, Auditing Notes
for
South African Students
Thirteenth Edition
,
, Auditing Notes
for
South African Students
Thirteenth Edition
G Richard (Editor)
C Roets (Editor)
A Adams
JF Jonck
S West
,Members of the LexisNexis Group worldwide
South Africa LexisNexis (Pty) Ltd
www.lexisnexis.co.za
JOHANNESBURG Building 8, Country Club Estate Office Park, 21 Woodlands Drive, Woodmead, 2191
CAPE TOWN TBE Waterfront, 3 Dock Road, V & A Waterfront, Cape Town, 8001
DURBAN TBE Umhlanga, Block A, Park Square, Centenary Boulevard, Umhlanga, 4319
Australia LexisNexis, CHATSWOOD, New South Wales
Austria LexisNexis Verlag ARD Orac, VIENNA
Benelux LexisNexis Benelux, AMSTERDAM
Canada LexisNexis Canada, MARKHAM, Ontario
China LexisNexis, BEIJING
France LexisNexis, PARIS
Germany LexisNexis Germany, MÜNSTER
Hong Kong LexisNexis, HONG KONG
India LexisNexis, NEW DELHI
Italy Giuffrè Editore, MILAN
Japan LexisNexis, TOKYO
Korea LexisNexis, SEOUL
Malaysia LexisNexis, KUALA LUMPUR
New Zealand LexisNexis, WELLINGTON
Poland LexisNexis Poland, WARSAW
Singapore LexisNexis, SINGAPORE
United Kingdom LexisNexis, LONDON
United States LexisNexis, DAYTON, Ohio
© 2023
ISBN 978-1-77617-750-9 (softback)
978-1-77617-751-6 (e-book)
Copyright subsists in this work. No part of this work may be reproduced in any form or by any means without the publisher’s written
permission. Any unauthorised reproduction of this work will constitute a copyright infringement and render the doer liable under both
civil and criminal law.
Whilst every effort has been made to ensure that the information published in this work is accurate, the editors, authors, writers,
contributors, publishers and printers take no responsibility for any loss or damage suffered by any person as a result of the reliance
upon the information contained therein.
Editor: Marcus Jones
Technical Editor: Maggie Talanda
Printed by Art Printers
, Preface
The original book was compiled specifically to assist students at tertiary institutions in South Africa with
their studies in auditing. This update is intended for the same purpose. The book is not designed to be used
on its own and stands ancillary to the Companies Act 2008 and its Regulations 2011, the International
Standards on Auditing and the (SAICA) Code of Professional Conduct as well as the King IV Report on
Corporate Governance for South Africa. Extensive reference is made to these and other pronouncements.
The thirteenth edition of the book introduces several improvements to enhance the learning experience
for readers. A notable enhancement is the reorganisation of Chapters 5, 6, 7, and 8, which now present the
audit process in a meticulously structured chronological order. This restructuring facilitates a smoother and
more intuitive comprehension of the audit process, making it easier for students to follow.
In Chapter 9, dedicated to computer auditing, the content has been condensed and simplified with the
primary goal of providing students with a more accessible and practical understanding of computer auditing.
This streamlining ensures that students can readily grasp the complexities and nuances of computer auditing
in real-world scenarios.
Chapters 10 through 14, focusing on the accounting cycles, have undergone a refinement process ensuring
that students can navigate through the content with ease, resulting in a more efficient and effective study
experience.
The final noteworthy improvement lies in Chapter 15, which addresses the completion of the audit phase.
This chapter now unfolds in a logically structured manner, ensuring that readers can more smoothly follow
the various stages and components involved in finalising the audit.
This book intends to simplify what has proved to be a difficult subject for many generations of auditing
students. The authors hope that they have achieved this. Any comments or suggestions to improve
subsequent editions would be most welcome, especially from students who use the book.
Note from the publisher:
Credit is given to the late Rob Jackson. Both LexisNexis and the auditing student market will forever be
indebted to his invaluable contribution to the training of up-and-coming auditors over many years. Over
the years thousands of students have used his works in preparation of becoming professionals.
