data and the results revealed the fact that, while the characteristics of the measures of the board and the audit committee were found to be the significant determinants of the environmental disclosure of firms in Kenya and Nigeria, the same cannot be said of firms in South Africa. The study, therefore, recommends that borrowing from South Africa, environmental management practices should be institutionalized in the entire region. Additionally, standard-setters should make practical efforts by developing new reporting standards which will guide and encourage a full disclosure of environmental concerns by firms.

Corporate Philanthropy and Firm Value in Africa: A case study of Selected Firms in South Africa

This study sought to investigate the relationship between corporate philanthropy and firm value in Africa, using firms listed on the Johannesburg Securities Exchange as the representative sample. The analysis discovered that only 25 firms had complete data over a short period of 11 years resulting in a panel of 255 firm-year observations. The study established that Corporate Donations in South Africa is moderately nascent but has been growing steadily over the last few years. With only 13 firms involved in corporate donations by the year 2008, the number is found to be ten times by the end of 2018. Using the panel ordinary least squares model, results revealed that four variables, including the corporate social responsibility index, positively influenced firm value. The study also investigated the motives for corporate philanthropy. Results indicated that the book value of a firm, sales revenue size (total assets), leverage, and corporate social responsibility reporting significantly influenced a firm’s decision to donate to charity. The findings indicate that a firm’s participation in charity is a long-term strategic commitment for financial returns to all corporate stakeholders.

Evaluation of the impact of risk management on project performance in small construction firms in South Africa

PurposeRisk management has become an integral part in businesses around the world. In the construction industry, risk management has also been introduced and has been mainly entrusted in the hands of the project team to go through a laid down risk management processes to identify possible risk events, which may occur during the project execution and the impact they may have on the project deliverables should they occur. It is, however, believed that small construction firms do not take risk management as a serious exercise even though most of the project risks are transferred to them as subcontractors. The purpose of this study was, therefore, to investigate risk management processes in the small construction companies and the impact of risk management on their project deliverables.Design/methodology/approachA case study of a single construction company was used for this study. Data were collected through structured questionnaire to 16 respondents who are involved in the project execution in the case study company. Two managing directors of the case study company were also interviewed. In total, 11 project site meetings were also attended to observe meeting proceedings and to record issues discussed. In total, 15 monthly project reports and project close-out reports were also studied. In total, One hundred and five completed projects of which 58 per cent were renovation projects, 27 per cent were new projects and 15 per cent were civil/structural works were also examined. The data were then analysed using excel analytical tool and the content analysis method.FindingsThe findings indicate that small construction companies with respect to the case study company do not have a specific laid down risk management processes that project team are made to go through before and during the execution of their projects. There is, however, no conclusive evidence regarding the impact of risk management on project performance as a significant number of projects done were able to meet a successful project performance indicators even though risk management exercises were not done. Some of the identified risk events that caused project failures are payment delays, labour related issues, subcontractor/main contractor related issues, insufficient contingency reserves/plan, etc.Research limitations/implicationsOnly one construction company was used as a case study for this research and all sources of data were related to a single company. The results may, therefore, be not generalisable.Practical implicationsThe research has discovered that projects outcome could have improved tremendously if proper risk management exercises were implemented before project execution as most of the causes of project failures could have been identified through the risk management processes. This study, hence, gives an insight as to why small construction firms like the case study company should take risk management seriously in their projects execution to improve on the performance of their projects.Originality/valueThe research has discovered that projects outcome could have improved tremendously if proper risk management exercises were implemented before project execution as most of the causes of project failures could have been identified through the risk management processes. This study, hence, gives an insight as to why small construction firms like the case study company should take risk management seriously in their projects execution to improve on the performance of their projects.

