Teachers' experience of the implementation of values in education in schools: "Mind the gap"

C Ferreira
Department of Psychology of Education
University of South Africa
South Africa

S Schulze firstname.lastname@example.com
Department of Psychology of Education
University of South Africa
South Africa

Teachers' experience of the implementation of values in education in schools: "Mind the gap"
BEBEBCF2C562647BE93F5B35293B7354constructivismteachers' experiencevalues in education
In many societies violence, crime and intolerance have become an everyday reality.In this context teachers are responsible for facilitating values in education.The study aimed to investigate teachers' experiences of the implementation of values in education in classroom praxis.Constructivism was used as conceptual framework.Data were collected by means of interviews with 14 participants.The findings revealed that there was a gap between policy makers' intentions and teachers' perspectives.This gap related to the teachers' poor understanding of the concept 'values in education', exacerbated by a lack of reflexivity about the issue; a failure to address the influence of teacher identity on values in education; a need for suitable training; a lack of knowledge on how to address practical challenges with values in education or how to consider the hidden curriculum, and how to use different strategies effectively to facilitate values in education.Our main conclusion is that education initiatives so far have had little impact on the implementation of values in education in selected schools.Recommendations for improvement are made.

Introduction

"What transforms education, is a transformed being in the world" - Palmer (1999:1).This profound statement by Palmer (1999) hints at the importance of values and values in education.

The importance of dealing with values effectively in schools is illustrated by the fact that the current generation of youth, particularly from emerging economy countries, countries in developing democracies and countries with scarce resources and high need, has only known a society characterised by rampant change, cultural and religious diversity, dislocated families, unemployment and increasing anxiety about risk.Many schools in South Africa are depicted as sites where disrespect for the law, racial intolerance and violence proliferate.The Department of Education (DoE) has recently publicly acknowledged that violence is, indeed, a problem in South African schools based on data gleaned from a study undertaken by the Centre for Justice and Crime Prevention (Burton, 2008).It is against this background that teachers have to implement values in education.

According to Solomons (2009), it is assumed that teachers have the expertise to navigate impartially between conflicting value-orientations that may co-exist in multicultural classrooms such as in South Africa.This is in spite of the fact that different teachers may have opposing views of what constitutes values in education, which values should be given priority and for what reasons, and what learning theory is involved.Rhodes and Roux (2004) have therefore indicated that there is a lack of comprehensible directives on how to deal with values in education in the classroom.

In consideration of the above, the main research question of this investigation was: How do teachers experience the implementation of values in education in the curriculum?Accordingly, the aim of this research was to reveal the problems teachers encounter when implementing values in education in terms of National Curriculum Statement (NCS) policy (DoE, 2000).This may help to stimulate further reflection and debate on values in education.It may also facilitate further research on the issue, the importance of which has been indicated (Hofstee, 2006).

Woven into the fabric of curriculum discourses for values in education is constructivism.According to the DoE (2000), it is important that teachers understand and implement constructivist principles of teaching and learning.Therefore we selected constructivism as conceptual framework for this article even though there are also other philosophies underpinning values in education.

The term, "constructivism", is found ubiquitously in the field of education in many forms and interpretations and its advocates have a considerable number of assumptions about knowledge (Joldersma, 2011:275).However, the different pedagogies based on constructivist theory all seem to have six characteristics in common (Fox in Henze, 2009;Sremac, 2010;Vygotsky, 1978;Watts & Bentley, 1991), which are also applicable to the learning of values: • Learning, including the learning of values, is an active process.

• Knowledge and insight (e.g.knowledge of values) is constructed and not inborn or passively absorbed.• Knowledge is formulated, rather than discovered.• Although knowledge is individual and particular, it is also socially constructed.

• Learning is essentially a process of trying to understand the world.

• Effective learning requires meaningful, open ended, challenging problems to solve.Against the above background, a literature review is presented in the next section.

Literature review: Values in education

Discourse on values in education in the curriculum is firmly grounded on the Constitution of South Africa and the Bill of Rights that provide the rationale for curriculum transformation that mirror the ideals of a democracy.Initiatives of the DoE that have influenced various debates on values in education include the Report of the Working Group on Values in Education (DoE, 2000).This initiative was the starting point towards identifying the values that would ultimately be included in the curriculum.The report of this working group culminated in a second initiative known as the Saamtrek Conference on Values, Education and Democracy in the 21st Century.This conference resulted in The Manifesto on Values, Education and Democracy (DoE, 2001), that was endorsed by the NCS and served as an example of a set of human rights values (HRVs) which had been constructed socially as a means of supporting texts in a specific educational setting.

Although it was not clear why certain values were adopted and not others, the Manifesto prescribed 10 HRVs for inclusion in the curriculum which would address social ills such as intolerance, violence and crime.These values were democracy, social justice and equity, equality, non-racism and non-sexism, "ubuntu" (human dignity), an open society, accountability, the rule of law, respect and reconciliation.The Manifesto also provided teachers with 16 strategies to facilitate HRVs.These strategies were dealt with in the Life Orientation (LO) component.However, HRVs needed to be integrated across the curriculum (DoE, 2002) Several documents and research reports further emanated from initiatives from the DoE that support the inclusion of HRVs in the curriculum.For example, the Human Rights Education in Diverse Religious and Cultural Contexts (HREiD) (2013), which was established in 2004, consists of a research group that promotes human rights in education as praxis.However, as Keet and Carrim (2006) asserted, the mandate to infuse the curriculum with HRVs was far from clear.They indicated that the integration of HRVs into curricula should be directed by structured processes, should be configured and reconfigured to suit different needs in contexts and should allow for a multitude of ways of infusion.

This confirms that values do not exist in a void and are therefore open to many interpretations (Du Preez, 2008;Morrison, 2000).HRVs can be viewed as cultural values if they are applied in a particular context (Du Preez & Roux, 2010;Morrison, 2000).HRVs may also be described as universal, communal values grounded in the principles underpinned by the declaration of human rights in the South African Bill of Rights (1996) (Du Preez, 2007).Thus HRVs in curricula can include various identities and respect religious and social distinctions (Morrison, 2000).In consideration of the aforementioned, we will refer mainly to the umbrella-term, values in education, also taking cognisance of the various perspectives and terminologies that form part of the values in education narrative in South Africa.

