R3 - Reporting Guide Final

REPORTING
GUIDE
March 2009
R3 1
The reputation promise of the Auditor-General
“The Auditor-General has a constitutional mandate and, as the Supreme Audit Institution (SAI)
of South Africa, it exists to strengthen our country’s democracy by enabling oversight,
accountability and governance in the public sector through auditing, thereby building public
confidence.”
The mission statement of the AGSA informs the content of the Public Audit Manual (PAM) by
recognising that the audits conducted by the SAI of South Africa are unique due to its mandate. This
mandate includes responsibilities in terms of laws or regulations that go beyond generally accepted
practice of the auditor’s responsibilities in the audit of the financial statements.
These responsibilities include: consideration of issues such as public interest; accountability; probity;
effective legislative oversight, in particular as concerns compliance with law, regulation or other
authority; performance against pre-determined objectives; and economic efficient, and effective
procurement of resources. The ultimate goal of the audits concerned is to strengthen the South
African democracy.
.
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REPORTING
CONTENTS
CHAPTER 1: AUDITOR’S REPORT 12

REPORT OF THE AUDITOR-GENERAL TO [THE APPROPRIATE ADDRESSEE] ON THE
[GROUP] FINANCIAL STATEMENTS AND PERFORMANCE INFORMATION OF [VOTE NO.
X:] [NAME OF ENTITY] FOR THE YEAR ENDED [31 MARCH 200X/30 JUNE 200X] 13
REPORT ON THE FINANCIAL STATEMENTS 14
Introduction 14
The [accounting officer/accounting authority]’s responsibility for the financial statements 15
The Auditor-General’s responsibility 16
[Basis for qualified opinion] 17
[Basis for disclaimer of opinion] 21
[Basis for adverse opinion] 22
Opinion 23
Qualified opinion 24
Disclaimer of opinion 25
Adverse opinion 25
Emphasis of matter(s) 26
[Basis of accounting [/] [and] A/amendments to the applicable basis of accounting] 26
Going concern 27
[Unauthorised, irregular or fruitless and wasteful expenditure as well as material losses through
criminal conduct] 29
Material underspending of the budget 30
Restatement of corresponding figures 30
Revision of the previously issued financial statements 30
Other matter(s) 32
[Material inconsistencies in] [other] information included in the [annual report/other information]32
Unaudited supplementary schedules 33
Non-compliance with applicable legislation 33
Governance framework 35
Internal control deficiencies 35
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REPORTING
CONTENTS
Key governance responsibilities 37
Investigations 39
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS 41
Report on performance information 41
The [accounting officer/accounting authority]’s responsibility for the performance information 42
The Auditor-General’s responsibility 43
Audit findings (performance information) 44
Non-compliance with regulatory requirements 44
Usefulness and reliability of reported performance information 49
Inconsistently reported performance information 49
Reported performance information not relevant 50
Reported performance information not reliable 50
Performance information not received in time 51
OTHER REPORTS 52
Performance audits 52
Special audits 52
APPRECIATION 53
CHAPTER 2: MANAGEMENT REPORT 56
MANAGEMENT REPORT ON THE REGULARITY AUDIT AND THE AUDIT OF
PERFORMANCE INFORMATION OF THE [NAME OF ENTITY] [AND THE GROUP] FOR THE
[PERIOD/YEAR ENDED] [31 MARCH 200X/30 JUNE 200X/INTERIM AUDIT DATE] 57
INTRODUCTION 58
THE AUDITOR-GENERAL’S RESPONSIBILITIES 59
THE ACCOUNTING [OFFICER’S/AUTHORITY’S] RESPONSIBILITIES 60
SIGNIFICANT FINDINGS FROM OUR AUDIT OF THE FINANCIAL STATEMENTS 61
FINANCIAL MATTERS 61
Material misstatements not corrected at the date of this report (interim and final) 61
Material misstatements corrected during the audit (interim and final) 63
Qualitative aspects of accounting practices (interim and final) 68
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REPORTING
CONTENTS
Material losses/impairments (interim and final) 69
Budgetary control (interim and final) 71
Accounting discipline (interim and final) 71
Financial indicators/ratios (interim and final) 72
Significant uncertainties (interim and final) 73
Financial reporting systems (interim and final) 73
Material inconsistencies in other information included in the annual report (final) 74
Revision of the previously issued financial statements (final) 75
Accounting reforms 75
GOVERNANCE MATTERS 76
Internal audit (interim and final) 76
Audit committee (interim and final) 76
Management of risk (interim and final) 77
Prior year observations and recommendations addressed (interim and final) 78
Unavailability of key personnel (interim and final) 79
Adequacy and competence of financial reporting personnel (interim and final) 79
Unavailability of expected information (interim and final) 79
Late submission of financial statements (interim and final) 80
Related parties (interim and final) 81
Performance rewards (interim and final) 82
Non-compliance with applicable legislation (interim and final) 82
SCOPA / Oversight resolutions (interim and final) 84
Key governance responsibilities (final only) 85
Achievement of good practice indicators 87
SIGNIFICANT FINDINGS FROM OUR REVIEW OF THE PERFORMANCE INFORMATION
(interim and final) 89
SIGNIFICANT FINDINGS FROM SPECIFIC FOCUS AREAS (interim and final) 90
INFORMATION ON AUDITS CONDUCTED OTHER THAN ON THE FINANCIAL
STATEMENTS 91
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REPORTING
CONTENTS
Investigations (interim and final) 91
Performance audits (interim and final) 91
Special audits (final) 92
RATINGS OF DETAILED AUDIT FINDINGS (final) 93
APPRECIATION 93
SUMMARY OF AUDIT FINDINGS 94
ANNEXURE A: MATTERS AFFECTING THE AUDITOR’S REPORT 95
ANNEXURE B: OTHER IMPORTANT MATTERS 97
ANNEXURE C: ADMINISTRATIVE MATTERS 98
CHAPTER 3: MODIFICATIONS TO THE AUDITOR’S OPINION 100
PART A: AUDITOR’S REPORT 100
Purpose 100
International Standards on Auditing 100
Overview of general principles, requirements and procedures 100
Determine whether an unmodified opinion is appropriate 100
Types of modified opinions 101
Basis for modification paragraph 104
Matters that do not affect the auditor’s opinion 107
PART B: CORRESPONDING FIGURES 111
Purpose 111
Overview of general principles, requirements and procedures 111
PART C: AUDIT FINDINGS ON PERFORMANCE INFORMATION FOR THE MANAGEMENT
REPORT 113
PART C: AUDIT FINDINGS ON PERFORMANCE INFORMATION FOR THE MANAGEMENT
REPORT 113
MATTERS TO BE INCLUDED IN THE AUDITOR’S REPORT 113
OTHER IMPORTANT MATTERS 113
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REPORTING
CONTENTS
Management processes not in place 113
Inadequate management processes 113
Non-compliance with internal policies and procedures 114
Shortcomings in key controls 114
Changes to reported performance information not disclosed 115
Reasons for variances between planned and actual performance not included in the annual
report 115
Inadequate presentation of reported performance information 115
Quality of performance indicators/measures and targets inadequate 115
Shortcomings in quarterly reporting 116
PART D: TIPS ON REPORT WRITING 117
CHAPTER 4: SUBSEQUENT EVENTS, REVIEW OF OTHER INFORMATION AND DATING OF THE
AUDITOR’S REPORT 122
Purpose 122
Introduction 122
Subsequent events 122
Events occurring between the date of the financial statements and the date of the auditor’s
report 123
Misstatements that become known to the auditor after the auditor’s report date 124
Misstatements become known to the auditor after the financial statements have been issued 124
Other information to be included in the annual report 124
Action to be taken on inconsistencies 124
Before the date of the auditor’s report 125
Subsequent to the date of the auditor’s report but before the annual report/financial statements
are issued to third parties 125
After the annual report/financial statements have been issued to third parties without the
necessary amendments 125
Audit documentation 125
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REPORTING
CONTENTS
Date of the auditor’s report 125
Review of printer’s proof and published annual reports 126
CHAPTER 5: MANAGEMENT REPRESENTATIONS 132
Purpose 132
Requirement to obtain a representation letter 132
Representations in contradiction of other audit evidence 133
Dating of the representation letter 133
Signing of the representation letter 133
Requested representation letter not provided 133
List of ISAs containing requirements for written representations 133
LETTER TO MANAGEMENT REQUESTING THAT THEY FURNISH A REPRESENTATION
LETTER 134
ANNEXURE A: DRAFT REPRESENTATION LETTER 135
CHAPTER 6: INTERNAL CONTROLS AND ROOT CAUSES 144
CHECKLIST FOR IDENTIFYING ROOT CAUSES FOR PURPOSES OF THE AUDIT AND
MANAGEMENT REPORTS 144
Purpose 144
CONTROL ENVIRONMENT 144
RISK ASSESSMENT 145
CONTROL ACTIVITIES 145
INFORMATION AND COMMUNICATION 146
MONITORING 146
CHAPTER 7: LAYOUT OF AUDITOR’S REPORT AND MANAGEMENT REPORT 150
PART A: LAYOUT OF THE AUDITOR’S REPORT 150
PART B: LAYOUT OF THE MANAGEMENT REPORT 152
CHAPTER 8: AG DIRECTIVE 156
ANNEXURE TO THE DIRECTIVE 162
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CONTENTS
CHAPTER 9: GLOSSARY OF AUDIT TERMS 166
CHAPTER 10: ABBREVIATIONS 174
CHAPTER 11: BIBLIOGRAPHY 178
PART A: International Standards on Auditing (ISAs) 178
PART B: South African Auditing Practice Statements (SAAPS) 178
PART C: Legislation 178
PART D: Other reference sources 179
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CHAPTER 1:
AUDITOR’S REPORT
11
Chapter 1: Auditor’s report
CHAPTER 1: AUDITOR’S REPORT

