Economic perspective of household net wealth

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ACCOUNTING THEORY UNDERPINNING A STATEMENT OF FINANCIAL POSITION

“Whenever a theory appears to you as the only possible one, take this as a sign that you have neither understood the theory nor the problem which it was intended to solve.” – Karl R. Popper (Brainyquote.com, 2013.)

INTRODUCTION

Chapter 1 provided an overview of the study. As explained, the South African Reserve Bank prepares a statement of financial position for the household sector, which is one of the five sectors of the economy (United Nations et al., 2009:2). This statement is based on macro-economic estimates (Aron et al., 2007). The South African Reserve Bank refers to this statement of financial position for households as the “household balance sheet”. A “balance sheet” is older terminology, but is similar to the “statement of financial position”, and in the current study the two terms are used interchangeably.
Government uses this household balance sheet in the overall net wealth management of the South African household sector. Although these estimates go a long way to ensuring that the country’s household net wealth is properly overseen, a disaggregated composition of the asset and liability base of households would assist various stakeholders to increase overall household net wealth management. At the time of the research in 2010/2011, however, there was a paucity of reliable micro-level (household level) data to disaggregate the asset and liability base of households. Addressing this shortcoming was central to the main objective of the study, namely to disaggregate and measure the asset and liability base of South African households in metropolitan and non-metropolitan residential areas using micro-level data and to present the data in statements of financial position for the two main residential areas.
This research study deals primarily with the accounting classification, recognition, measurement and presentation of South African household data. The core contribution of the study is a statement of financial position indicating the disaggregated asset and liability base of the South African household sector. The main paradigm of the study is therefore accounting and accounting theory. Neuman (2000:65) describes a paradigm as a basic orientation to theory and research. According to Kam (1990:488), the paradigm is the model for the formulation and resolution of research problems. It is submitted that a paradigm can be regarded as a theory, hypothesis, frame of reference, school of thought or principle in terms of which research is conducted. Based on a particular paradigm, a body of knowledge often exists that can be reviewed to address and solve the identified research problems.
The layout of the study was presented in Chapter 1, and indicated three phases of the study. Phase 1 commenced with the literature review of the underlying aspects affecting the study. In this chapter, a literature review on the accounting theory underlying the recognition, classification and measurement of the asset and liability base of households is provided. To give structure to the many accounting concepts underpinning the study, section 2.2 explains the use of the Three Worlds framework (Mouton, 2003) to illustrate the various views that should be considered when conducting accounting research. This framework was used to segment the various theories applicable in this study. In section 2.3, the applicable accounting equity theories, which assisted the researcher in the measurement of household equity or net wealth, are identified and discussed. In section 2.4, the accounting theory that enabled the researcher to define the elements of financial statements and assisted in the recognition and measurement in a statement of financial position, is reviewed. The overview and consideration of the various theories strengthened the main theory, namely the Conceptual Framework (SAICA, 2010a) underpinning the classification, recognition and measurement of the assets and liabilities of South African households.
The content of the study and the way this chapter fits in with rest of the study is indicated in Figure 2.1.

APPLYING THE THREE WORLDS FRAMEWORK TO THE STUDY

According to Mouton (2003:137), the process of conceptualising and defining a research problem from a real-life problem can be best described by using the Three Worlds framework. This framework is an instrument that is used to make sense of the different levels of reflection on real-life problems and to better understand the nature of scientific research (Mouton, 2003:142). The framework has since been adapted by Van der Schyf (2008:5) to apply specifically to an accounting research study. Van der Schyf’s view of the Three Worlds framework will be applied to this study, and is illustrated in Figure 2.2.
The research problem (World 1) determines the course of action taken in World 3, which in turn determines the body of knowledge (World 2) that should be scrutinised to help solve the research problem (Mouton, 2003). In section 2.2.1, the World 1 view of the study is described, and in section 2.2.2, the World 3 view that the study proposed is explained. In section 2.2.3, the World 2 view or the body of knowledge that was used to solve the research problem is examined.

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World 1 view of the research (everyday life)

As mentioned in the introduction of this chapter, the World 1 problem the study identified was the paucity of reliable household level data in South Africa that can be used to disaggregate the existing classification of the South African Reserve Bank in its household balance sheet. The study’s main objective is to measure the disaggregated household assets and liabilities and to present the disaggregated information in statements of financial position for the metropolitan and non-metropolitan residential areas of the country.
According to Bak (2004:20), formulating the problem into research questions is beneficial because it directs the thought process and compels the researcher to answer those questions. Because South African household studies at the time of the research (2011/2012) were deemed to be of no value in assisting the researcher to achieve the research objective, namely to disaggregate and measure the South African household asset and liability base, this implied that a financial position section of the survey instrument would have to be developed. To ensure that the financial position section would indeed identify and disaggregate all possible household assets and liabilities, a mixed methods research design comprising a qualitative and quantitative strand was proposed in section 1.3.2. In the qualitative strand, the researcher set out to determine whether the heuristic model of the South African financial position section prepared from international net wealth surveys would be able to identify and disaggregate the assets and liabilities of South African households. The research questions formulated in section 1.3.4.1, ensured that the financial position section could disaggregate and measure all household assets and liabilities. The methodology applied in the qualitative and quantitative research strands is dealt with in Chapter 5. Once the financial position section had been finalised, it was used to recognise and measure the asset and liability base of a representative sample of South African households in the quantitative strand. The research question identified in section 1.3.4.2 was dealt with during the data analysis conducted in Chapter 7. The results of the data analysis are presented in Chapter 7, and the disaggregated statements of financial position for the household sector in metropolitan and non-metropolitan residential areas presented in section 7.6. Inferences were drawn from the data to establish whether age group, education level, labour status, income group and area (metropolitan/non-metropolitan) and/or all possible interactions between them had an effect on the accumulation of assets and liabilities of South African households.