When implementing values in education, teachers need to understand constructivist notions of teaching and learning, as mentioned.As Terwel (1999:198) asserted, "constructivism is not a robust concept: it seems to flourish under relatively ideal educational circumstances".This issue could impact on the implementation of values in education.Thus, the aim of the research was to investigate how teachers experience the implementation of values in education in terms of curriculum policy.To this end, the following sections explain the research design, findings, and conclusions.

Research design

The research was qualitative in nature as the study aimed at gaining an in-depth under-standing of how teachers experienced values in education in school.We therefore identified phenomenology as an appropriate research design for the study (Higgs & Smith, 2006).

Sampling decisions were carefully made.Purposive and maximum variation sampling (McMillan & Schumacher, 2010) ensured that key role players from a variety of schools and contexts were involved.The reason for deciding on maximum variation sampling was because we expected that teachers from diverse geographical areas would have different perspectives on values in education.The participants therefore ranged from private and ex-model C schools in urban areas to poor, rural schools.(Ex-model C schools serve privileged students from the immediate school environment.Since affordability was a key issue, the schools were mainly attended by middle class to affluent, white students.)One private school and two ex-model C schools were located in urban areas, a township school was also in an urban area, and three schools were in rural areas.Thus, seven schools were involved.In all instances the schools were chosen for their geographical location and for their willingness to participate.

As noted, at each site, we selected the key role players for the study.This implied asking each school to identify their most knowledgeable or experienced person in values in education, who would be available for an interview and willing to participate.At the schools, this was generally the LO teacher or a manager that was also directly involved in the teaching of LO.In some instances the manager was the head of the relevant department.In another instance, the principal of the township school acted as LO teacher because of her special interest in the field that related to her original training.LO is also often allocated to any teacher or manager to teach when there are not enough "specialists" to do so.This was the case in a rural school where the principal also acted as the LO teacher.District officials or academics who had specialised in this field were also viewed as key role players and therefore suitable as participants.In this way, the interviewees included eight managers, three LO teachers, a district officer in charge of values in education, and two academics who trained teachers in LO.

A pilot study was conducted with a principal at a rural school which was very similar to the rural schools in this study.The study consisted of an informal interview with the principal to gain insight into the potential shape of the study.The pilot study revealed that semi-structured interviews and field notes would be suitable for data collection.

In terms of the data analysis, a bottom-up strategy was adopted by segmenting the data into meaningful analytical units.The significant segments of data were identified by means of categories and sub-categories that pertained to the aims of the study (Johnson & Christensen, 2000).

Ethical measures undertaken included informed consent to clarify the purposes, methods and benefits of the research to participants (Wassenaar, 2006).Permission to tape interviews was also sought.Interviewees were also assured of anonymity and confidentiality.

We used Lincoln and Guba's model of trustworthiness for ensuring that the findings were true for the particular participants and school contexts where the study was undertaken (De Vos, 2005).Thus, we used the following techniques (McMillan & Schumacher, 2010): a lengthy data collection period that allowed for preliminary data analysis and comparison; multi-method strategies that included field notes and interviews; interviews that were phrased in the participant's language; two researchers attended to the interpretation of the data, although all the interviews were conducted by one researcher only to enhance the trustworthiness of the findings; and the use of a tape recorder to provide complete records of interviews.

The next section reveals the range of problems teachers encountered with the implementation of values in education.For ease of reference codes will be used to indicate who the participants were: Te (teacher); Ma (manager); Ac (academic); F (female); M (male); Ur (urban, ex-model C school); P (private school); R (rural school); T(township school).

Findings and discussion

Lack of in-depth reflexivity about values in education

The participants did not understand what values were.This was in spite of the fact that, as professionals, they were involved with values in education, in addition to living with and according to values everyday, even if they did not do so consciously.This was revealed by the fact that, when they were asked about the value(s) that received the most attention in their schools, they were uncertain.This appeared to be the case even after some probing.These were some of the comments:

Values…uhm…can you say that again?Mmm…what can I say now…can you come back to that question?(Ma, M, P) Nothing comes to mind right now, no, okay, the first thing that comes to mind is respect (Ma, F, R); and Uhm…I suppose if we do not know solid values there will be confusion and despair (Te, F, T).After some probing about what the teacher meant by solid values, she responded: "Well respect, I suppose...respect, is a solid value.But respect can be different...I mean from one culture to another."This confirmed Solomons and Fataar's (2010:225) statement that the term "values" was a fluid concept which left room for speculation and which could be influenced by teachers' own cultural and religious backgrounds.Thus, teachers could get disconnected from that which should be known in the curriculum or "the subject-matter field" (Terwel, 1999:195).Reflection should rather lead to a universalist perspective that enables the formulation of a set of values applying to all cultures (Evanoff, 2004).

A core value which all the participants highlighted was discipline: As a principal remarked:

"One of the very first values to teach is discipline.Once you have discipline everything falls into place" (Ma, F, P).

However, with regard to discipline it should be noted that this does not constitute a value but is rather a descriptive quality that can be connected to values.It seems that the teachers' conceptualisation of discipline as a core value arose through prior conception of the importance of its role in an educational setting.It also appears that some teachers believe discipline can only be maintained through the elevation of cultural values (particularistic).It was thus evident that the teachers' views on discipline were constructed on the basis of constraining influences.We agree with Du Preez and Roux's (2010) claim that maintaining positive discipline in classrooms necessitates a firm value base that is understood and constructed by all through a process of dialogue that transcends comfort zones.This requires a constructivist approach.

In particular, a lack of clarity pertained to the HRVs enshrined in the Constitution of the Republic of South Africa (1996) and in the curriculum.When referring to the HRVs, the responses indicated confusion.One principal from a township school blamed the education initiatives for the "chaotic" way in which values were dealt with.According to her:

Curriculum planners must go back to the drawing board… [HRVs] are not stated in the NCS, we need training, there is a lot of confusion…in the end the learners are suffering (Ma, F, R).One can deduce from these comments that either this principal did not read the policy documents or simply did not understand them.