Guidance
1. This template of the auditor’s report contains information pertaining to all types of opinion that
can be expressed on the financial statements:
• Unmodified
• Qualified (material misstatement including limitation of scope)
• Adverse (misstatement both material and pervasive)
• Disclaimer (pervasive limitation of scope)
2. It also contains information on the wording to be used to describe the applicable financial
reporting framework for PFMA, MFMA and unlisted entities.
3. Guidance for each section of the report is contained in the blue sections and example
paragraphs are shown in the green sections. The ISA references are contained at the
beginning of each section.
4. Where wording appears in a [ ] bracket, a choice of the appropriate wording for the
circumstances should be selected or inserted and the other non-applicable wording should
be deleted. Where wording is included in a ( ) bracket, this is explanatory information and
should be deleted from the final version of the report. Where a particular paragraph heading
is not applicable, such heading should be deleted.
5. All references to the ISAs are to the final redrafted/revised and redrafted versions published
in March 2009.
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[GROUP] FINANCIAL STATEMENTS AND PERFORMANCE INFORMATION OF [VOTE
NO. X:] [NAME OF ENTITY] FOR THE YEAR ENDED [31 MARCH 200X/30 JUNE 200X]
(International Framework for Assurance Engagements, paragraphs 27 – 30; ISA 700.22 and
A16)
Guidance – The appropriate addressee
Assurance engagements, such as regularity audits, involve three separate parties: the auditor, a
responsible party (i.e. the auditee), and the intended users. A large number of persons, such as
the general public, have access to the published auditor’s report and therefore it is deemed
impractical to address the auditor’s report to the society at large. Consequently, the report is
addressed to major stakeholders, with significant and common interests. In the public sector
context, this is determined to be Parliament for the auditor’s report of national departments and
national public entities, and the provincial legislature for provincial departments and provincial
public entities. Similarly, the auditor’s report is addressed to the provincial legislature for
municipalities and municipal entities and, optionally, also to the municipal council. The auditor’s
report is addressed to Parliament or the provincial legislature due to the following:
• Parliament or the provincial legislature is the intended user of the auditor’s report; i.e.
they are required to act on the auditor’s report.
• Parliament or the provincial legislature was chosen to represent the society at large.
• Section 21(3) of the PAA requires the auditor’s report to be tabled in Parliament or a
provincial legislature.
Depending on the type of entity being audited, insert the wording as indicated in place of the
applicable addressee:
• For national departments, public entities, constitutional institutions, trading entities
and Parliament: or
Parliament
• For provincial departments, public entities, trading entities and provincial
legislatures: or
the provincial legislature
• For local government municipalities and municipal entities:
or
the provincial legislature and the council
• For entities on the entity-specific basis of accounting: or
The applicable addressee should be determined based on the nature of the
entity and the relevant legislation applicable to the entity. Ordinarily, the
auditor’s report is addressed to those for whom the report is prepared, often
either the shareholders or those charged with governance of the entity whose
financial statements are being audited.
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REPORT ON THE FINANCIAL STATEMENTS
Guidance
The heading REPORT ON THE FINANCIAL STATEMENTS is included for public sector
auditor’s reports because of the auditor’s other reporting responsibilities, i.e. on performance
information. This heading serves to distinguish between the auditor’s opinion on the financial
statements and the other regulatory requirements.
(ISA 700.23)
Introduction
(For an unmodified (including emphasis of matter(s) and other matter(s)), qualified or
adverse opinion)
1. I have audited the accompanying [group] financial statements [and financial statements]
of the [name of entity] which comprise the [consolidated and separate] [appropriation
statement], the [consolidated and separate] [balance sheet/statement of financial
position] as at [31 March 200X/30 June 200X], and the [consolidated and separate]
[income statement/statement of financial performance], the [consolidated and separate]
[statement of changes in net assets/equity] and the [consolidated and separate] cash
flow statement[s] for the year then ended, [and] a summary of significant accounting
policies and other explanatory notes, [and the directors’/accounting officer’s/accounting
authority’s report,] as set out on pages [xx] to [xx].
(For a disclaimer of opinion)
(ISA 705.27)
2. I was engaged to audit the accompanying [group] financial statements [and financial
statements] of the [name of entity] which comprise the [consolidated and separate]
[appropriation statement], the [consolidated and separate] [balance sheet/statement of
financial position] as at [31 March 200X/30 June 200X], and the [consolidated and
separate] [income statement/statement of financial performance], the [consolidated and
separate] [statement of changes in net assets/equity] and the [consolidated and
separate] cash flow statement[s] for the year then ended, [and] a summary of significant
accounting policies and other explanatory notes, [and the directors’/accounting
officer’s/accounting authority’s report,] as set out on pages [xx] to [xx].
General guidance
Reference to the directors’/accounting officer’s/accounting authority’s report should only be
included where the auditee falls under the scope of the Companies Act, and only when
disclosures required by the Companies Act (4th schedule) are included in the
directors’/accounting officer’s/accounting authority’s report.
Particular attention should be paid to the page numbers included in this paragraph, as these
indicate to the reader of the report that these pages have been subject to a full audit and
that the auditor’s opinion covers these pages. Refer also to chapter 4 for information on ISA
720 reviews of other information included in the annual report.
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The [accounting officer/accounting authority]’s responsibility for the financial

statements
(ISA 700.26; PFMA sections 40(1)(b)-(c), 40(3)(a), 55(1)(c) and 55(2)(a); MFMA sections
121, 122 and 126)
3. The [accounting officer/accounting authority] is responsible for the preparation [and fair
presentation] of these financial statements in accordance with the [applicable financial
reporting framework/basis of accounting] and in the manner required by the [Public
Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA)] [Local Government:
Municipal Finance Management Act, 2003 (Act No. 56 of 2003) (MFMA)] [Auditor-
General audit circular 1 of 2007] [Division of Revenue Act (Act No. 1 of 2007) (DoRA)1]
[any applicable enabling legislation] and the [Companies Act of South Africa] and for
such internal control as the [accounting officer/accounting authority] determines is
necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
Guidance
Insert “and fair presentation” when the financial statements are prepared in accordance with
a fair presentation framework.
applicable reporting framework/basis of accounting:
• For schedule 2, 3B and 3D public entities and trading entities:
South African Statements of Generally Accepted Accounting Practice (SA or
Statements of GAAP)
• For schedule 3A and 3C public entities, constitutional institutions, municipal entities
and low capacity municipalities (if the municipality is on any one of the following or
three bases of accounting: (a) GRAP, GAMAP & GAAP; (b) modified GRAP,
GAMAP & GAAP; (c) modified GRAP, GAMAP & GAAP with early adoption of some
of the requirements exempted in Government Gazette No. 30013 of 27 June 2007):
the basis of accounting determined by the National Treasury, as set out in
[accounting policy note xx] [note xx to the financial statements]
• For high and medium capacity municipalities:
Statements of Generally Recognised Accounting Practice (Statements of or
GRAP)
• For departments:
the modified cash basis of accounting determined by the National Treasury, or
as set out in [accounting policy note xx] [note xx to the financial statements]
• For entities on the entity-specific basis of accounting:
the entity-specific basis of accounting, as set out in [accounting policy note
xx] [note xx to the financial statements]
Refer to the Technical memo on the applicable bases of accounting.
1
Reference to DoRA should only be included for audits of national and provincial departments.
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The Auditor-General’s responsibility

(PAA section 4; ISA 700.28 – .33; PFMA section 40(2); MFMA section 126(3))
(For an unmodified (including emphasis of matter(s) and other matter(s)), qualified or
adverse opinion)
4. As required by [section 188 of the Constitution of the Republic of South Africa, 1996
read with section 4 of the Public Audit Act, 2004 (Act No. 25 of 2004) (PAA)] [and
section xx of any applicable legislation], my responsibility is to express an opinion on
these financial statements based on my audit.
5. I conducted my audit in accordance with the International Standards on Auditing read
with General Notice 616 of 2008, issued in Government Gazette No. 31057 of 15 May
2008. Those standards require that I comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the financial statements
are free from material misstatement.
6. An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor’s
judgement, including the assessment of the risks of material misstatement of the
financial statements, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the
financial statements.
(Paragraph 7 applies to MFMA audits only, excluding municipalities on IMFO)
7. Paragraph 11 et seq. of the Statement of Generally Recognised Accounting Practice,
GRAP 1 Presentation of Financial Statements requires that financial reporting by entities
shall provide information on whether resources were obtained and used in accordance
with the legally adopted budget. As the budget reporting standard is not effective for this
financial year, I have determined that my audit of any disclosures made by the [name of
entity] in this respect will be limited to reporting on non-compliance with this disclosure
requirement.
8. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a
basis for my audit opinion.
(For a disclaimer of opinion)
(ISA 705.27)
4. As required by [section 188 of the Constitution of the Republic of South Africa, 1996
read with section 4 of the Public Audit Act, 2004 (Act No. 25 of 2004) (PAA)] [and
section xx of any applicable legislation], my responsibility is to express an opinion on the
financial statements based on conducting the audit in accordance with the International
Standards on Auditing and General Notice 616 of 2008, issued in Government Gazette
No. 31057 of 15 May 2008. Because of the matter(s) described in the Basis for
disclaimer of opinion paragraph(s), however, I was not able to obtain sufficient
appropriate audit evidence to provide a basis for an audit opinion.
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Guidance
The section of any applicable legislation refers to the section in any entity-specific legislation
dealing with the Auditor-General’s responsibility for the audit.
Basis for [qualified/adverse/disclaimer of] opinion

Guidance – Basis for qualified/adverse/disclaimer of opinion paragraphs
(ISA 705.16 – .21)
The auditor is required to include a basis for modification paragraph if the opinion
expressed is other than unmodified.
The paragraph is included immediately before the opinion paragraph and describes the
matter giving rise to the modification.
The following headings are used based on the type of opinion expressed Basis for qualified
opinion, Basis for adverse opinion or Basis for disclaimer of opinion. A heading for each of
the misstated account balances/classes of transactions/disclosure notes is also included.
Even if an adverse opinion or disclaimer of opinion is expressed, the reasons for any other
matters that would have required a modification to the opinion and the effects thereof are
also disclosed. Thus, multiple basis for opinion paragraphs are envisaged.
The illustrative report paragraphs are examples only, thus the principles in these
paragraphs should be used to draft the basis for modification paragraphs for the
auditor’s specific situation, which might not be included in the examples below.
[Basis for qualified opinion]

