Notice No. 839
28 November 2011
| 1) | Under the powers vested in me by section 2(b), read with section 13(3)(b) of the Public Audit Act, 2004 (Act No. 25 of 2004) (hereafter referred to as the PAA), I, Terence Mncedisi Nombembe, Auditor-General of the Republic of South Africa (hereafter referred to as the AGSA), hereby determine the following: |
| A) | Audit functions performed in terms of the Public Audit Act, 2004 (Act No. 25 of 2004) |
| a) | Evaluation of public financial and performance management |
| 2) | The success of transformation in public sector financial and performance management is evaluated as part of the outcomes of the annual audit process. Accordingly, the auditor's report reflects views on: |
| • | financial information, through the auditor's opinion on the financial statements |
| • | performance against predetermined objectives, reflected as findings under the Predetermined objectives heading in the Report on other legal and regulatory requirements section in the auditor's report |
| • | compliance with applicable laws and regulations relating to financial matters, financial management and other related matters, reflected as findings under the Compliance with laws and regulations heading in the Report on other legal and regulatory requirements section in the auditor's report |
| • | internal control, as indicated by the deficiencies in internal control that resulted in: |
| • | qualifications of the opinion on the financial statements |
| • | findings on the report on predetermined objectives |
| • | findings on compliance with laws and regulations |
The view on internal control is reflected under the Report on other legal and regulatory requirements section in the auditor's report.
| b) | Auditing standards - section 13(1)(a) of the PAA |
| 3) | In terms of section 13(1)(a) of the PAA, the International Standards on Auditing and Assurance Pronouncements issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC)1 are applied in the annual audits. |
| 4) | In addition, relevant principles contained in the following: |
| • | the International Standards of Supreme Audit Institutions (ISSAIs) |
| • | the INTOSAI Guidance for Good Governance (INTOSAI GOVs), |
published by the International Organisation of Supreme Audit Institutions (INTOSAI)2, have been incorporated into the AGSA's audit methodology.
| c) | Auditing of performance against predetermined objectives- sections 20(2)(c) and 28(1)(c) of the PAA |
| 5) | In terms of sections 20(2)(c) and 28(1)(c) of the PAA, the auditor's report must reflect an opinion or conclusion on the entity's performance against predetermined objectives. Until such time as the environment shows a state of readiness to provide reasonable assurance in the form of an audit conclusion in the auditor's report, the conclusion on the performance against predetermined objectives is included in the report to management, with material findings being reported under the Predetermined objectives heading in the Report on other legal and regulatory requirements section of the auditor's report. |
| 6) | The audit of performance against predetermined objectives is performed in accordance with the International Standard on Assurance Engagements (ISAE) 3000 Assurance engagements other than audits or reviews of historical financial information against the Performance management and reporting framework, consisting of the following: |
| • | applicable laws and regulations |
| • | the Framework for the managing of programme performance information, issued by the National Treasury |
| • | circulars and guidance issued by the National Treasury regarding the planning, management, monitoring and reporting of performance against predetermined objectives. |
| d) | Auditing of compliance with applicable legislation relating to financial matters, financial management and other related matters - sections 20(2)(b) and 28(1)(b) of the PAA |
| 7) | In terms of sections 20(2)(b) and 28(1)(b) of the PAA, the auditor's report must reflect an opinion or conclusion on the entity's compliance with any applicable legislation relating to financial matters, financial management and other related matters. Until such time as the environment shows a state of readiness to provide reasonable assurance in the form of an audit conclusion in the auditor's report, the auditor's report only reflects material findings that come to the attention of the auditor under the Compliance with laws and regulations heading in the Report on other legal and regulatory requirements section of the auditor's report. |