Another LO teacher (Te / F / T) commented that values had always been part of the curriculum although they were now called HRVs, that it was a sensitive matter and a very contentious issue.According to her, teachers needed more openness and discussions for support.

It is clear from the above that it was not sufficient merely to affirm HRVs in the curricula but that it was imperative that they be debated regarding their practical implications.This is in line with Von Glaserfeld's view (Joldersma, 2011) that learning is a conceptual activity and should be open to reflection and conversation.From a constructivist perspective, there should be active meaning making within the wider context of values in education or as Evanoff (2004:439) argues, "a dialogical process in which the participants attempt to critique existing norms and values and arrive at a more adequate set of norms and values which are capable of resolving the specific problems they face".This underpins relevant features of strong constructivism.

Lack of clarity on key values: the influence of teacher identity

All the participants viewed respect as an important value that should be entrenched in all aspects of the learning and teaching situation.Examples of comments include:

Our learners must learn respect, they do not have respect for their bodies, for the teachers, for the buildings (Te, F, R); and Learners must learn to respect themselves, respect others and respect God, and show tolerance to all people (Ma, M, R).

In accordance with Du Preez and Roux's (2010:) view, the above participants tended to intuitively choose the particularist perspective rather than the universalist perspective of respect.It could be that this viewpoint posed fewer challenges for individual teachers.However, the relativity of the construct of respect has to do with various interpretations assigned to it, depending on the cultural and religious identity of the teacher.For example, the concept of ubuntu was regarded by many (black) teachers as a key value that should be developed in all classrooms.The following comment illustrates this:

"Ubuntu is the key one…we respect every person that comes to the school, so that when they join the broader community they show respect to all people" (Te, F, T).Ubuntu, in this sense, embodies the concept of mutual understanding and the active appreciation of the value of human difference.Ubuntu includes values such as love, tolerance, peace and compassion.One may deduce from the participant's response that ubuntu as a communal value represented an overarching term that subsumed almost every other value.In other words, the participant's mental construct of ubuntu was all-encompassing and implied a more viable style of experiencing and knowing.However, the interviews indicated that for participants in the public (previously model C) schools and the private schools the meaning of ubuntu was still predominately tacit.It seemed that a lack of dialogue and reflection around values in education to demystify the concept and to provide meaning to this multi-dimensionality resulted in a deficiency in constructive processes.For this reason, relevant and sustained training in accordance with constructivist learning principles is required.The issue of training is discussed next.

Lack of suitable and sustained training

Although training is an imperative aspect in addressing values in education as highlighted in the literature, discussions on how to infuse values in curriculum activities still elicited the following responses:

"How must we know all these things?It's different here in the rural schools.Our policymakers think we must think out these things by ourselves" (Ma, F, R).This highlighted the need for more suitable training, using constructivist learning principles.

However, when training was provided, some of the participants criticised a lack of knowledge and experience of the facilitators who had been appointed by the DoE to empower them for their task.When this issue was raised, a female departmental official, in charge of the training of teachers in values education, declared: Do you know how much training in values we received?One week, that's all.How can we train the teachers if we only had one week's training?Although other officials may have had different views, the general impression given by the participants was that they experienced themselves as ill-equipped to address values in education because, according to them, the training they received was not suitable and not well-sustained.

Practical challenges with the implementation of values in LO

In terms of LO the content in the curriculum addressed human rights issues directly (DoE, 2002:4).Yet, the participants indicated that, because LO is a non-examination subject, the students were not serious about it and considered LO to be "a silly subject" with no career opportunities.They therefore tended to use the LO periods to do their homework.For example, one principal said, I think LO is a very important subject, especially when it comes to values.They have, unfortunately, chosen a flyhalf, but took his boots away.With LO it is the same.They create the perception in students that it is not important, because it is not part of an external examination.I don't think they give it its rightful place in the curriculum (Ma, M, Ur).Another barrier to the successful implementation of the LO programmes was the teachers' struggle to understand how to address different and sometimes opposing values in multicultural classrooms.This is illustrated by the following comment:

"In a multicultural classroom, where the cultural background and mother tongue of the teacher and the students differ, the teaching of values, in particular, is a challenging task" (Ac, M).However, the teaching of HRVs underpinned all subjects, even those that have been traditionally regarded as having very little social focus (Du Preez, 2005).For instance, mathematical knowledge and skills were also meant to enable students to contribute responsibly to the development of society by using mathematical tools to expose inequality and assess environmental problems (DoE, 2003).All the subject documents in the curriculum contained a similar theme in that they all showed the relationship between social justice, human rights and inclusivity in terms of their content, skills, knowledge and assessments.However, this was not always highlighted.In this regard, Carrim and Keet (2005:101) adopted the notion of "infusion" which may be seen as an approach to facilitate the integration of HRVs into curricula.According to these researchers, curricula do not treat human rights education in a maximum infusion manner in all the subjects.In other words, the message is conveyed through the hidden curriculum.Dealing with human rights issues is less important in mathematics for example, than in LO.

Most of the participants agreed that dealing with values in education acrosscurricula was both problematic and a sensitive issue for many teachers.A male academic stated: "Integration…uhm…that's a tough one.No, I'm thinking about the teachers.It's senseless when you come up with ideas to integrate values and teachers are opposed to it".When I probed it was apparent that the participants had never consciously reflected on integration.This implies that curricula may not be clear on this issue.A teacher stated:

It depends on the type of teacher and the subject.Some teachers can do it, like the English teacher.It's much more difficult in science or maths.These teachers are more focused to get through the syllabus (Te, F, P).However, values may be readily transferred to other content areas.For example, all the participants agreed that the concept of 'perseverance' may be found in all subjects with cross-curricular teaching both supporting and promoting this transfer.

Although cross-curricula integration has always been one of the design principles of all the previous education models, the NCS Grade R-12 (Department of Basic Education, 2012) neglects this aspect entirely, which suggests a further fragmented, atomistic approach regarding values in education.This implies that education initiatives fail to deal with values effectively in a 'maximum infusion' manner.The practical implementation of values in education was not only problematic but also ineffective and dysfunctional.

