0 Audit DVDs Slides Delivery 1 Discs 1 To 3

CTA Auditing
AUE 4861 / 4862
Welcome and Introduction to the Auditing DVDs

• Graeme O’Reilly CA(SA)
• Objectives of this DVD series:

1. To focus on the UNISA CTA content
– For Level 1 students, and
– For Level 2 students
2. To explain the concepts / principles
3. To work through a few questions to show how to apply the
theory
• Structure of the DVDs

– Follows the sequence of the UNISA syllabus
– Any additional hand-outs are on the “Attachments CD”
CTA 1 & 2 Syllabus…

• TL 102 (2 weeks) – Test 1: 17 March
• Audit process
• Pre-engagement activities
• Audit planning activities – risk related
• Audit planning activities – understanding control
• TL 103 (1 week) – Test 2: 28 April
• Ethics, COPC, AP Act & Fraud responsibilities
• Companies Act
• Corporate Governance
• TL 104 (1 week) – Test 3: 23 June
• Audit evidence
• Tests of control
• Substantive procedures
• TL 105 (1 week) – Test 4: 4 August
• Completion of the audit
• Independent reviews
• Reporting
• Special investigations and other services
1
How to use these DVDs
• The DVDs are intended to supplement your
prescribed texts – they do not replace them!
• Work through the Study Technique DVD
• Plan your weekly studies carefully…
– Look at the topics to be covered in the tut letter
– View the weekly guidance instructions from me
– Then, for each topic in the tut letter…
• View the DVD on that topic for theory direction / revision
(only if necessary!)
• Attend to any open book highlighting / underlining / etc.
• Conduct any additional reading where necessary
• View the DVD to work through any included questions first
• Attempt the assignment questions on your own
How to use these DVDs

• There are additional mind maps / notes / slides /
etc. that can be found on the “Attachments CD” –
print these off before starting to view the DVD.
• It is critical that you allocate sufficient time to

your studies to ensure that you both understand
the principles and that you can apply these
principles in the answering of questions (refer
Study Tech DVD).
• Make use of the Student Zone to raise any queries

that you encounter during your studies.
Textbooks?
• I strongly recommend buying the following
prescribed texts (I refer to them in the DVDs)
– SAICA Handbook - 2015/2014
– SAICA Legislation Handbook – 2015/2014
– Auditing Notes for SA Students – 9th edition (LexisNexis – Jackson &
Stent) – (Prescribed for CTA 1 and 2)
– Applied Q’s on Auditing – Latest edition (6th?) (LexisNexis - Marx, Van
der Watt, Sadler & van Staden) - (Prescribed for CTA 1 only)
– Advanced Case Studies in External Auditing & Corporate
Governance, Prinsloo, F.E., 2015. Latest edition(10th
Edition?) AuRet Publishing (Prescribed for CTA 2 only)
• Open book policy – may only take in one (the same) version
of all the handbooks (Pg 10 – TL101)
2
Ok, let’s head into the detail
• Note that the order of the
DVD topics may be different
to UNISA’s
– NB to refer to DVD Index to
quickly locate which topics are on which
discs
• So, let’s start off establish the big picture
regarding auditing first…
The audit process – big picture

• Basically, there are 4 broad steps to the audit
process…
1. Acceptance of the audit (deciding whether you
want to do it or not)
2. Planning the audit (deciding what to do and when
to do it)
3. Gathering evidence i.t.o. the plan
4. Reaching overall conclusions & wrapping up the
audit
• When does all this take place?
Copyright NSOA Learning (Pty) Ltd 8
Different stages of the audit

PLANNING INTERIM EARLY AT YEAR AFTER
VERIFICATION END YEAR END
Time line
•Remaining tests of control

& substantive testing
•Client acceptance
•Testing before year end •Finalisation procedures
•Planning (tight deadline)
•Always with “roll Year end verification
forward procedures” procedures (stock counts
/ cut-off numbers)
•Tests of control
•Interim substantive tests
of detail / ARP The Year end
3
Pre-engagement activities…
Open book references?
• ISA210 – Terms of engagement
• ISA 220 & ISQC1 – Quality control
• ISA 300 – Planning the audit
Approach
1. We will have a look at each of
these standards (the what to do…)
2. We will consider how to perform what the
standards require
3. We will consider a practical approach that pulls the
requirements together and makes them easier to study…
ISA 210 (Agreeing the terms of audit engagements)

Para 3:
• May only accept / continue an audit once the
basis upon which it is to be performed has
been confirmed:
– Establishing that the “pre-conditions” for an audit
are present…
– Confirming common understanding of the terms
of the engagement…
Para 6
• The preconditions for an audit…
Para 7
• Scope limitations in the audit…
Para 10, and A22 to A24 (plus Appendix 1)
• Content of engagement letter
ISA 220 & ISQC1 (Quality control)

ISQC 1 para 26
• Audit firm MUST establish acceptance
procedures:
– Competent
– Capable (including time and resources)
– Complies with ethical requirements
– Has considered client integrity
ISA 220 para A8

• Must meet ISQC 1 requirements (repeat of
above)
• PLUS must consider implications of any
significant matters arising during current
or past engagements…
4
ISA 300 (Planning an audit of financial statements)
Para 6
• Repeat of ISA 210 & 220 requirements for
continuation of an audit
Para 13 – for initial engagements…

• Meet ISA 220 requirements for acceptance
• PLUS must communicate with prior auditors
in compliance with ethical requirements…
Pre-engagement activities
• Approach to pre-engagement activities
(4 components):
1. Perform a client investigation…

(includes considering ethics)
2. Determine skills & competence requirements…
3. Establish the terms of the engagement…
4. Confirm the terms in an engagement letter…
Practical approach to studying this section
Refer the mind-map summary

1. Are we allowed to do the audit?
2. Do we want to do the audit?
3. Can we do the audit?
4. Have the terms been agreed on
and documented?
5
ISA 300 - Planning
• 3 phases in planning
– 1. Preliminary engagement
activities
• Consideration of the impact of any
matters identified during the preliminary
engagement acceptance activities…
– Risks?
ISA 300 - Planning

• The 2nd of the 3 phases…
– Developing the “Overall audit strategy”
• Characteristics of the engagement that
define it’s scope – reporting frameworks?
• Reporting / communication objectives
• Important factors determining the audit focus…
– Materiality
– Preliminary risk identification
– Preliminary id. of material components / balances
– Effectiveness of internal control?
• Nature, timing & extent of resources required.
– Refer appendix to ISA300 for an excellent open-book
framework regarding setting the “Overall audit strategy”…
ISA 300 - Planning

• The 3rd of the 3 phases
– Developing the “Audit plan”
• More detailed than the strategy
• Determining the N,T & E of procedures to assess risks

of material misstatement – ISA 315
• Determining the N,T & E of planned further audit

procedures in response to identified risk - through
consideration of ISA 330… (Often referred to as the
“audit approach”)
6
Steps followed during planning…
1. Understanding the entity & it’s environment
(ISA 315)
2. Assessing the risk of material misstatement at
both AFS and account balance level (ISA 315)
3. Setting planning materiality (ISA 320)
4. Establishing the response to identified risk at
an overall and account balance level (ISA 330)
5. Attending to any administrative issues
Planning steps:
Understanding the entity to identify & assess risks …
“The objective of the auditor is to…

• identify & assess the risks of material misstatement,
• whether due to fraud or error,
• at the financial statement & account balance level,
• through understanding the entity & it’s environment,
• including it’s internal control,
• thereby providing a basis for the design & implementation of
responses to this identified risk ”
(ISA 315 para 3)
ISA 315 – Understanding the entity…

• The structure of the sections in ISA 315…
– Risk assessment procedures & sources of info about the entity & it’s
environment, including internal control
• What do you need to do to get the required understanding?
• Requires engagement team discussion regarding risks
– Understanding the entity & it’s environment, including internal controls

• What information do you require to get the understanding?
– Assessing the risks of material misstatement

• Identification and assessment of risks at AFS & account balance level (by
assertion)
• Identification of “significant risks”
– Documentation of the process…
7
• Risk assessment procedures (ISA 315 Para A1 to A13)
– Inquiries of management & others
• Not only financial management, but also…
• Those charged with governance
• Internal audit
• Experts
People
• Relevant section heads, etc
Places
– Analytical procedures
• Comparison of expectations against actual to identify unexpected
trends, relationships, etc
– Observation & inspection
• Site visits
• Inspecting documents (strategy docs, management accounts, etc)
• Reading management reports
• Performing a walk-through of information systems
ARP
Paper
• The “4 P’s” may make these easier to remember?)

• Understanding the entity & it’s environment,
– 5 components
• Industry, regulatory & external factors
• Nature of the entity
• Accounting policies adopted
• Objectives & strategies & related business risks
• Measurement & review of financial performance
– Para A17 to A40 contains examples of matters to consider
under each of these headings… (no longer in an appendix.)