[Paragraph heading]
9. [Include detailed information]
Example report paragraph(s)
(Qualified opinion arising from a disagreement with management)
Accounts receivable
Included in accounts receivable is an amount of Rxx, which is owed by a debtor that has
been placed in liquidation since the year-end of the [name of entity]. An impairment loss
has not been recognised in accordance with the South African Statement of Generally
Accepted Accounting Practice, IAS 39 (AC 133) Financial Instruments: Recognition and
Measurement. The liquidator has indicated that creditors are unlikely to receive any
payment. In these circumstances, an impairment loss should have been recognised in full.
Had this been done, accounts receivable would have been stated in the balance sheet at
Rxx and net profits would have been reduced by Rxx.
or
Cash flow statement
The [type of entity] has not presented a cash flow statement for the year ended
30 June 20XX. Presentation of such a statement summarising the entity’s operating,
investing and financing activities is required by the Statement of Generally Recognised
Accounting Practice, GRAP 1 Presentation of Financial Statements, as part of the financial
statements.
17
or
Going concern
The [type of entity’s] incurred a net loss of [Rxxx] for the year ended [31 March/30 June
200x] and as of that date the [type of entity’s] current liabilities exceeded its total assets by
[rxx]. The [type of entity] has not obtained financing to address this matter. This situation
indicates the existence of a material uncertainty that may cast significant doubt on the
entity’s ability to continue as a going concern. The entity may therefore be unable to realise
its assets and discharge its liabilities in the normal course of business. The financial
statements do not disclose this fact.
or
Leases
With reference to accounting policy XX, the [type of entity’s] accounting policy is to
recognise rentals payable under operating leases in profit or loss on a straight-line basis
over the term of the relevant lease. This accounting policy is not in accordance with the
South African Statement of Generally Accepted Accounting Practice, IAS 17 (AC 105)
Leases, read together with the exemptions in General Notice 552 of 2007, issued in
Government Gazette No. 30013 of 29 June 2007, which requires rental expenses to be
recognised in profit or loss on the basis of the cash flows in the lease agreement. However,
it was not necessary to restate the related amounts and disclosures for 30 June 20XX or the
corresponding figures for 30 June 20XX, as both the current year and prior year figures
comply with the basis of accounting applicable to the financial year ended 30 June 20XX.
or
Leases
The [name of entity] has excluded from property, plant and equipment and liabilities in the
accompanying balance sheet certain lease obligations that should have been capitalised in
order to conform with the South African Statement of Generally Accepted Accounting
Practice, IAS 17 (AC 105) Leases. If these lease obligations had been capitalised, property,
plant and equipment would have been increased by Rxx, long-term liabilities would have
been increased by Rxx, the current portion of long-term liabilities would have been
increased by Rxx, and retained earnings would have been increased by Rxx as at
30 June 20XX. Additionally, net profits would have been increased by Rxx for the year then
ended.
or
Inventories
The [name of entity]’s inventories are carried in the balance sheet at Rxx. Management has
not stated the inventories at the lower of cost and net realisable value but has stated them
solely at cost, which constitutes a departure from the South African Statement of Generally
Accepted Accounting Practice, IAS 2 (AC 108) Inventories. The entity’s records indicate that
had management stated the inventories at the lower of cost and net realisable value, an
amount of Rxx would have been required to write the inventories down to their net
realisable value. Accordingly, cost of sales would have been increased by Rxx, and income
tax, net income and shareholders’ equity would have been reduced by Rxx, Rxx and Rxx,
respectively.
or
Investments (fair value estimates)
As described in note XX to the financial statements, the [name of entity]’s investment in
18
unlisted securities is carried at cost instead of fair value as at [balance sheet date]. This
accounting treatment is not in accordance with the South African Statement of Generally
Accepted Accounting Practice, IAS 39 (AC 133) Financial Instruments: Recognition and
Measurement. The [name of entity]’s [accounting officer/accounting authority] believes that
it was not possible to obtain a reliable measure of fair value because quoted market prices
were not available for the unlisted securities and a reliable measure of fair value for the
[name of entity]’s investment in unlisted securities could not have been obtained through
other means. The adjustment to investment in securities and net profit, which would have
resulted from using fair values, has not been determined. I disagree with the [accounting
officer/accounting authority] that fair values could not have been determined.
or
Irregular expenditure
The [type of the entity] has omitted disclosure of [material – MFMA] irregular expenditure of
Rxx, which was incurred during the financial year. This is contrary to [section
55(2)(b)/40(3)(b) of the PFMA/section 125(2)(d) of the MFMA], which requires disclosure of
irregular expenditure in the annual financial statements.
or
Non-current liabilities
Included in interest-bearing borrowings, under non-current liabilities, are amounts totalling
[currency and amount] that are due for settlement within 12 months of year-end. The South
African Statement of Generally Accepted Accounting Practice, IAS 1 (AC 101) Presentation
of Financial Statements requires separate disclosure of amounts that are expected to be
settled within 12 months of year-end as current. Based on the latter, interest-bearing
borrowings would have been stated at Rxx, non-current liabilities at Rxx, short-term
borrowings at Rxx and current liabilities at Rxx.
(Qualified opinion arising from a limitation of scope)
Accounts receivable
Because of a fire at a branch office on [date] that destroyed its accounts receivable records,
I was unable to confirm or verify by alternative means the carrying value of accounts
receivable included in the financial statements. Accordingly, I was not able to determine
whether any adjustments might have been necessary to the amounts shown in the financial
statements for accounts receivable, sales, income taxes, net earnings and retained
earnings.
or
Inventory
The [name of entity] did not carry out a physical count of its raw material inventory, stated in
the financial statements at Rxx. The [name of entity]’s records did not permit the application
of adequate alternative audit procedures regarding this inventory. Consequently, I did not
obtain sufficient appropriate audit evidence to satisfy myself as to the existence and
valuation of raw material inventory.
or
Investments
The [accounting officer/accounting authority]’s report indicates that the [name of entity]’s
listed investments have been disposed of by the former [managing director] without the
approval of the [other directors] for his own account. The [accounting officer/accounting
authority]’s report also indicates that the carrying amount of listed investments disclosed in
19
the financial statements amounts to Rxx and gives an explanation as to why the listed
investments have not been written off or the carrying amount impaired. I was unable to
obtain sufficient appropriate audit evidence to satisfy myself as to why no adjustments to
the carrying amount of the listed investments were necessary in these circumstances.
or
Related parties
I was unable to obtain the representations considered necessary from the accounting
authority with respect to the identification and balances of, and transactions with, related
parties. I could not determine the effect on the disclosures contained in the financial
statements.
or
Revenue
In common with similar organisations, it is not feasible for the [name of entity] to institute
accounting controls over cash collections from donations prior to initial entry of the
collections in the accounting records. Accordingly, it was impracticable for me to extend my
examination beyond the receipts actually recorded.
(Qualified opinion arising from the corresponding figures)
Examples of how the basis for qualified opinion paragraph should be worded if the prior
year matters are unresolved are illustrated below:
o When the effects or possible effects of the matter on the current period figures are
material and require a modification to the auditor’s opinion regarding the current period
figures:
Property, plant and equipment
As discussed in note XX to the financial statements, no depreciation has been provided in
the financial statements, which constitutes a departure from International Financial
Reporting Standards. This is the result of a decision taken by management at the start of
the preceding financial year and that caused me to qualify my audit opinion on the financial
statements relating to that year. Based on the straight-line method of depreciation and
annual rates of 5% for the building and 20% for the equipment, the loss for the year should
be increased by Rxx in 20X1 and Rxx in 20X0; property, plant and equipment should be
reduced by the accumulated depreciation of Rxx in 20X1 and Rxx in 20X0; and the
accumulated loss should be increased by Rxx in 20X1 and Rxx in 20X0.
or
o When the effects or possible effects of the matter on the current period figures are
immaterial but require a modification to the auditor’s opinion because of the effects or
possible effects of the unresolved matter on the comparability of the current period
figures and the corresponding figures:
[Include relevant class of transaction/account balance/disclosure]
[Include detailed information of the prior year qualification that does not have a material
effect on the current financial statements.] My opinion on the financial statements for the
period ended [prior year date] was modified accordingly. My opinion on the current period
financial statements is also modified because of the possible effect of this matter on the
comparability of the current period figures and the corresponding figures.
or
o When a material misstatement was found in the corresponding figures during the current
20
year audit for which the prior year auditor’s opinion was not modified and the
corresponding figures were not restated:
During the financial year ended 30 June 2007, an error was discovered in the financial
statements of the entity as at, and for the year ended, 30 June 2006. The entity excluded
from property, plant and equipment and liabilities certain lease obligations that should have
been capitalised in order to conform to the South African Statements of Generally Accepted
Accounting Practice, IAS 17 (AC 105) Leases. If these lease obligations had been
capitalised, property, plant and equipment would have been increased by Rxx [prior year:
Rxx], long-term liabilities would have been increased by Rxx [prior year: Rxx], the current
portion of long-term liabilities would have been increased by Rxx [prior year: Rxx], and the
accumulated surplus would have been increased by Rxx [prior year: Rxx]. Additionally, the
net surplus would have been increased by Rxx [prior year: Rxx].
or
[Basis for disclaimer of opinion]
(ISA 705.2 and A1)
[Paragraph heading]
Management representations
I was unable to obtain the representations considered necessary from the management of
the [name of entity] with respect to the accompanying financial statements. I could not
determine the effect of the lack of such representations on the financial position of the entity
as at [balance sheet date], or the results of its operations and its cash flows for the year
then ended.
or
Accounting records
As stated in note xx to the financial statements, a fire at the [name of entity]’s computer
centre destroyed many of the accounting records. In these circumstances, I was unable to
carry out all the audit procedures I considered necessary for my audit.
or
Revenue
A major part of the [name of entity]’s revenue comprises cash sales. There was no system
of control over such sales on which I could rely for the purpose of my audit. There were also
no satisfactory audit procedures that I could perform to obtain reasonable assurance that all
cash sales had been properly recorded. Consequently, I was unable to satisfy myself as to
the completeness and accuracy of the accounting records relating to cash sales.
or
Investment in joint venture
The company’s investment in its joint venture, XYZ (Country X) Company, is carried at Rxx
on the company’s balance sheet, which represents over 90% of the company’s net assets
as at 30 June 20X1. I was not allowed access to the management and the auditors of XYZ,
including XYZ’s auditors’ audit documentation. As a result, I was unable to determine
whether any adjustments were necessary in respect of the company’s proportional share of
21
XYZ’s assets that it controls jointly, its proportional share of XYZ’s liabilities for which it is
jointly responsible, its proportional share of XYZ’s income and expenses for the year, and
the elements making up the statement of changes in equity and the cash flow statement.
or
[Basis for adverse opinion]
(ISA 701.20 and .21; ED ISA 705; SAAPS 3)
[Paragraph heading]
Construction contracts
As described in note XX to the financial statements, provision has not been made for losses
expected to arise on certain significant long-term construction contracts currently in
progress, as management considers that such losses should be offset against amounts
recoverable on other long-term contracts. A provision should be made for foreseeable
losses on individual contracts in accordance with the South African Statement of Generally
Accepted Accounting Practice, IAS 11 (AC 109) Construction Contracts. If losses had been
so recognised, the effect would have been to reduce the surplus for the period, the contract
work in progress and the accumulated surpluses at [balance sheet date] by Rxx.
or
The South African Statement of Generally Accepted Accounting Practice, IAS 16 (AC 123)
Property, Plant and Equipment states that subsequent to initial recognition at cost, an item
of property, plant and equipment should be carried at cost less accumulated depreciation
and accumulated impairment losses or at a revalued amount less accumulated depreciation
and accumulated impairment losses. As indicated in note XX to the financial statements, no
depreciation is provided for on property, plant and equipment. This is the result of a
decision taken by management at the start of the preceding financial year and that caused
me to qualify my audit opinion on the financial statements relating to that year. Had
depreciation been provided, the surplus for the period would have been stated at Rxx
(31 March 20XX: Rxx), property, plant and equipment would have been reduced by an
accumulated depreciation of Rxx (31 March 20XX: Rxx), and accumulated surpluses would
have been decreased by Rxx (31 March 20XX: Rxx).
or
Consolidated financial statements
As explained in note XX to the financial statements, the [name of entity] has not
consolidated the financial statements of (subsidiary XYZ), which it acquired during 20XX,
because it has not yet been able to ascertain the fair values of certain of the subsidiary’s
material assets and liabilities at the acquisition date. This investment is therefore accounted
for on a cost basis. Under the South African Statement of Generally Accepted Accounting
Practice, IAS 27 (AC 132) Consolidated and Separate Financial Statements, the subsidiary
should have been consolidated because it is controlled by the entity. Had XYZ been
consolidated, many elements in the accompanying financial statements would have been
materially affected. In the absence of further information about the accounting for the
acquisition, however, it is not possible to quantify those effects.
22
Opinion
(ISA 700.12 – .16, .19, .34 – .37 and ISA 705.7 – .10)
(For a financial reporting framework/comprehensive basis of accounting)
9. In my opinion the[se] financial statements present fairly, in all material respects, the
[consolidated and separate] financial position of the [name of entity] as at [31 March
200X/30 June 200X] and its [consolidated and separate] financial performance and its
[consolidated and separate] cash flows for the year then ended, in accordance with [the
applicable financial reporting framework/basis of accounting] and in the manner required
by the PFMA/MFMA (if the entity falls within the scope of the PFMA/MFMA) [and/,] the
Companies Act of South Africa (if the entity falls within the scope of the Companies Act)
[and/,] DoRA (if the entity falls within the scope of DoRA) [and/,] section xx of the entity’s
enabling legislation (if the entity does not fall within the scope of the PFMA/MFMA).
Guidance – Applicable financial reporting framework
applicable financial reporting framework/basis of accounting:
South African Statements of Generally Accepted Accounting Practice (SA or
Statements of GAAP)
and low capacity municipalities (if the municipality is on any one of the following
three bases of accounting: (a) GRAP, GAMAP & GAAP; (b) modified GRAP, or
the basis of accounting determined by the National Treasury, as set out in
[accounting policy note xx] [note xx to the financial statements]
• For high and medium capacity municipalities:
Statements of Generally Recognised Accounting Practice (Statements of
GRAP) or
the modified cash basis of accounting determined by the National Treasury,
as set out in [accounting policy note xx] [note xx to the financial statements]
or
the entity-specific basis of accounting, as set out in [accounting policy note
xx] [note xx to the financial statements]
Refer to the Technical memo on the bases of accounting.
or
(For an entity-specific basis of accounting)
12. In my opinion the[se] financial statements of the [name of entity] as at [31 March
200X/30 June 200X] have been prepared, in all material respects, in accordance with
the basis of accounting as set out in [accounting policy note xx] [note xx to the financial
statements] [and in the manner required by the PFMA/MFMA (if the entity falls within the
scope of the PFMA/MFMA) [and/,] the Companies Act, 1973 (if the entity falls within the
scope of the Companies Act) [and/,] DoRA (if the entity falls within the scope of DoRA)
[and/,] section xx of the entity’s enabling legislation (if the entity does not fall within the
scope of the PFMA/MFMA)].
or
23
Qualified opinion
(ISA 705.7 and .23)
(For a disagreement with management (material misstatement) and a financial reporting
framework/comprehensive basis of accounting)
12. In my opinion, except for the effects of the matter(s) described in the Basis for qualified
opinion paragraph(s), the[se] financial statements present fairly, in all material respects,
the [consolidated and separate] financial position of the [name of entity] as at [31 March
200X/30 June 200X] and its [consolidated and separate] financial performance and its
applicable reporting framework/basis of accounting] [and in the manner required by the
PFMA/MFMA (if the entity falls within the scope of the PFMA/MFMA) [and/,] the
enabling legislation (if the entity does not fall within the scope of the PFMA/MFMA or has
enabling legislation in addition)].
or
(For a disagreement with management (material misstatement) and an entity-specific basis
of accounting)
12. In my opinion, except for the effects of the matter(s) described in the Basis for qualified
opinion paragraph(s), the[se] financial statements of the [name of entity] have been
prepared, in all material respects, in accordance with the basis of accounting as set out
in [accounting policy note xx] [note xx to the financial statements] [and in the manner
required by the PFMA/MFMA (if the entity falls within the scope of the PFMA/MFMA)
[and/,] the Companies Act, 1973 (if the entity falls within the scope of the Companies
Act) [and/,] DoRA (if the entity falls within the scope of DoRA) [and/], section xx of the
entity’s enabling legislation (if the entity does not fall within the scope of the
PFMA/MFMA)].
or
(For a limitation of scope and a financial reporting framework/comprehensive basis of
accounting)
12. In my opinion, except for the possible effects of the matter(s) described in the Basis for
qualified opinion paragraph(s), the[se] financial statements present fairly, in all material
respects, the financial position of the [name of entity] as at [31 March 200X/30 June
200X] and its [consolidated and separate] financial performance and its [consolidated
and separate] cash flows for the year then ended, in accordance with [the applicable
reporting framework/basis of accounting] [and in the manner required by the
enabling legislation (if the entity does not fall within the scope of the PFMA/MFMA)].
or
(For a limitation of scope and an entity-specific basis of accounting)
12. In my opinion, except for the possible effects of the matter(s) described in the Basis for
qualified opinion paragraph(s), the[se] financial statements of the [name of entity] have
been prepared, in all material respects, in accordance with the basis of accounting as
set out in [accounting policy note xx] [note xx to the financial statements] [and in the
24
manner required by the PFMA/MFMA (if the entity falls within the scope of the
PFMA/MFMA) [and/,] the Companies Act of South Africa (if the entity falls within the
or
Disclaimer of opinion
(ISA 705.9, .10, .15 and .25)
12. Because of the significance of the matter(s) described in the Basis for disclaimer of
opinion paragraph(s), I have not been able to obtain sufficient appropriate audit evidence
to provide a basis for an audit opinion. Accordingly, I do not express an opinion on
the[se] financial statements.
or
Adverse opinion
(ISA 705.8 and .24)
(For a financial reporting framework/comprehensive basis of accounting)
12. In my opinion, because of the significance of the matter(s) described in the Basis for
adverse opinion paragraph(s), the[se] financial statements do not present fairly the
[consolidated and separate] financial position of the [name of entity] as at [31 March
200X/30 June 200X] and its [consolidated and separate] financial performance and
applicable reporting framework/basis of accounting] [and in the manner required by the
enabling legislation (if the entity does not fall within the scope of the PFMA/MFMA)].
or
(For an entity-specific basis of accounting)
12. In my opinion, because of the significance of the matter(s) described in the Basis for
adverse opinion paragraph(s), the[se] financial statements of the [name of entity] have
not been prepared, in all material respects, in accordance with the basis of accounting
as set out in [accounting policy note xx] [note xx to the financial statements] [and in the
manner required by the PFMA/MFMA (if the entity falls within the scope of the
PFMA/MFMA) [and/,] the Companies Act of South Africa (if the entity falls within the
25
Emphasis of matter(s)
(ISA 706.6, .7 and A2)
Guidance – Emphasis of matter(s)
Refer to chapter xx relating to the modifications to the auditor’s report to determine when
the auditor is allowed to use an emphasis of matter(s) paragraph.
Since the emphasis of matter(s) paragraph does not affect the auditor’s opinion, the
wording below is included to state this fact to the users.
If the opinion is unmodified, include the wording “Without qualifying my opinion”; and if the
opinion is modified, include the wording “[on which I do not express a qualified/an adverse/a
disclaimer of opinion].
[Without qualifying my opinion,] I draw attention to the following matter(s) [on which I do not
express a qualified/an adverse/a disclaimer of opinion]:
(Highlighting critically important matters presented or disclosed in the financial statements)
[Basis of accounting [/] [and] A/amendments to the applicable basis of accounting]