The hidden curriculum

The messages within the hidden curriculum usually deal with attitudes, values, beliefs, and behaviour while numerous of these messages are conveyed indirectly.The following comment illustrates this:

We talk Christianity here.Fear God, love and respect yourself and one another.I say: "The neighbour is the one I am sitting with in my desk, my teacher, my staff member, the clerk, those who are cleaning".Every day I pray for God to lead me.I read to them from 1 Corinthians 2, 9-12 (Ma, F, T).It is clear that this principal held a particularist value perspective and indirectly promoted Christianity through the hidden curriculum.According to Du Preez and Roux (2010) a value system that is based on only one particular religion means that only one narrative is taken into account.That could jeopardise the realisation of the multicultural ideals of the democratic education system in South Africa.

One of the participants (Ac / F) referred to research she had undertaken in certain schools in the Cape Flats in which gangsterism, drug dealing and violence were rife.Although the principal concerned had pointed out that the school was run according to Christian values and that he was passionate about education, the hidden message that was conveyed and filtered through the school was one of fear.In other words, the values of the school were influenced by a culture of threats, fear and violence.In such sensitive cases there should be a concerted effort for ethical reflexivity to create conducive teaching and learning environments.

Uncertainty regarding strategies for dealing with values in education

The study revealed that teachers were uncertain and/or uninformed regarding strategies that could cultivate HRVs in a multi-cultural school environment.Few teachers were aware that there were 16 strategies listed in the curriculum which could be used to inculcate values.

After careful prompting, certain strategies came to light.These included storytelling, poetry, song, dance, debates, role models and even the use of Facebook.However, all the participants appeared to use these strategies almost as an afterthought, and did not seem to understand how they could be used explicitly and effectively to infuse HRVs.Without exception, there was a plea for curriculum developers to provide training on precise strategies to address HRVs in classroom practice.One rural teacher exclaimed that "anything will help", revealing a desperate need for support.A principal added, There's too little focus on teaching values from the side of the policy makers.If we knew what values to teach and activities to teach them and teachers got more training, there would be a unifying element that could have immediate results and a lasting effect but it will depend on the quality of the training (Ma, M, T).The findings indicated that the practical implementation of values in education is ineffective and revealed a gap between policy makers' intentions and teachers' understandings and practices.The effective implementation of values in education has been hampered in various ways.The teachers should understand how to construct learning environments which are appropriately contextualised, and communicate effectively showing recognition of and respect for differences in values.Moreover, teachers should act as facilitators of learning.If these skills are absent and teachers are not trained effectively, they become mere technicians of a curriculum with no critical involvement in curriculum design and implementation.This research revealed that teachers had difficulty in structuring learning environments that encourage reflexivity and provide challenging and active learning experiences.Such experiences could help both the teachers and the students to reflect on and construct their personal values.

Conclusion and recommendations

The significance of values in education is illustrated by the fact that the youth, particularly those from emerging economy countries such as South Africa, live in societies where violence, crime and racial intolerance are rife.In this context teachers, who endorse different values in accordance with their own cultural and religious identities, are responsible for values in education in classroom praxis.Thus, the study aimed to investigate how a group of teachers experienced the implementation of values in education in the curriculum.

Although the study was limited, the interview data revealed a gap between policy makers and teachers.This gap related to: the teachers' poor understanding of the concept of 'values in education', exacerbated by their apparent lack of reflexivity about the issue; a lack of active consideration of the influence of teacher identity on the implementation of values in education; a lack of suitable and sustained training; an absence of knowledge on how to address practical challenges with values in education, consider the hidden curriculum, and use different strategies effectively to facilitate values in education.Our main conclusion is that education initiatives so far have had little impact on the implementation of values in education in participating schools.Further research is needed on various issues, including how teachers' identities influence the practical implementation of values in education.

Regarding the gap between policy makers and teachers, we recommend that curri-culum planners of values in education make a concerted effort to involve teachers in curriculum development so that insight may cascade down from national to school level.Teachers should be given a sustained platform that elicits debate on how to implement values in education.Through training, teachers should learn to reflect on their own identities and values and how these influence their teaching.They should pay attention to questions relating to values.In line with constructivist learning principles, they should solve meaningful, open-ended and challenging problems.This accords with the thinking of Joflli and Watts (1995).Such training could, in turn, help teachers to support students to analyse, deconstruct and reconstruct their values, while at the same time respecting the values of others.Schools also develop and sustain values in the hidden curriculum.This fact requires more ethical reflexivity on decisions and actions on the part of managers.

The significance of this study lies in its contribution to local values in education discourses.We also located the development of values in education in South Africa within the broader processes of a global discourse since this drew together insights gained by employing tenets of constructivism in a novel way.

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INTELLECTUAL CAPITAL: MEASUREMENT, RECOGNITION AND REPORTING

Christo Johannes Cronje
School of Accounting Sciences
University of South Africa

Sindiswa Moolman
School of Accounting Sciences
University of South Africa

INTELLECTUAL CAPITAL: MEASUREMENT, RECOGNITION AND REPORTING
4CE29C78B046AFFB20AFDE6067B3D06EAccepted: September 2012intellectual capitalmeasurementrecognitionfinancial reportingcorporate annual reports
In the past few decades, the economy has moved from an industrial to a knowledge economy.Consequently, basic factors of production now no longer comprise only natural resources, capital and labour, but also intellectual capital.Despite the shift from an industrial to a knowledge economy, the accounting framework and financial reporting have not changed sufficiently to include intellectual capital.The research problem attempts to explore whether the theory of accounting should be modified for a standardised and comparable approach when accounting and reporting on intellectual capital.To solve the research problem, a literature review and content analysis on corporate annual reports were used.The results of this study indicate that the theory of accounting should be modified to ensure a standardised and comparable approach when accounting and reporting on intellectual capital in corporate annual reports.

Introduction

The business environment has seen and experienced a dramatic increase in the number of companies that hold intellectual capital in the form of knowledge, brands, competitive advantage, patents, customer relationships, human capital, research and development, and trademarks (Roslender, 2000:35).The major part of the market values of these companies lies in these intangible assets with relatively little value being associated with their tangible assets (Seetharaman, Sooria & Saravanan, 2002: 128).Research shows that there is a growing awareness that intellectual capital adds significantly to the value of a business.However, the value in these assets remains hidden, and is not disclosed in the financial records of the organisations.Intellectual capital is classified as consisting of human, structural and relational capital (Abeysekera, 2003:422).This research focuses on these three classes of intellectual capital.