The influence of institutional isomorphism and organisational factors on environmental management accounting practices of listed Nigerian and South African firms

The rising profile of environmental issues, most of which relates to continuous consumption of materials, energy and water by companies, and the continuous accumulation of environmental-related costs, necessitates the need for environmental management accounting (EMA). EMA is regarded as an extension of the conventional management accounting, which is adopted for the purpose of tracking and treatment of costs, earnings and savings incurred in relation to companies’ environmental-related activities. This paper determines the level of EMA practices among selected Nigerian and South African firms, and the influence of institutional and organisational factors on the level of practice in each country. Utilising a quantitative research approach, the study used a structured questionnaire to obtain data from 22 listed firms from each country. The data were analysed using an independent sample t-test and a multiple regression estimation technique. Results demonstrate that the level of EMA practices in South African firms is higher than those in Nigerian firms. Institutional isomorphism, through coercive pressure, was found to be the main determinant of EMA practice among South African firms, while EMA practice among Nigerian firms is on account of individual organisational factors. The evidence from the study supports both the institutional and contingency theories as they apply to EMA practices. Therefore, the results indicate that coercive pressure may be necessary to stimulate EMA practice in Nigerian firms given that similar conditions exist in sampled firms in South Africa. Efforts to strengthen normative and mimetic forces can also improve the level of EMA practice in both countries.

Procurement strategies influencing small and medium contractor development in South Africa

In South Africa, the post-apartheid regime offers small and medium enterprise (SME) construction firms opportunities to develop through targeted procurement strategies. However, there are limited studies that determine the level of the relationships between the procurement strategies and the development of SME construction firms. Hence, this study investigated whether there is a variation in the effect of procurement strategies on the development of SME construction firms. A quantitative research approach was employed in collecting data from 176 SME construction firms in South Africa. The data collected were analysed using partial least squares structural equation modelling, mean item scores and the Kruskal–Wallis test. The findings revealed that there is a relationship between procurement strategies and the socio-economic development of specific classes of SME construction firms in South Africa. The study also found that there is a slight mismatch between procurement strategy and SME development outcomes for different SME sizes. It was concluded that the achievement of SME development has little to do with preferences or the use of specific procurement strategies. The study recommends that public-sector clients should not entirely treat SMEs as a homogenous block when using traditional project procurement. Further studies that examine how different characteristics of SMEs influence SME development are recommended.

Descriptive perspective on factors affecting the complete adoption of information technology systems in the construction firms

Information technology as a strategy to process, store and transfer information is pivotal for the success delivery of information within different industries, construction in particular. Given the benefits associated with the use information technology this study focuses on the factors that may affect construction firms from being recipients of the benefits of completely adopting information technology systems in South Africa. A quantitative approach was employed to determine factors that require urgent eradication, construction professionals responded to the questionnaire survey that was undertaken. Prior to the survey, data was descriptively analysed using frequencies, percentages, mean item scores and standard deviations. Findings from the study clearly reveal that for construction firms in South Africa to entirely realise the benefits of completely adopting IT systems focus must be shifted away from resisting change, providing inadequate training and employing personnel with no management skills. More so, results show that certainty is required regarding lack of integrity, durability and reliability of the systems, on-going maintenance costs as well as the importance and introduction of client leadership. Above any other barrier, the aspect of costs associated with the complete adoption of IT systems is crucial, while the extent of involvement of key role players needs to be further determined.

The development of management accounting skills in situations where practical exposure is limited: The perceptions of training officers in South Africa

Training office auditing firms in South Africa are required by the South African Institute of Chartered Accountants (SAICA) training regulations to provide basic exposure to trainees in management accounting. The purpose of this paper was to determine (1) the ways in which large, medium-sized and small training office auditing firms in South Africa evaluate the competency of trainee accountants in the field of management accounting, (2) to what extent alternative skills transfer methods are used and (3) the perceptions of training officers of the use of simulation as a skills transfer method. A web-based questionnaire was used.This study showed that simulated training, either in-house, outsourced or a combination of the two, is actively used by a number of training office auditing firms in South Africa in order to assess competency in the field of management accounting where practical exposure through performing actual tasks is limited. The study also revealed that training officers perceive simulation to be effective in the assessment of competency in management accounting residual skills competency areas.The research is valuable to SAICA and training office auditing firms, as it provides an overview of how skills in management accounting are transferred to trainee accountants.