INDEPENDENT REVIEW 1 PRESENTED BY FAITH NGWENYA TECHNICAL & - - PowerPoint PPT Presentation

REPORT WRITING & INDEPENDENT REVIEW

PRESENTED BY FAITH NGWENYA TECHNICAL & STANDARDS SERVICES EXECUTIVE

REPORT WRITING - CPD 2017

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Professional Accountant

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QUALITY CONTROL ISQC 1

REPORT WRITING - CPD 2017

3 Leadership responsibilities Ethical requirements

Acceptance and continuance

Human Resources . Engagement performance Monitoring

ISQC 1

ISQC 1 RISK AND COMPLIANCE

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Leadership responsibility Monitoring Independence & ethical requirements Client acceptance & continuance Human Resources Engagement performance No on -going review of policies and procedures No cold file reviews (audit)

• Lack of supervision and

control

• Methodology (audit) not

effective

• References not obtained for new staff
• Fit and proper declarations not obtained
• Insufficient training on ISA/IFRS and record keeping
• Staff appraisals not done or informal

Non-compliance with ISQC1

Policies and procedures not documented

• Independence declaration

from staff not obtained

• Register of identified

threats & safeguards not maintained

• No integrity checks plus

client identification

• Procedures not

documented

• Engagement letters

not issued

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Leadership responsibility

Leadership responsibility Organisation structure Setting tone from the top Establish policies & procedures Document policies & procedures Communicate with staff Enforcement

• f policies

SETTING TONE AT THE TOP

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Tone at the top Associate with right clients Clear standards & robust processes Recruitment

• f skilled &

competent staff Commitment to technical excellence & quality Performance

• f effective &

efficient reviews Commitment to continuous improvement

ETHICAL REQUIREMENTS

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Code of Conduct

Independence Ethical dilemma procedures

INDEPENDENCE

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Compilation Independent review Audit Independence of Decision making Independent of business entity

Independence

• f record

keeping and compilation

INDEPENDENCE

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Appointment Regulations & standards Services agreed upon Execution of performance Acceptance & continuance Engagement letter & planning Engagement performance Compliance of performance Independence

INDEPENDENCE AND ETHICS

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01 02 04 03

Obtain information on potential threat to independence & ethics Evaluate any threats to independence & ethics Document & report on conclusions Take appropriate action to mitigate the risks to ethics & independence . Obtain information

Evaluate Document Action

ACCEPTANCE AND CONTINUANCE

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Acceptance and continuance Integrity of the client Can comply with ethical requirements Practice is competent and & has sufficient time, resources & competence

HUMAN RESOURCES

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Recruitment and Appointment

Professional development Values

Performance evaluation, compensation & promotions

Motivation Competence Quality of work Ability/Aptitude

ASSIGNMENT AND ENGAGEMENT TEAM

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Identity and role of engagement partner communicated Engagement partner has appropriate capabailities, competence, authority & time Responsibilities of engagement partner clearly defined & communicated

ENGAGEMENT PERFORMANCE

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Performance

• bligations

Regulatory requirements Professional Standards

ENGAGEMENT PERFORMANCE

Performance Activity Performance Criteria Engagement letter Service/agreed upon deliverables Resource allocation Competence-engagement fit Planning engagement Responsibility & accountability duties Monitoring Quality assurance – supervision & review strategies & reports Work flow planning Integrated work plan documented and sign off Reporting File & report review processes Performance obligations Document discussions & communications

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CONSULTATION OR SECONDMENTS

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• Appropriate consultation has taken place on

difficult issues

• Sufficient resources available to enable appropriate

consultation

• Nature and scope of consultations documented
• Conclusions reached from consultations are

documented & implemented

CONSULTATION OR SECONDMENTS

Strategy Objective Supervision Risk identification & provide guidance Monitoring Continuous quality assurance review to prevent risks Review Ensure compliance & correction of risks Documentation Proof of evidence

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MONITORING

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Establish a monitoring process designed to provide it with reasonable assurance that policies & procedures relating to the system of quality control/assurance are relevant, adequate & operating efficiently.

