Auditing &

Investigations I
Statutory Audits and Regulation
Key issues
1. Regulatory Framework of statutory audits.

2. Appointment of Auditors and vacation of office

3. Duty of Directors.

4. International Standards of Auditing (ISA)

5. Regulation of Auditors

6. Features of an Audit

7. Audit Reports

8. Limitation of Statutory Audits

1. Regulatory Framework of statutory audits
 Statutory audit governance is primarily provided through
legislations and legal instruments.

 Most companies are required to conduct audits under the

Companies Act. Small companies are exempted in most
cases but a review is required under the Private Business
Corporations Act.

 Secondarily, statutory audits are governed through

instruments or requirements provided from legislation
promulgated in the setting up of regulatory bodies.

 For example, legislation set out to govern members of

the stock exchange who are listed companies or banks

 Additional framework is provided through auditing

standards.
 2. Appointment of Auditors

Who Appoints When How

Members (a) At AGM when • Ordinary resolutions

• Reappointing retiring auditor • Ordinary resolution with special
• Appoint auditor other than notice.
retiring auditor
(b) Private companies
• No AGM necessary • Elective unanimous resolution.
• To fill a casual vacancy ( if • Ordinary resolution with special
auditor dies) notice

Directors (a) To fill a casual vacancy Reappointment by members at

(b) Appoint auditor for the first next AGM by ordinary resolution
time with special notice.

Government Where no auditor is appointed at Company must inform Govt of the

AGM situation
 2.2. Auditor Vacation of Office
Reason for Vacation Method
Removal (before expiry Ordinary resolution with special
of term of office) notice.
Notice of resolution to state the
fact that the auditor has made
representations.
Resignation The auditors must submit a
written notice to the company.
The company must notify
• The Registrar of companies
• All parties entitled to receive
copies of accounts.
Auditor’s Rights
To have written
representation of a
reasonable which should be
read at a meeting.
Request an extraordinary
general meeting to consider
the reason for resignation.
Company to circulate
statement on circumstance
 2.3. Duties of Auditors
 ‘to report to the company’s member on every
set of accounts of which a copy is laid before
the member in respect of the accounting period’.
 State whether the financial statement give a true
and view.

Requirements = RAPID
 R = Returns from branches received
 A = Agreements of accounts with record and return
 P = Proper accounting records kept
 I = Information and explanations from mgt received.
 D = Directors report is consistent
2.4. Auditor’s rights
Have right to:

 have access to the books, accounts and vouchers of

the company.

 require from the officers of the company any

information and explanations which he thinks
necessary for the purposes of the audit.

 receive notice of and attend any general meeting of

members.

 Speak at any general meeting on business which

concerns him/her as auditor.
 3. Duties of Directors
Key duties in respect of company accounts:

 To keep books of accounts and proper

accounting records.

 To produce an income statement (SOCI) and

balance (SOFP) for each accounting period
in such a fashion as to show a true and fair
view.

 To produce a directors report which is

consistent with financial statement and
contains certain specified information.
Structure of International
standards of Auditing (ISA)
 Introduction – Materials on purpose, scope and subject
matter of the ISA

 Objective – Clear statement on audit areas addressed by

the ISA

 Definitions – Oertinent terms in each ISA

 Requirements- prescription of audit action for the

auditor.

 Application and other explanations – Explanations and

procedures require on each circumstances.
4. International Standards of Auditing
Standards set by International Auditing and
Assurance Standards Board (IAASB) of IFAC:
 200 - Overall objectives of the independent auditor and the
conduct of an audit in accordance with International Standards on
Auditing.

 210 - Agreeing the terms of audit engagements

 230 - Audit documentation

 240 - The auditor's responsibilities relating to fraud in an audit of

financial statements

 250 - Consideration of laws and regulations in an audit of financial

statements

 260 - Communication with those charged with governance

 265 - Communicating deficiencies in internal control to those

charged with governance and management
 300 - Planning an audit of financial statements