The reasoning behind the non-recognition of some of the intellectual capital is that these assets do not meet the recognition and measurement criteria in respect of their classification as intangible assets (IASB, 2011:A160-A161).The Conceptual Framework for Financial Reporting (IASB, 2011:A34) further states that the reason for non-recognition of these assets is the fact that there exists a degree of risk that the information about these assets will be a less than faithful representation of what the information purports to represent.This is as a result of inherent difficulties in either identifying the transactions and/or other events to be measured, or in devising and applying measurement and presentation techniques capable of conveying a message that is in line with those transactions and/or events.However, the Framework does allow the use of reasonable estimates to determine the amount to be disclosed.In this case, measurement and presentation may be performed through the use of reasonable estimates without undermining the reliability of the information.Nevertheless, when a reasonable estimate is not possible, then the item concerned will not be recognised in the statement of financial position (IASB, 2011:A35).As a result, a significant portion of a company's assets may not be reported in the financial statements of that company.

The IASB applies very strict requirements if an item is to be recognised as an asset in the Abstract financial statements.These requirements are necessary in order to ensure that it is possible to compare the financial information of different companies and to prevent management's manipulation of this information.

The increasing importance of intellectual capital and the growing number of companies that rely on these assets to create value have created a need to inform the market, the investors and the other stakeholders of the existence of intellectual capital (OECD, 2006: 5).Both the accounting and reporting of intellectual capital are, therefore, important if the stakeholders of a company are to be allowed the opportunity to make informed investment and other decisions.

Research problem

The research problem attempts to explore whether the theory of accounting should be modified for a standardised and comparable approach when accounting and reporting on intellectual capital.To solve the research problem, a literature review and content analysis on corporate annual reports of companies listed on JSE Ltd were performed.

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Research method

The literature review

The research focuses on prior literature of which the main focus has been on the measurement, recognition and disclosure of intellectual capital in financial reporting.Different South African and international journals, dissertations and books were used for this purpose.Studies on the analysis of the different values attributed to a business by the various users of the financial statements of the business were also reviewed.

Content analysis

To complement the literature review, a content analysis on the corporate annual reports of companies listed on JSE Ltd on 12 May in terms of their market capitalisation was performed.Table 1 below provides a list of the companies researched through content analysis.The content analysis framework used in this research is based on the approach of April, Bosma and Deglon (2003:166), while the data are analysed in order to draw inferences on the way in which South African companies recognise and report on intellectual capital.The research will show how the companies investigated recognise and report the existence of the intellectual capital in their organisations.The analysis is based on the three categories or classes that have been identified by other researchers, namely human, structural and relational capital, and their performance indicators.According to Abeysekera (2003: 423), the identification of the intellectual capital that a company possesses is based on the intellectual capital attributes and performance indicators that are relevant to a specific intellectual capital category.The intellectual capital attributes of the three categories and their performance indicators reported on in the 40 corporate annual reports were analysed and illustrated.The overall reporting on the attributes of the three intellectual capital categories was further analysed and compared.Intellectual capital performance indicators that are used to measure intellectual capital, like personnel cost/revenue, intellectual property/total assets, market share and marketing cost/ revenue, were also researched and reported.Some extracts from the annual reports were reproduced in order to illustrate the nature and extent of the reporting on intellectual capital and its attributes by the companies researched.

The research also included comparisons between the three categories of intellectual capital and their attributes.Table 2 above shows the framework used in the research.

Literature review

The term 'intellectual capital' is sometimes used interchangeably with intangible assets.However, financial reporting refers only to those intangible assets that are recognised by the International Accounting Standards Board (IASB), with these assets forming part of intellectual capital.Abeysekera (2003:422) further suggests that the definition of intellectual capital refers to intangibles not recognised in the financial statements.However, part of structural capital, namely intellectual property, is recognised in financial statements as it satisfies the separability requirement of the IASB (2011:161-162).Brännström and Giuliani (2009:23) describe intellectual capital as follows:

Intellectual capital = identified intangible assets + purchased goodwill The above description of intellectual capital supports the view that intangible assets form part of intellectual capital.Thomas (1997:5) argues that human capital refers to the capacity of individuals to provide solutions for their customers, while structural capital transforms expertise into the property of the group, and customer capital allows relations with customers to be perpetuated.In the early 1990s, writers and scholars identified the growing importance of intellectual capital as a source of long-term value creation for organisations (Roslender & Fincham, 2004:179).During this time, literature on intellectual capital focused mainly on the need to report this type of capital as a separate asset in a business.This trend resulted in a debate on how best to do this in an accurate and reliable way in order to complement the financial information on strategic reporting.Other researchers, like Seetharaman et al. (2002:140) and Van der Meer-Kooistra and Zijlstra (2001:456), proposed a voluntary reporting that would support the financial reporting and assist investors in their decisionmaking.Varying views and debates emerged from different studies on intellectual capital accounting and reporting.

Accounting debate on intellectual capital

The debate on the existence of intellectual capital within a business was initially explained by means of the recognition and definition of the goodwill that is part of a business (Seetharaman, Balachandran & Saravanan, 2002:131).The IASB (2011:A941-A943, A152), however, makes a distinction between the goodwill acquired in a business combination and internally generated goodwill.

During the IASB fieldwork and round-table discussions aiming at obtaining feedback on IFRS 3 Business Combinations project (IASB, 2008:382 andIASB, 2010:A97), there were debates in favour of and those against recognising intellectual capital in the annual financial statements of organisations.The IASB project resulted in the amendments to the treatment of goodwill acquired in a business combination and internally generated goodwill.

The IASB (2011:A152) refers to the goodwill acquired in a business combination as representing a payment made by an acquirer in anticipation of future economic benefits from assets that are not capable of being individually identified and separately recognised.The value of acquired goodwill is, therefore, determined by business combination transactions, and is recognised as an intangible asset in the statement of financial position of a company.The acquirer includes in goodwill the value of an acquired intangible asset that is not identifiable as of the acquisition date.For example, an acquirer may attribute value to the existence of an assembled workforce, which is an existing collection of employees that permits the acquirer to continue to operate an acquired business from the acquisition date.Because the assembled workforce is not an identifiable asset to be recognised separately from goodwill, any value attributed to it is included in the goodwill acquired.