Internal assessment Functionality & compliance External assessment Relevance & benchmarking Professional assessment Inspection & compliance

Compilation Engagement [ISRS 4410]

Prepared by: Rashied Small, Hashim Salie, Shafiek Dollie & Yaeesh Yasseen

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Public Interest Score

Public Interest Score: The public interest score is a mechanism introduced by the Companies Act that determines:

(i) the type of engagement that must be

performed,

(ii)accounting framework that must be

adopted, and

(iii)corporate governance issues that should

be complied with

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PUBLIC INTEREST SCORE COMPONENTS

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PUBLIC INTEREST SCORE - CRITERIA

 A number of points that equal the average number of employees during the financial year.  One point for every R 1 million (or portion thereof) in third-party liabilities at the financial year end.  One point for every R 1 million (or portion thereof) in turnover during the financial year  One point for every individual who, at the end of the financial year, is known to directly or indirectly have a beneficial interest.

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• 1. Is

the company a public company

• r

a state-owned company?

• 2. Is company a private company

and controls fiduciary assets >R5m? Yes Audit No Application

• f

PIS to Private Companies and CCs Owner Managed Greater/= than 350 PIS Yes No Audit No Audit/N

• IR

Non- Owner Managed Less than 350 PIS and greater/equal to than 100 PIS Independe nt Review Int Ext Less than 100 PIS Is entity CC Yes Acc Officer

Non CA/CA

CA Greater/= than 350 PIS

Less than 350 PIS and greater/equal to than 100 PIS

EXT INT OM < 100 No Aud/IR Duties of Acc Off

PUBLIC INTEREST SCORE - APPLICATION

Public Interest Score Financial Reporting Standard Audit PIS ≥ 350 IFRS / IFRS for SMEs YES PIS ≥100 and < 350 and AFS were internally compiled IFRS / IFRS for SMEs YES PIS ≥ 100 and < 350 and AFS independently compiled IFRS / IFRS for SMEs NO PIS < 100 and AFS independently compiled IFRS / IFRS for SMEs NO PIS < 100 and AFS internally compiled The Financial Reporting Standard as determined by the company for as long as no Financial Reporting Standard is prescribed NO

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PUBLIC INTEREST SCORE - PRACTITIONERS

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COMPILATION – ISRS 4410

Assurance: A compilation does not involve and audit or review, no assurance about the financial statements is provided Compilation provide “implied assurance” about the fair presentation and relevance of the financial statements (requirement

• f accounting standards) and the

procedures prescribed in terms

• f ISRS 4410

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LEGISLATION

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• Responsibilities of

the compiler and the procedures to follow

• Competence

required to perform the compilation

• Qualitative

characteristics and presentation of financial information

• S 29 and s30

requires the compilation Companies Act Accounting Standards ISRS 4410 ISQC 1

Compilation Engagement

Compilation is defined as an engagement in which the professional applies his accounting and financial competence to assist management to prepare financial statements in accordance with the appropriate accounting framework based on information provided by management.

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When should a compilation be performed

Compilation

Assist management in making judgement in compiling financial statements Management requires reports for decision making For planning purpose – support financial and tax planning Supporting documentation – valuation or sale of a business or interest in a business Purposes of other engagements – base for review or audit engagement

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Compiler’s Responsibilities

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Compiler Independence Financial statement risks Verification of information

When are the uses of a compilation?

Uses of compilation

Assist management in making judgement in compiling financial statements management requires reports for decision making purposes For planning purpose – support financial and tax planning Supporting documentation – valuation or sale of a business or interest in a business Purposes of other engagements – based of review and audit engagement

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What are the benefits of compilations?

Benefits of compilation

Cost effective – save time and money because of the work required Use of an expert – technical financial reporting competence and ethics Flexible and targeted engagements – compilation can be used as an agreed upon engagement Independence – improve the quality and integrity of the financial statements

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What are the procedures for a compilation?