| 8) | The audit of compliance with legislation is performed in accordance with ISAE 3000 Assurance engagements other than audits or reviews of historical financial information, as well as relevant principles of ISSAI 4000 Introduction to the compliance audit guidelines and ISSAl 4200 Compliance audit related to the audit of financial statements. |
| 9) | The auditor's report reflects material findings on non-compliance with relevant laws and regulations in respect of the following subject matters, as applicable: |
| • | Strategic planning and performance management |
| • | Financial statements, performance and annual reports |
| • | Procurement and contract management |
| • | Human resource management and compensation |
| • | Transfer of funds and/or conditional grants |
| • | Asset and liability management |
| • | Service delivery - Education, Health, Public works, Human Settlements and Social Development |
| 10) | The criteria used to evaluate the above subject matters are developed from the applicable laws and regulations, with specific focus on the following: |
| • | Public Finance Management Act, 1999 (Act No. 1 of 1999) (hereafter referred to as the PFMA) and regulations and instructions issued in terms of the act |
| • | Municipal Finance Management Act, 2003 (Act No. 56 of 2003) (hereafter referred to as the MFMA) and regulations issued in terms of the act |
| • | Municipal Structures Act, 1998 (Act No. 117 of 1998) and regulations and instructions issued in terms of the act |
| • | Municipal Systems Act, 2000 (Act No. 32 of 2000) and regulations and instructions issued in terms of the act |
| • | Municipal Property Rates Act, 2004 (Act No. 6 of 2004) and regulations and instructions issued in terms of the act |
| • | Companies Act, 2008 (Act No. 71 of 2008) and regulations and instructions issued in terms of the act |
| • | Public Service Act, 1994 (Act No. 103 of 1994) and regulations issued in terms of the act |
| • | Preferential Procurement Policy Framework Act, 2000 (Act No. 5 of 2000) and regulations and instructions issued in terms of the act |
| • | Construction Industry Development Board Act, 2000 (Act No. 38 of 2000) and regulations issued in terms of the act |
| • | State Information Technology Agency Act, 1998 (Act No. 88 of 1998) and regulations issued in terms of the act |
| • | Entity-specific enabling legislation |
| 11) | Other subject matters which, in the auditor's professional judgement, are of sufficient importance to merit inclusion in the auditor's report for communication to those charged with governance may also be included. |
| e) | Internal control, as indicated by the reference to financial management in sections 4(1) and (3) of the PAA |
| 12) | In terms of sections 4(1) and (3) of the PAA, financial management must be audited and reported on. This is currently achieved by reporting on deficiencies in internal control that resulted in qualifications to the opinion on the financial statements, findings on the report on predetermined objectives and on compliance with laws and regulations. The deficiencies are reported under the Report on other legal and regulatory requirements section in the auditor's report under the following three fundamentals of internal control: |
| • | Financial and performance management |
| 13) | The criteria used to evaluate the three fundamentals of internal control are set out in addendum A. |
| f) | Other legislative functions |
| 14) | In terms of the PAA, the AGSA also performs other audit functions, including performance audits, investigations, special audits and related services. In addition to International Standard on Quality Control (ISQC) 1 Quality control for firms that perform audits and reviews of financial statements, and other assurance and related services engagements, the standards that guide these audits are as follows: |
| • | Performance audits - section 20(3) of the PAA |
In terms of section 13(1)(a) of the PAA, these audits are conducted in accordance with ISSAI 3000 Implementation guidelines for performance auditing and ISSAI 3100 Performance audit guidelines: key principles.
In terms of section 13(1)(a) of the PAA, the AGSA has developed Standards and guidelines: investigations for conducting investigations.
| • | Special audits - section 5(1)(d) of the PAA |
In terms of section 13(1)(a) of the PAA, these audits are conducted in accordance with the International Standard on Related Services (ISRS) 4400 Engagements to perform agreed upon procedures regarding financial information issued by the IAASB.
| • | Audit-related services - section 5(1)(a) of the PAA |
In terms of section 13(1)(a) of the PAA, these audits are conducted in accordance with ISRS 4400 Engagements to Perform agreed-upon procedures regarding financial information issued by the IAASB and Audit-related services: policy and guideline developed by the AGSA.
