2. 1. What is an audit?
a) introduction
An audit –[is an examination of financial statements in
accordance with international auditing standards.
b) Types of auditors
Registered auditor(external auditor)
Registered with IRBA(Independent Regulatory Board For
Auditors)
Express an independent opinion on whether the financial
statements of company are fairly presented
They offer their services to the public "public practice”
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3. Internal auditors-[ an auditor who performs
independent assignment on behalf of board of
directors of a company.
Assignment relates to efficiency , internal control systems
,business activities Help senior managements to meet their
responsibility( enhance the degree of management confidence by
assessing risk and addressing them.
and evaluation even identifying whether the company has
faced risks .
Government auditor.(auditor general)
Not registered but may register with (institute of internal
auditors)
Similar with internal auditor but within government
departments.
Evaluate investigate government affairs on government
departments ,reporting them to senior management.
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4. Forensic auditor.
Investigate an gather evidence where there is been alleged
financial mismanagement, theft, fraud.
Any institution may be audited by forensic auditor
A forensic auditor must be independent from an entity
which is being audited.
Degree of confidence of body /institution audited is
increased
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5. Special purpose auditors.
Auditors who specialise on particular field .
Includes vat auditor for sars /environmental auditor for
environmental regulations.
Degree of confidence i.e. sars will have correctness of vat
returns audited/local authorities will have environmental
impact examined and reported .
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6. c) HISTORY OF AUDIT
Audit comes from word audire (Latin)
In ancient times accounting took place orally. a
master(auditor) will listen to oral accounts of a
stewards(manager) on his/her stewardship. to increase the
degree of confidentiality the master point the third party
(independent trusted person) “to satisfy them selves as to
the fair presentation’’
So accounting increased over the years as so to the records
of financial info from oral to written (luca pacioli 1494)
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7. d) Auditing deals with external/registered auditor
‘’A professional accountant in public practice”
Must be registered with IRBA according to Audit Profession
Act 2005
According to Auditing profession Act 2005 any person not
registered with IRBA must not:
Perform audit of financial statements
Other financial information
With intention of expressing opinion, giving assurance
on fairness of financial statement or info.
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8. 2. Why is there a need for auditors?
Split between ownership and management.
Confidence of financial information.
Accountability.
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9. 3. Levels of assurance
Reasonable assurance (audit engagement)
Limited assurance(review engagement)
A reasonable assurance - is given only after an auditor has
done a comprehensive examination of a client’s financial
records (audit)
Limited assurance –n auditor only conducts a review
of entity financial records –in which an auditor does
not certify the statements as being correct rather
present the level of assurance as being fairness
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10. 4. Public interest and public interest score
Public interest
the business and society runs on financial information and
depends on the fact that the info is accurate , fair, and
credibility
public needs as society interlink with the business needs for
survival
The interest that the public have on financial info of a
business as being fairly presented
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11. •Public interest score
The score is based on factors which generally determined as
level of interest public has in the entity
A number of points equal average number of employee p.a
1 point per 1 million turnover p.a
1 point per 1 million of 3rd party liabilities p.a
1 point per every individual who directly or indirectly has
beneficial interest on business
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12. •Companies regulation act
(issue of public interest score)
Three levels of interest score:
a) 350 points an above
b) 100-to-349
c) Below 100
Other issue on determining which company or entity
must be audited by independent professional auditor is
whether financial statements are:
Internally compiled .
Externally compiled.
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13. Chart for public interest score
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Public interest
score
company Cc and owners of
managed
company
a.350 and above Audit Audit
b. 349 and below Audit if internally
compiled
Review if
externally compiled
Audit if internally
compiled
No audit required
c. 100 and below review No assurance
required
14. •Companies that needs to be audited regardless of it
interest score ( companies Act of 2008)
Public companies and state owned companies
Companies with assets of 5million and above
Reason is because there is strong element of public interest.
Public interest is the new concept in south Africa
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15. 5. Assurance and non assurance engagements
a) Assurance engagements
One in which a professional accounted “express a
conclusion designed to enhance the degree of confidence
of the intended user ,other than the responsible party
,about the outcomes of evaluation or measurement of a
subject matter against the criteria.
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16. b)Elements of assurance engagements
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Elements example
3parties involved
•Professional accounted
•Responsible party
•Intended user
•Registered auditor
•Directors
•shareholders
A subject matter Financial position
Suitable criteria International financial
reporting standards
Sufficient appropriate
evidence
Evidence must be in position
to conclude tat financial
statements are free of material
misstatement
Written assurance report The audit report on fair
statement
17. c)Audit of financial statement
For an auditor to pass an opinion he ,she must gather all
sufficient appropriate evidence on whether directors have
applied the IFRS(or other suitable reporting framework)in
presenting fairness , financial position ,financial
performance and cash flow info and accompanying notes
for of company p.a
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18. d. Other assurance engagements
Other assurance engagements that are classified as review
engagements and carried out to provide users with limited
assurance
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engagements
19. e)Non assurance engagements
An engagement which do not meet the definition of
assurance engagements or which is do not contain
elements of assurance engagement
N.B
Professional accountant does not express the opinion or
comment on subject matter of engagement s
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20. f)Reasonable assurance engagements
(ISA 200) reasonable assurance-as “high but not absolute
level of assurance’’
Is an audit or examination of financial statements by
professional auditor to express an opinion the fairness of
financial statements rather than
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21. INHERENTLIMITATIONS OF AN AUDIT
(LIMITATIONS ON AUDITOR TO EXPRESS THE
FINANCIAL STATEMENT AS BEING CORRECT)
1. Nature of financial reporting
2. Nature of audit procedure
3. Audit evidence is persuasive rather than conclusive
4. Use of testing
5. Inherent limitations of accounting an internal control
systems
6. Timeliness of financial reporting an d balance between
benefits and cost
7. Other issues on inherent limitations of audit
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22. g)Statutory ad non statutory
assurance engagements
1. Statutory assurance engagements
-Are assurance that must be conducted because statute or Act
of parliament requires them .e.g. companies Act 2008
requires all public companies to undergo an annual audit
and certain other companies to undergo a review of their
financial statements.