Accept

• Apply risk assessment of the client – risk profile fit (ISCQ 1)
• Engagement letter – competent to accept the engagement

Plan

• Understand the nature of the business and its operations
• Understand and evaluate the accounting system

Execute

• Reconcile the financial information with the accounting records
• Discuss significant matters and judgements with management

Report

• Discuss the financial statements with management
• Prepare the compilation report

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What preparation is required for a compilation?

Accepting the engagement

Code of Ethical Conduct

[objectivity ,integrity, professional conduct & competence, due care, confidentiality]

ISRS 4410 – Compilation Engagement

[objective, purposes and procedures]

Professional judgement

[fair representation of financial statements]

Quality control

[competence to perform task, quality control procedures]

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Checklist before accepting a compilation

Acceptance Checklist

Risk assessment of client – fits practice risk profile Management’s integrity – reliance placed on information provided for compilation Previous accountant – reasons for change or reason for appointment Purpose of assignment – needs of the external and/or internal users Internal controls – reliability of accounting systems to produce accurate information Competence of professional – ability to perform the engagement

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Mini Case Study

 Client 1: Technology business that is known for its integrity and innovation. The

• wners are involved in community activities and established a strong
• relationship. The client has been referred by the previous accountant (a

trusted friend who is retiring) and stated that there is no professional reason not to accept the client.  Client 2: Entertainment business that opened a casino in the heart of the

• community. The community including law enforcement agencies has

petitioned the establishment and requested the relocation of the business because of their concerns about the possible negative social impact it may have on the community. To date the financial statements of the business was prepared internally.

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What factors to consider for a compilation?

Factors to consider

Public Interest Score – legislative requirements Purpose of compilation – will external users place reliance

• n the financial statements

Benefits of professional’s competence – benefits management can gain from the assistance Limitation of financial statements – historical costs principle and the judgement

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What are the key contents for a compilation?

Engagement content

Customised – specific to satisfy the requirements and circumstance of engagement Objectives and scope – explicit statement that it is a non-assurance engagement (no audit) Responsibilities – details of management’s and professional responsibilities Purpose of financial statements – users, purposes and distribution Reporting – nature and type of reporting as well as means/channels of communication

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What must be done for recurring engagement?

NO CHANGES

Circumstance and conditions of the engagement does not change – no need to issue a new engagement letter

Changes

• Misunderstanding of compilation
• Changes in terms of engagement
• Changes in management
• Changes in ownership of business
• Changes in nature of business
• Changes in accounting framework

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What other factors should be considered?

 Use and distribution of reports  Publication of financial statements (website)  Supporting schedules prepared by management  Reliance placed on information received from third parties  Billing arrangements  Other Services

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What are the critical processes in planning?

Planning of compilation

Communication

• Management
• Compilation team
• Team & client staff

Business

• Nature of business
• Governance

Materiality

• Context of IFRS
• Misstatements
• Reliability

Procedures

• ISRS 4410
• System & controls
• Reconcile records

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What procedures are followed for a compilation?

Procedures

Understanding the business – assess the level of risks and materiality Understanding the accounting system – type of transactions and accounting records Estimates and judgement – assess the accuracy and reliability of judgements Incomplete information – obtain explanations from management (evidence) Unusual transactions – investigate significant transactions and variances in balances

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Compilation - Procedures

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What procedures are followed for compilation?

Discussions

• Nature of business
• Accounting system
• Principles & practice
• Judgements
• Reconcile to records
• Incomplete data

Consideration

• Judgements –

reasonability

• Unusual transactions

– recognition

• Completeness – cut-
• ff procedures
• Fair representation -

truthfulness

Customisation

• Compliance –

accounting framework

• Adjustments to

statements

• Recommendations

to management

• Concerns - resolved

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What contents is part of compilation report?