(ISA 800.14)
10. The [type of entity]’s policy is to prepare financial statements on [the applicable financial
reporting framework / basis of accounting], as set out in [accounting policy note xx] [note
xx to the financial statements].
Guidance
An emphasis of matter paragraph is included to alert users of the auditor’s report that the
financial statements are prepared in accordance with a special purpose framework, being
either a comprehensive basis of accounting or an entity-specific basis of accounting.
Please note that the basis of accounting paragraph should NOT be included for schedule 2,
3B and 3D public entities and trading entities, as these entities comply with a recognised
financial reporting framework, i.e. South African Statements of Generally Accepted
Accounting Practice (SA Statements of GAAP).
An amendment to the applicable basis of accounting paragraph should NOT cover
contraventions of the applicable accounting standards. Where such contraventions exist
and they are material, they should be included as qualifications. The use of this paragraph
is restricted to instances where the auditor wishes to draw attention to, or emphasise, any
amendments to the applicable basis of accounting, as granted by the National Treasury,
that are already presented or disclosed in the financial statements.
applicable basis of accounting:
A basis of accounting paragraph should not be included in the
auditor’s report, as these entities comply with a recognised financial
framework, i.e. South African Statements of Generally Accepted
Accounting Practice (SA Statements of GAAP)
and low capacity municipalities (if the municipality is on any one of the following
three bases of accounting: (a) GRAP, GAMAP & GAAP; (b) modified GRAP,
26
The [type of entity’s] policy is to prepare financial statements on the basis of

accounting determined by the National Treasury, as set out in [accounting
policy note xx] [note xx to the financial statements].
The department’s policy is to prepare financial statements on the modified
cash basis of accounting determined by the National Treasury, as set out in
[accounting policy note xx] [note xx to the financial statements].
The entity’s policy is to prepare financial statements on the entity-specific
basis of accounting, as set out in [accounting policy note xx] [note xx to the
financial statements].
Refer to the Technical memo on the applicable bases of accounting for PFMA audits. (The
technical memo for MFMA audits will be published after the finalisation of the GRAP
hierarchy to be applied.)

As indicated in note xx to the financial statements, the National Treasury approved a
deviation from the basis of accounting applicable to departments on 31 May 2007, which
granted the department exemption from the disclosure of accounts receivable.
or
As set out in accounting policy note 1, the National Treasury approved a deviation from the
basis of accounting applicable to the municipality in terms of General Notice 522 of 2007,
issued in Government Gazette No. 30013 of 29 June 2007.
Going concern
(ISA 570 and ISA 705.10; also refer to guidance in chapter xx)
Guidance – Going concern
1. See specific guidance for the public sector relating to the requirements to evaluate the
appropriateness of the going concern assumption in the management report (chapter
2).
Going concern appropriate but material uncertainty exists:
2. ISA 570 Going Concern requires the auditor (if the auditor concludes that the use of the
going concern assumption is appropriate in the circumstances but a material
uncertainty exists) to determine whether the financial statements:
• adequately describe the principal events or conditions that may cast significant doubt
on the entity’s ability to continue as a going concern and management’s plans to deal
with these events or conditions
• disclose clearly that there is a material uncertainty related to events or conditions that
may cast significant doubt on the entity’s ability to continue as a going concern and,
therefore, that it may be unable to realise its assets and discharge its liabilities in the
normal course of business.
Emphasis of matter paragraph:
27
3. If adequate disclosure is made in the financial statements, an unmodified opinion is

expressed and an emphasis of matter paragraph is included in the auditor’s report to:
• highlight the existence of a material uncertainty relating to the event or condition that
may cast significant doubt on the entity’s ability to continue as a going concern
• draw attention to the note in the financial statements that discloses the above-
mentioned matters.
4. Concerns about the sustainability of programmes may arise due to revenue and/or
expenditure trends; economic dependency on government or other entities; current
responsibilities, commitments and liabilities; deficit trends; the relationship between
financial information and other key indicators; unusual or catastrophic events that could
have a significant impact on operations; significant uncertainties regarding projections
or estimations; and other significant risks and uncertainties that call into question
sustainability in relation to the resources expected to be available.
Modified opinion paragraph:
5. If the material uncertainty regarding going concern is not adequately disclosed, a
qualified or adverse opinion is expressed based on the fact that the financial
statements do not adequately disclose the matters stated in the bullets to paragraph 2
above (refer to illustrative examples of “Basis for qualified opinion” paragraphs).
6. If in extremely rare circumstances involving multiple uncertainties (going concern and
others), the auditor concludes that, notwithstanding having obtained sufficient
appropriate audit evidence regarding each of the individual uncertainties, it is not
possible to form an opinion on the financial statements due to the potential interaction
of the uncertainties and their possible cumulative effect on the financial statements, the
auditor disclaims the opinion.

[The accounting authority’s report on page xx/Note xx to the financial statements] indicates
that the [name of entity] incurred a net loss of Rxx during the year ended [31 March
200X/30 June 200X] and, as of that date, the entity’s current liabilities exceeded its total
assets by Rxx. These conditions, along with other matters as set forth in the [directors’
report/note xx], indicate the existence of a material uncertainty that may cast significant
doubt on the entity’s ability to continue as a going concern.
12. (Significant uncertainties (other than going concern) – use appropriate heading)
(ISA 706.A1 and ISA 501)
Guidance
A significant uncertainty is NOT related to a limitation of scope. Significant uncertainty is
defined as a matter, the outcome of which is dependent upon future events and which will
not be capable of reasonable measurement at the date on which the auditor’s report is
signed, by virtue of the nature of the matter in question, the facts of the particular situation
and the lack of objective evidence. Such a matter is a significant uncertainty when its
potential to affect the financial statements is not so remote as to make its disclosure
irrelevant. The following are examples of circumstances that may create significant
uncertainties, other than a going concern uncertainty:
28
• An uncertainty relating to the future outcome of exceptional litigation or regulatory

action.
• Early application (where permitted) of a new accounting standard (for example, a new
International Financial Reporting Standard) that has a pervasive effect on the financial
statements in advance of its effective date.
• A major catastrophe that has had, or continues to have, a significant effect on the
entity’s financial position.
It should be noted that if the outcome of future actions or events is under the control of
management, these would fall outside the definition of a significant uncertainty. The
uncertainty hinges on the outcome of the circumstances themselves, rather than on
limitations imposed by the entity that prevent the auditor from performing audit procedures
to gather sufficient evidence to form a view on the outcome of the matter.

With reference to note xx to the financial statements, the department is the defendant in a
land-claim lawsuit. The department is opposing the claim, as it believes the claim to be
fraudulent. The ultimate outcome of the matter cannot presently be determined, and no
provision for any liability that may result has been made in the financial statements.
[Unauthorised, irregular or fruitless and wasteful expenditure as well as material

losses through criminal conduct]
Guidance
The auditor is encouraged to draw attention to or emphasise instances of unauthorised,
irregular or fruitless and wasteful expenditure as well as material losses through criminal
conduct, as already disclosed in the financial statements/[the appropriation statement (only
for departments)].

As disclosed in note xx to the financial statements, irregular expenditure to the amount of
Rxx was incurred, as a proper tender process had not been followed.
29
Material underspending of the budget

Guidance
The auditor of a department is encouraged to draw attention to, or emphasise instances of,
material underspending of the budget by the department, as already disclosed in the
financial statements/appropriation statement.

As disclosed in the appropriation statement, the department has materially underspent the
budget on (refer to the relevant programme/subprogramme) to the amount of Rxx. As a
consequence, the department has not achieved its objectives of ….
Restatement of corresponding figures

(ISA 710.A6)
Guidance
The auditor may highlight a restatement of corresponding figures that are disclosed in the
current year financial statements, as a result of material misstatements that the auditor
came across during the current period audit, by including an emphasis of matter(s)
paragraph.

