Statutory concerns relating to appointment of engagement partner:
When it says statutory you must mention act.
1. Not be an engagement partner on audit when engagement partner for more than ive
consecutive years. (Not independent) (Companies Act of 2008)
2. Not previous CFO of the company that is being audited. (Five years should lapse) –
This is according to the companies act of 2008. (Not independent) (Companies Act)
3. Be registered with IRBA (If they are already partners at a registered irm of auditors,
it means they are registered). (Companies act of 2008 and Auditing profession Act)
4. Not practice under irm’s name unless every letter head bearing companies irm’s
name:
4.1 Registered auditors irst name or initials and surname.
4.2 Partnership, at least irst name or initials and surname.
4.3 Company, names of all directors.
5. To be a director must be shareholder as well.
Reportable irregularities
1. Unlawful act, fraud or theft committed by any person responsible for the
company’s management.
2. When management intentionally commit fraud or have someone else perform, it is a
RI.
3. Auditing profession act deals with RI in context of audit.
4. Companies act deals with duty to report a RI to the reviewer at an independent
review client.
5. Report a RI
5.1 Without delay submit a written report to Commission (If not an audit) and IRBA
when audit. With description of RI.
5.2 Within 3 days of report, notify board in writing.
5.3 As soon as possible within 30 days of 1st report. Discuss with board and give them
opportunity to make representations.
5.4 Send another report, to IRBA with statement:
5.4.1 NO RI is taking place or has taken place.
5.4.2 No longer taking place and adequate steps has taken place.
5.4.3 To answer question:
I would satisfy myself that an unlawful act occurred, committed fraud.
Person responsible for management of the company.
Caused or is likely to cause inancial loss.
Breached iduciary duty to company and employees by turning a blind eye.
Say it is or is not a reportable RI. Not fraud. Still unlawful act when income tax.
Will not be RI.
,Risk of material management of inherent risk at inancial statement level
Inherent risk factors
1. COMPLEXITY
FOREIGN TRADE
Due to error products are being imported and forex transactions can be complex.
JSE – HOLDING COMPANY
Due to error as the company might not comply with requirements and the disclosures
involved with JSE companies.
Due to error as intergroup transactions might not be eliminated. Intergroup transactions are
complex.
Due to error as the accounting policies may differ in other groups of the holding company.
CONSOLIDATED FINANCIAL STATEMENTS
Due to error as consolidated inancial statements might be complex.
RELATED PARTY RELATIONSHIPS
Error as there is related party relationship between holding company and subsidiary, the
relationship and transactions might not be disclosed in the subsidiary or holding company’s
inancial statements.
TIME PRESURE
Error as the inancial information prepared by the client, might not have all the information,
or the three might not be enough time to disclose the events that happened after the
reporting period.
2. SUBJECTIVITY
INTERNATIONAL BUSINESS
Error due to business does business, forex transactions are complex, and the transactions
might be hard to understand.
3. CHANGE
EXPANDING COMPANY
3.1 Error the company is expanding, and they might be unaware how it works when a
company is expanding, there might be inancial losses and the company might not disclose the
going concern assumption.
INTERNATIONAL LAWS
3.2 Error, going concern assumption might not be properly accounted for as the company may
not adhere to international regulations and laws and there may be penalties.
LEGAL DAMAGES
, Error as the company might not use the correct accounting basis as the going concern
assumption might not be properly disclosed due to legal fees as there might be negative
publicity.
4. SUSCEPTIBILITY TO MISSTATEMENT DUE TO OTHER FRAUD RISK FACTORS
FINANCIAL IRREGULARITIES
Fraud, one of the directors was involved in inancial irregularities.
FRAUDELENT FINANCIAL REPORTING
Fraud, fraudulent reporting by overstating revenue or assets and understating liabilities and
expenses to obtain a bigger bonus or to look good to get a bank loan.
5. UNCERTAINTY
FOREIGN TRANSACTIONS
Error, as the spot rated used might be uncertain.
JSE
Fraud management might manipulate AFS to comply with JSE requirements.
Risk of material misstatement at assertion level
1. Occurrence
2. Accuracy
3. Completeness
4. Cut-off.
5. Classi ication
6. Presentation
1. INVENTORY
Imported inventory (Overstatement)
Inventory that is imported might be included in the inventory balance before the risk and
reward have passed. (Existence, right and obligation)
Incorrect exchange rates at transaction rates or at year end not correctly done. (Accuracy,
valuation, and allocation)
Inventory that was damaged when imported might not be written off. Can be overstated.
(Accuracy, valuation, and allocation)
Not accounted for net allowances and rebates when buying certain quantities. (Accuracy,
valuation, and allocation)
Stock might become obsolete and not be written off. (Accuracy, valuation, and allocation)
1.1 COMPLETENESS
Imported inventory in transit where the right of ownership has already been transferred was
excluded from the inventory balance.
Cost of inventory was incorrectly calculated when the import duties and insurance was
excluded.