In terms of section 13(1)(a) of the PAA, reports on donor funds are issued in accordance with the following, as appropriate:
| • | ISA 800 Special Considerations- Audits of financial statements prepared in accordance with special purpose frameworks |
| • | ISA 805 Special considerations - Audits of single financial statements and specific elements, accounts or items of a financial statement |
| • | ISRS 4400 Engagements to perform agreed-upon procedures regarding financial information |
| • | Specific requirements of the donor organisations |
| g) | Complaints against the AGSA |
| 15) | The AGSA's Policy for the handling of complaints and allegations against the AGSA, in terms of section 13(1)(c) of the PAA, accommodates complaints pertaining to the following: |
| • | The exercising of powers, the performance of duties and the administration of the AGSA as referred to in the P AA when performing audits in terms of section 11 of the PAA. |
| • | Work performed during an audit by the AGSA, authorised auditors and other personnel where it is alleged that the work performed during such an audit failed to comply with professional standards and regulatory and legal requirements. |
| • | Allegations of non-compliance by the AGSA, authorised auditors and other personnel with the AGSA's internal system of quality control. |
| 16) | Complaints against the AGSA should be addressed in writing to: |
The Complaints Manager, Auditor-General of South Africa
Physical address: 300 Middel Street, New Muckleneuk, Pretoria
Postal address: PO Box 446, Pretoria, 0001
| B) | Audits of public entities and other institutions not performed by the AGSA - Section 4(3) of the PAA |
| a) | Audits that the Auditor-General has opted not to perform - section 25(1)(a) of the PAA |
| 17) | In terms of section 4(3)(b) of the PAA, I may audit and report on the accounts, financial statements and financial management of any public entity listed in the PFMA and any other institution not mentioned in section 4(1) of the PAA and which is: |
| • | funded from the National Revenue Fund or a provincial revenue fund or by a municipality |
| • | authorised in terms of any legislation to receive money for a public purpose. |
| 18) | In terms of section 25(1)(a) of the PAA, I opt not to perform the audits of any entities referred to in section 4(3) of the PAA, which are not already being audited by me, for the 2012-13 and following financial years, unless advised otherwise by me prior to the start of the entity's financial year. |
| b) | Appointment of auditors in public practice - section 25(1)(b), (2), (3) and (4) of the PAA |
| 19) | An entity must proceed to appoint an auditor in public practice as stipulated by section 25(1)(b), read with section 25(4) of the PAA, if not advised before the start of the financial year that the AGSA will perform the audit. |
| 20) | Before appointing the auditor an entity must notify the AGSA business executive responsible for the audit of the portfolio of the relevant executive authority of the suggested appointment. In this regard, the document Consultation of the Auditor-General on the appointment of an auditor in public practice, attached as addendum B, should be completed in full as indicated. If, the AGSA, within 14 days of receiving the notice, or such longer period as may be agreed to, rejects the auditee's appointment, the auditee must recommence the process to appoint another person as its auditor. |
| 21) | If the AGSA has opted to perform the audit of an entity, such entity shall not seek to or appoint alternative auditors. |
| c) | Responsibilities of auditors in public practice - part 2 of chapter 3 of the PAA |
| 22) | When auditing in the public sector, the auditor in public practice must do so in accordance with the requirements, duties and responsibilities as legislated and assigned to them in part 2 of chapter 3 of the PAA. |
| 23) | The auditor in public practice must take cognisance of the content of the PAA, and must adhere to the following requirements when auditing entities where the AGSA has opted not to perform the audit: |
| • | Appointment of auditors - section 25 of the PAA |
| • | Duties and powers of auditors - section 27 of the PAA |
| • | The format and content of the auditor's report, as set out in the AGSA's Public Audit Manual on Reporting - section 28(1) of the PAA |
| • | Submission of the auditor's report to the AGSA - section 28(3)(c) of the PAA |
| • | The requirements of this notice, as applicable. |
| 24) | Compliance with the provisions of the PAA and this notice in conducting an audit in terms of section 25(1)(b) of the PAA is monitored by the AGSA. In this regard, the appointed auditor must complete the Monitoring checklist for audits not conducted by the AGSA, attached as addendum C. |
| 25) | In terms of the requirements of section 28(3)(c) of the PAA, the appointed auditor must furnish the responsible audit business unit (ABU) in the AGSA, either in hard copy or on CD, with the following as soon as the annual report has been finalised but not later than five months after the financial year-end: |
| • | a copy of the auditor's report, together with a copy of the audited financial statements, |
| • | three copies of the annual report |
| • | the completed monitoring checklist, |
in order for the outcomes of the audits performed by auditors in public practice to be included in the AGSA's general reports.
| 26) | To assist auditors in public practice in conducting audits in the public sector, reference may be made to the following documents made available by the Independent Regulatory Board for Auditors (IRBA)3, which provide a perspective on auditing in the public sector: |
| • | A Guide for Registered Auditors: Auditing in the Public Sector |
| • | A Guide for Registered Auditors: Audit of Predetermined Objectives |
| • | South African Auditing Practice Statement (SAAPS) 2: Financial Reporting Frameworks and the Auditor's Report |
Reference may also be made the AGSA's website4 for additional information, as well as the contact details of the nearest AGSA office in the event of queries regarding the responsibilities of the auditor in public practice in terms of the PAA and this notice.