As disclosed in note xx to the financial statements, the corresponding figures for [prior
balance sheet date] have been restated as a result of an error discovered during [year of
current balance sheet date] in the financial statements of the [name of the entity] at, and for
the year ended, [prior balance sheet date].
Revision of the previously issued financial statements

(ISA 560)
Guidance
ISA 560 Subsequent Events deals with circumstances where it is necessary for the auditor
to issue a new auditor’s report on amended financial statements as a result of the auditor
becoming aware of a fact that had existed at the date of the auditor’s report that, if known at
that date, would have caused the financial statements to be amended or the auditor to
modify the auditor’s opinion. In those circumstances, the auditor is required to include an
emphasis of matter(s) paragraph in the new auditor’s report, referring to a note to the
financial statements that more extensively discusses the reason for the amendment of the
previously issued financial statements and to the earlier report issued by the auditor.
Please note that the fact and the reason for the amendment of the previously issued
financial statements should already be disclosed in the financial statements and that the
auditor’s report should only refer to this note to the financial statements.
The auditor is required to include an other matter(s) paragraph if the note to the financial
statements has been excluded.
Please also refer to chapter 4 on subsequent events, review of other information and dating
30
the auditor’s report.

Without qualifying my opinion above, I draw attention to note XX to the financial statements
which indicates that the previously issued financial statements for the year ended 31
December 20X0, on which I issued an auditor’s report dated [ ], have been revised and
reissued.
31
Other matter(s)
(ISA 700.38, .39 and ISA 706.8)
(If the opinion is unmodified) [Without qualifying my opinion,] I draw attention to the following
matter(s) that relate(s) to my responsibilities in the audit of the financial statements:
Guidance
The auditor may consider it appropriate to use the auditor’s report as a means of
communicating information relating to matters, other than those that are presented or disclosed
in the financial statements, that may be relevant to the users’ understanding of the financial
statements or the audit. Such matters should be addressed under the heading Other matter(s)
with, where relevant, one or more subheadings that describe the content of the other matter(s)
paragraph. When the auditor considers it appropriate to communicate matters other than those
that are presented or disclosed in the financial statements, the auditor uses an other matter(s)
paragraph for such matters with the heading Other matter(s), placed after the auditor’s opinion
and any emphasis of matter(s) paragraph. These other matters are in a separate section of the
auditor’s report to clearly distinguish them from the auditor’s responsibilities for, and opinion on,
the financial statements and from matters highlighted in an emphasis of matter(s) paragraph.
The other matter(s) paragraph does not deal with circumstances where the auditor has
additional reporting responsibilities that are supplementary to the auditor’s responsibility to
express an opinion on the financial statements, or where the auditor has been asked to perform
and report on additional specified procedures, or to express an opinion on specific matters.
Such additional reporting responsibilities are dealt with under the other reporting responsibilities
section of the auditor’s report.
The other matter(s) paragraph is included in the following circumstances:
• ISA 710 Comparative Information – Corresponding Figures and Comparative Financial
Statements, paragraphs 13 – 14, 16 – 17 and 19. (However, this is generally not
applicable in the public sector, as it relates to situations where the prior period
has not been audited or has been audited by a predecessor auditor and to the
comparative financial statement model.)
• ISA 720 The Auditor’s Responsibilities Relating to Other Information in Documents
Containing Audited Financial Statements, paragraph 10(a).
[Material inconsistencies in] [other] information included in the [annual report/other

information]
(ISA 706.8 and ISA 720)
Guidance
This paragraph should cover information in any other documents bound into the document
containing the auditor’s report and the financial statements. A material inconsistency exists
when other information contradicts information contained in the audited financial
statements.
Include the second example paragraph if the other information has not been received at the
time of finalising the auditor’s report. The paragraph should be removed if the information is
received prior to the report being made public. See chapter 4 for further guidance.
32

Paragraph xx of the accounting authority’s report indicates that the accounting authority’s
emoluments paid during the year under review amounted to R2 million. This is inconsistent
with the accounting authority’s emoluments of R4,8 million disclosed in note xx to the
or
I have not obtained the other information included in the annual report and have not been
able to identify any material inconsistencies with the financial statements.
Unaudited supplementary schedules

(ISA 700.46, .47 and A44 – A50)
Guidance
This will be applicable to supplementary schedules that are included with the financial
statements but have not been audited, e.g. budget information. See Technical memo 4 of
2009 concerning the inclusion of budget information in the financial statements.

The supplementary information set out on pages XX to XX does not form part of the
financial statements and is presented as additional information. I have not audited this/these
schedule(s) and accordingly I do not express an opinion thereon.
or
The [type of entity] provided supplementary information in the financial statements on
whether resources were obtained and used in accordance with the legally adopted budget,
in accordance with GRAP 1 Presentation of Financial Statements. The supplementary
budget information set out on pages XX to XX does not form part of the financial statements
and is presented as additional information. Accordingly I do not express an opinion thereon.
Non-compliance with applicable legislation

(ISA 250.22, ISA 250.A20 and ISSAI 1250.P9)
20. [Include name of applicable legislation]
Guidance
The matters to be reported here are those instances of non-compliance with legislation that
do not affect the fair presentation of the financial statements; in other words, matters without
financial impact.
Material instances of non-compliance with legislation that do affect the financial statements
should be reported as a qualified/disclaimed/adverse audit opinion, as appropriate. Such
instances of compliance deviations are not restricted to the acts listed below, but would
include instances of non-compliance with any legislation with a financial impact, e.g. the
VAT Act.
The matters to be included in this paragraph are restricted to instances of material
compliance deviations with those acts in terms of which the financial statements have been
prepared:
33
• PFMA and Treasury Regulations

• MFMA, Municipal Systems Act and Municipal Structures Act
• Entity’s own enabling legislation
• Any legislation governing the mandate of the entity
• Companies Act
• DoRA
All findings of this nature should be grouped per legislation.
Please note: Certain compliance deviations are reported under the matters of governance
section of the report. These instances of non-compliance should not be duplicated here;
they should only be reported in the matters of governance section of the report. Issues
relating to the audit committee and internal audit should only be included here if not covered
by the issues reported under the heading Matters of governance.
The auditor’s assessment of what is a material compliance deviation is a matter of
judgement and includes considerations of context as well as qualitative aspects (nature) of
the action or matter concerned. The reporting responsibility of the public sector auditor is
broader than that of the private sector auditor and therefore consideration of the needs and
expectations of the legislature and other users of the auditor’s report, as well as the nature,
extent and/or monetary value of the non-compliance, is equally important.
The non-disclosure of irregular, unauthorised as well as fruitless and wasteful expenditure
should be reported in a qualification paragraph and not here.

Public Finance Management Act
Members of the accounting authority did not declare their business interests, as required by
section 50(3)(a) and (b) of the PFMA.
or
The accounting officer did not comply with the following legislative requirements to report on
the disciplinary hearing against an official:
Section 38(1)(g) of the PFMA: reporting in writing to the relevant treasury particulars of
discovered unauthorised expenditure.
Section 40(1)(f) of the PFMA: for submitting all reports, returns, notices and other
information to the relevant treasury and the Auditor-General, as required by the PFMA.
Section 85(1)(a) and (e) of the PFMA read with Treasury Regulations 4.3.4: a report to
the relevant treasury and the Auditor-General on the outcome of the disciplinary
hearing.
or
Companies Act
A register of directors’ and officers’ interests in contracts with the entity was not maintained,
as required by section 240 of the Companies Act, 1973.
or
Division of Revenue Act
The accounting officer did not submit a quarterly performance report for each quarter during
the financial year ended 31 March 2009, as required by section 11(3)(b) of DoRA.
34
Governance framework
21. The governance principles that impact the auditor’s opinion on the financial statements
are related to the responsibilities and practices exercised by the accounting
[authority/officer] and executive management and are reflected in the [internal control
deficiencies and] key governance responsibilities addressed below:
Internal control deficiencies
(ISA 315.32, ISA 260.12(c)(i), ISA 210, ISA 265.6(a) and .6(b))
Guidance
ISA 315 defines internal control as the process designed, implemented and maintained by
those charged with governance, management and other personnel to provide reasonable
assurance about the achievements of the entity’s objectives with regard to the reliability and
financial reporting, effectiveness and efficiency of operations, and compliance with applicable
laws and regulations.
Controls refer to all aspects, or one or more components, of internal control.
In terms of ISA 265, a deficiency in internal control exists when:
• a control is designed, implemented or operated in such a way that it is unable to prevent,
or detect and correct, misstatements in the financial statements on a timely basis
• a control necessary to prevent, or detect and correct, misstatements in the financial
statements on a timely basis is missing.
Also refer to ISA 315.12, A42, A44, A53 and A60 for additional guidance.
22. [Section 38(1)(a)(i) of the PFMA/Section 51(1)(a)(i) of the PFMA/Section 62(1)(c)(i) of

the MFMA] states that the [accounting officer/accounting authority] must ensure that the
[type of entity] has and maintains effective, efficient and transparent systems of financial
and risk management and internal control. The table below depicts the root causes that
gave rise to the deficiencies in the system of internal control, which led to the
[qualified/adverse/disclaimer of] opinion. The root causes are categorised according to
the five components of an effective system of internal control. (The number listed per
component can be followed with the legend below the table.) In some instances
deficiencies exist in more than one internal control component.
Guidance
• This section should reflect significant deficiencies identified in internal control that
resulted in the matters included in the auditor’s report under Basis for
[qualified/adverse/disclaimer of] opinion. These matters threaten the achievement of
objectives and do not allow management or employees, in the normal course of
performing their assigned functions, to prevent or detect misstatements in good time.
Deficiencies may exist for more than one component of internal control for each of the
headings indicated, in which case the most material component(s) should be indicated.
• The table below should be completed by:
o populating the table with the basis for modified opinion paragraphs
o inserting the number per component of effective internal control (refer to the legend)
that relates to the root cause for the modification.
• The table should not be supplemented with any narrative paragraphs.
35
• The table should not include any of the matters included under Emphasis of matter(s)
or Other matter(s). Consequently, if the auditee received an unqualified audit opinion,
the auditor’s report should not include an internal controls paragraph and table.
Refer to chapter 6 for guidance on internal control/root cause analysis. See ISA 315 and
ISA 330 for additional information and refer to the working papers Internal control planning
checklist, Assessment of CIS control environment, Internal control/root cause analysis
document and Overall conclusion summary for conclusions reached during the audit.
Par. no. Basis for [qualified/adverse/disclaimer of] opinion CE RA CA IC M

[Include overall reflections / conclusion on the governance framework based on
internal control deficiencies, as and where applicable]
Legend
CE = Control environment
The organisational structure does not address areas of responsibility and lines of reporting to support effective control over 1
financial reporting.
Management and staff are not assigned appropriate levels of authority and responsibility to facilitate control over financial 2
reporting.
Human resource policies do not facilitate effective recruitment and training, disciplining and supervision of personnel. 3
Integrity and ethical values have not been developed and are not understood to set the standard for financial reporting. 4
The accounting officer/accounting authority does not exercise oversight responsibility over financial reporting and internal 5
control.
Management’s philosophy and operating style do not promote effective control over financial reporting. 6
The entity does not have individuals competent in financial reporting and related matters. 7
RA = Risk assessment
Management has not specified financial reporting objectives to enable the identification of risks to reliable financial 1
reporting.
The entity does not identify risks to the achievement of financial reporting objectives. 2
The entity does not analyse the likelihood and impact of the risks identified. 3
The entity does not determine a risk strategy/action plan to manage identified risks. 4
The potential for material misstatement due to fraud is not considered. 5
CA = Control activities
There is inadequate segregation of duties to prevent fraudulent data and asset misappropriation. 1
General information technology controls have not been designed to maintain the integrity of the information system and the 2
security of the data.
Manual or automated controls are not designed to ensure that the transactions have occurred, are authorised, and are 3
completely and accurately processed.
Actions are not taken to address risks to the achievement of financial reporting objectives. 4
Control activities are not selected and developed to mitigate risks over financial reporting. 5
Policies and procedures related to financial reporting are not established and communicated. 6
Realistic targets are not set for financial performance measures, which are in turn not linked to an effective reward system. 7
IC = Information and communication
Pertinent information is not identified and captured in a form and time frame to support financial reporting. 1
36
Information required to implement internal control is not available to personnel to enable internal control responsibilities. 2
Communications do not enable and support the understanding and execution of internal control processes and 3
responsibilities by personnel.
M = Monitoring
Ongoing monitoring and supervision are not undertaken to enable an assessment of the effectiveness of internal control 1
over financial reporting.
Neither reviews by internal audit or the audit committee nor self -assessments are evident. 2
Internal control deficiencies are not identified and communicated in a timely manner to allow for corrective action to be 3
taken.
Key governance responsibilities