 Preparation of financial statements – based on information provided by management  Responsibilities of management – relation to governance, compilation engagement and financial statements  Accounting Framework used for the preparation of the financial statements  Compliance with format of financial statements – components of the statements  Responsibilities of compiler – complied with ISRS 4410 (procedures) and ethical behaviour  Not an assurance function:  no need to verify the transactions and information provided by management  No opinion is expressed  Special purpose – description of the engagement and use of the statements

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Review Engagement [ISRE 2400]

Prepared by: Rashied Small, Hashim Salie, Shafiek Dollie & Yaeesh Yasseen

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Review Engagement

 A review provides limited assurance that the financial statements conform to generally accepted accounting principles.  This type of assurance is known as negative assurance. This means that as the professional accountant is only providing assurance that nothing has come to their attention that would indicate the financial information is not presented in accordance with accounting standards.

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What is the objective of a review?

 The professional accountant inquires and performs procedures to determine whether the financial statements prepared by management is free from material misstatements due to fraud and errors.  In a review the professional accountant provides limited or moderate assurance about the fair presentation and reliability of the financial statements – nothing has come to the attention of the reviewer that the financial statements do not fairly presents, in all material respect in accordance with the accounting framework.

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When is the independent review used?

Use of review

Provide users of financial statements with some assurance – level of reliability To support proposals and applications for financing

• r change in ownership through sale of interest

Provide assurance of compliance to reporting regulations Supporting management with internal review of the business Support the risk management strategy and governance of the business

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What are the benefits of a review?

Benefits of review

Cost effective – gain limited assurance on the reliability of the financial statements Limited assurance – financial statements are free of material misstatement Flexible and targeted engagements – review focuses on the areas of potential risks of misstatement Use of expert – reviewer’s experience can be used as a risk management strategy

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What are the pre-condition for a review?

The accounting framework used to prepare the financial statements must be acceptable and appropriate for the business. The scope to conduct a review should not be restricted as a result

• f management not be willing

grant the professional accountant access to the accounting records and documents supporting the financial statements.

Proceed with review

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What are steps involved in a review?

Determine whether a review is necessary and appropriate Identify potential risks that may result in material misstatement

• f the financial statements

Perform the review by applying appropriate procedures – analytical procedures as per ISRE 2400 Conduct additional procedure for areas of possible risks of misstatement Prepare the review report – arrive at a conclusion (limited assurance)

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Parties Responsibilities

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What are the procedures for a review?

Accept

• Apply risk assessment of the client – risk profile fit (ISCQ 1)
• Engagement letter – competent to accept the engagement

Plan

• Understand the nature of the business and its operations
• Identify areas of material misstatement in financial statements

Execute

• Perform analytical procedures – obtain sufficient evidence
• Perform additional procedures on areas of risk

Report

• Evaluate evidence obtained – communication with management
• Prepare the review report

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What preparation is required for a review?

Accepting the engagement

Code of Ethical Conduct

[objectivity ,integrity, professional conduct & competence, due care, confidentiality]

ISRE 2400 – Review Engagement

[objective, purposes and procedures]

Professional judgement

[fair representation of financial statements]

Quality control

[competence to perform task, quality control procedures]

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What is professional skepticism?

 Professional skepticism is an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of evidence.  Attitude to be able to:

 Identify and respond to conditions that indicate possible misstatement  Critically assess evidence obtained  Question managements explanations and representations  Draw conclusions based and the facts and evidence obtained

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What is professional judgement?

 Professional judgment involves the application of competence and experience in making informed decisions about the courses

• f action that are appropriate for the circumstances.

 Circumstances where professional judgement may be used:

 Determining materiality for the engagement  Determining areas of possible material misstatement of statements  Allocating of staff members that fits their competence levels  Designing analytical and additional procedures for the engagement  Evaluating evidence to support the conclusion - sufficiency

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Checklist before accepting a review

Acceptance Checklist

Risk assessment of client – fits practice risk profile Owner’s and management’s integrity – misuse of the review report (claiming it is an audit) Quality of information – risk that the information required may not be reliable or available Purpose of assignment – management may use the review to avoid negative audit reports Outstanding matters – significant matters impacting performing the review effectively Complexity of business – financial statements are complex and requires specialized knowledge and experience

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ENGAGEMENT LETTER

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59 Engagement letter Purpose &

• bjective

Financial statement risk

Mgnt’s responsibility

Restriction

• n scope

Procedures

Reporting

What factors to consider for a review?