2. Non statutory assurance engagements
This are audits which raise out of other obligation rather than
that of companies Act of 2008.
i.e. a bank loan to a business may first require loan audit to
qualify
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23. 6.Auditing postulates
• A foundation /starting point /fundamental condition
• Auditing postulates are the very foundation on which the discipline of
built’.
a. No conflict between auditor and management on fair presentation of
financial statements.
b. Auditor must act exclusive to offer independent and objective opinion
about financial statements.
c. Professional status of an auditor possess professional obligation.
d. Internal control reduces probabilities of errors and irregularities
e. Financial data is verifiable .
f. Financial statements submitted to an Auditor for verification is free from
collusive and unusual
g. irregularities
h. That which is held true in the past will hold true in the future
i. Application of gaap practice results fair presentation.
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24. 7. The accounting professionA. Nature of professional status
i. A profession offers skills and services which are highly specialised and
requires:
-formal education
-Intellectual abilities
-Practical training
ii. A profession is supported by various regulations including:
-laws restricting an admission to practice
iii. Profession demonstrate and intellectual and ethical commitment
Iv .chapter 2 of(Ifac) code of ethics for professional accountants lay down
fundamental principles
--integrity
--objectivity
--Professional competence and due cure
--confidentiality
--Professional behaviour3/7/2016 rsa audit notes for sa student slides 24
25. B. Accounting bodies in south Africa
I. South African Institute of Chartered Accountants( saica)
-SAICA is an registered with international Federation of accountants(IFAC)
-Is a body which looks after interests of its members
whether they are public practice business ,or other
pursuits .
qualitative to be a member of saica
a. Bcom (horn)and pass in either of training outside or
inside public practice( topp or Tipp) examination
-Topp training occurs in an approved training
organisation(ato) such as south African breweries
-Tipp training occurs in registered training office(rto) i.e.
deloittes or gobodo Inc
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26. b. Any one who has done a. May join saica and ca(sa)
c.-A member of saica can either be CA in public practice or
CA in business practice
d.CA in a public practice is an accountant in a firm who gives
services requiring accountancy
e. CA into business is an accountant employed or engaged in
areas such as commerce ,industry ,services ,public sector
and even education
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27. II. The independent regulatory board for auditors
IRBA has responsibility to look after the
professional interest s of auditors.
Functions are : registration/education/ and
training/accrediting of professional bodies for
membership and prescribing standards of
commence an ethics/to protect public into their
dealing with registered auditors/to discipline IRBA
members who “break the rules’’
III. IRBA members are “Registered auditors’’
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28. C. Pronouncements that regulates the(Auditing)profession
• Is important for accounting profession to seek to ensure
that high standards of ethics , conduct and skills are set
and maintained by its members.
• If this standards are allowed to slip ,public confidence will
be undermined.
• ISA200 require that auditor must comply with ethical
requirements
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29. Important legislation,regulations and standards are:
• The audit profession Act(2005)
• Companies Act 2008
• Constitution law and law of saica
• BN89
• International Standard on:
• Auditing(isa)
• Review engagements(ISRE)
• Assurance engagements(ISAE)
• Related services(ISRs)
• International auditing practice statements(IAPS)
• South African Auditi Practice Statements(SAAPS)
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30. 8. The financial statements audit engagements
A. An audit of financial statement which is assurance
engagements by external auditor.
(ISA200) are objectives of auditor
a. To obtain reasonable assurance that
financial statements are free from
misstatement caused by fraud or error
b. To see that the financial statements
comply with financial reporting
framework .
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31. B. Model of Independent Audit of
financial statements of a company according to
companies Act 20.08
Roles of the various parties and companies Act
Auditor
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ShareholdersDirectors
Auditor
appoints
Perform
Audit on
Assertion
Report:
AFS
appoints
32. C. The roles of various parties
a) Shareholders
provides finance for business
Appoints directors to manage business
Appoints auditors
Receives annual financial statements from directors and
report from auditors for assurance
b). Directors
Run the company and report results of stewardship to
shareholders
Prepare the financial statements in accordance with IFRS
c). Auditors
Reasonable gather all evidence to pass independent report
Report Audit opinion to shareholders
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33. D. The roles of companies Act 2008
Section 30 makes it compulsory for any public company to be
audited
Provides ministered of finance the duty to make regulations
which require private companies to be audited with regard to
public interest and interest score
Regulates appointment of auditors and directors and even
disqualifying certain individuals on filling those roles
Plays obligation to directors to prepare annual financial
statement as and providing legal backing for financial
statements for financial reporting standards
Provide right to an auditor to have full access to financial
statements
Require that an public company appoint an audit committee
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34. E . The roles of
The Auditing Profession Act 2005
Sec 41 prohibits anyone who is not registered as public
audit to conduct an audit
Sec44(1) individual responsible for an audit is named a
“designated auditor’’
Sec 44 state that an auditor may not express an
unqualified audit opinion on financial statements unless:
i. audit has been carried out free from restriction
in compliance with auditing pronouncements.
ii. auditor is satisfied with all financial info provided to him
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35. ii. Accounting records has been put in one of official languages
The auditor has not had occasion to report the reportable
irregularities to the IRBA
The auditor has compiled the law relating to the audit of
the entity
The auditor is satisfied as to the fairness of financial
statements
Sec 45 place the duty of an auditor to report any report
enable irregularities uncovered at an audit client to
IRBA
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