(ISA 260.2, .11)
Guidance
The following matters have been identified as having the potential to be of significance or of
a nature that they should be brought to the attention of the legislature and those charged
with governance.
24. The [PFMA/MFMA] tasks the [accounting officer/accounting authority] with a number of
responsibilities concerning financial and risk management and internal control.
Fundamental to achieving this is the implementation of key governance responsibilities,
which I have assessed as follows:
No. Matter Y N Guidance
Clear trail of supporting documentation that is easily available and provided in a

timely manner
1. No significant difficulties were experienced The answer here would be based on the
during the audit concerning delays or the matters as reported in the management report.
availability of requested information.
Quality of financial statements and related management information

2. The financial statements were not subject to any Material misstatements should be measured in
material amendments resulting from the audit. terms of those which would have resulted in a
qualification had they not been corrected.
3. The annual report was submitted for The auditor’s report should not be issued as
consideration prior to the tabling of the auditor’s final or be signed until such time as the other
report. information to be included in the annual report
with the audited financial statements is read in
terms of ISA 720. The answer here should be
NO until such time as all audit responsibilities
have been concluded. The report will be
finalised and signed once this has been
accomplished.
Timeliness of financial statements and management information

4. The annual financial statements were submitted
for auditing as per the legislated deadlines
[section 40/55 of the PFMA]/[section 126 of the
MFMA].
Availability of key officials during audit

5. Key officials were available throughout the audit This refers to all persons that have executive
process. responsibilities for the conduct of the entity’s
operations. This would include all persons at
CFO level and higher. It would also include
37

persons charged with governance, such as the
accounting officer and members of the
accounting authority and any of its
subcommittees, such as the audit committee.
Development and compliance with risk management, effective internal control and
governance practices
6. Audit committee
• The [type of entity] had an audit committee If there was no committee for any length of
in operation throughout the financial year. time exceeding two months, the answer
should be NO.
• The audit committee operates in

accordance with approved, written terms of
reference.
• The audit committee substantially fulfilled its If there is no evidence that the committee did
responsibilities for the year, as set out in as required for two or more of the
[section 77 of the PFMA and Treasury requirements, the answer should be NO.
Regulation 3.1.10/27.1.8]/[section 166(2) of
the MFMA].
7. Internal audit
• The [type of entity] had an internal audit If there was no internal audit function for more
function in operation throughout the than two months, the answer should be NO.
financial year.
• The internal audit function operates in terms
of an approved internal audit plan.
• The internal audit function substantially
fulfilled its responsibilities for the year, as
set out in [Treasury Regulation
3.2/27.2]/[section 165(2) of the MFMA].
8. There are no significant deficiencies in the This would reflect on the number of findings
design and implementation of internal control in raised and the root cause for the findings that
respect of financial and risk management. reflected a problem.
9. There are no significant deficiencies in the See guidance under 10 above.
design and implementation of internal control in
respect of compliance with applicable laws and
regulations.
10. The information systems were appropriate to This would reflect on the number of
facilitate the preparation of the financial qualifications resulting from there not being a
statements. system to properly record the information
required for the financial systems. This may be
manual or automated.
11. A risk assessment was conducted on a regular This is a compliance matter and should also
basis and a risk management strategy, which reflect the root causes of findings.
includes a fraud prevention plan, is documented
and used as set out in [Treasury Regulation
3.2/27.2]/[section 62(c)(i)/95(c)(i) of the MFMA].
12. Delegations of responsibility are in place, as set This is a compliance matter.
out in [section 44/56 of the PFMA]/[section
79/106 of the MFMA].
Follow-up of audit findings

13. The prior year audit findings have been This would be indicated by the number of
substantially addressed. repeat findings recorded on the summary of
audit findings in the management report.
Substantially would be at least 90%.
38

14. SCOPA/Oversight resolutions have been Substantially would be at least 90%.
substantially implemented.
Issues relating to the reporting of performance information

15. The information systems were appropriate to Refer to guidance as part of the aopi audit
facilitate the preparation of a performance report programmes.
that is accurate and complete.
16. Adequate control processes and procedures are Refer to guidance as part of the aopi audit
designed and implemented to ensure the programmes.
accuracy and completeness of reported
performance information.
17. A strategic plan was prepared and approved for Refer to guidance as part of the aopi audit
the financial year under review for purposes of programmes. This is a compliance matter to
monitoring the performance in relation to the be reported under the heading Other reporting
budget and delivery by the [entity name] against responsibilities.
its mandate, predetermined objectives, outputs,
indicators and targets [Treasury Regulations 5.1,
5.2 and 6.1 (departments)/Treasury Regulation
29.1/30.1 (public entities)]/[section 68/87 of the
MFMA (municipalities)].
18. There is a functioning performance management This would have been part of the audit of
system and performance bonuses are only paid performance bonuses.
after proper assessment and approval by those
charged with governance.

[Include overall reflections / conclusion on the governance framework based on other
key governance requirements, as and where applicable]
Investigations
Guidance
Refer to any investigations in progress or completed, irrespective of who is conducting the
investigation, without specifically referring to the name of the entity/persons who are
conducting the investigation. Refer to the working paper Overall conclusion summary for
matters to be reported.

An investigation is being conducted to probe the manner in which the ABC project utilised
funds advanced by the department. The investigation aims to establish whether the funds
were utilised for its intended purpose and in accordance with the approved business plan.
The investigation was still ongoing at the reporting date.
39
or
With reference to note xx to the financial statements dealing with material losses through
criminal conduct, an investigation was conducted by an independent consulting firm on
request of the entity. The investigation was initiated based on an allegation of possible
misappropriation by employees of assets that were received from one of the entity’s
subcontractors. The investigation has resulted in criminal proceedings being instituted
against two employees.
40
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
Report on performance information
27. I have reviewed the performance information as set out on pages xx to xx.
or
(Where no reporting on performance information is included in the annual report)
23. I was engaged to review the performance information.
Guidance
The audit findings on performance information are now included in the regularity auditor’s
report and this section reports the findings from the audit of performance information.
41
The [accounting officer/accounting authority]’s responsibility for the performance

information
(For departments, constitutional institutions and trading entities)
28. The accounting officer has additional responsibilities as required by section 40(3)(a) of
the PFMA to ensure that the annual report and audited financial statements fairly
present the performance against predetermined objectives of the [type of entity].
(For public entities)
24. The accounting authority has additional responsibilities as required by section 55(2)(a) of
the PFMA to ensure that the annual report and audited financial statements fairly
present the performance against predetermined objectives of the public entity.
(For municipalities)
24. In terms of section 121(3)(c) of the MFMA, the annual report of a municipality must
include the annual performance report of the municipality, prepared by the municipality
in terms of section 46 of the Local Government: Municipal Systems Act, 2000 (Act No.
32 of 2000) (MSA).
(For municipal entities)
24. In terms of section 121(4)(d) of the MFMA, the annual report of a municipal entity must
include an assessment by the entity’s accounting officer of the entity’s performance
against any measurable performance objectives, set in terms of the service delivery
agreement or other agreement between the entity and its parent municipality.
42

29. I conducted my engagement in accordance with section 13 of the PAA read with General
Notice 616 of 2008, issued in Government Gazette No. 31057 of 15 May 2008 [and
section 45 of the MSA].
30. In terms of the foregoing my engagement included performing procedures of an audit
nature to obtain sufficient appropriate evidence about the performance information and
related systems, processes and procedures. The procedures selected depend on the
auditor’s judgement.
31. I believe that the evidence I have obtained is sufficient and appropriate to provide a
basis for the audit findings reported below.
or
27. I believe that the evidence I have obtained is sufficient and appropriate to report that no
significant findings have been identified as a result of my audit.
43
Audit findings (performance information)
Guidance
To ensure consistent and clear reporting on audit of performance information findings,
auditors MUST report such findings under relevant headings as per this guide.
Please refer to the example report paragraphs below. Auditors should use these examples
as guidance and add other relevant findings where necessary for the specific auditee.
Non-compliance with regulatory requirements

32. [Include report paragraph(s)]
Example report paragraph(s) – PFMA
No reporting of performance information
The entity has not reported performance against predetermined objectives, as required by
section …2 of the PFMA.
No strategic/corporate/annual performance plan3

The accounting officer of the [name of department, trading entity, constitutional institution]
did not prepare a strategic plan that is consistent with the period covered by the medium-
term expenditure framework for approval by the relevant executive authority, as required by
Treasury Regulation 5.1.1.
or
The accounting authority of the [name of public entity listed in schedule 2 or name of
government business enterprise listed in schedule 3] did not submit to the accounting
officer of a department designated by the executive authority responsible for the [public
entity or business enterprise] and to the National Treasury, at least one month – or another
period agreed with the National Treasury – before the start of the financial year, a
corporate plan in the prescribed format, as required by section 52 of the PFMA.
or
The accounting authority of the [name of public entity listed in schedule 3A or 3C] did not
finalise and submit a strategic plan for approval to the relevant executive authority before
or on 1 April [year], as required by Treasury Regulations 30.1.1 and 30.1.2.
Submission of strategic/corporate/annual performance plan

The accounting officer of the [name of department, trading entity, constitutional institution]
did not provide Parliament or the relevant legislature with the strategic plan/annual
performance plan (only relevant to provincial departments) at least 10 days prior to the
2
Include reference to relevant section:
Departments, trading entities and constitutional institutions – section 40(3)(a) of the PFMA.
Public entities – section 55(2)(a) of the PFMA.
3
Strategic plans are relevant to departments and public entities; corporate plans are relevant to
schedule 2, 3B and 3D public entities; and annual performance plans are only relevant to provincial
departments.
44
discussion of the department’s budget vote, as required by Treasury Regulations 5.2.1 and
5.2.2.
or
The accounting authority of the [name of public entity listed in schedule 3A or 3C] did not
submit the proposed strategic plan at least six months before the start of the financial year
of the designated department, or another time period as agreed to between the executive
authority and the public entity, as required by Treasury Regulation 30.1.1.
or
The accounting authority of the [name of public entity listed in schedule 2, 3B or 3D] did
not, in consultation with its executive authority, conclude a shareholder’s compact for the
year under review, as required by Treasury Regulation 29.2.1.
Approval of strategic or corporate plan by the relevant executive authority
The executive authority of the [name of public entity listed in schedule 3A or 3C] did not
approve the strategic plan submitted by the accounting authority, as required by Treasury
Regulation 30.1.1. (Note to auditors: This paragraph should be reported in the auditor’s
report of the relevant department if applicable.)
or
The executive and accounting authorities of the [name of public entity listed in schedule 2,
3B or 3D] did not agree to the shareholder’s compact, which documents the mandated key
performance measures and indicators to be attained by the public entity, as required by
Treasury Regulation 29.2.2. (Note to auditors: This paragraph should be reported in the
auditor’s reports of both the relevant department and the public entity.)
Content of strategic/corporate/annual performance plan

The strategic plan of the [name of department, trading entity, constitutional institution] did
not include the measurable objectives, expected outcomes, programme outputs, indicators
(measures) and targets of the entity's programmes, as required by Treasury Regulation
5.2.3(d).
or
The corporate plan of the [name of public entity listed in schedule 2 or name of government
business enterprise listed in schedule 3] did not include the strategic objectives and
outcomes identified and agreed on by the executive authority in the shareholder’s compact
as well as the key performance measures and indicators for assessing the entity’s
performance in delivering the desired outcomes and objectives, as required by Treasury
Regulation 29.1.1(a) and (c).
or
The strategic plan of the [name of schedule 3A or 3C public entity] did not include
objectives and outcomes as identified by the executive authority as well as key
performance measures and indicators for assessing the public entity’s performance in
delivering the desired outcomes and objectives, as required by Treasury Regulation 30.1.3.
Lack of reporting on all predetermined objectives in annual report

The [name of entity] has not reported on all the predetermined objectives, as required by
section [40(3)(a)/55(2)(a)] of the PFMA.
(In a summarised format, refer to those objectives reflected in the strategic/corporate/annual
45
performance plan that were not reported on.)