Factors to consider

Public Interest Score – legislative requirements Integrity of management – indication of unethical behaviour, infringement of regulations or unwillingness to provide information Limitation on scope – restriction on access to information

• r staff, unrealistic deadlines or quality of information

Internal controls – process and procedures to mitigate risks of material misstatement of financial statements

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What are the key contents for a review?

Engagement content

Customised – specific to satisfy the requirements and circumstance of engagement Objectives and scope – explicit statement that it is not an audit but limited assurance is provided Responsibilities – details of management’s and professional responsibilities Purpose of financial statements – users, purposes and distribution Reporting – nature and type of reporting as well as means/channels of communication

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What must be done for recurring engagement?

NO CHANGES

Circumstance and conditions of the engagement does not change – no need to issue a new engagement letter

Changes

• Misunderstanding of compilation
• Changes in terms of engagement
• Changes in management
• Changes in ownership of business
• Changes in nature of business
• Changes in accounting framework

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What are the critical processes in planning?

Planning of review

Communication

• Management
• Compilation team
• Team & client staff

Business

• Nature of business
• Governance

Materiality

• Context of IFRS
• Misstatements
• Reliability

Procedures

• ISRE 2400
• Analytical procedures
• Additional procedures

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MATERIALITY

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Material risks Prior results Industry practice

Mgnt’s judgement Transactions

What are causes of material misstatements?

Material misstatement is when it would significantly change or influence the decisions of informed users of the financial statements.  Possible causes of misstatement of financial statements:

 Fraud and errors (recognition and measurement)  Departure from the accounting framework  Inappropriate estimates  Lack of full disclosure of significant matters

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Review - Procedures

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Review procedures

Understand business Accounting systems Financial statement assertions Analytical procedures Accounting framework Information risk

What procedures are followed for a review?

Procedures

Understanding the business – assess the level of risks and materiality Identifying misstatements – identify possible risks of misstatement of financial statements Evaluate internal controls – assess controls to mitigate material misstatements Analytical procedures – obtain evidence for possible misstatement identified Additional procedures – investigate and obtain evidence relating to material misstatements

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What contents is part of review report?

 Responsibilities of management – relation to governance, review engagement and preparation of financial statements  Accounting Framework used for the preparation of the financial statements  Compliance with format of financial statements – components of the statements  Responsibilities of reviewer – complied with ISRE 2400 (procedures) and ethical behaviour  Limited assurance function:  Evaluate the misstatement of financial statements  Draw a conclusion on whether financial statements are free of material misstatement  Purpose of engagement – description of the engagement and use of the statements

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FORMING AN APPROPRIATE CONCLUSION

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Negative Assurance: Reviewer is satisfied based on the evidence obtained that the financial statements are free of misstatements Qualification of Assurance: The nature of matters may render the financial statements misleading, a qualified or adverse opinion may be expressed.

COMPARISONS

Compilation Independent review Audit Level of assurance obtained by Accountants or Auditors that the financial statements are not materially misstated Accountant does not obtain

• r provide any assurance that

there are no material modification that should be made to the financial statements Accountant obtains limited assurance that there are no material modification that should be made to the financial statements The auditor obtains a high, but not absolute, level of assurance about whether the financial statements are free

• f material misstatement

Objective To assist management in presenting financial information in the form of financial statements without undertaking to provide any assurance that there are no material modifications that should be made to the financial statements To obtain limited assurance that there are no material modification that should be made to the financial statements To obtain a high level of assurance about whether the financial statements as a whole are free of material misstatement thereby enabling the auditor to express an opinion on whether the financial statements are presented fairly, in all material respects

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COMPARATIVE ANALYSIS

COMPARISONS

Compilation Independent review Audit Assurance provided to the user of the financial statements None – the report states that no assurance is provided None – the report provides a statement that the accountant is not aware