| 27) | Should an auditor in public practice appointed in terms of section 25(1)(b) of the PAA be found to be in contravention of the requirements in this notice or any provision of the PAA, the Auditing Profession Act, 2005 (Act No. 26 of 2005) (hereafter referred to as the APA) or any act with which it is his/her duty to comply in his/her capacity as an auditor in public practice, a complaint or charge of improper conduct may be lodged with IRBA's investigating committee against auditors in public practice. |
| 28) | In addition, a complaint or a charge of improper conduct may be lodged with IRBA's investigating committee against an auditor in public practice appointed in terms of section 25(1)(b) of the PAA if it comes to the attention of the AGSA that the auditor in public practice has conducted him/herself in a manner that is improper, discreditable, unprofessional, dishonourable or unworthy of an auditor in public practice or which brings the accounting profession into disrepute. |
| C) | Entities for which legislation is not prescriptive in respect of the financial statements - Section 14(2)(b) of the PAA |
| 29) | In terms of section 14(2)(b) of the PAA, the financial statements of an entity which is not subject to the PFMA, MFMA or any other legislation that is prescriptive in respect of the financial statements, must: |
| • | be prepared in accordance with the Generally Recognised Accounting Practice (GRAP) reporting framework issued by the Accounting Standards Board (ASB)5 |
| • | comply with the PFMA requirements applicable to public entities or the MFMA requirements applicable to municipal entities, as appropriate, as they pertain to the information to be contained in the financial statements, as well as the period within which the financial statements are to be submitted for audit. |
| D) | Timing and submission of information for audit purposes - Section 15(2)(b) of the PAA |
| 30) | In terms of section 15(2)(b) of the PAA, and in order to comply with applicable legislated auditing and tabling deadlines in the PFMA and MFMA, as well as to allow adequate time forconducting the audit in accordance with the International Standards on Auditing and Assurance Pronouncements, entities must adhere to the following: |
| • | The annual performance reports should be submitted for auditing within two months after the end of the financial year. |
| • | All other information to be included in the annual report must be submitted concurrently with the financial statements. |
| • | Withdrawal and re-submission of financial statements and performance reports submitted for auditing, are not permitted; the financial statements and performance reports may only be adjusted for matters identified during the audit. |
| • | All documentation and information in support of the financial statements and performance report must be available on request. |
| E) | Assessment and recognition of the financial reporting frameworks applicable in the public sector - Section 20(2)(a) of the PAA |
| 31) | The applicable financial reporting framework provides the criteria against which the auditor audits the financial statements. As one of the preconditions for an audit, the auditor is required to determine whether the financial reporting framework applied in preparing the financial statements is acceptable and to assess whether it is a general purpose or compliance framework. This is done by considering the requirements of the ISAs and the guidance set out in South African Auditing Practice Statement (SAAPS) 2: Financial Reporting Frameworks and the Auditor's Report. |
| 32) | Section 20(2)(a) of the PAA requires me to express an opinion on the fair presentation of the financial statements regardless of whether the entity prepared its financial statements in terms of a fair presentation framework or not. Where the applicable financial reporting framework applied is not assessed to be a fair presentation framework, an Additional matter paragraph explaining this requirement is included in the auditor's report to mitigate any possible misunderstanding that the financial statements have been prepared in terms of a fair presentation framework. |
| 33) | Should an entity be granted an exemption, departure or deviation from the applicable financial reporting framework in accordance with the requirements of the PFMA or MFMA, additional disclosure of the reasons for, and the extent of, the exemption, departure or deviation from the applicable financial reporting framework is required in the financial statements. |
| F) | Repeal of prior Government Gazettes |
| 34) | General Notice 1111 of 2010, issued in Government Gazette No. 33872 of 15 December 2010, is hereby withdrawn and replaced by the requirements as set out in this notice. |
| 35) | This notice is effective for financial periods beginning on or after 1 April 2011 and is applicable until further notice. A similar notice will not necessarily be issued annually. |
| 36) | Any enquiry related to this notice should be addressed to the following office: |
Business Executive: Audit Research and Development, Auditor-General of South Africa
Telephone: 012 426 8000
Fax: 012 426 8333
Email: [email protected]
Signed and approved:
TM Nombembe
Auditor-General
1 http://www.ifac.org/IAASB
2 http://www.intosai.org and http://www.issai.org
3 http://www.irba.co.za
4 http://www.agsa.co.za
5 http://www.asb.co.za
