1. THE PUBLIC SECTOR AUDIT PROCESS
How to engage with relevant audit reports and what the audit opinions mean?
Portfolio Committee on DoD Briefing
19 October 2005
RP Mosaka/ C Botes
Parliamentary Service Unit Office of the Auditor-General

2. INDEX
Definition
Types of audits
The audit process
Reporting

3. AUDIT PROCESS
An audit can be defined as an official examination of accounts or as a searching examination

4. 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 attesting whether the controls are in place or not, and if in place, whether they are:
Being implemented (compliance), or
Effective, i.e. whether they are working or not

5. TYPES OF AUDITS Comprehensive (Regularity/Financial) auditing
Performance auditing
Forensic auditing
Sustainable development auditing
Integrated auditing

6. 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

7. TYPES OF AUDITS continued…
Performance Audit
Focuses on evaluating measures implemented by management to ensure economic procurement of goods and services and efficient and effective application of the same – VFM audits
Forensic Audit
An independent process to prevent or detect economic crime in the public sector

8. TYPES OF AUDITS continued…
Sustainable Development Audit
Uses existing auditing disciplines but focuses on the social and environmental aspects of business processes
Integrated Audit
Independent process whereby the principles of preceding audit disciplines are co-ordinated and incorporated into one process

9. Pre-Engagement Activities
AUDIT PROCESS
AUDIT PROCESS
Pre-Engagement Activities
Audit Planning
Execution
Reporting

10. Pre-Engagement Activities
AUDIT PROCESS
Pre-Engagement Activities
Audit Planning
Execution
Reporting
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

11. Pre-Engagement Activities
AUDIT PROCESS
Pre-Engagement Activities
Audit Planning
Execution
Reporting
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

12. Pre-Engagement Activities
AUDIT PROCESS
Pre-Engagement Activities
Audit Planning
Execution
Reporting
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

13. AUDIT REPORT AS OVERSIGHT TOOL
AUDIT PROCESS
Pre-Engagement Activities
Audit Planning
Execution
Reporting
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

14. AUDIT REPORT AS OVERSIGHT TOOL continued…
Unmodified
“clean” report
No further
audit comment

15. AUDIT REPORT AS OVERSIGHT TOOL continued…
Modified reports
Matters that do not affect the auditor’s opinion
Additional reporting requirements
To highlight a matter

16. AUDIT REPORT AS OVERSIGHT TOOL continued…
Modified reports
Matters that do affect the auditor’s opinion
Limitation of scope
Disagreement with management
Effect is so material and pervasive and/or fundamental that auditor is unable to express an opinion
Effect is not so
material 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
Disclaimer of opinion
Qualified opinion
Qualified opinion
Adverse opinion

17. AUDIT REPORT AS OVERSIGHT TOOL continued…
Emphasis of matter paragraph
Matters affecting financial statements
Going concern
Fraud or suspected fraud
Matters not affecting financials
Unauthorised expenditure
Irregularities and losses
Weaknesses in internal control
Financial management
DORA

18. AUDIT REPORT AS OVERSIGHT TOOL continued…
Qualification and emphasis of matter paragraphs important to both PACs and PCs – to ensure that the accountability and oversight loop is complete
For Example - Questions on:
Reasons for shortcomings
Whether poor controls gave rise to losses/irregularities
Steps taken to regularise
Financial misconduct
Departmental investigations
Whether subsequent budgets (and therefore strategic plans) address shortcomings raised/observed before