• f

any material modifications that should be made to the financial statements None – the auditor provides an

• pinion as to whether the financial

statements present fairly, in all material respects, the company’s financial position, results of

• perations and cash flows

Situations requiring different levels of service Generally appropriate or privately held companies and are often prepared for simple situations (e.g., a lender needs IFRS financial statements instead of the statements the internal accounting system produces or the lender needs the comfort provided by knowing that an accountant read the financial statements) Often prepared for privately held companies because of requirements of outside third parties (such as banks, creditors and potential purchasers) that are looking for comfort that the financial statements are not materially misstated Often prepared for companies because

• utside

third parties (such as banks, creditors, potential purchasers and outside investors) require an auditor’s

• pinion
• n

the financial statements

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Agreed upon Engagement [ISRS 4400]

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Agreed upon Engagement

An agreed-upon procedures engagement is an engagement in which an auditor/professional accountant is engaged to carry

• ut those procedures of an audit

nature to which the auditor and the entity and any appropriate third parties have agreed and to report on factual findings.

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What is objective of agreed upon engagement?

 The objective of an agreed-upon procedures engagement is for the professional accountant to: carry out procedures of an investigative nature to which the parties have agreed report on factual findings  No assurance is expressed – provide a factual findings reports without expressing an opinion or making recommendations  Users of the report assess the findings reported and draw their

• wn conclusions from the work performed

 Use of the report is restricted to those parties that have agreed to the procedures to be performed - others, unaware of the reasons for the procedures, may misinterpret the results

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What is the contents of the agreement?

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 Nature of the engagement - no audit or review (no assurance or

• pinion expressed)

 Purpose for the engagement  Identification of the financial information or activities to which the agreed-upon procedures will be applied  Nature, timing and extent of the specific procedures to be applied  Anticipated form of the report of factual findings  Limitations on distribution of the report of factual findings

What are steps involved in an engagement?

Determine the nature and complexity of the engagement Design the procedures to be performed to conduct the engagement Investigate and obtain sufficient evidence relating to the engagement – documents all evidence Evaluate the evidence obtained to support the conclusion Prepare the engagement report – prepare a factual findings report

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What preparation is required for a engagement?

Accepting the engagement

Code of Ethical Conduct

[objectivity ,integrity, professional conduct & competence, due care, confidentiality]

ISRS 4400 – Agreed upon Engagement

[objective, purposes and procedures]

Procedures

[investigation of financial and non- financial information]

Quality control

[competence to perform task, quality control procedures]

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What contents is part of engagement report?

 Purpose of engagement – description of the engagement and use of the report  Not audit or review – no assurance or opinion expressed  Responsibilities of management – facilitate the engagement process  Responsibilities of professional accountant – complied with ISRS 4400 (procedures) and ethical behaviour  Procedures that will be applied  Limitation of engagement:  Financial information that engagement relates to  Distribution and use of the report  Format of the report  Fee structure and timeframe

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Engagement Letter

Prepared by: Rashied Small, Hashim Salie, Shafiek Dollie & Yaeesh Yasseen

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What is an Engagement Letter (E.L.)?

Engagement letters are a key document in the relationship between you and your client, providing a written confirmation of the work that will be carried out “Agreement of service” binding the Profession Accountant with the client. “Service Level Agreement” which stipulates the nature, type and conditions of services to be performed Engagement letter is a legal contract which is binding on the parties to the agreement

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What is the purpose of E.L.?

 Ensures both parties are on the same page  Serves as a risk management tool  Forms the foundation of client communication and trust  Mandatory in your practice – quality control.

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What are the primary contents?

 Purpose and objectives of the assignment  Responsibilities of management  A statement stating the professional is an independent contractor.  Standards that will be followed for the terms of the assignment  Reporting format and communication channels  Deliverables of the assignment  Type and timing of the assignment - timeframe  Basis of determining cost for the assignment  Procedures for amendments to the assignment  State any limitations

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