• Also need to obtain an understanding about the entity’s internal
control
– Internal control provides reasonable assurance about the achievement of
the entity’s objectives w.r.t.
• reliability of financial reporting
• effectiveness & efficiency of operations
• compliance with applicable laws & regulations
– Internal Control consists of 5 components that auditors
should obtain an understanding about…
• Control environment
• Entity’s risk assessment process
• Information system (the accounting system)
• Control activities (internal controls)
• Monitoring of controls
– Para A69 to A104 contains the detail!
8
ISA 315 – Assessing the risk of material
misstatement…
• Identify risk through considering the understanding obtained about the entity
– risk in entity = “inherent risk”
– risk in internal controls = “control risk”
• Consider risks that are pervasive to the audit as a whole
– “financial statement level”
– Will affect many account balances…
– Requires an overall response through changing the way the audit is conducted (refer
ISA 330 later)
• Consider risks that relate to the account balances / classes of transactions
– “account balance level”
– Will affect only 1 class of transactions or only a few (related) account balances
– Must be linked to the assertions
AFS vs. Acc Bal level risk

• Very important to understand the difference…
• AFS level risk affect the financials as a whole (i.e.,
could lead to misstatement across several /
numerous different account balances)
• Acc bal level risk only affects 1 or 2 related account
balances (and possibly only 1 or 2 assertions)…
Audit Risk model…

Possible responses to balance DR at an AFS level
• Change staff level
• Change partner involvement
• Change review process
• Change professional scepticism
Risk assessment at • Introduce uncertainty into the audit process
• Change the extent of your testing everywhere (Adjust
AFS level… the level of planning materiality)
AR = IR x CR x DR
Possible responses to balance DR at an assertion
Risk assessment at level
• Changing the extent of substantive testing
Account Balance (by (indirectly proportional to level of DR)
assertion) level… • Changing the nature of tests depending on level
of required DR (TOD vs. ARP)
• Changing the quality of evidence required
depending on level of DR
9
ISA 315 – Assessing the risk of material
misstatement…
• Significant risks (ISA 315 Para 27 to 29)
– Require special audit consideration (described in ISA 330)
– Are a matter of professional judgment
– Need to consider at least the following…
• Risk of fraud (identified through ISA 240)
• Recent significant economic, accounting or other development which
requires specific attention
• Complexity of a transaction
• Significant transactions with related parties
• Degree of subjectivity in financial information’s measurement and
• Significant transactions outside the normal course of business
– Need to consider client’s internal controls over these risks or
their response to these risks (where no controls are
appropriate)
The financial statement assertions

• To be able to assess risk at the account balance level, it
is critical that you understand the financial statement
assertions
• 3 categories of assertions (Ref ISA315, A111)

– Transactions & events
– Year end balances
– Presentation & disclosure
• Need to recognise that every account balance contains

/ records transactions and / or events
Transaction & event assertions

• Completeness • Nothing left out – everything that should have
been recorded, was recorded
• Occurrence • Everything that was recorded should have been

recorded (happened & pertains to business)
• Accuracy • Everything that was recorded, was recorded at the

correct amount / containing the correct details
• Classification • Everything that was recorded, was recorded in the

right place / account balance
• Cut-off • Stuff from this year was recorded this year and
stuff from next year was not recorded in this year.
10
Year end assertions
• Completeness • Nothing left out – assets & liabilities that should
have been recorded, have been recorded
• Existence • Assets & Liabilities that were recorded should have

been recorded – they are not fictitious
• Valuation • Assets & liabilities are recorded at their correct

carrying value – what they are worth / their fair
value
• Rights &
Obligations • Legal entitlement – assets belong to the client and
liabilities are going to be settled by the client
Presentation & disclosure assertions

• Occurrence • There is nothing in the AFS that shouldn’t
be there
• Completeness • Nothing has been left out of the AFS
• Accuracy • Everything in the AFS is in at the correct

amounts
• Classification • Amounts in the AFS are appropriately

disclosed (IFRS / GAAP / Co’s Act)
Assessing risks i.t.o. the assertions

• If you get given information about accounts receivable (which
links to sales…)
• Transaction assertions – is there anything that suggests…
– That they have not recorded all sales to these customers during the
year? (completeness – will give rise to incomplete debt)?
– That they have recorded fictitious sales to these customers during
the year? (occurrence – will give rise to non-existent debt?)
– That they have recorded sales at the wrong amount during the
year? (accuracy – will give rise to incorrectly valued debt?)
– That they have misclassified sales to these customers during the
year? (classification – completeness / existence at year end?)
– That they have recorded sales to these customers in the wrong
period? (cut-off - completeness / existence at year end?)
11
Assessing risks i.t.o. the assertions
• Year end balance assertions – is there anything that suggests…
– That any of these customers are fictitious? (existence)
– That they have left out any of these customers from the final
record? (completeness)
– That they have recorded the year end debt at an inappropriate
amount or carrying value (will they recover the debt)? (valuation)
– That they have not correctly disclosed any other parties who may
have a legal entitlement to the proceeds of the debt? (rights)
Refer Appendix 2 of ISA 315 for examples of risk indicators…
Responding to identified risk

• At an overall AFS level (ISA 330, Para A1)
– Emphasizing professional scepticism
– Assigning more experienced staff
– Providing more supervision
– Incorporating unpredictability into the tests
– Making general changes to the nature, timing or
extent of tests, for example…
• Switching in general from a combined approach to a
substantive approach (nature)
• Performing procedures after year end only (timing)
• Changing the overall extent of testing (extent)
Responding to identified risk

• At an assertion level (ISA 330, Para A4 to 16)
• Includes the following, for example:
– Changing the nature of the test
• It’s purpose (substantive vs test of control)
• It’s type (Inspection, observation, enquiry, etc…)
– Changing the timing of the test
– Changing the extent (how much work) of the test
12
ISA 320 - Materiality
• Definition
Info is material if it’s
– omission or misstatement could
– individually, or in aggregate
– influence the economic decision of users.
– Also depends on the size of the item or error
judged in the particular circumstances of it’s
omission or misstatement.
ISA 320 - Materiality

• 2 main purposes:
– To determine nature, timing & extent of
procedures (planning materiality)
– To evaluate the overall effect of
misstatement (final materiality)
Determining Planning materiality

• Choose a set of figures to work from
– Prior year audited
– Current year un-audited
• Adjust the figures to reflect current activity, if necessary
• Choose a component which best reflects the nature of the entity
– Revenue
– Profit
– Gross assets
• Determine a range within which to work
– Based on DP6 guidelines
• Adjust within the range based on user sensitivity
• Adjust within the range based on risk (overall level) – (optional
response to overall risk in audit – but always consider it)
• Set “performance materiality” at a level below this.
13
Question on Planning…
• “Alphachem” (2008 CTA Exam question)
– Pre-engagement activities
– Risk at AFS level
– Risk at Account balance level
– Also has “use of an expert” –leave this for later…
• Question, Solution & Approach are all on the “attachments CD”
• Approach:
– Attempt question yourself first (before looking at solution / watching DVD)
– Even if just as a “high level summary” / “plan”
– 50 mark question so allocate 18 minutes to this “plan”
– Then review the DVD to see if you were approaching the
question correctly …
• Let’s work through the mind-map.
The need to understand info systems

• Our objective is to identify risk of material
misstatement (fraud or error) so that we can design
procedures to respond to it.
• Information systems (computerised or
manual) present vast opportunities for misstatement…
• Bottom line: We need to understand systems well
enough so that we can identify what could go wrong
(the risk of material misstatement) so that we can
design procedures to see that it hasn’t!
Key elements of this section…

• Knowing how to identify what could go wrong
/ the risks…
• Knowing what to suggest to prevent / detect
these errors
• Understanding the impact of this on the audit
process / approach
14
NB, NB, NB!
• There are basically only 3 things that
can go wrong in any info system
(3 broad risk areas…)
– Doing something that shouldn’t be done
– Not doing something that should be done
– Doing something that should be done, but getting it
wrong
• This is one of the most important
frameworks for you to understand…
The 3 control objectives

These aim to prevent these 3 errors from happening or to
detect if they have happened (so they can be corrected)
• Validity
– to ensure that we only do what
we are supposed to do
• Completeness
– To ensure that we do everything
we are supposed to do
• Accuracy
– To ensure we do everything at the right
amounts / details
Where do we look for these potential errors /

risks?
• At every point in the information

(accounting) system where things could
go wrong…
• Where something new happens /
something is changed / added /
something is created…
• “Functions” / “Activities” / “Stages”
15
What are the activities performed in the
Revenue & Receipts cycle, for e.g.?
• Receive & record customer order

• Deliver goods
• Invoice customer
• Record sale
• Receive payment
• Record payment
What could go wrong?

• What could go wrong (the risks) with the
receipt of the customer order (stage 1)
– We document an order that we shouldn’t have!
(Validity control objective)
– We don’t document an order that we should have!
(Completeness control objective)
– We document an order that we should have, but we
get the details on it wrong! (Accuracy control
objective)

delivery of the goods to the customer (stage 2)
– We deliver goods that we shouldn’t have (there
was no order)! (Validity control objective)
– We don’t deliver goods that we should have!
(Completeness control objective)
– We don’t deliver the correct goods (what was
actually ordered)! (Accuracy control objective)
16
invoicing of the goods to the customer (stage 3)
– We invoice customers for goods that were
never delivered! (Validity control objective)
– We don’t invoice customers for goods that were
delivered (Completeness control objective)
– We don’t invoice the customer at the correct
amount! (Accuracy control objective)
Attaching controls?
• Once you have understood the control objectives
that apply to each activity / stage, then you ask
this…
• “How does the client prevent that from happening?”
AND
• “Can the client detect whether that did happen, so
that they can correct it?”
• The answers to these 2 questions are the internal
control activities (or the weaknesses, if the client
isn’t doing anything or enough)
So then… Studying the cycles…

What not to do…
• Don’t try and memorise the “ideal system” for
each cycle!
• The problems:
– You don ‘t understand the principles
– What if you don’t get a client that
“fits” the ideal system?
• Football club
• Travel agency
• Soccer stadium
17
So then… Studying the cycles…
What should you do?
• Only thing you really need to know is the
activities within each cycle…
• You then attach the control objectives to each
activity…
• If you understand the control objective,
thinking up a control activity then isn’t too
difficult?
The system mind maps