(Note to auditors: Reference can also be made to:
• Treasury Regulations 5.2.4 and 18.3.1 (departments, constitutional institutions and
trading entities)
• Treasury Regulation 28.2.2 (all public entities).
Lack of effective, efficient and transparent systems and internal controls regarding
performance management
The accounting officer did not ensure that the [name of department, trading entity,
constitutional institution] has and maintains an effective, efficient and transparent system
and internal controls regarding performance management, which describe and represent
how the institution’s processes of performance planning, monitoring, measurement, review
and reporting will be conducted, organised and managed, as required in terms of section
38(1)(a)(i) and (b) of the PFMA.
or
The accounting authority did not ensure that the [name of the public entity] has and
maintains an effective, efficient and transparent system and internal controls regarding
performance management, which describe and represent how the entity’s processes of
performance planning, monitoring, measurement, review and reporting will be conducted,
organised and managed, as required in terms of section 51(1)(a)(i) of the PFMA.
No or inadequate quarterly reporting on performance information

No quarterly reports on the progress in achieving measurable objectives and targets were
prepared by the [name of department or entity] to facilitate effective performance
monitoring, evaluation and corrective action, as required by Treasury Regulation XX.4
or
The quarterly reports of the [name of department or entity] did not track progress against
outputs, indicators and targets as per the approved strategic/corporate/annual performance
plan and therefore did not facilitate effective performance monitoring and evaluation, as
required by Treasury Regulation XX (refer to footnote 4).
Example report paragraph(s) – MFMA
No reporting of performance information
The annual report of the [name of municipality] did not include the annual performance
report of the municipality, prepared by the municipality in terms of section 46 of the MSA,
as required by section 121(3)(c) of the MFMA.
or
The annual report of the [name of municipal entity] did not include an assessment by the
entity’s accounting officer of the entity’s performance against any measurable performance
objectives, set in terms of the service delivery agreement or other agreement between the
entity and its parent municipality, as required by section 121(4)(d) of the MFMA.
4
Section 5.3.1 for departments, trading entities and constitutional institutions.
Section 29.3.1 for schedule 2, 3B and 3D public entities.
Section 30.2.1 for schedule 3A and 3C public entities.
46
No integrated development plan or service delivery/other agreement

The [name of municipal council] did not, within the prescribed period after the start of its
elected term, adopt a single, inclusive and strategic plan for the development of the
municipality, as required by section 25 of the MSA.
or
The [name of municipal council] did not, within the prescribed period after the start of its
elected term, adopt a process set out in writing to guide the planning, drafting, adoption
and review of its integrated development plan, as required in terms of section 28 of the
MSA.
or
The [name of municipality] did not enter into a service delivery agreement with the [name of
municipal entity or another municipality or an organ of state] for the provision of a municipal
service [service can be specified], as required in terms of section 76 of the MSA and
regulation 9(2) of the Municipal Planning and Performance Management Regulations, 2001.
Content of integrated development plan
The integrated development plan of the [name of municipality] did not include the key
performance indicators and performance targets determined in terms of its performance
management system, as required by sections 26(i) and 41(1)(b) of the MSA and regulation
12 of the Municipal Planning and Performance Management Regulations, 2001.
(Note: Auditors should also add the other core components of the IDP, as listed in section
26 of the MSA, if those were not included in the IDP.)
or
The key performance indicators set by the [name of municipality] did not include any
general key performance indicators [or refer to a specific key performance indicator]
applicable to the municipality, as prescribed in terms of section 43(1) of the MSA.
Existence and functioning of a performance audit committee5
The [name of municipality] did not appoint and budget for a performance audit committee,
nor was another audit committee utilised as the performance audit committee, as required
by regulation 14(2) of the Municipal Planning and Performance Management Regulations,
2001.
or
The performance audit committee [or name of another committee functioning as the
performance audit committee] did not:
• meet at least twice during the financial year
• review the quarterly reports of the internal auditors on their audits of the
performance measurements of the municipality
• review the [name of municipality’s] performance management system and make
recommendations in this regard to the council of the [name of municipality]
5
Refer to section 14(2), (3) and (4) of the Local Government: Municipal Planning and Performance
Management Regulations, 2001. Note that these requirements are only applicable to
municipalities. Also note the requirements in regulation 14(2)(h) if a local municipality elects to make
use of the performance audit committee of the district municipality in whose area it falls.
47
• submit an auditor’s report to the [name of council] regarding the performance

management system at least twice during the financial year.
Internal auditing of performance measurements6
The [name of municipality] did not develop and implement mechanisms, systems and
processes for auditing the results of performance measurement as part of its internal audit
processes, as required in terms of section 45 of the MSA.
or
The internal audit processes and procedures did not include assessments of the
functionality of the [name of municipality’s] performance management system and whether
the system complied with the requirements of the MSA.
and/or
The internal audit processes and procedures did not include assessments of the extent to
which the [name of municipality’s] performance measurements were reliable in measuring
the performance of the municipality on key as well as general performance indicators.
and/or
The internal auditors of the [name of municipality] did not audit the performance
measurements on a continuous basis and/or did not submit quarterly reports on their audits
to the municipal manager and the performance audit committee.
Lack of adoption or implementation of a performance management system (only
applicable to municipalities)
The [name of municipality] [did not adopt/did not implement] a framework that describes and
represents how the municipality’s cycle and processes of performance planning, monitoring,
measurement, review, reporting and improvement will be conducted, organised and
managed, including determining the roles of the different role players, as required in terms
of regulations 7 and 8 of the Municipal Planning and Performance Management
Regulations, 2001.
No mid-year budget and performance assessments
The accounting officer of the [name of municipality] did not (by 25 January of each year)
assess the performance of the municipality during the first half of the financial year, taking
into account the municipality’s service delivery performance during the first half of the
financial year and the service delivery targets and performance indicators set in the service
delivery and budget implementation plan, as required by section 72 of the MFMA.
or
The accounting officer of the [name of municipal entity] did not (by 20 January of each year)
assess the performance of the entity during the first half of the financial year, taking into
account the targets set in the service delivery agreement, business plan or other agreement
with the entity’s parent municipality, as required by section 88 of the MFMA.
(Note to auditors:
• Also report on the non-submission of the mid-year budget and performance
assessment reports as required by sections 72 and 88 of the MFMA, if applicable.
• Also report on other non-compliance with the MFMA, MSA and regulations relating
6
Refer to section 14(1) of the Local Government: Municipal Planning and Performance Management
Regulations, 2001. Note that these requirements are only applicable to municipalities.
48
to performance management, if relevant and applicable to the auditee.)
Usefulness and reliability of reported performance information

33. The following criteria were used to assess the usefulness and reliability of the
information on the [department’s/entity’s/municipality’s/municipal entity’s] performance
with respect to the objectives in its [strategic plan/corporate plan/annual performance
plan/integrated development plan]:
• Consistency: Has the [department/entity/municipality/municipal entity] reported on its
performance with regard to its objectives, indicators and targets in its approved
[strategic plan/corporate plan/annual performance plan/integrated development
plan]?
• Relevance: Is the performance information as reflected in the indicators and targets
clearly linked to the predetermined objectives and mandate. Is this specific and
measurable, and is the time period or deadline for delivery specified?
• Reliability: Can the reported performance information be traced back to the source
data or documentation and is the reported performance information accurate and
complete in relation to the source data or documentation?
The following audit findings relate to the above criteria:
Inconsistently reported performance information

The [name of entity] has not reported [throughout] on its performance with regard to its
[objectives/indicators/targets] as per the approved [strategic/corporate/annual
performance/integrated development plan].
(Note: Auditors to provide a high-level summary of the differences.)
or
The [name of entity] reported on objectives, indicators and targets in addition to those as
per the approved [strategic/corporate/annual performance/integrated development plan].
Furthermore, these additional objectives, indicators and targets were not included in the
approved or adjusted budgets or were not approved subsequent to the strategic planning
process.
(Note: Auditors to provide a high-level summary of the additional objectives, indicators and
targets included in the performance report.)
or
The [name of entity] has not reported [throughout] on its performance with regard to its
[objectives/outputs/indicators/targets] as per the approved [strategic/corporate/annual
performance/integrated development plan], due to changes to the
[objectives/outputs/indicators/targets] from the approved [strategic/corporate/annual
performance/integrated development plan]. No evidence could be provided that these
changes had been approved.
(Note: Auditors to provide a high-level summary of the changes not approved.)
49
Reported performance information not relevant

The following [indicators/targets] with regard to the [name of
programmes/subprogrammes/objectives] did not clearly relate to [the relevant
predetermined objectives for the [name of
subprogramme/programme/entity]/institution’s mandate [include reference to specific
aspects]/realisation of the goals and objectives of the entity].
(Note: Auditors to provide a high-level summary of examples in this regard.)
or
The following targets with regard to the [name of
programmes/subprogrammes/objectives] were not:
• specific in clearly identifying the nature and the required level of performance
• measurable in identifying the required performance
• time bound in specifying the time period or deadline for delivery.
Reported performance information not reliable

Lack of source documentation
Sufficient appropriate audit evidence in relation to the reported performance information of
the [name of programme/subprogramme/objectives] could not be obtained, as the relevant
source documentation could not be provided for audit purposes.
or
The reported actual achievement of [measures/indicators/targets] could not be
substantiated by adequate evidence/source documentation.
Lack of appropriate information systems generating performance information
Sufficient appropriate audit evidence with regard to the reported performance information
of the [name of programme/subprogramme/objectives] could not be obtained, as the
information system used for generating performance information was not appropriate to
facilitate the preparation of accurate and complete actual performance information.
Source information not accurate and complete
The source information or evidence provided to support the reported performance
information with regard to the [name of programme/subprogramme/objectives] did not
adequately support the accuracy and completeness of the facts.
Incomplete reporting on all predetermined objectives, indicators and targets
The actual achievements with regard to all indicators and targets specified in the 2008-09
[strategic/corporate/annual/integrated development plan] for the [name of
50
programme/subprogramme/objectives] were not reported on throughout.

(Note: Auditors to indicate the number or percentage of indicators and targets for which
no actual performance achievements were reported.)
Performance information not received in time

An assessment could not be performed of the reliability of the reported performance
information, as set out on pages xx to xx of the annual report, since the information was not
received in time for audit purposes.
51
OTHER REPORTS
Performance audits
Guidance
Refer to any performance auditor’s reports issued since the last auditor’s report, as
envisaged in section 20(3) of the PAA.

A performance audit was conducted during the year under review concerning the entity’s
turnaround time for delivery of services to departments. The report covered the period
March 2003 to February 2005 and was tabled on 31 May 2006.
Special audits
Guidance
Refer to any special auditor’s reports issued since the last auditor’s report, as envisaged in
section 5(1)(d) of the PAA. This would include any agreed-upon procedures audits that had
been undertaken.