Internally generated goodwill, on the other hand, refers to the expenditure incurred in order to generate future economic benefits that do not result in the creation of an intangible asset (IASB, 2010: A941).Accordingly, these assets are not recognised as assets in the financial statements, thus forming part of the intellectual capital that is expensed as a periodic cost in the statement of comprehensive income.An example of internally generated goodwill is the expenditure incurred in order to service a key customer so as to gain the customer's loyalty to the company's product.The result of incurring this expenditure is the customer's loyalty that may result in future economic benefits flowing into the company.However, these future economic benefits will not result in an identifiable intangible asset, because the company will have control neither over customer loyalty gained nor over future economic benefits that may flow from this gain.In addition, the measurement of intangible assets is also problematic.

Views by researchers such as Olsen, Halliwell and Gray (2007:2), who are against reporting the value of intellectual capital in the financial statements, are based on the above facts from the IASB.Furthermore, the IASB states that intellectual capital does not meet the definition of an asset and the recognition criteria thereof.As part of the recognition criteria, the cost of an item to be recognised should be reliably measured (IASB, 2011:A847).Therefore, measurement is fundamental to the IASB asset recognition rule.

The debate in favour of recognising intellectual capital in financial statements is based on the fact that the value of intellectual capital remains unreported to the users of company information (Rodov & Leliaert, 2002: 323).The non-recognition of these assets in the financial statements therefore creates a gap between reported accounting and capital market values.

According to Swart (2006:137), unlike other assets, the value of internally generated goodwill is created over a period through a series of activities and it is not possible to link this value to a specific transaction.Intellectual capital therefore forms part of this internally generated value of the business, and therefore should be reported to capital providers and users of information.It emerged from the literature review that the argument in favour of recognising intellectual assets in financial reporting involves recognising that the true value of a company may be assessed only by taking intellectual capital into account (Marr, Schiuma & Neely, 2004:553).It has also become clear from the above debate that there is both a need and a drive to establish new measures and ways in which to report on intellectual capital, in order to complement the financial reporting.Kukec (2007:28) refers to this kind of reporting as broad-based business reporting.Broad-based reporting provides investors and other stakeholders with both mandatory and contextual information and assists them to make informed decisions.

Measurement of intellectual capital

Intellectual capital assets are strategic resources that should be properly managed in order to derive maximum benefits from them.Effective management of these assets helps in their recognition, measurement and reporting (Holmen, 2005:2).Measuring the benefits gained from possessing intellectual capital and the value of these assets has both internal and external purposes.In terms of internal purposes, a company would measure intellectual capital in order to manage its resources more effectively, and will, thereby, minimise costs.On the other hand, measuring intellectual capital for external purposes would require verifiable information that signals the expected growth of the company to existing and potential investors, and to other external users of the information (Hunter, Webster & Wyatt, 2005:3).The process of measuring intellectual capital for both internal and external purposes involves using financial and non-financial measurement methods.

Financial measurement models for intellectual capital

The existing financial measures used to assess the market value of an asset address the financial contribution made through intellectual capital.Researchers have identified a number of financial measures that include, inter alia, the discounted cash flow technique (DCF), relief-from-royalty, comparable transactions, avoided cost, adjusted present value, economic value added, value chain scoreboard, market-to-book ratio, and the capital asset pricing model.These financial techniques are used to measure the market value of a company for different purposes, and involve assigning a value to a company although the resultant value is not disclosed in the financial statements (Olsen, Halliwell & Gray 2007:2).The value determined using some of the above models involves some degree of subjectivity, as some of these models involve the application of estimates such as cost of capital and rate of royalty.Therefore, these models are unsuitable for use to determine a value to be disclosed in the annual financial statements.The IASB encourages objectivity, as well as reliable and verifiable measurement in order to promote comparability across companies (IASB, 2009:9-16).Nevertheless, resultant values may be reported in the contextual disclosures of the corporate annual reports to communicate the unreported value of the organisation.

Non-financial measurement models for intellectual capital

In view of the difficulties in finding financial measures suitable for measuring the value of intellectual capital, researchers like Robert Kaplan and David Norton, as well as Leif Edvinsson (Starovic, CIMA & Marr, 2005:8-11), developed non-financial measures such as the balanced score card and Skandia navigator in order to balance the need to report on these assets and the challenges involved in measuring them.Accordingly, the information obtained using these non-financial measures complements the information disclosed in the financial statements.Some of these non-financial measurements relate to measuring the different categories of intellectual capital, thereby making it easy to report the value pertaining to each category.

The measures developed include the balanced score card, Skandia navigator, value chain scorecard, and human capital accounting.Effective non-financial measures of intellectual capital will complement financial measures, provide both a feedback mechanism for actions and the information to develop new strategies, assist in weighing different courses of action, and enhance the management of the organisation (Holmen, 2005:2).Non-financial measures of intellectual capital provide information that will assist potential investors and other stakeholders as well as other users of the information, to make informed financial decisions relating to the company.

Recognition of intellectual capital

The cost of an item is recognised and disclosed in the annual financial statements, either in the statement of comprehensive income or in the statement of financial position, based on the minimum requirements set by the IASB for the presentation of financial information (IASB, 2011:A46-A49).The cost of acquiring intellectual capital should, therefore, be recognised in the financial statements if the financial statements are to meet these requirements.

Recognition of intellectual capital in

the statement of financial position Financial reporting operates around strict requirements that are statement of financial position biased.The process of recording a transaction in the accounting records commences with an analysis of its nature for the purposes of the statement of financial position recognition.Any item that does not meet the statement of financial position recognition requirement is immediately expensed in the statement of comprehensive income.IASB (2011:A48) notes that, in some cases, expenditure is incurred in order to generate future economic benefit, but still does not result in the creation of an intangible asset that meets the recognition criteria.Such expenditure is classified as internally generated goodwill, and is immediately expensed in the statement of comprehensive income.