Use them as a mechanism to understand how the
“normal” cycles work – but be able to be flexible
when applying this knowledge to questions!
• Revenue system
• Purchases system
• Payroll system
Internal control
Characteristics of good internal control:
(Reference to Auditing Notes)
– D ocument design
– I solation of responsibility
– S egregation of duties
– C ontrol environment
– C ompetent, trustworthy staff
– C ustody of assets
– C omparison & reconciliation
18
Approaching CIS…
• It is still an information system – it is just that a
computer is now involved…
• The control objectives do not change – the
same possible errors are still there…
• Control activities become more complex as we
start to use computerised activities to address
the control objectives…
Auditing CIS environments…

• Refer to your text book for the detail.
• Let’s discuss the principles to enable you to

better understand the content in the text
books…
General vs Application controls?
Each
application
has it’s own
General controls over
controls are the input,
Acquisitions Revenue
established processing
application application
to govern & output of
and operate it’s data
over all Payroll
applications application
19
General controls…
• Refer Auditing Notes and the
mind-map summary of these categories
• My recommendation is that you
create more detailed maps for each of these
individual categories…
• An understanding of these general controls can
often help generate ideas in an application based
question – just look at required carefully…
Critical general control frameworks

• Common general control areas that are often tested /
examined…
1. Access controls (often linked in to an applications
controls question)
2. System development (new) /
System maintenance (change control)
3. Business continuity
• You must create frameworks from your text book in

the above areas at a minimum…
Application controls – key frameworks…

Transaction flow (stages)
– Input
– Processing
– Output
– Master file amendments
Control objectives (attach to each stage)
– Validity
– Accuracy
– Completeness
Types of control (address risks / what could go wrong)
– Preventative
– Detective (& Corrective)
20
Applications control framework
• Controls need to be in place to address the control
objectives (V, A, C) over
– Input (data capture)
– Processing (data manipulation)
– Master file changes, and
– Output of information
• There will be standard computerised control activities that
achieve the control objectives at each of these stages in any
system…
• Refer text book references and the mind-map for further
guidance…
Applications control framework

• These frameworks need to be learnt!
• You must understand the computerised control
activity…
– Need to know what edit checks are, for example…
– Understanding them will make them easier to apply in
answering questions…
– Study them in relation to the control objectives to help you
understand them. So, understand:
• how edit checks help prevent inaccurate (accuracy control objective)
input,.
• How access controls help prevent invalid (validity control objective)
entries from being recorded.
Effect on controls on the Audit approach?

• Under what circumstances should we choose to rely on, and test,
internal controls (combined approach vs. wholly substantive
approaches)?
• Dynamic Auditing provides a nice framework to make this decision…
– Is it necessary
• Might have to rely on controls (no choice)…
– If it isn’t necessary, is it then possible
• Might not be physically able to test controls…
– If it is possible, is it feasible
• Might not be cost-effective…
• This is an important framework to address questions that require a
discussion around the impact of systems on the audit approach (quite
a common “add-on” to a planning question...)
21
Understanding CAATs
• Around the computer
– Reconciling output to input
• Through the computer

– “system orientated”
– Used for tests of control mainly
– Test data (capture false info into a “copy” of the live system and see what
happens?)
– Programme code analysis (examination of programme coding)
– Simulation (client’s info run through auditor’s programme and results are
compared)
– Embedded audit routines (audit module inside client’s programme to
monitor and report)
• Integrated test facility (create dummy records
to run test data against)
• With the computer (next slide…)

CAATs
• With the computer
– “data orientated”
– Used for substantive tests mainly
– Generalized audit software (standard packaged
programmes – e.g. ACL)
– Purpose-written audit software (programmes to suit
a specific client need)
– On-line audit
(using client’s own utility and report writing
programmes)
Using CAATs
• Summary of functions typically performed by CAATs:
– Casts and calculations
– Investigations & analysis
– Sample selection
– Summaries
– Comparisons
22
Advanced CIS environments
• Typically more complex environments with an
absence of clear audit trails…
• 7 Characteristics of these systems…
1. No input source docs
2. Authorisation controlled by computer
3. On-line, real time, multiple file update
4. Automated controls are extensive
5. Little output or audit trails
6. Complex programs
7. Exchange of info across entities
Challenges in studying Advanced CIS

• No open book reference…
• Often very little practical experience
in these systems…
• Although can sometimes relate to personal
experience? (buying something off the internet,
for example)
• Will need to summarise, understand and
remember to be able to apply these principles
when answering questions…
What to emphasize?
• NB sections:
– Networks
– Databases
– EDI & EFT
– Internet trading
– Use of service organisations (bureaux)
• The prescribed text book is a good reference

point to learn the intricacies of these systems…
23
Networks (Ch9/5)
• Sharing of hardware (and software) across
multiple points…
• Different types (LANs / VANs / WANs / etc.)
• Audit implications (risks)
– Access control
– Security & integrity of communication channels
Database systems (Ch9/9)

• Databases involve the central storage and
then sharing of data amongst several
application.
• Critical risks / control aspects
– Data ownership
– Access controls
– Development & maintenance
– Division of duties
– Database recovery
• Basically – just need sound general controls…
Electronic business transactions

• IAPS1013 “Electronic commerce – effect on
audit” – not much detail in here though?
• Risks? (refer Auditing Notes, Ch9/11)
• Electronic Data Interchange (EDI)

– Transfer of data between different entities
– Risks and controls – refer Ch9/15
• Electronic Funds Transfer (EFT)

– Electronic transfer of funds between bank
accounts of different entities
– Examples of controls to prevent or detect error
in EFTs on Ch9/18 and 9/20
24
Trading via the Internet
• Risks and controls summarised
in Auditing Notes Ch9/22
• Also refer Ch9/28 for a discussion on viruses

and control procedures to address them…
Use of service providers (bureaux's)…

• Outsourced processing (accounting / payroll / etc…)
• Audit implications (Ch9/26)
– Assess suitability of the bureaux
– Evaluate the agreement with the bureaux
– Evaluate the controls in place that are the client’s
responsibility
• OK, that’s it for advanced CIS environments!
Questions on Internal control…

• 4 questions on internal control…
– Zimbatu Lodge – on-line reservation system for a Lodge
– Penprof – systems development / impact on audit plan /
outsourcing of data storage
– Papparazi – Trading across the internet
– JIT Couriers – Identify key controls / Identify weaknesses
• All questions are on the “attachments CD”
• Approach:
– Attempt question yourself first (before looking at solution / watching DVD)
– Even if just as a “high level summary” / “plan”
– Allocate 25% of total answer time to the “plan”
– Then review the DVD to see if you were approaching the
question correctly …
25
Zimbatu Lodge
• Let’s have a look at the
question and work
through the mindmap
to discuss the
approach…
Penprof
question and work
through the mindmap
to discuss the
approach…
Paparazzi
question and work
through the mindmap
to discuss the
approach…
26
JIT Couriers
question and work
through the mindmap
to discuss the
approach…
Introduction to auditing…
• Establishing the “big picture”
• What is an audit?
– An independent opinion as to the degree to
which financial statement information is fairly
presented.
• Why do we need an audit?
– To protect 3rd parties who rely on info presented
to them by management to make their decisions
– Statutory requirement where the level of “public
interest” is high enough…
How do we do an audit?
• Accept the appointment
• Develop a plan as to how we are going to
establish that the figures are fairly presented
– Understand the business
– Consider the risks
– Establish materiality guidelines
• Execute the plan (gather the evidence)
– Test controls
– Perform substantive tests
• Conclude and report
• All of this within the appropriate regulatory context
(ISA; AP Act and Co’s Act)
27
Qualities required of an auditor…
• What primary qualities does the auditor
need to have to be able to offer protection
to 3rd parties regarding the figures?
– Independent / objective
– Capable – technically competent
– Credible
• How are these achieved / enforced?
How are these qualities achieved?

• Independence / Objectivity
– We have a code of behaviour telling us how to
anticipate / react to situations that may present a
potential problem in this area: The IFAC Code of
Ethics – which drives SAICA’s COPC & the
IRBA’s COPC & DR
• Technical competence
– We need to be up to date in our knowledge of what we
are reporting on, which legislation is relevant, and what
procedures need to be performed: The Companies Act /
IFRS / International Standards on Auditing (ISA)
• Credibility
– The public needs to be confident that our profession is
credible: IRBA / The Auditing Profession Act / The IFAC
Code of Ethics
Summary
• So this section therefore looks at the environment
within which auditors operate…
• The IFAC Code of Ethics / SAICA’s COPC /
IRBA’s DR
• Gives us a framework in terms of acceptable behaviour
• Auditing Profession Act
• Regulates the Auditing profession
• Companies Act
• Covered in CTA Level 2 syllabus only
• Sets out the statutory responsibilities
28
Ethics
• Critical for the profession to be seen to be ethical!!!!
• So then , what are ethics?
• Ethics are a code of “behaviour” in a situation where
there is not a simple right or wrong?
• Some questions that may be asked in an ethical
dilemma
– “Am I doing the right / best thing?
– Is it honest / truthful?
– “Do unto others as you would have them do unto you”
– Build goodwill / greatest good for the greatest numbers?
– Am I comfortable explaining my position to those I
respect?
Ethical dilemmas in auditing…

• Sweet old lady been stealing petty cash to help her
grandkids…
• Your mate / family member has been committing

fraud…
• You accept a significant gift from a client…
Pronouncements w.r.t. Ethics in SA

• The IFAC Code of Ethics
– Adopted in full by SAICA
– Therefore applies to all SAICA members (CA’s)
• In public practice (auditors)
• Outside public practice
– Part A & B (auditors only) consistent with IRBA COPC
• The Code of Conduct of the IRBA

– The former PAAB Code
– Consistent in all material respects with the IFAC Code
– Only applies to members in public practice (auditors)
• The Disciplinary Rules of the IRBA