v
,
, Contents
Page
Preface ..................................................................................................................................... v
Chapter 1 Introduction to auditing ................................................................................... 1/1
Chapter 2 Professional conduct ........................................................................................ 2/1
Chapter 3 Statutory matters ............................................................................................. 3/1
Chapter 4 Corporate governance ...................................................................................... 4/1
Chapter 5 The audit process, audit quality and pre-engagement activities........................... 5/1
Chapter 6 Planning the audit: Identifying and assessing the risk of material misstatement .. 6/1
Chapter 7 Planning the audit: Responding to the risk(s) of material misstatement .............. 7/1
Chapter 8 Specific types of audit evidence ........................................................................ 8/1
Chapter 9 Computer auditing ........................................................................................... 9/1
Chapter 10 Revenue and receipts cycle ............................................................................... 10/1
Chapter 11 Acquisitions and payments cycle ...................................................................... 11/1
Chapter 12 Inventory and production cycle ........................................................................ 12/1
Chapter 13 Payroll and personnel cycle .............................................................................. 13/1
Chapter 14 Finance and investment cycle ........................................................................... 14/1
Chapter 15 Completion of the audit ................................................................................... 15/1
Chapter 16 Review engagements and related service engagements....................................... 16/1
vii
,
, CHAPTER
1
Introduction to auditing
CONTENTS
Page
1.1 Theory and philosophy of auditing .................................................................................... 1/2
1.1.1 What is an auditor? ................................................................................................. 1/2
1.1.2 Why there is a need for auditors .............................................................................. 1/4
1.1.3 Specific theories as they relate to businesses, auditing and the profession .................. 1/5
1.1.4 Assurance engagements and the expectation gap ...................................................... 1/6
1.1.5 Reasonable assurance, limited assurance and absolute assurance .............................. 1/8
1.2 The accounting profession ................................................................................................. 1/10
1.2.1 The nature of professional status.............................................................................. 1/10
1.2.2 Accounting bodies in South Africa .......................................................................... 1/11
1.2.3 Pronouncements which regulate the (auditing) profession......................................... 1/12
1.3 The financial statement audit engagement ..................................................................... 1/13
1.3.1 Introduction ........................................................................................................... 1/13
1.3.2 A model of the independent audit of the annual financial statements of a company
arising out of the requirements of the Companies Act 2008 ....................................... 1/15
1.3.3 The roles of the various parties ................................................................................ 1/16
1.3.4 The role of the Companies Act 2008 and Companies Regulations 2011 .................... 1/16
1.3.5 The role of the Auditing Profession Act 2005 ........................................................... 1/17
1.3.6 The role of the International Standards on Auditing (ISAs) ...................................... 1/17
1.3.7 The role of the assertions ......................................................................................... 1/17
1.3.8 The role of professional scepticism .......................................................................... 1/19
1.3.9 The role of professional judgement .......................................................................... 1/19
1.4 Summary........................................................................................................................... 1/20
1.5 Appendix: Auditing postulates........................................................................................... 1/20
1/1
for
South African Students
Thirteenth Edition
,
, Auditing Notes
for
South African Students
Thirteenth Edition
G Richard (Editor)
C Roets (Editor)
A Adams
JF Jonck
S West
,Members of the LexisNexis Group worldwide
South Africa LexisNexis (Pty) Ltd
www.lexisnexis.co.za
JOHANNESBURG Building 8, Country Club Estate Office Park, 21 Woodlands Drive, Woodmead, 2191
CAPE TOWN TBE Waterfront, 3 Dock Road, V & A Waterfront, Cape Town, 8001
DURBAN TBE Umhlanga, Block A, Park Square, Centenary Boulevard, Umhlanga, 4319
Australia LexisNexis, CHATSWOOD, New South Wales
Austria LexisNexis Verlag ARD Orac, VIENNA
Benelux LexisNexis Benelux, AMSTERDAM
Canada LexisNexis Canada, MARKHAM, Ontario
China LexisNexis, BEIJING
France LexisNexis, PARIS
Germany LexisNexis Germany, MÜNSTER
Hong Kong LexisNexis, HONG KONG
India LexisNexis, NEW DELHI
Italy Giuffrè Editore, MILAN
Japan LexisNexis, TOKYO
Korea LexisNexis, SEOUL
Malaysia LexisNexis, KUALA LUMPUR
New Zealand LexisNexis, WELLINGTON
Poland LexisNexis Poland, WARSAW
Singapore LexisNexis, SINGAPORE
United Kingdom LexisNexis, LONDON
United States LexisNexis, DAYTON, Ohio
© 2023
ISBN 978-1-77617-750-9 (softback)
978-1-77617-751-6 (e-book)
Copyright subsists in this work. No part of this work may be reproduced in any form or by any means without the publisher’s written
permission. Any unauthorised reproduction of this work will constitute a copyright infringement and render the doer liable under both
civil and criminal law.
Whilst every effort has been made to ensure that the information published in this work is accurate, the editors, authors, writers,
contributors, publishers and printers take no responsibility for any loss or damage suffered by any person as a result of the reliance
upon the information contained therein.
