Assignment 2
AUE2601 2023
, 1.1 State whether the appointment of SSSA as auditors of ASM complies with Section 91 of the
Companies Act. Describe in your answer the procedures that should have been followed to ensure
compliance with the Companies Act. (5)
In order to determine whether the appointment of SSSA as auditors of ASM complies with Section 91 of
the Companies Act, we need to examine the requirements specified in the Act. Section 91 of the
Companies Act in South Africa states that a company must appoint an auditor or auditors for each
financial year and that the auditor or auditors must be registered with a recognized professional body.
The procedures that should have been followed to ensure compliance with the Companies Act include
the following:
Board Approval: The appointment of auditors should have been discussed and approved by the board of
directors of ASM. However, based on the information provided, it is stated that the financial director
made the appointment without consulting the rest of the board. This deviation from the standard
procedure raises concerns regarding compliance with Section 91.
Selection Process: The company should have followed a proper selection process to appoint the
auditors. This may involve issuing a request for proposal (RFP) or inviting registered auditors to submit
their credentials and proposals. The selection process should have been fair and transparent,
considering factors such as qualifications, experience, and independence of the auditors.
Auditor Registration: The appointed auditors must be registered with a recognized professional body,
such as the Independent Regulatory Board for Auditors (IRBA) in South Africa. The company should
have verified the registration status of SSSA with the relevant professional body to ensure compliance
with this requirement.
Engagement Letter: Once the auditors are selected, an engagement letter should be prepared and
signed by both parties. The engagement letter outlines the terms of the engagement, including the
scope of work, responsibilities of the auditors, and fees. It serves as a formal agreement between the
company and the auditors.
Overall, based on the information provided, it appears that the appointment of SSSA as auditors of ASM
may not fully comply with Section 91 of the Companies Act, as the proper procedures, such as board
approval and a transparent selection process, were not followed. It is important for companies to adhere
to these procedures to ensure the independence and effectiveness of the audit process.
1.2 Explain why ASM needs to have their financial statements audited. (1½)
ASM needs to have their financial statements audited for several reasons:
Compliance: Auditing of financial statements is a legal requirement for companies, as stipulated by
various laws and regulations. Compliance with these regulations, such as the Companies Act, is
essential to ensure the company's operations are in accordance with the law.
Stakeholder Confidence: The audit provides an independent and objective assessment of the company's
financial statements. This enhances the credibility and reliability of the financial information presented to
stakeholders, including shareholders, investors, creditors, and regulatory authorities. Audited financial
statements give stakeholders confidence in the company's financial position, performance, and
compliance.
Detection of Errors and Fraud: The audit process includes evaluating the internal controls and
conducting substantive procedures to detect material misstatements, errors, or fraudulent activities in the
financial statements. This helps to ensure the accuracy and reliability of the financial information
provided by ASM.
AUE2601 2023
, 1.1 State whether the appointment of SSSA as auditors of ASM complies with Section 91 of the
Companies Act. Describe in your answer the procedures that should have been followed to ensure
compliance with the Companies Act. (5)
In order to determine whether the appointment of SSSA as auditors of ASM complies with Section 91 of
the Companies Act, we need to examine the requirements specified in the Act. Section 91 of the
Companies Act in South Africa states that a company must appoint an auditor or auditors for each
financial year and that the auditor or auditors must be registered with a recognized professional body.
The procedures that should have been followed to ensure compliance with the Companies Act include
the following:
Board Approval: The appointment of auditors should have been discussed and approved by the board of
directors of ASM. However, based on the information provided, it is stated that the financial director
made the appointment without consulting the rest of the board. This deviation from the standard
procedure raises concerns regarding compliance with Section 91.
Selection Process: The company should have followed a proper selection process to appoint the
auditors. This may involve issuing a request for proposal (RFP) or inviting registered auditors to submit
their credentials and proposals. The selection process should have been fair and transparent,
considering factors such as qualifications, experience, and independence of the auditors.
Auditor Registration: The appointed auditors must be registered with a recognized professional body,
such as the Independent Regulatory Board for Auditors (IRBA) in South Africa. The company should
have verified the registration status of SSSA with the relevant professional body to ensure compliance
with this requirement.
Engagement Letter: Once the auditors are selected, an engagement letter should be prepared and
signed by both parties. The engagement letter outlines the terms of the engagement, including the
scope of work, responsibilities of the auditors, and fees. It serves as a formal agreement between the
company and the auditors.
Overall, based on the information provided, it appears that the appointment of SSSA as auditors of ASM
may not fully comply with Section 91 of the Companies Act, as the proper procedures, such as board
approval and a transparent selection process, were not followed. It is important for companies to adhere
to these procedures to ensure the independence and effectiveness of the audit process.
1.2 Explain why ASM needs to have their financial statements audited. (1½)
ASM needs to have their financial statements audited for several reasons:
Compliance: Auditing of financial statements is a legal requirement for companies, as stipulated by
various laws and regulations. Compliance with these regulations, such as the Companies Act, is
essential to ensure the company's operations are in accordance with the law.
Stakeholder Confidence: The audit provides an independent and objective assessment of the company's
financial statements. This enhances the credibility and reliability of the financial information presented to
stakeholders, including shareholders, investors, creditors, and regulatory authorities. Audited financial
statements give stakeholders confidence in the company's financial position, performance, and
compliance.
Detection of Errors and Fraud: The audit process includes evaluating the internal controls and
conducting substantive procedures to detect material misstatements, errors, or fraudulent activities in the
financial statements. This helps to ensure the accuracy and reliability of the financial information
provided by ASM.
