Do perceived internal control activities decrease the reasonable assurance of business existence of South African SMMEs?

Abstract

In South Africa, Small, Medium and Micro Enterprises (SMMEs) are of vital importance to the national economy. The latter holds truth since these business entities add socio-economic value to South Africa through inter alia the creation of employment opportunities, the diminishing of poverty, and the distribution of wealth. Despite the positive contributions to the national economy, it was found that South African SMMEs are believed to have a failure of approximately 75% of business entities that fail after being in operation for less than four years, which are regarded to be among the worst in the world;. Previous studies suggest that this henomenon is exacerbated by the realisation of risks which stem from unmanaged economic factors and a non-conducive economic environment. Although the damage of realised risks can be reasonably mitigated through the implementation of internal control activities, prior research shows that the implemented internal control activities within South African SMMEs are customised in nature as they are regarded as inadequate and/or ineffective in their approach to mitigate risks. As such, this study places emphasis on establishing whether implemented internal control in South African SMMEs, as perceived by management, decreased the reasonable assurance surrounding the existence of these business entities, in the foreseeable future. Through survey research, primary quantitative data were collected from 119 members of management of South African SMMEs. From the results, it was concluded that the perceived internal control activities evident in these business entities do not decrease (or increase) the reasonable assurance surrounding their existence in the foreseeable future.