Editor: Marcus Jones
Technical Editor: Maggie Talanda
Printed by Art Printers
, Preface
The original book was compiled specifically to assist students at tertiary institutions in South Africa with
their studies in auditing. This update is intended for the same purpose. The book is not designed to be used
on its own and stands ancillary to the Companies Act 2008 and its Regulations 2011, the International
Standards on Auditing and the (SAICA) Code of Professional Conduct as well as the King IV Report on
Corporate Governance for South Africa. Extensive reference is made to these and other pronouncements.
The thirteenth edition of the book introduces several improvements to enhance the learning experience
for readers. A notable enhancement is the reorganisation of Chapters 5, 6, 7, and 8, which now present the
audit process in a meticulously structured chronological order. This restructuring facilitates a smoother and
more intuitive comprehension of the audit process, making it easier for students to follow.
In Chapter 9, dedicated to computer auditing, the content has been condensed and simplified with the
primary goal of providing students with a more accessible and practical understanding of computer auditing.
This streamlining ensures that students can readily grasp the complexities and nuances of computer auditing
in real-world scenarios.
Chapters 10 through 14, focusing on the accounting cycles, have undergone a refinement process ensuring
that students can navigate through the content with ease, resulting in a more efficient and effective study
experience.
The final noteworthy improvement lies in Chapter 15, which addresses the completion of the audit phase.
This chapter now unfolds in a logically structured manner, ensuring that readers can more smoothly follow
the various stages and components involved in finalising the audit.
This book intends to simplify what has proved to be a difficult subject for many generations of auditing
students. The authors hope that they have achieved this. Any comments or suggestions to improve
subsequent editions would be most welcome, especially from students who use the book.
Note from the publisher:
Credit is given to the late Rob Jackson. Both LexisNexis and the auditing student market will forever be
indebted to his invaluable contribution to the training of up-and-coming auditors over many years. Over
the years thousands of students have used his works in preparation of becoming professionals.
v
,
, Contents
Page
Preface ..................................................................................................................................... v
Chapter 1 Introduction to auditing ................................................................................... 1/1
Chapter 2 Professional conduct ........................................................................................ 2/1
Chapter 3 Statutory matters ............................................................................................. 3/1
Chapter 4 Corporate governance ...................................................................................... 4/1
Chapter 5 The audit process, audit quality and pre-engagement activities........................... 5/1
Chapter 6 Planning the audit: Identifying and assessing the risk of material misstatement .. 6/1
Chapter 7 Planning the audit: Responding to the risk(s) of material misstatement .............. 7/1
Chapter 8 Specific types of audit evidence ........................................................................ 8/1
Chapter 9 Computer auditing ........................................................................................... 9/1
Chapter 10 Revenue and receipts cycle ............................................................................... 10/1
Chapter 11 Acquisitions and payments cycle ...................................................................... 11/1
Chapter 12 Inventory and production cycle ........................................................................ 12/1
Chapter 13 Payroll and personnel cycle .............................................................................. 13/1
Chapter 14 Finance and investment cycle ........................................................................... 14/1
Chapter 15 Completion of the audit ................................................................................... 15/1
Chapter 16 Review engagements and related service engagements....................................... 16/1
vii
,
, CHAPTER
1
Introduction to auditing
CONTENTS
Page
1.1 Theory and philosophy of auditing .................................................................................... 1/2
1.1.1 What is an auditor? ................................................................................................. 1/2
1.1.2 Why there is a need for auditors .............................................................................. 1/4
1.1.3 Specific theories as they relate to businesses, auditing and the profession .................. 1/5
1.1.4 Assurance engagements and the expectation gap ...................................................... 1/6
1.1.5 Reasonable assurance, limited assurance and absolute assurance .............................. 1/8
1.2 The accounting profession ................................................................................................. 1/10
1.2.1 The nature of professional status.............................................................................. 1/10
1.2.2 Accounting bodies in South Africa .......................................................................... 1/11
1.2.3 Pronouncements which regulate the (auditing) profession......................................... 1/12
1.3 The financial statement audit engagement ..................................................................... 1/13
1.3.1 Introduction ........................................................................................................... 1/13
1.3.2 A model of the independent audit of the annual financial statements of a company
arising out of the requirements of the Companies Act 2008 ....................................... 1/15
1.3.3 The roles of the various parties ................................................................................ 1/16
1.3.4 The role of the Companies Act 2008 and Companies Regulations 2011 .................... 1/16
1.3.5 The role of the Auditing Profession Act 2005 ........................................................... 1/17
1.3.6 The role of the International Standards on Auditing (ISAs) ...................................... 1/17
1.3.7 The role of the assertions ......................................................................................... 1/17
1.3.8 The role of professional scepticism .......................................................................... 1/19
1.3.9 The role of professional judgement .......................................................................... 1/19
1.4 Summary........................................................................................................................... 1/20
1.5 Appendix: Auditing postulates........................................................................................... 1/20
1/1