Recognition of intellectual capital in the statement of comprehensive income

Cost incurred in the creation of an intellectual capital asset, but that does not result in the creation of an intangible asset as defined by the IASB, is recognised in the statement of comprehensive income.This cost is accounted for and disclosed as part of the administrative costs or as part of the operating costs of the company.Intellectual capital cost forms part of cash outflow and may be regarded as a depletion of assets (IASB, 2011:A45).In other words, costs of intellectual capital are regarded as contributing to the generation of revenue for a business, instead of adding to the value of the business.Because intellectual capital cost is expensed in the period in which it was incurred, it is difficult to trace this cost back to the book value of the company.However, the cost may, to some degree, be traced back to the value of the product or service that the company either produces or renders.Intellectual capital categories, their attributes and, sometimes, their performance indicators are used as the main account description for cost allocation, for example human resource or employee costs, research and development costs, and marketing costs.

Intellectual capital disclosure and reporting

The existence as well as the importance of intellectual capital as value drivers and strategic assets should be clearly communicated to the different users of company information.The different users of financial information have different needs and, therefore, financial reports are prepared in such a way as to satisfy these different needs.These different users include employees (including management), suppliers, customers, current and potential capital providers, government and the general public.These users may be grouped into internal and external users of information with the grouping influencing the type of information to be disclosed by an organisation (Cronjé, 2008:50).Accordingly, financial information is prepared for both internal and external reporting purposes.According to Cronjé (2008:112-116), there are two areas of disclosure in respect of company information with one being based on the information produced by the mandatory financial information system (MFIS), as required by the various statutory bodies, and the other comprising the discretionary information system (DIS).In other words, the MFIS generates mandatory information, while the DIS generates contextual information based on the information needs of the different users (Cronjé, 2008:112-116).In addition, companies disclose information that supports the strategic objectives in their corporate annual reports.As a strategic asset, intellectual capital is used by some companies as a marketing tool to promote and enhance the reputation of the company.Companies also include intellectual capital attributes and performance indicators in their internal reports in order to assist management in their decision-making role.

The scope of financial reporting is, therefore, broader than just the financial statements, and includes information about the management stewardship of an entity's resources (IASB, 2011:A27).In addition to the capital providers, financial reporting is also aimed at all users of information about an entity's business and operations.This requires, in addition to financial statements, the disclosure of other financial information.Accordingly, information on an entity's financial performance and operations is disclosed in the corporate annual reports.

In December 2010, the IASB issued IFRS Practice Statement Management Commentary to accompany financial statements prepared in accordance with IFRS.One of the proposed principles for the preparation of management commentary is a report on the way in which those resources that are not presented in the financial statements may affect the performance of an entity (IASB, 2010:8).The IFRS Practice Statement also proposes that management commentary should include information that complements the financial statements, including information on relationships with major customers, and performance measures and indicators.However, it is essential that consistency in the reporting the performance measures and indicators be maintained in order to enhance the comparability of information within the industry (IASB, 2010:9-16).The issue of the IFRS Practice Statement paves the way for companies to report information on their intellectual capital.The proposed information that should be disclosed or presented in management commentary is similar to that which would be contained in the strategy document of the company.This Statement will provide a balance between internal and external reporting.

The disclosure of information in the corporate annual reports may be either mandatory or discretionary.Mandatory disclosures are governed by statutory and rule-making bodies and legislation including the Companies Act, the IASB, and the JSE LTD.The discretionary disclosures are, inter alia, determined by the strategic objectives of the company and the needs of the different users of information.Figure 4.1 illustrates the two areas of disclosures in the annual corporate reports.Source: Stanton & Stanton (2002:479) The King III Report (IOD, 2009:103) refers to annual corporate reporting as integrated sustainability reporting and disclosure.In terms of this report, reporting should be integrated across all areas of performance reflecting strategic decisions taken by a company.One of the Code of Governance principles refers to the importance of effective communication with stakeholders.According to Bukh (2002:53), the report on intellectual capital should communicate management's understanding of the company's strategy and value creation and should not only disclose performance indicators of general interest.As a result of the challenges in respect of disclosing information on intellectual capital under statutory disclosures, discretionary disclosures should be used for this purpose.

The next section deals with the content analysis results of the 40 companies listed on the JSE Ltd on 12 May 2009 and covers the current state of intellectual capital rating and reporting for these companies.

Results of the content analysis

The results of the content analysis research show how the companies investigated recognise and report the existence of the intellectual capital in their organisations.These results are summarised in Table 3 below, and cover the number of intellectual capital attributes reported by South African companies per each category.April et al. (2003:167) (adapted) Sixteen companies made reference to human capital when referring to their employees, while eleven companies referred to human resources.The rest of the 40 companies researched reported on individual human capital attributes without referring to either human capital or to human resources.Knowledge, levels of education and qualifications, skills, talent and experience were the most frequently reported human capital attributes in most of the corporate annual reports.Workrelated competencies and expertise, innovativeness and professionalism were reported on an average level, while professionalism and experience were included under 'other attributes'.This, in turn, means that a total of twelve attributes were researched under human capital.A total of eleven structural capital attributes, three intellectual property attributes, and eight infrastructure capital attributes were reported on in the various corporate annual reports.However, there were additional attributes included in the 'other attributes' category with these being attributes that had not been included in the predetermined framework, resulting in fifteen attributes in total being researched.Technologies, license agreements and other rights, business processes and key management attributes were later included in the research.For the purpose of this study, license agreements and other rights were included under intellectual property, with the other two being included under infrastructure capital.The reason for this specific framework was to separate the intellectual assets recognised by the IASB from process assets.This was done in order to ensure comparability of the information presented.

Leadership proved to be the most reported infrastructure capital attribute, with thirty-six of the forty companies reporting on either the good or strong leadership that existed within their organisations.Information processes, network systems and financial relations were the least reported attributes.Corporate culture was the second most reported infrastructure capital attribute with some organisations referring to organisational, company or group culture.These different terms were all accepted as referring to corporate culture.A total of fourteen relational capital attributes were researched in the forty corporate annual reports.Two more attributes, namely strategic partnerships and corporate image, were added to the initial twelve attributes researched based on the information presented in some of the corporate annual reports.Brand proved to be the most reported relational capital attribute with twenty-eight companies reporting on the different brands they possessed.Market share was the second highest reported attribute with twenty-five companies reporting on the level of their market share.However, based on the framework used and the fact that market share is always reported as a percentage, market share was recorded as both an attribute and as a performance indicator.