– Most of the original PAAB DRs were repealed on 1 June 2007.
– Only the section on what constitutes “improper conduct” was retained.
– New DR are now rather the procedures to follow in the event of
alleged improper conduct.
29
The IFAC Code of Ethics
• Originally released by IFAC and adopted by SAICA w.e.f. 30 June 2006
• Revised by IFAC in June 2010 and adopted by SAICA in full in

November 2010 w.e.f. 1 January 2011 (SAICA has however included
further SA-specific guidance in Part A – was in old Part D)
• States 5 fundamental principles inherent in ethical behaviour and

provides a conceptual approach to ethical / professional conduct
• Requires auditors to identify and evaluate threats to these principles

and to then adequately safeguard these threats (reduce them to an
acceptable level)
The purpose of the Code

• To provide guidance on how we can avoid getting
ourselves (“the safeguards”) into a situation (“the
threat”) whereby we may be faced with an ethical
dilemma in terms of the “fundamental principles”
of the Code…
• Now includes a comprehensive set of definitions

of terms…
COPC – The structure

• Part A
– Establishes the fundamental principles
– Provides the conceptual framework to
• Identify threats
• Evaluate their significance
• Apply safeguards
• Part B
– CA’s in public practice only (i.e. excludes CA’s in commerce)
– Describes how the conceptual framework applies to certain specific
situations and provides examples of possible safeguards
• Part C
– Like Part B but for CA’s in commerce only (i.e. excludes auditors)
30
COPC – Fundamental principles
• Integrity (Section 110)
– Straightforward & honest in all dealings
– Not knowingly being associated with returns that reflect
false, reckless or misleading statement
• Objectivity (Section 120)

– Not allow bias, conflicts of interest or undue influence to
override judgement
• Professional competence & due care (Section 130)

– Maintain skill levels at an appropriate standard
– Act diligently (carefully, thoroughly and on a timely basis)
– Ensure that staff are adequately trained & supervised

• Confidentiality (Section 140)
– Respect confidentiality of info acquired
– Not use info for personal advantage
– Unless:
• Permitted by law and authorised by client
• Required by law (e.g. AP Act, Reportable Irregularities)
• Professional duty or right to disclose, when not
prohibited by law (e.g. IRBA Quality review)

• Professional behaviour (Section 150)
– Comply with laws & regulations
– Avoid action that discredits the profession
– Publicity, Advertising & Solicitation
• Must be truthful (not exaggerated, nor disparaging of others)
• Objective, and in good taste (respecting the profession)
• Cannot state hourly rates – viewed as misleading
– Multiple firms
• Can be a member of multiple firms but be careful not to mislead…
– Signing of reports and certificates
• May not delegate this to others
• Need disclosure of designation, capacity and firm
– Recruiting
• Cannot offer employment to an employee of another firm
without first informing that firm
– Responsibility to colleagues / profession
31
COPC – Conceptual Framework
• Identify threats to these 5 fundamental principles
• Evaluate whether the threat is significant or not
• Where significant, put safeguards in place to
mitigate the risk
COPC – Categories of threats

• Self-interest (examples in 200.4)
– Financial or other interest may compromise judgment
• Self-review (examples in 200.5)
– Inappropriate evaluation of judgements
previously made by the auditor / their staff
• Advocacy (examples in 200.6)
– Promoting the client’s position in a manner
that compromises your objectivity
• Familiarity (examples in 200.7)
– Overly sympathetic to a client to whom you
are too close / long standing
• Intimidation (examples in 200.8)
– May not act objectively due to perceived or actual pressure placed on
the auditor by the client
COPC – Safeguards
• Created through the profession, regulations, legislation
– Corporate governance
– Companies Act
– CPD requirements
– Etc…
• And / or, in the work environment
– Firm-wide safeguards (examples in 200.12)
– Engagement specific safeguards
(examples in 200.13)
• And / or established by the client (200.15)
32
COPC – How to study it
Must understand the concepts…
Understand the principles
Id threats to the principles
Categorise them
Consider if significant
Consider safeguards
Must know your way around the Code
Main index / Part B index / Independence index
(290.100 onwards)
Review the detail and highlight / sideline key bits
Must allocate time to doing this!
Objectivity
• Very NB section – big emphasis placed on this area –
incorporates “Independence” - lots of examples…
• Cannot be “linked” in any way to the client – must be able to
remain unbiased / un-influenced…
• 2 levels:
– in mind
– in appearance
• Same approach
– Identify threats to objectivity / independence
– Consider whether they are significant
– If significant, establish safeguards
PART B - AUDITORS
• Professional appointments 1. Need to understand the
• Conflicts of interest threats to each of these.
• Second opinions
2. Need to know the
• Fees & remuneration
possible safeguards to
• Marketing professional
services reduce these threats to an
• Gifts & hospitality acceptable level
• Custody of client assets 3. Remember your open
• Objectivity / Independence book policy. Need to
– Separate index for Sec 290
know your way around
though!!!
33
Part C – CA’s in business
• Professional accountants need to apply the same
framework to the work they do / positions they
hold…
– Potential conflicts (between work demands and COPC)
– Preparation & reporting of information (needs to be true)
– Acting with sufficient expertise
– Financial interests
– Inducements
Part D – CA’s in South Africa

• SAICA had previously included additional sections (on top
of what was in the IFAC Code) that applied specifically to
its members.
• The November 2010 Revision of the COPC essentially

now simply incorporates what was previously in Part D
into Part A.
• There is thus no more Part D!
Typical requireds for COPC…

• “Discuss the situation and how it should be dealt
with i.to. The COPC”
• “With reference to the COPC, discuss fully the

factors you would consider and any action you
would take in the circumstances…”
• “…provide suitable responses to the queries raised.

Discuss whether the conduct of the firm / partners
is professional i.t.o. COPC…”
34
So, how is the COPC tested?
• Most often by providing a scenario and
then requiring you to comment on
behaviour / actions taken by the
auditor i.t.o.
– COPC
– And sometimes the AP Act too?
• Therefore need to know your way around
the COPC well to be able to apply them to a question…
• Remember the open book indices… (Flag these: Main
index / Independence (S290) index) – they are useful
“checklists” to be sure that you have picked up
everything…
Approach to COPC questions

• Which regulations apply to the required (look
carefully at the wording of the required)?
– General? (“professional behaviour”), OR
– Specific? (Code of Ethics / Companies Act / Corp Gov?)
• Consider the scenario – identify the issues
• If Code of Ethics
– Which fundamental principle is affected?
(Integ / Object. / Comp & due care / Conf. /
Prof behav.)
– Which category of threat?
(Self-int / Self-rev / Adv / Famil / Intim)
• State the regulation / guideline, indicating the principle
& category of threat… (what the Code says)
• Apply it to the question (why there is a problem)
• OK, so let’s look at a question

to see how this approach
works…
35
CTA Question 6 – Pg 56
• Don’t look at the solution!
– Use of reading time?
– Read through the information in each
matter and as you go through see if you
can identify the potential threats to the
principles.
– Note the mark allocation to each matter as
an indication of the depth of discussion…
– Categorise each threat into 1 of the 5
groups (familiarity, self-interest, etc).
– Let’s work though it.
Auditing Profession Act 2005

• Replaced what was previously known as the PAA Act
w.e.f. 1 April 2006
• Objectives of the AP Act
– To protect the public!
– To establish the Independent Regulatory Board of Auditors
(the IRBA)
– To facilitate the education, training & prof dev. of Registered
Auditors (RAs)
– To register auditors
– To regulate the conduct of auditors, and
– To accredit professional bodies (SAICA) to train RAs

Open book: - Highlight main points in the
following sections as a minimum:
• S37 – Registration of individuals

• S38 – Registration of firms
• S44 – Duties of a RA
• S45 – Reportable Irregularities
• S46 – Limitation of liability
36
• S45 on RI’s is very brief and the IRBA published a 66 page
guideline document on RI’s to provide the necessary
detail…
• Refer to the “IRREG” section at the back of the
SAICA Handbook Volume 2
• The need to report i.t.o. S45 only applies if
you are the auditor of the company
Defining a RI…
• Refer Appendix 1 (IRREG – 29) for a decision tree…
– Any unlawful act or omission
• Co’s Act,
• Income Tax Act,
• Prevention of Corruption Act, etc…
– Committed by management
• Or not adequately dealt with by management once aware of it…
– Which causes, or may cause, material financial loss OR
– Is fraudulent or amounts to theft (no materiality inclusion!) OR
– Represents a material breach of fiduciary duty

• Duty to report (in S45 of AP Act – or refer to decision
tree on Pg 30 of IRREG)
– When satisfied or have “reason to believe”
– Must, without delay
– Send a report to IRBA giving details and
– Within 3 days, must report this to management
– Must then take reasonable steps to discuss the
RI with management
– After 30 days, must then send second report
to IRBA
– Consider impact on Audit Report
37
• S45 – Reportable Irregularities
• Other points to note…
• Need to consider info from all sources (over-rides
confidentiality)
• No legal protection if you report a RI that was not
reportable
• May be sued if you do not report an RI that should
have been reported…
• IRBA may, on receipt of 2nd report notify any
appropriate regulator

