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In spite of growing awareness among strategy, business history and entrepreneurship scholars of the benefits of entrepreneurial development, our understanding of the evolution of entrepreneurial development in developing nations remains limited. A historical analysis of the issue in postcolonial Ghana from 1957 to 2010 led to the identification of three distinctive phases. The first phase represented the immediate post-colonial reforms (1957-1966), where large-scale nationalisation and establishment of state-owned enterprises hampered development of private enterprises. The second phase was the turbulent period (1967-1979), where totalitarianism and confiscation of assets deterred private investments and ownership, thereby creating a harsh economic and institutional environment. These culminated in the last phase, the renaissance of social entrepreneurship (1980-2010) where different entrepreneurial models flourished, including the diaspora philanthropy and the "philanthropic chief".
Purpose
– This paper aims to examine the different perspectives of auditors and non-auditors on this question, along with the rationale and impact of these differences. Chinese company law requires an audit report on paid-up capital when business entities are newly formed or their capital altered, which raises questions regarding the liability of auditors should the business entities fail.
Design/methodology/approach
– Interviews and a questionnaire survey were conducted to analyse how legislation can impact on interested parties in a relatively immature audit environment. The theories of social construction of reality and symbolic interactionism are used as a basis for explaining the different conceptions of capital verification held by interested parties.
Findings
– There is a mismatch between the purpose of capital verification and the functions of paid-up capital. Paid-up capital is not a reliable indicator of business liquidity and creditworthiness. Auditors and non-auditors have different understandings about the assurance provided by paid-up capital at the point of company formation or auditing field work, and at the point of actual trading after the company formation or auditing field work. They also differ on the causation between deficient capital verification reports and trading loss. The liability crisis adversely influenced auditors’ perception of the capital verification service, although it did not lead to outright rejection by them.
Originality/value
– This paper describes an important compliance auditing service in China. By conducting an analysis of the conflicting views of auditors and non-auditors on capital verification, it contributes to the existing literature on the sources of disputes between auditors and other stakeholders, and the efforts to establish a balanced auditor liability regime.
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