AUDIT PROCESS
1. Pre-engagement
2. Planning (understand client)
3. Obtain evidence (audit plan and strategy)
4. Evaluate, conclude, report
Objective of an audit
Express a well-informed opinion on whether FS as a whole are free from material misstatements and presented fairly
in all material aspects of financial position and performance of a company in accordance with appropriate financial
reporting framework.
Inherent limitation of an audit –› Reasonable Assurance
• Nature of financial reporting (use judgement and apply IFRS and estimates)
• Nature of audit procedures (practical and legal limitations, intentionally or unintentionally incorrect, management
hide fraud)
• Timeliness of financial reporting and balance between benefit and cost
• Reliability of evidence vs cost (time and resources available)
Audit: a systematic process to gather and evaluate evidence and information objectively, to evaluate the assertations
about economic actions and situations, to determine the correlation with predefined criteria (quantitative and
qualitative) and to communicate the results in writing to users.
STRUCTURE OF AUDIT PROFESSION
1. Minister of Finance
2. Auditing Professions Act (APA)
3. Independent Regulatory Board for Auditors (IRBA)
- Protect and promote interests of investors, public and support auditors
4. South African Institute of Chartered Accountants (SAICA)
- Protect and promote interests of CA’s
5. International Federation of Accountants (IFAC)
- Strive to comply with audit practice and attempts to harmonise auditing worldwide
6. International Auditing and Assurance Standards Board (IAASB)
- Via IFAC
- Authority to develop and issue audit standards
Types of auditors
• External auditor (independent)
• Internal auditor (employee to company)
• Attorney general (public)
• Forensic auditor (fraud)
• Special purpose auditor (eg. provisions of contractual agreement)
Private auditor:
- Audit of entities
- Auditing Professions Act
- Audit: Financial statements
Public sector auditor:
- Audit of government
- Public Audit Act
- Audit: Financial statements, compliance with laws and regulations, performance ito. predetermined objectives
,SERVICES
Assurance
- Form a conclusion or opinion
- Provide degree of confidence for users of financial statements
Non-Assurance
- No opinion or conclusion formed
- Eg. consultation services (technology, financial planning, taxation)
Auditors’ opinion: Enhances credibility of FS BUT does not warrant the future feasibility of
business and does not warrant capability and effectiveness with which management manages
the operations of entity.
Provides reasonable assurance that FS overall free from material misstatements.
DUTIES AND RESPONSIBILITIES OF AUDITOR
• Communicate opinion
• Investigate AFS
• Ensure appropriate accounting records kept in accordance with company requirements
• Ensure minimum books and attendance records iro. directors and managers kept in appropriate form as required
by Companies Act
• Acquire all info and explications that are necessary for purpose of performance of duties
• Ascertain AFS agree with accounting records and accounts
• Investigate accounting records and perform necessary procedures to ensure AFS reasonably reflect financial
position of company and result of operations is applied on basis that it is compatible with that of a previous year
• Directors report not in breach of or meaning distorted with reasonable interpretation of AFS and notes
• Adhere to any appropriate requirements of APA at all times
,Internal control system: The process designed, affected, and maintained by management to provide reasonable
assurance about achievement of entity’s objectives relating to reliability of financial reporting, effectiveness and
efficiency of operation and compliance to laws and regulations.