• S46 – Limitation of liability
• No liability is incurred unless the opinion / report was
– Malicious,
– Fraudulent or
– Negligent
• If negligence is proven, only liable to 3rd parties if at the time of
providing the opinion,
– The RA knew or could reasonably have been expected to know that the
opinion would be relied on / used.
– Proving negligence will revolve around the degree of compliance with the
ISA
– Quality control is a big element of this…
Corporate Governance
History of Corporate Governance:
• King 1 – 1994
– Listed companies had to include a report on compliance with this Code
• King 2 – 2002
– Produced the “Code of corporate practices & conduct” (“The Code”)
• Sarbanes-Oxley – 2002 (USA)
– Not law in SA, but SA subsidiaries of US firms needed to conform…
• Companies Act amendments (2006) & New Co’s Act (2008)
– Audit committees; rotation of auditors; legal backing to the accounting
standards…
• King 3 – September 2009…
– Due to changes in international governance trends and
– New company’s Act
38
Application of King 3
• All entities, regardless of:
– Form of incorporation…
– Size…
– Whether operating in public or private sector…
• “Apply or explain” approach
– Indicate application of the Code or
– If not, explain why not…
Principles of good corporate governance…
UNISA indicate the need to always refer to these
principles when answering a CG question…
1. Transparency
(presents a clear and true picture?)
2. Accountability
(of decision-makers)
3. Responsibility
(Mgt take action where required)
4. Fairness
(rights of all stakeholders acknowledged
& respected)
The King 3 Code – 8 significant aspects:
1. Board of Directors
2. Audit Committees
3. Governance of risk
4. Governance of IT
5. Compliance with laws, codes & standards
6. Internal audit
7. Governing stakeholder relationships
8. Integrated reporting & disclosure
• Let’s look at each one in a little more depth…

39
SAICA Handbook
• Excellent open book opportunities for students
• Intro & background (Pgs 4 – 17)
• King Code of Governance Principles (Pg 19 – 49)
• Glossary of terms (Pg 50 – 61) (Note the section
on risk)
• King Report on Governance at the back provides
the detail / explanation of the principles
Board of directors
• NB Sections
– 2.16 – Chairman
– 2.18 – Composition
– 2.19 – Appointment
– 2.20 – Development
– 2.22 – Performance evaluation
– 2.23 – Committees
– 2.25 – Remuneration
Audit Committees
• NB Sections
– 3.1 – Establishment
– 3.2 – Composition & skills
– 3.3 – Chairperson
– 3.4 – Responsibility towards
integrated reporting
– 3.5 – Responsibility for
combined assurance model
– 3.7 – Towards internal audit
– 3.9 – Towards external audit
40
Governance of risk
• NB Sections
– 4.1 – Board responsibilities
– 4.2 – Determining risk tolerance
– 4.3 – Risk committee
– 4.4 – Performing risk assessments
– 4.7 – Risk responses
Governance of IT
• NB Sections
– 5.1 – Responsibility
– 5.2 – Alignment with performance
& sustainability
– 5.3 – Delegation of responsibility
(with 5.7)
– 5.4 - Monitoring & evaluation of
IT expenditure
– 5.5 – IT to be part of risk management
– 5.6 – Management of IT assets
Compliance with laws, etc

• NB Sections
– 6.1 – Board’s responsibility
– 6.2 – Directors to have working
understanding of effect of laws
– 6.3 – Compliance risk integrated into
risk management
– 6.4 – Effective compliance framework
& processes
41
Internal Audit (IA)
• NB Sections
– 7.1 – Establishment of IA function
– 7.2 – Approach & plan
– 7.3 – Assessment of effectiveness of
controls & risk management
– 7.4 – Audit committee role
– 7.5 – Positioning of IA function
Governing stakeholder relationships

• NB Sections
– 8.1 – Appreciation that stakeholder
perceptions affect reputation
– 8.2 – Proactive management of
relationships
– 8.4 – Equitable treatment of all
shareholders
– 8.5 – Transparent & effective
communication
Integrated report (IR)

• NB Sections
– 9.1 – Integrity and preparation of IR
– 9.2 – Inclusion of sustainability reporting
– 9.3 – Independent assurance on sustainability
reporting (Audit committee)
42
Typical questions?
• You are provided with a scenario and you need to conclude
on the adequacy of compliance…
– Approach:
• Identify the CG component being referred to
• State what is happening
• Comment on whether it complies or not
• If it doesn’t comply, explain why
• You are asked to give advice as to how the entity can comply…
– Approach:
• Identify the CG component being referred to
• State what needs to happen to comply (relate to scenario)
CG Questions
• Have a look at the Alcatraz question on CG…
– What is the current composition?
– What does it need to be?
– Therefore what needs to be changed?
– Let’s look through the mind map…
• Applied Q’s – Ch4, Q1 (Included on the DVD)
– Identify component of CG
– Identify any non-compliance
– Give facts leading to it being identified
– Give details of the principle / recommendation
– Let’s have a look…
– Refer the mind map for a suggested solution.
Companies Act
• Close Corporations Act will probably
not be examined by UNISA.
• Examinable (confirm in your TL?)
– Amended Companies Act No 71 of 2008
• Open book legislation includes the 2011
amendments.
– Companies Regulations of 2011
• Also included in the open book legislation
43
Studying the Companies Act…
• Must use the tut letter to guide you in terms of
specific sections that need to be studied.
• I would suggest that before starting each
chapter, you review the tut letter guidance for
that chapter first, then watch the DVD
guidance, and then do the reading and open
book referencing.
• Very NB to allocate time to this exercise.
• Can then immediately get into your assignment
questions.
My approach…
• I am going to focus only on what I believe to be the
main / more complex sections in each chapter…
• I am not going to work through each and every
section.
• You need to use the tut letter to inform you as to what
the relevant sections are that you need to know
• Will work through the Co’s Act and then the
Co’s Regulations…
• OK, so if you’re ready, let’s start working through
them…
Chapter 1… Part A & B

S 1: Definitions
– “distribution”
• NB to refer to this definition when looking at the
requirements to be met to make a distribution i.t.o S46
• All of these “distributions” described here require S46 to
have been complied with
• They generally refer to cash outflows (or diminished
future cash inflows)
44
S 2: related persons & control
– Subsection (2) also dictates how “control” is determined…
S 3: subsidiary relationships
S 4: solvency & liquidity tests
– Commercially solvent (assets > liabilities) and
– Factually solvent / liquid (able to meet debts as they
become due)
– For 12 months from date of test / distribution
S 8: categories of companies
– Discusses “profit co’s”
– Definitions in S1 address “non-profit co’s”
Chapter 2… Part B
S 15: Memorandum of Incorporation (MOI)
– Creation of MOI
• What it can contain or do…
– Creation of “company rules”
• Things not in Act and not in MOI…
S 16: Amending the MOI