 315 - (Revised) Identifying and assessing the risks of material misstatement

through understanding the entity and its environment

 320 - Materiality in planning and performing an audit

 330 - The auditor's responses to assessed risks

 402 - Audit considerations relating to an entity using a service organisation

 450 - Evaluation of misstatements identified during the audit

 500 - Audit evidence

 501 - Audit evidence – specific considerations for selected items

 505 - External confirmations

 510 - Initial audit engagements – opening balances

 520 - Analytical procedures

 530 - Audit sampling

 540 Auditing accounting estimates, including fair value

accounting estimates, and related disclosures

 560 - Subsequent events

 570 - Going concern

 580 - Written representations

 610 - (Revised) Using the work of internal auditors

 620 - Using the work of an auditor's expert

 700 - Forming an opinion and reporting on financial

statements

 705 - Modifications to the opinion in the independent

auditor's report

 706 - Emphasis of matter paragraphs and other matter

paragraphs in the independent auditor's report

 720 - The auditor's responsibilities relating to other

information in documents containing audited financial
statements
Categorisation of the
Standards
 Respective responsibilities

 Audit Planning

 Internal controls

 Audit Evidence

 Using the work of other experts

 Audit conclusions and audit report

 Specialised areas
Continued

 800 – Special considerations – audits of financial

statement prepared in accordance with special purpose
framework

 805 – Special considerations – audit of single financial

statements and specific elements, accounts or items of
a financial statement

 810 – Engagement to report on summary financial

statements

 International Standard on Quality Control (ICQC) 1 –

Quality control for firms that performs audits and
review of financial statements and other assueance and
related services engagements
5. Regulation of auditors
 Auditors in Zimbabwe are regulated under the
PAA Act.
 Governments can pass statutes that must be
followed. These typically provide the broad
framework e.g., which companies must be
audited, how auditors must be appointed, how
they can be removed. Companies Act

 Stock exchanges can impose requirements on

companies seeking a listing on the exchange.
Stock exchanges are keen to improve the
transparency and efficiency of their market, so
typically might require a company’s auditors to
report on the standards of corporate governance
in the company.
6. Features of an Auditor
6.1. The Auditors

 ‘The Auditor’ include all members of the team

Engagement partner

Audit manager

Audit senior

Audit juniors
6.2. The auditing process
6.2.1 Process of auditing
 Engagement letter - Every auditor should send his client
an engagement letter which sets out the auditor’s
duties and responsibilities (ISA 210).

 Planning - The auditor must plan and control the audit

work if the work is to be done to a high standard of skill
and care (ISA 300).

 Ascertainment of systems - An auditor must enquire

into and ascertain the client’s system of accounting and
internal control in order to understand how accounting
data is prepared and to gain an impression as to
whether systems are reliable, as it is the information
generated from these systems which is summarised in
the financial statements (ISA 400).
6.2.2. Process of auditing

 Testing of controls - The auditor should test the

controls if he intends to rely on them and he must
test the records in order to obtain evidence that
they are a reliable basis for the preparation of
accounts (ISA 500).

 Verification - The auditor must verify the figures

appearing in the financial statements (ISA 500).

 Review - The auditor must reviews the financial

statements to see if overall they appear sensible
(ISA 520).
 6.2.3. Process of auditing

 Management representations - The auditor asks the

management to confirm formally the truth and fairness
of certain aspects of the financial statements. (ISA
580).

 Signing of report - The auditor signs the auditors’ report

once the directors have approved the accounts.(ISA
700).

 Re-appointment - The end of the Annual General

Meeting signifies the end of the auditor’s term of
office. The members of the company may decide by a
majority to re-appoint the auditor if he wishes to
continue to act for the company.
7. Audit Reports
7.2. Audit Reports
 An “unmodified” audit report is where the auditor is happy
that the accounts give a true and fair view and has no
reservations about his opinion that he wishes to share with
the readers of the audit report.

 A “modified” audit report is any other report where the

auditor cannot unreservedly say that the accounts give a true
and fair view as they stand.

 “Unqualified” modified audit report is where the auditor

believes that the accounts give a true and fair view, but he
wishes to draw attention to some fundamental uncertainty
surrounding the accounts.

 “Qualified” audit report is where the auditor is therefore

unable to give an opinion that the accounts give a true and
fair view.
8. Limitation of statutory audits
(a) the use of sample testing rather than
checking every transaction.

(b) the inherent limitations of accounting

and internal control systems.

(c) the fact that most audit evidence is

persuasive rather than conclusive.

(d) the use of judgement by the auditor in

deciding on the nature and extent of
audit procedures to be carried out.
 End

Thank for your

attention