INHERENT LIMITATIONS
IC system can only provide reasonable assurance because:
- Cost vs Benefit (worth it to spend more money)
- Directed at routine, repetitive transactions
- Human error
- Collusion for circumvention of IC
- Abuse of responsibility
- Control becomes inadequate
AUDITORS DUTY
Gain adequate knowledge of business, including IC system by:
- Prior experience and knowledge
- Discussions and enquiries of staff
- Reading manuals
- Inspecting documents and records
- Observation
- Walk through tests
Document knowledge of IC system:
- System description
- IC questionnaire (YES = sound IC; NO = weakness in IC)
- System flow charts (standardised symbols, flow of documents, sequence of events, duties of staff)
COMPONENTS
1. Control environment
2. Risk assessment process (identify –› impact –› probability –› action)
3. Information system for financial reporting and communication
o Initiate (transactions: decision and approval)
o Execute (implement decision)
o Record (source documents)
o Process (accounting records)
o Reporting (financial statements)
4. Control activities (SCRRAM)
o Segregation of Duties (Segregate incompatible functions: initiation, authorisation, execution, recording,
control or safeguarding)
o Access Control (Logical and physical security)
o Independent Review (2nd person checks work done by 1st person, sign as evidence)
o Documentation and Records (Pre-printed, pre-numbered documents and stationary control)
o Authorisation and Approval (ito. company policy and evidence required)
o Monitoring (Reconciliations between actual vs recorder and two sets of recorded information)
5. Monitoring
CONTROL OBJECTIVES
• Validity: Authorised AND occurred (not fictional) AND during the period AND supported by sufficient and
appropriate documentation
• Completeness: All recorded AND in a timely manner AND none omitted
• Accuracy: Recorded at correct amounts AND correctly classified in accounting records AND correctly summarised
and posted to accounting records
, SALES AND RECEIPTS CYCLE
1. What is the transaction type
2. Where will it take place
3. What triggers the process
4. Document
5. Copies of document and to who
SALES
1. Accept and process order
2. Dispatch goods
3. Invoicing and recording
Accept and process order
• Sales divisions
• Trigger: Order note / requisition
• Document: Sales order (sales order clerk)
- Details of purchaser
- Description
- Amount
• Copies and to who:
- Customer
- Warehouse
- Accounting division
- Sales division
• Checks:
- Inventory available
- Compare price and authorised price list
- Creditworthy of customer
• Authorisation: Sales supervisor / credit manager
• Risks:
- Fictitious orders
- Orders accepted but no inventory
- Orders not executed
- Calculation errors while ordering
Granting credit:
- New client –› application and approval (perform credit checks)
- Existing client –› available / additional credit
- Risks: Credit granted but not creditworthy (validity) or limits amended ito. policy (completeness)
Dispatch goods
• Warehouse
• Trigger: Order / picking slip
• Document: Delivery note (dispatch clerk)
- Date of dispatch
- Purchaser
- Address
- Description and quantity
• Copies and to who:
- Sales division
- Client
- Signed by client and sent back
- Inventory records
1. Pre-engagement
2. Planning (understand client)
3. Obtain evidence (audit plan and strategy)
4. Evaluate, conclude, report
Objective of an audit
Express a well-informed opinion on whether FS as a whole are free from material misstatements and presented fairly
in all material aspects of financial position and performance of a company in accordance with appropriate financial
reporting framework.
Inherent limitation of an audit –› Reasonable Assurance
• Nature of financial reporting (use judgement and apply IFRS and estimates)
• Nature of audit procedures (practical and legal limitations, intentionally or unintentionally incorrect, management
hide fraud)
• Timeliness of financial reporting and balance between benefit and cost
• Reliability of evidence vs cost (time and resources available)
Audit: a systematic process to gather and evaluate evidence and information objectively, to evaluate the assertations
about economic actions and situations, to determine the correlation with predefined criteria (quantitative and
qualitative) and to communicate the results in writing to users.
STRUCTURE OF AUDIT PROFESSION
1. Minister of Finance
2. Auditing Professions Act (APA)
3. Independent Regulatory Board for Auditors (IRBA)
- Protect and promote interests of investors, public and support auditors
4. South African Institute of Chartered Accountants (SAICA)
- Protect and promote interests of CA’s
5. International Federation of Accountants (IFAC)
- Strive to comply with audit practice and attempts to harmonise auditing worldwide
6. International Auditing and Assurance Standards Board (IAASB)
- Via IFAC
- Authority to develop and issue audit standards
Types of auditors
• External auditor (independent)
• Internal auditor (employee to company)
• Attorney general (public)
• Forensic auditor (fraud)
• Special purpose auditor (eg. provisions of contractual agreement)
Private auditor:
- Audit of entities
- Auditing Professions Act
- Audit: Financial statements
Public sector auditor:
- Audit of government
- Public Audit Act
- Audit: Financial statements, compliance with laws and regulations, performance ito. predetermined objectives
,SERVICES
Assurance
- Form a conclusion or opinion
- Provide degree of confidence for users of financial statements
Non-Assurance
- No opinion or conclusion formed
- Eg. consultation services (technology, financial planning, taxation)
Auditors’ opinion: Enhances credibility of FS BUT does not warrant the future feasibility of
business and does not warrant capability and effectiveness with which management manages
the operations of entity.