– Can be amended if
• Court order OR
• S36(3) allows directors to change authorised shares unless the MOI specifically
prohibits it – must then lodge a “notice of amendment” OR
• If special resolution is proposed by Board or S/holders with >10% voting rights and
adopted by shareholders meeting
Chapter 2… Part B
S 19: Legal status
– Juristic person with all rights of an individual
– Directors not automatically liable
– Reference to personal liability company
S 20: Validity of actions
– No action void simply because prohibited in MOI
– Shareholders can ratify actions by special resolution (unless
contravention of the Act)
– Shareholders can claim for damages against persons acting fraudulently,
with gross negligence or contrary to Act
– 3rd parties acting in good faith can presume compliance
45
Chapter 2… Part B
S 21: Pre-incorporation contracts
– May be entered into but liable if not subsequently adopted or ratified
– 3 months to ratify or reject or assumed to have ratified
– If ratified, company deemed to have contracted from the beginning
– If rejected, person can claim to the extent of any benefit derived by the
company
S 22: Reckless trading
– Must not carry on business
• recklessly,
• with gross negligence, or
• with intend to defraud any person or
• for fraudulent purpose AND
– Must not trade if insolvent
Chapter 2… Part C
S 24: Company records
– In written form and for at least 7 years
– (3) & (4) lists records that must be maintained
– (5) lists director information that must be maintained
S 28: Accounting records
– Must keep accurate & complete records
– Must be accessible from registered office
– Offense for a company to
• Keep records that are inaccurate, incomplete or in the incorrect format – if done
with the intent to deceive or mislead
• To falsify records
– Offense for a person to
• Falsify records
Note for purposes of Reportable Irregularities!
Chapter 2… Part C
S 29: Financial statements
– Must satisfy reporting standards and must fairly present
– Must show assets, liabilities, equity & income & expenses
– Must set out date produced and accounting period
– Must state whether audited, independent reviewed or neither & must
indicate name and designation of preparer / supervisor of statements
– May provide a summary - (requirements in para 3)
– Must not be false or misleading or be materially incomplete
– Offense for person who prepares, or is party to the preparation of
financial statements that
• Do not comply with the reporting standard or do not fairly present
• Or are materially false or misleading
Again, note the significance of this for RI purposes!
46
Chapter 2… Part C
S 30: Annual Financial statements
– Must be prepared within 6 months of year end
– Must be audited if
• Public company
• Required by the regulations (Refer Regulation 28)
• Voluntary elected
– Or must be independently reviewed
• Exempt if every shareholder is also a director…
– Must
• Include an auditors report
• Include a directors report
• Be approved by the board and signed by an authorised director
• Be presented to the first shareholder meeting following approval
– Continued…
Chapter 2… Part C
S 30: Annual Financial statements (continued)
– Must include particulars showing payments to directors…
– Including
• Remuneration
• Pensions
• Compensation for loss of office’
• Shares issued
• Details of service contracts
– (6) includes a long list of what constitutes “remuneration”
Chapter 2… Part D
S 35: Legal nature of shares
– No nominal or par value
– Company may not issue shares to itself
– Authorised (not issued) shares have no rights
– Shares that have been issued but then acquired by or surrendered to the
company, also have no rights
S 36: Authorisation for shares
– MOI must set out
• Classes of shares & numbers that may be authorised to issue
• For each class, a distinguishing designation & the preferences, etc for that class
– MOI may set out
• An authorised number of unclassified shares (to be classified later)
• A class of shares without specifying preferences, etc (to be set out later)
– Any changes to authorised share aspects
• Special resolution OR
• By the Board (if not prohibited by the MOI) – must file notice of amendment
47
Chapter 2… Part D
S 37: Preferences, rights, limitations & terms
– Unless indicated otherwise in the Act or the MOI, each issued share has 1
voting right
– Every share has a right to vote on any changes to the preferences, etc
associated with that share
– If only 1 class of shares
• Right to vote on any shareholder matters
• Right to receive net assets on liquidation of company
– If more than 1 class of shares, MOI must provide that
• For each matter to be voted on, at least 1 class must have voting rights
• On liquidation, at least 1 class has right to receive net assets
– List of possible preferences, rights, etc. in paras (5) & (6)
– If MOI is amended to materially and adversely change any preference, those
shareholders have right to seek relief if
• They notified the company in advance of their intention to oppose the change
• They were present at the meeting and voted against the change
Chapter 2… Part D
S 38: Issuing shares
– Board may resolve to issue shares at any time to the extent that the shares have been
authorised
– If a company issues shares that are not authorised or in excess of numbers authorised,
this may be retroactively authorised (have 60 days)
– If the resolution to retroactively authorise is not adopted
• The share issue is a nullity to the extent that it exceeds authorised levels
• Company must return fair value of shares in excess plus interest
• Certificates and share register entries are regarded as being void
• Directors are liable if
– They were present at the meeting approving the issue and
– Failed to vote against the issue
S 39: Subscriptions of shares
– Only applies to private & personal liability companies
– Right to subscribe to issues in proportion to existing holding
– MOI may restrict this right
– May take fewer than entitled to, in which case the balance becomes
available to others…
Chapter 2… Part D
S 40: Considerations for shares
– May only be issued by the Board for “adequate consideration to the company”
(as determined by the Board)
– On receipt of the consideration
• Shares are regarded as “fully paid”
• Company must issue the shares and update the securities register
– There are allowances for considerations to be
• Negotiable at a future date
• In the form of an agreement for future services
• Shares to be issued and held in trust until conditions are met
• These shares have no voting rights but may receive distributions (dependent on the
degree to which conditions have been met)
48
Chapter 2… Part D
S 41: Shareholder approval for certain share issues
– Special resolution approved by the shareholders is required for issues
• To directors or to related persons (para (2) contains exceptions)
• If the voting power of the issued shares will exceed 30% of the voting powers
of that class of shares immediately prior to the issue
S 42: Options for subscription of shares
– May issue options for the allotment of, or subscription to authorised
shares
– Board to determine the consideration & terms
– Directors liable if approve the option without there being the
appropriate number of authorised shares available for issue at the date
of exercising the option
Chapter 2… Part D
S 44: Financial assistance for subscription of shares
– Not applicable if company is in business of lending money
– Unless prohibited in the MOI, the general rule is that the Board may
provide assistance to any person for the subscription or purchase of
shares of
• That company OR
• A Related company OR
• An inter-related company
– In terms of para (3) & (4) – the assistance must be
• Pursuant to an employee share scheme OR
• Pursuant to a special resolution of the shareholders adopted within the previous 2
years AND
• Immediately after providing the assistance, the company meets the solvency / liquidity
tests AND
• The terms and conditions of the assistance are fair & reasonable to the company AND
• Any terms and conditions in the MOI relating to this, have been met
– Contraventions are deemed void
– Directors can be held liable
Chapter 2… Part D
S 45: Loans or Financial assistance to directors
– Not applicable is company is in business of lending money
– Unless prohibited in the MOI, the general rule is that the Board may
authorise assistance to
• A director of the company or a related or inter-related company OR
• To a related or inter-related company (note the contradiction in the title) OR
• To a member of a related or inter-related corporation OR
• To a person related to any of the above…
– In terms of para (3) & (4) – the assistance must be
• Pursuant to an employee share scheme OR
• Pursuant to a special resolution of the shareholders adopted within the previous 2 years
AND
• Immediately after providing the assistance, the company meets the solvency / liquidity tests
AND
• Any terms and conditions in the MOI relating to this, have been met
– (5) Need to provide differing written notice periods of any resolution to do
this to shareholders (depending on value of the assistance)…
– Contraventions are deemed void
– Directors can be held liable
49
Chapter 2… Part D
S 46: Distributions to be authorised by the Board
– Remember definition of “distribution” in S1
– Company not to make any proposed distribution unless
• Pursuant to an existing legal obligation or a court order OR
• The Board has, by resolution, authorised the distribution; AND
• It appears that the solvency / liquidity test will be met immediately after
making the distribution, AND
• The Board has acknowledged that it has applied the test and is satisfied that
it will be met
– If the distribution has not been made within 120 business days from
original proposal, the Board must reconsider the solvency / liquidity test
and adopt a further resolution acknowledging that it has applied the test
and is satisfied with the results
– If test fails and distribution was in terms of a court order, Board may
apply to the courts for a reconsideration of the amount of the
distribution given the companies financial position.
– Directors may be liable for non-compliance
Chapter 2… Part D
S 47: Capitalisation shares
– Unless prohibited by MOI, with a resolution…
– The Board may allocate authorised shares as capitalisation shares on a
pro-rata basis in terms of existing shareholdings
– Board may decide to offer a cash payment to shareholders as an
alternative to taking up the capitalisation issue BUT
– Board needs to then consider the solvency / liquidity test i.t.o. S46 on the
basis that all shareholders might elect to take the cash.
Note that the cap issue is not regarded as a “distribution” as defined in S1
but the cash alternative is (the therefore S46 applies to it but not the cap
issue)
Chapter 2… Part D
S 48: Company or subsidiary acquiring company’s shares
– A company may acquire it’s own shares subject to the liquidity / solvency
test in S46 (i.e., there would be a “distribution” as defined)
– Subsidiary may acquire shares in holding company but all subsidiaries
together must not hold > 10% of the holding companies shares – subs
have no voting rights while they remain subsidiaries
– Cannot do this if the only remaining shares are held by subsidiaries or
are convertible or redeemable shares
– Agreements entered into by the company where they agree to purchase
back their shares at a later date are enforceable. If this transaction then
fails the S46 test, the company needs to apply to a court to determine a
fair value payable
50
Chapter 2… Part F
S 57: Interpretation & applicability of Part F (Governance)
– If a profit company (other than state-owned) has only 1 shareholder:
• May exercise voting rights without a need to comply with notices or internal
formalities (Except to the extent defined in the MOI)
• S59 to S65 do not apply (shareholder meetings & resolutions)
– If a profit company (other than state-owned) has only 1 director:
• May exercise any powers without a need to comply with notices or internal formalities
(Except to the extent defined in the MOI)
• S71 ((3) to (7)), S73 & S74 do not apply (removal of directors and board meetings)
– If a company (other than state-owned) has shareholders that are also all
directors:
• Any matter referred to shareholders by the board does not need to comply with
notices or internal formalities (Except to the extent defined in the MOI) provided that:
– Every such person was present at the board meeting where the matter was
referred
– Quorum requirements are met
– There is sufficient consent to meet the special or ordinary resolution
requirements Copyright NSOA Learning (Pty) Ltd 151
Chapter 2… Part F
S 60: Shareholders acting other than at a meeting
– A resolution that could be voted on at a shareholders meeting may
instead by done as follows:
• Submitted for consideration to relevant shareholders
• Voted on in writing by such shareholders within 20 business days of receipt of the
submission
• Adopted if written responses meet the equivalent special / ordinary resolution
approval requirements
– Specific mention that this can be done when electing a director
– Company must deliver a statement containing the results of the poll
within 10 business days of adopting the resolution
Chapter 2… Part F
S 61: Shareholders meetings
– Board (or any other person specified in MOI) may call a shareholders
meeting at any time
– A company must call a shareholders meeting
• If required by the Act or the MOI
• If required to fill a vacancy on the board
• If receive written demands calling for this by shareholders holding at least 10% of the
voting rights (or lower % if specified in MOI) – company may apply for a court order
setting this aside if seen to be frivolous or in respect of business already concluded
– Annual general meeting must be convened by a public company
• < 18 months from date of incorporation (first time)
• < 15 months from date of previous AGM
• Must include at least
– Presentation of director’s report, audited financial statements and audit
committee report
– Election of directors (where required by Act or MOI)
– Appointment of auditor and audit committee
– Any matters raised by shareholders
51
Chapter 2… Part F
S 62: Notice of meetings
– 15 business days – public or non-profit company
– 10 business days – in any other case
– MOI may provide for longer periods
– Must be in writing and must include contents set out in (3)
– There are remedies where the required notice is not given - (4) & (5)
S 64: Meeting quorum & adjournment
– Need at least 25% of voting rights present to begin or to decide on a matter
– MOI may specify a higher or lower %
– If > 2 shareholders, in addition to the above, at least 3 shareholders must be present
– Have 1 hour to meet quorum requirement before postponement by 1 week (meeting
not able to begin) or to a later time in the meeting (matter not able to be discussed)
– the 1 hour and /or the 1 week can be amended in the MOI
– Person presiding at the meeting may extend the 1 hour by a reasonable period if
there are reasonable grounds to do so
– Postponed meetings require no additional notice and do not require a quorum to
begin
– Meetings may be adjourned if there is majority support from those
entitled to vote (refer details in para 10 to 12)
Chapter 2… Part F
S 65: Shareholder resolutions
– Ordinary resolution
• Supported by at least 50% of votes
• Except for the removal of a director i.t.o. S71, MOI can change the % to be
higher (can be set at different levels for resolutions on different matters)
• Must always be at least 10% difference between OR and SR
– Special resolution
• Supported by at least 75% of votes
• MOI can change the % to be lower (can be set at different levels for
resolutions on different matters)
• Must always be at least 10% difference between OR and SR
Means that an OR can have a max of 65% if SR is kept at 75%
Means that an SR can be reduced to 60% if OR is kept at 50%
Chapter 2… Part F
S 66: Boards & directors
– At least 1 director – private or personal liability company
– At least 3 directors – public or non-profit company
– Election or appointment is null if the person is disqualified i.t.o S69
– Company may pay remuneration to it’s directors but this must be in
terms of a special resolution approved by shareholders within the
previous 2 years
S 68: Election of directors
– Decided on through a voting process by shareholders
– Each vacancy considered separately (each shareholder has 1 vote)
– To fill a vacancy, a candidate requires a majority vote
– Directors may be appointed by the board to serve on a temporary basis
until voted in – these directors have the same rights, powers & liabilities
as a fully fledged director until they are voted in
52
Chapter 2… Part F
S 69: Ineligibility of directors
– MOI may impose additional grounds of ineligibility to those in the Act or may
impose a minimum qualification requirement to be a director
– (7) – grounds for ineligibility (they cannot even be considered for appointment)
– (8) – grounds for disqualification (they are eligible but cannot be appointed)
– Exceptions exist if the director is the only shareholder
S 70: Vacancies on the Board