CHAPTER 1 INTRODUCTION
1.1 INTRODUCING THE STUDY
1.2 BACKGROUND TO THE STUDY
1.3 RESEARCH PROBLEM, OBJECTIVE, DESIGN, PHASES AND QUESTIONS
1.4 SIGNIFICANCE AND CONTRIBUTION OF THE STUDY
1.5 RESEARCH METHODOLOGY
1.6 LIMITATIONS ON THE SCOPE OF THE STUDY
1.7 ETHICAL CONSIDERATIONS
1.8 DEFINITIONS
1.9 CHAPTER LAYOUT
CHAPTER 2 ACCOUNTING THEORY UNDERPINNING A STATEMENT OF FINANCIAL POSITION
2.1 INTRODUCTION
2.2 APPLYING THE THREE WORLDS FRAMEWORK TO THE STUDY
2.3 EQUITY THEORIES
2.4 APPLICABLE ACCOUNTING THEORY THAT DEFINES, RECOGNISES AND MEASURES THE ELEMENTS
2.5 CONCLUSION
CHAPTER 3 ECONOMIC PERSPECTIVE OF HOUSEHOLD NET WEALTH
3.1 INTRODUCTION
3.2 THE HOUSEHOLD AS THE UNIT OF ANALYSIS
3.3 MACRO-ECONOMIC THEORIES AFFECTING HOUSEHOLD ECONOMIC BEHAVIOUR AND DECISION MAKING
3.4 MACRO-ECONOMIC FACTORS AFFECTING HOUSEHOLD ECONOMIC BEHAVIOUR AND DECISION MAKING
3.5 THE ROLE OF THE SYSTEM OF NATIONAL ACCOUNTS IN PRESENTING THE FINANCIAL POSITION OF HOUSEHOLDS
3.6 THE SOUTH AFRICAN RESERVE BANK HOUSEHOLD BALANCE SHEET
3.7 CONCLUSION
CHAPTER 4 LITERATURE REVIEW OF NATIONAL AND INTERNATIONAL MICRO-LEVEL NET WEALTH MEASUREMENT RESEARCH
4.1 INTRODUCTION
4.2 SOUTH AFRICAN HOUSEHOLD STUDIES
4.3 INTERNATIONAL HOUSEHOLD NET WEALTH REVIEW
4.4 A HEURISTIC MODEL FOR THE SOUTH AFRICAN FINANCIAL POSITION SECTION OF THE SURVEY INSTRUMENT
4.5 CONCLUSION
CHAPTER 5 THE QUALITATIVE RESEARCH STRAND
5.1 INTRODUCTION
5.2 RESEARCH METHODOLOGY OF ACCOUNTING AND FINANCE DISCIPLINES
5.3 MIXED METHODS RESEARCH DESIGN
5.4 COMPILING THE PRELIMINARY SOUTH AFRICAN FINANCIAL POSITION SECTION OF THE SURVEY INSTRUMENT
5.5 QUALITATIVE RESEARCH STRAND
5.6 PRESENTING THE OMNIBUS SURVEY THAT INCLUDED THE FINAL FINANCIAL POSITION SECTION
5.7 CONCLUSION
CHAPTER 6 THE QUANTITATIVE RESEARCH STRAND – DATA COLLECTION PHASE
6.1 INTRODUCTION
6.2 QUANTITATIVE RESEARCH DESIGN
6.3 FIELDWORK AND TELEPHONIC INTERVIEWS CONDUCTED
6.4 LIMITING SAMPLE ERROR TO INCREASE VALIDITY AND RELIABILITY
6.5 CONCLUSION
CHAPTER 7 THE QUANTITATIVE RESEARCH STRAND – DATA ANALYSIS PHASE
7.1 INTRODUCTION
7.2 CODING, EDITING AND CLEANING THE DATA
7.3 RELIABILITY, VALIDITY AND STRUCTURAL INTEGRITY OF THE DATA
7.4 PARAMETER VERIFICATION OF THE DATA
7.5 SEGMENTATION AND CLASSIFICATION OF THE DATA
7.6 PRESENTATION OF METROPOLITAN AND NON-METROPOLITAN STATEMENTSOF FINANCIAL POSITION
7.7 DESCRIPTIVE DATA ANALYSIS – CONTRIBUTION OF ASSETS AND LIABILITIES IN THE STATEMENT OF FINANCIAL POSITION
7.8 DESCRIPTIVE DATA ANALYSIS – DEMOGRAPHIC VARIABLES AND THE ACCUMULATION OF ASSETS AND LIABILITIES IN THE STATEMENT OF FINANCIAL POSITION
7.9 INFERENTIAL DATA ANALYSIS – MANOVA APPLICATION AND RESULTS
7.10 CONCLUSION
CHAPTER 8 RECOMMENDATIONS AND CONCLUSION
8.1 INTRODUCTION
8.2 RESEARCH OVERVIEW AND MAIN FINDINGS
8.3 LIMITATIONS OF THE RESEARCH
8.4 RECOMMENDATIONS FOR FUTURE RESEARCH
8.5 CONCLUSION AND POLICY IMPLICATIONS
REFERENCE LIST