Provides reasonable assurance that FS overall free from material misstatements.
DUTIES AND RESPONSIBILITIES OF AUDITOR
• Communicate opinion
• Investigate AFS
• Ensure appropriate accounting records kept in accordance with company requirements
• Ensure minimum books and attendance records iro. directors and managers kept in appropriate form as required
by Companies Act
• Acquire all info and explications that are necessary for purpose of performance of duties
• Ascertain AFS agree with accounting records and accounts
• Investigate accounting records and perform necessary procedures to ensure AFS reasonably reflect financial
position of company and result of operations is applied on basis that it is compatible with that of a previous year
• Directors report not in breach of or meaning distorted with reasonable interpretation of AFS and notes
• Adhere to any appropriate requirements of APA at all times
,Internal control system: The process designed, affected, and maintained by management to provide reasonable
assurance about achievement of entity’s objectives relating to reliability of financial reporting, effectiveness and
efficiency of operation and compliance to laws and regulations.
INHERENT LIMITATIONS
IC system can only provide reasonable assurance because:
- Cost vs Benefit (worth it to spend more money)
- Directed at routine, repetitive transactions
- Human error
- Collusion for circumvention of IC
- Abuse of responsibility
- Control becomes inadequate
AUDITORS DUTY
Gain adequate knowledge of business, including IC system by:
- Prior experience and knowledge
- Discussions and enquiries of staff
- Reading manuals
- Inspecting documents and records
- Observation
- Walk through tests
Document knowledge of IC system:
- System description
- IC questionnaire (YES = sound IC; NO = weakness in IC)
- System flow charts (standardised symbols, flow of documents, sequence of events, duties of staff)
COMPONENTS
1. Control environment
2. Risk assessment process (identify –› impact –› probability –› action)
3. Information system for financial reporting and communication
o Initiate (transactions: decision and approval)
o Execute (implement decision)
o Record (source documents)
o Process (accounting records)
o Reporting (financial statements)
4. Control activities (SCRRAM)
o Segregation of Duties (Segregate incompatible functions: initiation, authorisation, execution, recording,
control or safeguarding)
o Access Control (Logical and physical security)
o Independent Review (2nd person checks work done by 1st person, sign as evidence)
o Documentation and Records (Pre-printed, pre-numbered documents and stationary control)
o Authorisation and Approval (ito. company policy and evidence required)
o Monitoring (Reconciliations between actual vs recorder and two sets of recorded information)
5. Monitoring
CONTROL OBJECTIVES
• Validity: Authorised AND occurred (not fictional) AND during the period AND supported by sufficient and
appropriate documentation
• Completeness: All recorded AND in a timely manner AND none omitted
• Accuracy: Recorded at correct amounts AND correctly classified in accounting records AND correctly summarised
and posted to accounting records
, SALES AND RECEIPTS CYCLE
1. What is the transaction type
2. Where will it take place
3. What triggers the process
4. Document
5. Copies of document and to who
SALES
1. Accept and process order
2. Dispatch goods
3. Invoicing and recording
Accept and process order
• Sales divisions
• Trigger: Order note / requisition
• Document: Sales order (sales order clerk)
- Details of purchaser
- Description
- Amount
• Copies and to who:
- Customer
- Warehouse
- Accounting division
- Sales division
• Checks:
- Inventory available
- Compare price and authorised price list
- Creditworthy of customer
• Authorisation: Sales supervisor / credit manager
• Risks:
- Fictitious orders
- Orders accepted but no inventory
- Orders not executed
- Calculation errors while ordering
Granting credit:
- New client –› application and approval (perform credit checks)
- Existing client –› available / additional credit
- Risks: Credit granted but not creditworthy (validity) or limits amended ito. policy (completeness)
Dispatch goods
• Warehouse
• Trigger: Order / picking slip
• Document: Delivery note (dispatch clerk)
- Date of dispatch
- Purchaser
- Address
- Description and quantity
• Copies and to who:
- Sales division
- Client
- Signed by client and sent back
- Inventory records