– Several conditions create vacancies on the Board – (1)(a) and (b)
– Must be filled by a new appointment specified in the MOI (if applicable) or
– Must be filled at the next AGM (if appropriate) or by a shareholders meeting
within 6 months from the date the vacancy arose
– If the vacancy results in there being no directors left, any shareholder entitled to
vote may convene a meeting to elect a director
Chapter 2… Part F
S 71: Removal of directors
– May be removed by an ordinary resolution at a shareholders meeting
• Director must be given same notice of the meeting as shareholders
• Director must be provided an opportunity to present to the meeting
– If > 2 directors, and a shareholder or director has alleged that a director
has become ineligible, disqualified, incapacitated or is negligent:
• Board must determine the matter by resolution (excluding the director involved) and
may accordingly remove a director
• Director to be given notice and an opportunity to present
• Director has the right to appeal the decision to a court
• If board decides all is OK, any director who disagrees with the decision (and voted
against it) may also appeal the decision to a court
• Board cannot remove a director if there are < 3 directors but any shareholder or
director can apply to the Companies Tribunal for a decision in relation to this section
(i.e. where a director is seen to be ineligible, etc)
Chapter 2… Part F
S 72: Board Committees
– Unless prohibited by MOI, Board may appoint any number of committees
and may delegate authority to these committees
– Committees may include non-directors but
• They cannot be ineligible or disqualified (as if they were directors)
• They cannot vote
– Committees may consult with other persons or receive advice
– Committees have the full authority of the Board regarding matters
referred to them
– The Minister may specify that certain companies must have a “Social &
Ethics Committee”.
• Refer Regulation 43
• Companies may apply to be exempt from this requirement
53
Chapter 2… Part F
S 73: Board Meetings
– A director authorised by the Board may call a meeting at any time
– They must call a meeting if required to do so by
• At least 25% of the board (if board members number > 11) OR
• 2 directors in any other case
• These figures may be altered in the MOI
– May be conducted electronically provided all persons can communicate
concurrently (video conferencing)
– Board to determine form and time for giving notice
– Quorum = majority of directors present
– Each director has 1 vote
– Resolution passed based on majority decision (if tied, chairman may cast
deciding vote if they did not already have a vote – otherwise it fails)
– Must keep minutes as prescribed in (6) & (7)
Chapter 2… Part F
S 74: Directors acting other than at a meeting
– Unless prohibited by the MOI…
– May vote through written consent by the majority of directors instead,
provided that each director received notice of the matter
S 75: Directors personal financial interests
– If a director has a personal interest in (or knows that a related person has
a financial interest in) a matter to be considered by the Board…
• Must disclose the interest and it’s general nature before the matter is considered
• Must disclose any material information related to the matter and known by the
director
• May disclose any observation of pertinent insights if asked
• If present at the meeting, must leave the meeting prior to the matter being considered
(still counts for quorum purposes but may not vote)
• Must not take part in the consideration of the matter
• Must not execute anything in relation to the matter on behalf of the company
unless instructed to by the Board
– If the interest arises after the matter is approved, the director
must disclose the details to the Board or shareholders
Chapter 2… Part F
S 76: Standards of directors conduct
– Director must not use their position to gain a personal advantage or to
knowingly cause harm to the company
– Directors must communicate to the Board asap any information coming
to their attention that is not immaterial or public knowledge, unless they
are bound by confidentiality (legally or ethically) to not disclose it
– Directors must exercise their powers and perform their functions
• In good faith and for a proper purpose
• In the best interests of the company
• With the degree of care, skill and diligence reasonably expected of someone in that
position
– Directors will be deemed to have acted in the best interests of the
company and with reasonable care & skill if
• They have taken reasonably diligent steps to become informed
• They have no material personal financial interest (or they declared it i.t.o. S 75)
• They supported a decision having had a rational basis for belief that the
decision was in the best interests of the company
– Continued… Copyright NSOA Learning (Pty) Ltd 162
54
Chapter 2… Part F
S 76: Standards of directors conduct (continued)
– Directors are entitled to rely on
• employees whom they reasonably believe to be reliable and competent
• Legal counsel, accountants or other professionals retained by the company and
believed to have particular skills or competencies
• Committees of which the director is not a member (unless they believe that the
actions of the committee do not merit confidence)
S 77: Liability of directors
– Breach of fiduciary duty (not acting in best interest of company)
• Contravention of S 75, S 76 (2), S 76 (3) a) or b)
– Delict (negligence)
• Contravention of S 76 (3) c)
• Contravention of any other provision in the Act (not specifically mentioned in this
section)
• Contravention of any provision in the MOI
– List of actions for which a director is liable - (refer para 3)
– Liability is joint and several
– Proceedings may not be instituted > 3 years after event giving rise
to the claim Copyright NSOA Learning (Pty) Ltd 163

S 84: Application of the chapter
– Basically this chapter only applies to companies that are required to be audited
(unless the MOI indicates that it needs to comply)
– These companies must appoint
• A company secretary
• An auditor
• An audit committee
S 85: Companies must maintain a record of the appointments of

company secretary and auditor…
S 86: Mandatory appointment of company secretary
– Must appoint a person knowledgeable or experienced in relevant laws
– Must be a permanent resident of SA
– 1st appointment by the incorporators or within 40 business days of incorporation
– Vacancies filled within 60 business days

S 87: Juristic person (company) may be appointed
– Provided that none of the employees or partners who provide secretarial services
would be disqualified from being company secretary in their personal capacity AND
– Provided that at least 1 employee meets the requirements for the mandatory
appointment (skills & residence)
– Change in membership of the juristic person does not constitute a vacancy if they
continue to meet the requirements above.
– Obligation is on the juristic person to notify the company in writing if they fail to
continue to qualify as company secretary
S 88: Duties of company secretary
– Accountable to the Board
– Duties listed in (2)
S 89: Resignation or removal
– Resign – 1 month’s written notice (or less if approved by Board)
– If removed, outgoing secretary may request a written representation to
be included in the AFS (in directors report) as to the circumstances
surrounding the removal (requires written notice to be provided
before the end of the financial year in which they were removed)
55
Chapter 3… Part C
S 90: Appointment of auditor
– Must be done upon incorporation (or within 40 business days of that date)
and then annually at each AGM
– Requirements
• Must be a RA
• Must not be prohibited i.t.o. para (2) (b)
• Must be acceptable to the audit committee as being independent
– If a firm of auditors is appointed, the individual responsible for the audit
needs to meet the above requirements
– Retiring auditors may be automatically reappointed unless
• They no longer qualify
• They wish to resign
• They need to be removed in terms of the rotation requirements
• The audit committee objects to the reappointment
• The company has notice of an intended resolution to appoint another auditor
– If the AGM fails to appoint or reappoint the position, directors
must fill it within 40 business days
Chapter 3… Part C
S 91: Resignation of auditors and vacancies
– Resignation effective when notice is filed
– Must appoint a new auditor within 40 business days if a vacancy arises and
there was only 1 incumbent auditor
– May appoint a new auditor at any time if there is more than 1 incumbent
(joint audit)
– Board must propose at least 1 RA for consideration to the Audit committee
within 15 business days of the vacancy arising
– May proceed with the appointment if the audit committee does not give
notice within 5 business days of a decision to reject the proposed auditor
– Changes in the composition of members of an audit firm does not create a
vacancy unless the change results in less than half the original members
remaining – in which case the firm is deemed to have resigned, giving rise
to a vacancy
Chapter 3… Part C
S 92: Rotation of auditors
– The same individual may not serve as auditor for more than 5 consecutive
years
– If serve for 2 or more years and then ceases to serve, cannot be
reappointed until at least 2 further financial years
– If joint auditors, company must manage the rotation to ensure that not all
joint auditors are replaced in the same year
S 93: Rights & restricted functions
– Access at all times to accounting records, books & documents and is
entitled to require information and explanations as required
– Holding Co auditor has right of access to subsidiary AFS and to explanations
and information in connection with these statements
– Entitled to receive notice of, attend , and be heard at any general
shareholders meeting in matters relating to the auditors duties or function
– May not perform any service that would create a conflict of
interest i.t.o. the AP Act or as determined by the Audit Committee
56
Chapter 3… Part D
S 94: Audit Committees
– Applies to public companies, state-owned companies or other company if
required by its MOI
– To be elected at each AGM and to comprise at least 3 members
– Unless a subsidiary of a company who has an audit committee that will
perform the required functions for the subsidiary too
– Each member must be a director and must not be
• Involved in day to day management (so, must be non-exec directors)
• A prescribed officer or full time employee (or must not have been this for the last 3 years)
• A material supplier or customer of the company
• Not be related to any of the above
– Para (7) sets out the duties of the audit committee
– Para (8) sets out guidelines to the audit committee in considering the
independence of the auditors
Note: It would be useful to study the sections relating to Directors,
Boards, Auditors, Audit Committees, etc. in the context of King 3
Chapter 7…
S 159: Protection for whistle blowers
– MOI cannot negate or limit the applicability of this section
– Applies to any disclosure of information (by persons listed in para 4) if
• Made in good faith and
• The person making the disclosure reasonably believed at the time of making the
disclosure that a company or director has
– Contravened this Act
– Failed (or is failing) to comply with any statutory obligation
– Engaged in conduct that has endangered any individual or the environment
– Unfairly discriminated against any person (or condoned this)
– Contravened any other legislation in a manner that could expose the company to a
risk of liability or is inherently prejudicial to the interest s of the company
– There is protection through compensation if a person making these
disclosures is prejudiced or threatened in any way
– Public & State-owned companies need to establish and maintain systems to
receive these disclosures confidentially and to act on them. They
should also routinely publicise the availability of such systems to
relevant persons. Copyright NSOA Learning (Pty) Ltd 170
Chapter 9…
S 213: Breach of confidence
– It is an offense to disclose confidential information concerning the affairs of
any person obtained in carrying out any functions in the Act or in
participating in any proceedings in terms of the Act
– Exceptions in (2)
S 214: False statements, reckless conduct & non-compliance