Inventory might be excluded as it is at different locations.
When it says statutory you must mention act.
1. Not be an engagement partner on audit when engagement partner for more than ive
consecutive years. (Not independent) (Companies Act of 2008)
2. Not previous CFO of the company that is being audited. (Five years should lapse) –
This is according to the companies act of 2008. (Not independent) (Companies Act)
3. Be registered with IRBA (If they are already partners at a registered irm of auditors,
it means they are registered). (Companies act of 2008 and Auditing profession Act)
4. Not practice under irm’s name unless every letter head bearing companies irm’s
name:
4.1 Registered auditors irst name or initials and surname.
4.2 Partnership, at least irst name or initials and surname.
4.3 Company, names of all directors.
5. To be a director must be shareholder as well.
Reportable irregularities
1. Unlawful act, fraud or theft committed by any person responsible for the
company’s management.
2. When management intentionally commit fraud or have someone else perform, it is a
RI.
3. Auditing profession act deals with RI in context of audit.
4. Companies act deals with duty to report a RI to the reviewer at an independent
review client.
5. Report a RI
5.1 Without delay submit a written report to Commission (If not an audit) and IRBA
when audit. With description of RI.
5.2 Within 3 days of report, notify board in writing.
5.3 As soon as possible within 30 days of 1st report. Discuss with board and give them
opportunity to make representations.
5.4 Send another report, to IRBA with statement:
5.4.1 NO RI is taking place or has taken place.
5.4.2 No longer taking place and adequate steps has taken place.
5.4.3 To answer question:
I would satisfy myself that an unlawful act occurred, committed fraud.
Person responsible for management of the company.
Caused or is likely to cause inancial loss.
Breached iduciary duty to company and employees by turning a blind eye.
Say it is or is not a reportable RI. Not fraud. Still unlawful act when income tax.
Will not be RI.
,Risk of material management of inherent risk at inancial statement level
Inherent risk factors
1. COMPLEXITY
FOREIGN TRADE
Due to error products are being imported and forex transactions can be complex.
JSE – HOLDING COMPANY
Due to error as the company might not comply with requirements and the disclosures
involved with JSE companies.
Due to error as intergroup transactions might not be eliminated. Intergroup transactions are
complex.
Due to error as the accounting policies may differ in other groups of the holding company.
CONSOLIDATED FINANCIAL STATEMENTS
Due to error as consolidated inancial statements might be complex.
RELATED PARTY RELATIONSHIPS
Error as there is related party relationship between holding company and subsidiary, the
relationship and transactions might not be disclosed in the subsidiary or holding company’s
inancial statements.
TIME PRESURE
Error as the inancial information prepared by the client, might not have all the information,
or the three might not be enough time to disclose the events that happened after the
reporting period.
2. SUBJECTIVITY
INTERNATIONAL BUSINESS
Error due to business does business, forex transactions are complex, and the transactions
might be hard to understand.
3. CHANGE
EXPANDING COMPANY
3.1 Error the company is expanding, and they might be unaware how it works when a
company is expanding, there might be inancial losses and the company might not disclose the
going concern assumption.
INTERNATIONAL LAWS
3.2 Error, going concern assumption might not be properly accounted for as the company may
not adhere to international regulations and laws and there may be penalties.
LEGAL DAMAGES
, Error as the company might not use the correct accounting basis as the going concern
assumption might not be properly disclosed due to legal fees as there might be negative
publicity.
4. SUSCEPTIBILITY TO MISSTATEMENT DUE TO OTHER FRAUD RISK FACTORS
FINANCIAL IRREGULARITIES
Fraud, one of the directors was involved in inancial irregularities.
FRAUDELENT FINANCIAL REPORTING
Fraud, fraudulent reporting by overstating revenue or assets and understating liabilities and
expenses to obtain a bigger bonus or to look good to get a bank loan.
5. UNCERTAINTY
FOREIGN TRANSACTIONS
Error, as the spot rated used might be uncertain.
JSE
Fraud management might manipulate AFS to comply with JSE requirements.
Risk of material misstatement at assertion level
1. Occurrence
2. Accuracy
3. Completeness
4. Cut-off.
5. Classi ication
6. Presentation
1. INVENTORY
Imported inventory (Overstatement)
Inventory that is imported might be included in the inventory balance before the risk and
reward have passed. (Existence, right and obligation)
Incorrect exchange rates at transaction rates or at year end not correctly done. (Accuracy,
valuation, and allocation)
Inventory that was damaged when imported might not be written off. Can be overstated.
(Accuracy, valuation, and allocation)
Not accounted for net allowances and rebates when buying certain quantities. (Accuracy,
valuation, and allocation)
Stock might become obsolete and not be written off. (Accuracy, valuation, and allocation)
1.1 COMPLETENESS
Imported inventory in transit where the right of ownership has already been transferred was
excluded from the inventory balance.
Cost of inventory was incorrectly calculated when the import duties and insurance was
excluded.
Inventory might be excluded as it is at different locations.