Figure 2 below depicts the breakdown in the reporting in terms of average percentage of reporting per intellectual capital category, namely human, structural and relational capital.The analysis on the extent to which the intellectual capital categories and their attributes were reported has indicated that, on average, human capital did receive significant attention in the annual reports of the 40 companies.

Overall, the companies in the study rated human capital at 40% (321/798), structural capital at 25 per cent (197/798) and relational capital at 35% (280/798 per cent).These results are slightly different from the results of similar previous studies.Studies conducted by April et al. (2003:172-173) showed that there was more focus on relational capital than on the other two categories, with relational capital reported at 40 per cent and human capital at 30 per cent.This difference may be attributable to the fact that the framework used in this study for the intellectual capital attributes included other attributes not listed by other studies.There were more attributes included in the human capital category than in the other two categories.The framework used by April et al. (2003) was based on six human capital attributes and nine relational capital attributes, respectively, compared to the twelve and thirteen used in this study.

A greater emphasis on the reporting on human capital provides assurance to capital providers and other stakeholders that the company is in the hands of capable, highlyskilled and competent employees.Some of the companies referred to human capital and human resources when referring to their employees.The higher rate of relational capital may be attributable to the fact that most of the companies researched compete globally and, consequently, human and relational intellectual capital drivers are critical in order to give these companies a competitive advantage.Structural capital received less attention when compared to the other two, with this rate being further reduced when intellectual property assets were excluded.

The research results of this study overall indicate that the theory of accounting should be modified to ensure a standardised and comparable approach when accounting and reporting on intellectual capital in corporate annual reports.

The above conclusion is drawn as a result of the following factors:

• The nature of intellectual capital assets makes it difficult to trace the costs relating to their acquisition.Accordingly, their nature creates significant challenges in both the financial reporting and the management of these assets.Nevertheless, these challenges do not prevent companies from reporting on the existence, value and importance of these assets to both the users of financial information and other stakeholders.• It was found that those arguments that favour the recognition of intellectual capital revolve around the acknowledgement of a need to capture the nature and value of intellectual capital and other intangible assets that add value to the overall value of the business in financial reporting.The arguments against the recognition of intellectual capital are mainly from an accounting perspective, based on the IASB Framework for the Preparation and Presentation of Financial Statement, IFRSs, and IASs.However, it emerged clearly from both these sets arguments that there is a need to develop a reporting framework that will assist to strike a balance between gaining the advantages of reporting on intellectual capital and achieving the fair presentation of financial information.• It may, therefore, be concluded that measuring, recognising and disclosing information on intellectual capital is not limited by the requirements of statutory or mandatory disclosures.Financial statements fall under these disclosures but, in addition to these disclosures, there are also several disclosures that may be used to communicate information to the users that are within management's discretion.These discretionary disclosures form part of the corporate annual reports of a company and companies should, therefore, be encouraged to use these discretionary disclosures in order to communicate information on intellectual capital.• Although the cost of intellectual capital is immediately expensed and is regarded as a reduction in the asset value (cash and cash equivalents), the cost incurred in respect of these assets and their attributes contribute to the market value of the company concerned.It may also be concluded that, as a result of its flexibility and the fact that the discipline is less constrained, it is the management accounting discipline that should be used to report the value of intellectual capital using financial and nonfinancial measurement models.In addition, the discipline should also be used to report the performance of these assets and their attributes.

• The results of the content analysis showed that intellectual capital reporting still lacks prominence.When reported, intellectual capital assets are referred to in qualitative terms and in terms of their attributes.The reason for this is partly because there has been little progress made in measuring intellectual capital assets.This view is supported by the fact that, because it is not possible to measure intellectual capital assets reliably, these property assets were explicitly reported upon in the annual financial statements of those companies holding them.

Figure 1The disclosures in corporate annual reports Corporate annual report

Figure 2
2
Figure 2Average percentage of reporting per intellectual capital category

Table 1
1
The 40 largest South African JSE listed companies as at 12 May 2009
Market capitalisationRankCompanySector(ZAR billions)1British Am Tobacco PlcTobacco445.52BHP Billiton Plc.Diversified natural resources425.33Anglo American PlcMining holding and houses279.54SAB Miller PlcBeverages251.15MTN Group LtdTelecommunications206.16Sasol LtdChemicals, oil and plastics193.37Standard Bank GroupBanks, financial services12+9.38Anglo Platinum LtdPlatinum118.69AngloGold Ashanti LtdGold111.410Impala Platinum Holdings LtdPlatinum107.911Compagnie Fin RichemontLuxury goods (Jewellery etc)88.412Naspers LtdPharmaceuticals76.013FirstRand LtdBanks, financial services75.214Gold Fields LtdGold73.915Absa Group LimitedBanks, financial services66.016Telkom SA LtdTelecommunications59.417Kumba Iron Ore LtdIron59.418Old Mutual PlcInsurance, financial services49.519Nedbank Group LtdBanks, financial services42.020ArcelorMittal SA LtdSteel40.721Harmony G M Co LtdGold38.522Sanlam LtdInsurance, financial services38.2

Table 2
2
Intellectual capital attributes
Human capital attributesStructural capital attributesRelational capital attributes-KnowledgeIntellectual property-Brands-Education-Patents-Customer list-Level of qualifications-Copyrights-Customer loyalty-Skills-Trademarks-Business collaborations-Talent-License agreements-Market share-Work-related competencies-Other business rights-Supply chain-Work-related expertise -Innovativeness -Proactiveness -Entrepreneurial spirit -Other attributes o Professionalism o ExperienceInfrastructure assets -Management philosophy -Corporate culture -Management processes -Information processes -Network systems -Research and development -Leadership -Financial relations-Distribution channels -Reputation -Stakeholder relations -Communication and information -Mergers and acquisitions -Joint ventures -Other attributes o Strategic partnerships o Corporate image-Other attributeso Technologieso Business processeso Key management attributesSource: April et al. (2003:168) (adapted)

Table 3
3
Number of attributes reported per intellectual capital category
HumancapitalStructural capitalRelational capital

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