how to engage with relevant audit reports and what the audit opinions mean? presentation to select...
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How to engage with relevant audit reports and what the audit opinions
mean?
Presentation to Select Committee on Finance
Imran VankerBusiness Executive: Gauteng3 June 2005
THE PUBLIC SECTOR AUDIT PROCESS
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AGENDA
• Oversight process
• The audit process
• Types of audits
• Reporting
• Provincial General Report
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Medium Term Strategic Framework
Medium Term Macro & Fiscal Framework
Drafting Phase Legislative Phase Implementation Phase Audit and Oversight Phase
Medium Term Expenditure Framework
Annual Fiscal Framework
Division of Revenue Tabling
Tabling Departmental Strategic
Plans
Tabling
Division of Revenue Bill
Spending Proposals Tabling
Medium Term Budget Policy Statement
Budget Review
Parliamentary Amendments
Appropriation Bill
Estimates of National Expenditure
Departmental Strategic Plans
Parliamentary Amendments
Appropriation Act
Division of Revenue Act
Revenue Proposals Tabling Tax Bill Tax Act
Parliamentary Amendments
Tabling Progress Reports on Conditional Grants
Quarterly Performance Reports
Monthly & Quarterly Financial Reports
Departments’ Annual Financial Statements
Consolidated Annual Financial Statements
Departments’ Annual Reports
Auditor-General’s Report
Adj . Appro’tion Bill Adjustment Appro’tion Act
Parliamentary Amendments In-year revision
and adjustments Tabling
OVERSIGHT ROLE IN CONTEXT
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AUDIT PROCESS
• An audit can be defined as an official examination of accounts or as a searching examination
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AUDIT PROCESS continued…
• Objective of audit of financial statements is to express an opinion as to whether statements are a fair presentation
• Process is underpinned by professional requirements throughout, i.e. independence, objectivity, confidentiality and professional behaviour.
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TYPES OF AUDITS
• Comprehensive (Regularity) auditing
• Performance auditing
• Forensic auditing
• Sustainable development auditing
• Integrated auditing
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TYPES OF AUDITS continued…
Comprehensive Audit
•Comprises both financial auditing and the consideration and testing of compliance with laws and regulations
•Output of an comprehensive audit is the expression of an opinion of the financial statements of an entity
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TYPES OF AUDITS continued…
Performance AuditFocuses on evaluating measures implemented by management to ensure economic procurement of goods and services and efficient and effective application of the same
Forensic AuditAn independent process to prevent or detect economic crime in the public sector
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TYPES OF AUDITS continued…
Sustainable Development AuditUses existing auditing disciplines but focuses on the social and environmental aspects of business processes
Integrated AuditIndependent process whereby the principles of preceding audit disciplines are co-ordinated and incorporated into one process
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AUDIT PROCESS
AUDIT PROCESS
Pre-Engagement
Activities
Audit Planning
Execution Reporting
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• PRE-ENGAGEMENT ACTIVITIES– Consider changes in circumstances of
previously audited entities– Consider circumstances of new
engagements (identify risks)– Determine skills and competency
requirements– Establish terms of engagement and
communicate to management
AUDIT PROCESS
Pre-Engagement Activities
Audit Planning Execution Reporting
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AUDIT PROCESS
• AUDIT PLANNING– Obtain knowledge of the business– Obtain understanding of systems and processes– Assess financial risks facing the entity– Evaluate work of internal audit– Evaluate financial management– Formulate audit approach– Communicate audit plan to management
Pre-Engagement Activities
Audit Planning Execution Reporting
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• EXECUTION OF THE AUDIT– Testing of controls– Detailed test of transactions and balances– Continual communication– Letter to management to highlight key audit
findings– Final audit steering committee meeting to
clarify findings
AUDIT PROCESS
Pre-Engagement Activities
Audit Planning Execution Reporting
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AUDIT REPORT AS OVERSIGHT TOOL
• Audit assignment, nature and scope paragraph– common in all reports
• Qualification paragraph– findings on which qualified opinion is based– Two types of reports
• unqualified• modified
AUDIT PROCESS
Pre-Engagement Activities
Audit Planning Execution Reporting
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AUDIT REPORT AS OVERSIGHT TOOL continued…
Unmodified
“clean” report
No furtheraudit comment
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AUDIT REPORT AS OVERSIGHT TOOL continued…
Modified reports
Matters that do not affect the auditor’s opinion
Additional reporting
requirements
To highlight a
matter
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AUDIT REPORT AS OVERSIGHT TOOL continued…
Modified reports
Matters that do affect the auditor’s opinion
Effect is so material and pervasive
and/or fundamental that auditor is
unable to express an opinion
Effect is not somaterial and
pervasive and/or fundamental as to
require disclaimer of opinion
Effect is not so material and
pervasive and/or fundamental as to require adverse
opinion
Effect is so material and pervasive
and/or fundamental that auditor
concludes that a qualified opinion is
inadequate
Qualified opinion
Adverse opinion
Disagreement with management
Disclaimer of opinion
Qualified opinion
Limitation of scope
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AUDIT REPORT AS OVERSIGHT TOOL continued…
• Emphasis of matter paragraph– Matters affecting financial
• Going concern• Fraud or suspected fraud
– Matters not affecting financials• Unauthorised expenditure• Irregularities and losses• Weaknesses in internal control• Financial management• DORA
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AUDIT REPORT AS OVERSIGHT TOOL continued…
• Qualification and emphasis of matter paragraphs important to PAC
• Questions on:– Reasons for shortcomings– Whether poor controls gave rise to
losses/irregularities– Steps taken to regularise– Financial misconduct– Departmental investigations
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This report is divided into three key areas:
• Section 1: Analysis of Provincial Departments
• Section 2: Analysis of financial information and audit findings
• Section 3: Specialised audit services
PROVINCIAL GENERAL REPORT HIGHLIGHTS
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PROVINCIAL GENERAL REPORT HIGHLIGHTS continued…
Section 1 – Analysis of provincial departments
• Votes of provincial departments were not standardised;
• Consequently comparisons between provinces for benchmarking purposes were difficult to perform; and
• The number of unqualified audit opinions decreased from 51% to 37% for all three sectors
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PROVINCIAL GENERAL REPORT HIGHLIGHTS continued…
Section 2 – Analysis of financial information and audit findings
• Asset management is not being effectively addressed;
• Personnel expenditure representing 47% of total expenditure is another key area identified during the audits;
• Internal audit/audit committees
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PROVINCIAL GENERAL REPORT HIGHLIGHTS continued…
Section 2 – Analysis of financial information and audit findings
continued…
• Transfer payments; and
• Unauthorised, irregular and fruitless and wasteful expenditure reported on amounted to 3,5% (R5,833 billion) of the total expenditure of R167,4 billion.
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PROVINCIAL GENERAL REPORT HIGHLIGHTS continued…
Section 3 – Specialised audit services 03-04
• Special investigations Page 3• Performance audits Page 19• Performance information review Page 25
- Highlights fundamental deficiencies. This includes poor linkage to budget commitments, lack of measurable objectives and lack of explanation of deviations from planned targets and outputs.
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for your attention and participation
Thank you