– Guilty if involved in any way in preparing or disseminating false or
misleading information or in knowingly providing false information
fraudulently.
57
Companies regulations 2011…
I am only going to focus on a few of the more important regulations
but please use your tut letter to guide you in terms of any additional
regulations that UNISA want you to know about…
Reg 25: Financial year and Accounting records

– Reference to S 27 and S 28 of Co’s Act…
– Para (3) describes what must be included in the accounting records
– Para (4) includes some extra stuff for non-profit companies
– Para (6) allows records to be kept in electronic form (with a few provisos)

Reg 26: Interpretation of regulations affecting transparency &
accountability
– Reference to regulations 26 to 29…
– Definitions include
• “independent accounting professional “ (NB for Independent reviews)
• “independently compiled and reported” (NB for Independent reviews)
– Calculation of “Public Interest Score”
(which I discussed in detail while covering the Independent Review)
Reg 27: Financial Reporting Standards
– Reference to S 29 (4)…
– In general, may prepare AFS to a higher standard than required (but
obviously not lower!)
– Para (4) sets out a table showing which financial reporting standard
applies to which entity

Reg 28: Categories of companies required to be audited
– Reference to S 30(2) & (7)…
– Para (2) sets out the additional situations where an audit will be required
(I have discussed these when talking through the independent review)
Reg 29: Independent Review

– Reference to S 30(2) & (7)…
– I have discussed all of this when talking through the independent review
– NB paragraphs to work through:
• Definition of RI (for IR purposes) (para 1)
• Which companies need to be IR’d (para 2)
• IR’s needing to be done in terms of ISRE 2400 (para 3)
• Who can do the IR (para 4 and 5)
• What happens with RI’s (para 6 to 11)
• Requirements that professions conducting IRs need to meet (para 12)
58
Reg 42: Audit committee member qualifications
– Reference to S 94(5)… - Minister may regulate prescribed qualifications
– At any one time, at least 1/3 of the committee must have academic
qualifications or experience in:
• Economics,
• Law,
• Corporate governance,
• Finance,
• Accounting,
• Commerce,
• Industry,
• Public affairs, OR (note that this is not AND)
• Human resource management

Reg 43: Social & Ethics Committee
– Reference to S 72(4 to 10)…
– Applies to
• State-owned companies
• Listed Public companies
• Other companies with a PIS > 500 in at least 2 of the previous 5 years
• Unless exempt (S75(5)), or a subsidiary of a holding company who has this committee
– Composition – para 4
– Functions – para 5
– OK, and that’s it for the Regulations…
To conclude…
• Need to allocate the time to this Act…
• If you do the work well now, there will be
much less time required during final
revision on this section…
• Must spend time testing your ability to
identify the relevant sections and then
applying the rules (which we will explore
in the Question Bank DVDs)…
59
Companies Act…
• The key to answering questions is being able
to identify the relevant sections which can
then be accessed where necessary…
• Must be able to identify the event that

needs to be regulated.
• If you can spot these events, these questions

become relatively easy to score good marks
in!
Must test yourself though…

– Need to see if you can identify the events?
– Need to see if you can apply it to the Act when
then answering the Q
– We’ll work through a question together to show
you how to approach these types of questions.
– You will then need to work through as many of the
remaining questions in your TL as possible to practice this
ability.
• Focus on seeing if you can identify the event and then link it to
the relevant section in the Act (don’t need to necessarily answer
these questions “in full”)
The Question…
• Case 1:23 (required b only) from “Advanced Case Studies” 8th
Edition by Frans Prinsloo
• Let’s first have a look at the required to understand what

needs to be done…
• Take a few minutes now to read through the scenario yourself

and see if you can identify the events that may lead to non-
compliance with the Act and their relevant sections?
• Lets then compare what you found to what I found and have a
look at the mindmap...
Copyright NSOA Learning (Pty) Ltd Slide 180
60
Quality control
• Why is this important?
– To safeguard ethical behaviour (COPC)
– To limit the potential for liability through
negligence (S46 of AP Act)
• Guidance
– ISQC1 – QC for firms that perform audits
– ISA 220 – QC at an audit engagement level
Quality control summary

The “elements” of a QC system
Compliance Client
Human Engagement
Leadership with Ethical acceptance & Monitoring
Resources performance
Requirements continuance
ISQC 1 Para 9-13 Para 14-17 Para 28-35 Para 36-45 Para 46-73 Para 74-93
ISA 220 Para 6-7 Para 8-13 Para 14-18 Para 19-20 Para 21-40 Para 41-42
Quality control
• Note that ISA 220 is often simply the Engagement
Partner needing to ensure that the policies set in
place through ISQC1 have been complied with on
specific engagements…
• It is very important that you read through ISQC 1
and ISA 220 and do your “open book thing”
• Refer to the mind map summarising the key
aspects of the elements of QC.
61
Auditor’s responsibility re fraud
• ISA 240 - Important statement & a great framework!
• Fraud vs Error?
– All to do with intent – fraud involves intention.
• Primary responsibility for prevention & / or detection of fraud

rests with management
• Auditor’s responsibility is to obtain reasonable assurance that

the AFS are free of misstatement, whether caused by fraud or
error. (i.e. need adequate assurance that fraud did not take
place.)

• Audit requirements regarding fraud
– Need to maintain scepticism throughout the audit.
– Regarding the potential for management override of controls:
• Test the appropriateness of Journal entries
• Review accounting estimates for bias
• Pay specific attention to unusual transactions / transactions outside
the normal course of business

• 2 types of fraud
– Fraudulent financial reporting
– Misappropriation of assets
• Fraud risk factors
– Incentives
– Pressures
– Opportunities
– Rationalisation
• You have to think like a thief to catch a thief!
• Refer Appendix 1
62

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CTA Auditing

AUE 4861 / 4862

Welcome and Introduction to the Auditing DVDs

• Objectives of this DVD series:

• Structure of the DVDs

CTA 1 & 2 Syllabus…

How to use these DVDs

• It is critical that you allocate sufficient time to

• Make use of the Student Zone to raise any queries

The audit process – big picture

Different stages of the audit

•Remaining tests of control

Copyright NSOA Learning (Pty) Ltd 10

ISA 210 (Agreeing the terms of audit engagements)

Copyright NSOA Learning (Pty) Ltd 11

ISA 220 & ISQC1 (Quality control)

ISA 220 para A8

Copyright NSOA Learning (Pty) Ltd 12

Para 13 – for initial engagements…

Copyright NSOA Learning (Pty) Ltd 13

1. Perform a client investigation…

2. Determine skills & competence requirements…

3. Establish the terms of the engagement…

4. Confirm the terms in an engagement letter…

Copyright NSOA Learning (Pty) Ltd 14

Practical approach to studying this section

Refer the mind-map summary

Copyright NSOA Learning (Pty) Ltd 15

Copyright NSOA Learning (Pty) Ltd 16

ISA 300 - Planning

Copyright NSOA Learning (Pty) Ltd 17

ISA 300 - Planning

• Determining the N,T & E of procedures to assess risks

• Determining the N,T & E of planned further audit

Copyright NSOA Learning (Pty) Ltd 18

Copyright NSOA Learning (Pty) Ltd 19

“The objective of the auditor is to…

(ISA 315 para 3)

Copyright NSOA Learning (Pty) Ltd 20

ISA 315 – Understanding the entity…

– Understanding the entity & it’s environment, including internal controls

– Assessing the risks of material misstatement

– Documentation of the process…

Copyright NSOA Learning (Pty) Ltd 21

Copyright NSOA Learning (Pty) Ltd 22

ISA 315 – Understanding the entity…

Copyright NSOA Learning (Pty) Ltd 23

ISA 315 – Understanding the entity…

Copyright NSOA Learning (Pty) Ltd 25

AFS vs. Acc Bal level risk

Copyright NSOA Learning (Pty) Ltd 26

Audit Risk model…

Copyright NSOA Learning (Pty) Ltd 27

The financial statement assertions

• 3 categories of assertions (Ref ISA315, A111)

• Need to recognise that every account balance contains

Transaction & event assertions

• Occurrence • Everything that was recorded should have been

• Accuracy • Everything that was recorded, was recorded at the

• Classification • Everything that was recorded, was recorded in the

Copyright NSOA Learning (Pty) Ltd 30

• Existence • Assets & Liabilities that were recorded should have

• Valuation • Assets & liabilities are recorded at their correct