As requested by the [type of entity], an [assurance engagement/audit] was conducted
during the year under review concerning (include a brief description of the audit). The report
covered the period March 2003 to February 2005 and was tabled on 31 May 2006.
52
APPRECIATION
40. The assistance rendered by the staff of the [name of entity] during the audit is sincerely
appreciated.
Place of signing
Date of signing
53
54
CHAPTER 2:
MANAGEMENT REPORT
55
Reporting guide 2009
Chapter 2: Management report
CHAPTER 2: MANAGEMENT REPORT
General guidance
1. This template for the management report has been prepared in order to ensure that
significant findings from the audit are communicated to those charged with governance in a
consistent manner and that the information required for the general report is available. All
matters included in this report would have been audited during the normal audit process; no
additional procedures are required.
2. The first section of the report, up to the summary of the detailed audit findings, is considered
to be an executive summary highlighting the key issues that should receive the attention of
those charged with governance. This part of the report may in future be made available to
other stakeholders, such as SCOPA, the responsible minister, and the regulator (national
and provincial treasuries).
3. Where the contents of a particular section/paragraph/issue will be included in the general
report this item has been highlighted in pink
4. All sections of this report must be included. The paragraphs should be adapted for the
particular circumstances. Limited example paragraphs have been provided due to the
diversity of the matters to be reported. If you wish to highlight a matter and cannot identify
an appropriate heading, please consult with ARD.
5. The template contains an indication of different wording and content for the interim and the
final management reports.
6. The interim management report will include the details of the misstatements communicated
up to the date of the report and will also include management’s response on these
communiqués.
7. The final management report should be issued in draft format for response by management.
Once these responses have been received, the final report should be discussed with those
charged with governance and the report should be finalised. The report should then be
issued.
8. Where wording appears in a [ ] bracket, it requires that the appropriate wording for the
circumstances should be selected or inserted and that other non-applicable wording should
be deleted. Where wording is included in a ( ) bracket, this is explanatory information which
should be deleted from the final version of the report. Where there are no findings for a
particular paragraph heading, such heading should be deleted.
56
FINAL/INTERIM MANAGEMENT REPORT TEMPLATE

Addressee
[The accounting officer or chairperson of the accounting authority]
Date
Reference
Dear Sir/Madam

PERFORMANCE INFORMATION OF THE [NAME OF ENTITY] [AND THE GROUP] FOR
THE [PERIOD/YEAR ENDED] [31 MARCH 200X/30 JUNE 200X/INTERIM AUDIT DATE]
Guidance
1. The management report is addressed to the accounting officer or chairperson of the
accounting authority, as they are the persons responsible for the oversight of the entity.
2. The report should be copied to the audit committee, the CEO, the CFO, and the head of
internal audit as applicable.
57
INTRODUCTION
Final
1. This management report is provided to the accounting [officer/authority] of the [name of

entity] in connection with our audit of the [group] financial statements and the review of
the performance information for the year ended [31 March 200x/30 June 200x].
2. The report contains the following main subsections:

• The Auditor-General’s responsibilities
• The Accounting officer’s/authority’s responsibilities
• Significant findings from our audit of the financial statements
o Financial matters
o Governance matters
• Significant findings from our review of the performance information
• Significant findings from [specific focus areas]
• Information on audits conducted other than on the financial statements
o Investigations
o Performance audits
o Special audits
• Ratings of the audit findings
• Summary of detailed audit findings
3. Annexures A, B, and C contain information on the detailed audit findings. The detailed
findings were communicated during the course of the audit and include management’s
responses thereto.
Interim
1. This management report is provided to the accounting [officer/authority] of the [name of

entity] to facilitate consideration and correction of the audit findings that have come to our
attention to date. A final management report will be provided after the completion of the
audit.
2. The report contains the following main subsections:

• The Auditor-General’s responsibilities
• The Accounting officer’s/authority’s responsibilities
• Significant findings from our audit of the financial statements
o Financial matters
o Governance matters
• Significant findings from our review of the performance information
• Significant findings from [specific focus areas]
• Summary of detailed audit findings
3. The detailed findings contained in this report were communicated during the course of
the audit and include management’s responses thereto.
58
THE AUDITOR-GENERAL’S RESPONSIBILITIES

4. Our responsibility is to express an opinion on the [group] financial statements and to
report on findings related to our review of performance information. Our engagement
letter sets out our responsibilities in detail. These include the following:
• Planning and performing the audit to obtain reasonable assurance about whether the
[group] financial statements are free from material misstatements, whether caused by
fraud or error.
• Performing procedures to obtain audit evidence about the amounts and disclosures in
the [group] financial statements. The procedures selected depend on our judgement,
including the assessment of the risks of material misstatement of the [group] financial
statements.
• Considering internal controls relevant to the entity’s preparation and fair presentation
of the financial statements.
• Evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by management.
• Evaluating the overall presentation of the financial statements.
• Expressing an opinion on the [group] financial statements based on the audit in
accordance with the International Standards on Auditing (ISAs).
• Evaluating non-compliance with applicable legislation relating to financial matters,
financial management and other related matters.
• Evaluating the appropriateness of controls, systems and processes to ensure the
accuracy and completeness of reported performance information.
• Reading other information in documents containing the audited [group] financial
statements.
5. Because of the test nature and other inherent limitations of an audit, we do not guarantee
the completeness and accuracy of the [group] financial statements or performance
information, or compliance with all applicable legislation.
59
THE ACCOUNTING [OFFICER’S/AUTHORITY’S] RESPONSIBILITIES
6. The accounting [officer’s/authority’s] responsibilities are set out in detail in the

engagement letter. These include the following:
• The preparation and fair presentation of the [group] financial statements in

accordance with the [applicable reporting framework/basis of accounting].
• Designing, implementing and maintaining internal controls relevant to the preparation
of the [group] financial statements.
• Selecting and applying appropriate accounting policies, and making accounting
estimates that are appropriate in the circumstances.
• Disclosing known instances of non-compliance or suspected non-compliance with
laws and regulations, of which the effects should be considered when preparing
• Monitoring and reporting on performance against predetermined objectives.
• Providing access to all information that is relevant to the preparation of the financial
statements and performance information, such as records, documents and other
matters.
• Disclosing all matters concerning any risk, allegation or instances of fraud.
• Accounting for and disclosing related party relationships and transactions.
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SIGNIFICANT FINDINGS FROM OUR AUDIT OF THE FINANCIAL STATEMENTS
FINANCIAL MATTERS
Material misstatements not corrected at the date of this report (interim and final)
Guidance (ISA 530, 450 and 705; also refer to chapter 3 of this guide)
Include all material misstatements that have not been corrected at the time of reporting. In
an interim report, management may not yet have had sufficient opportunity to correct the
misstatements. In the final report, the misstatements included here should agree to the
uncorrected misstatements in connection with which you have asked management to
provide a representation letter (ISA 580). These misstatements should also correspond with
the matters included under the basis for qualified/adverse/disclaimer of opinion
paragraph(s) in the auditor’s report. Should you wish to include other misstatements here,
please use a separate table.

1. The following represent the material misstatements that arose from a difference between
the amount, classification or presentation of a reported financial statement item and the
amount, classification or presentation that is required for the item to be in accordance with
the applicable financial reporting framework. These misstatements were identified during
the audit and had not been corrected by management at the date of this report. These
misstatements were not prevented or detected by the [type of entity]’s system of internal
control. We urge management to implement improved controls over the matters reflected as
the root cause for the misstatements.
Financial statement line Reason for Dr Cr Root cause(s)
item misstatement (as per table
below)
R R
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2. The following represents the material misstatements that arose from a difference
between the disclosures in the financial statements and the disclosures required by the
financial reporting framework. These misstatements were identified during the audit and had
not been corrected by management at the date of this report. These misstatements were
not prevented or detected by the [type of entity]’s system of internal control. We urge
management to implement improved controls over the matters reflected as the root cause
for the misstatements.
Financial statement line item Disclosure Amount Root cause(s) (as per
table below)
R
3. The following misstatements were as a result of the auditor not being able to obtain
sufficient appropriate audit evidence, due to the documentation or information requested
not having been made available by management:
Financial statement Reason for Amount of Affected Root cause(s) as

item misstatement misstatement assertion per table below
4. The following misstatements were identified during the prior year audit and had not
been corrected by management at the date of this report. These misstatements were not
prevented or detected by the [type of entity]’s system of internal control. We urge
management to implement improved controls over the matters reflected as the root cause
for the misstatements.
62
Financial statement Reason for Dr Cr Root cause(s)

line item misstatement (as per table
below)
R R
5. [Include overall reflections / conclusion on the governance framework based on

internal control deficiencies, as and where applicable]
Material misstatements corrected during the audit (interim and final)
Guidance (ISA 530 and 450)

Include all material misstatements corrected during the course of the audit.

The following represents the material misstatements arising from a difference between the
amount, classification or presentation of a reported financial statement item and the
amount, classification or presentation that is required for the item to be in accordance with
the applicable financial reporting framework. These misstatements were identified during
the audit and were corrected by management. These misstatements were not prevented or
detected by the [type of entity]’s system of internal control. We urge management to
implement improved controls over the matters reflected as the root cause for the
misstatements.
Financial statement item Reason for Dr Cr Root cause(s) (as
misstatement per table below)
R R
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2. The following represents the material misstatements that arose from a difference
between the disclosures in the financial statements and the disclosures required by the
financial reporting framework. These misstatements were identified during the audit and
were corrected by management. These misstatements were not prevented or detected by
the [type of entity]’s system of internal control. We urge management to implement
improved controls over the matters reflected as the root cause for the misstatements.
Financial statement item Disclosure Amount Root cause(s) (as per
table below)
R
Guidance
Root causes
(ISA 315, 210 and 265.6)
The objective of financial reporting is to prepare financial statements that fairly
present the financial position and performance of the entity and that are free from
material misstatement, whether from fraud or error.
1. ISA 315 defines internal control as the process designed, implemented and maintained by
those charged with governance, management and other personnel to provide reasonable
assurance about the achievements of the entity’s objectives with regard to the reliability and
financial reporting, effectiveness and efficiency of operations, and compliance with applicable
laws and regulations.
2. Controls refer to all aspects, or one or more components, of internal control.
3. In terms of ISA 265, a deficiency in internal control exists when:
• a control is designed, implemented or operated in such a way that it is unable to prevent,
or detect and correct, misstatements in the financial statements on a timely basis
• a control necessary to prevent, or detect and correct, misstatements in the financial
statements on a timely basis is missing.
Also refer to ISA 315.12, A42, A44, A53 and A60 for additional guidance.
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4. [Section 38(1)(a)(i) of the PFMA/Section 51(1)(a)(i) of the PFMA/Section 62(1)(c)(i) of the

MFMA] states that the [accounting officer/authority] must ensure that the entity has and
maintains effective, efficient and transparent systems of financial and risk management and
internal control.
5. The table below depicts the internal control deficiencies in respect of financial reporting
that should be used for reporting as the root causes for the above matters. The root causes
are categorised according to the five components of an effective system of internal control. In
some instances deficiencies exist in more than one internal control component.
Legend
CE = Control environment (ISA 315.14(b) and A69-A75)
The organisational structure does not address areas of responsibility and lines of reporting to support effective control 1
over financial reporting.
Management and staff are not assigned appropriate levels of authority and responsibility to facilitate control over 2
Human resource policies do not facilitate effective recruitment and training, disciplining and supervision of personnel. 3
Integrity and ethical values have not been developed and are not understood to set the standard for financial reporting. 4
The accounting officer/authority does not exercise oversight responsibility over financial reporting and internal control. 5
Management’s philosophy and operating style do not promote effective control over financial reporting. 6
The entity does not have individuals competent in financial reporting and related matters. 7
RA = Risk assessment
Management has not specified financial reporting objectives to enable the identification of risks to reliable financial 1
reporting.
The entity does not identify risks to the achievement of financial reporting objectives. 2
The entity does not analyse the likelihood and impact of the risks identified. 3
The entity does not determine a risk strategy/action plan to manage identified risks. 4
The potential for material misstatement due to fraud is not considered. 5
CA = Control activities
There is inadequate segregation of duties to prevent fraudulent data and asset misappropriation. 1
General information technology controls have not been designed to maintain the integrity of the information system and 2
security of the data.
Manual or automated controls are not designed to ensure that the transactions occurred, are authorised, and are 3
completely and accurately processed.
Actions are not taken to address risks to the achievement of financial reporting objectives. 4
Control activities are not selected and developed to mitigate risks over financial reporting. 5
Policies and procedures related to financial reporting are not established and communicated. 6
Realistic targets are not set for financial performance measures, which are in turn not linked to an effective reward 7
system.
IC = Information and communication
Pertinent information is not identified and captured in a form and time frame to support financial reporting. 1
Information required to implement internal control is not available to personnel to enable internal control 2
responsibilities.
Communications do not enable and support the understanding and execution of internal control processes and 3
responsibilities by personnel.
M = Monitoring
Ongoing monitoring and supervision are not undertaken to enable an assessment of the effectiveness of internal 1
control over financial reporting.
Reviews by internal audit, the audit committee or self-assessment are not evident. 2
Internal control deficiencies are not identified and communicated in a timely manner to allow for corrective action to be 3
taken.
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Funding of operations/Financial sustainability/Going concern (interim and final)
Guidance (ISA 570)

1. The auditor’s responsibility is to obtain sufficient appropriate audit evidence about the
appropriateness of management’s use of the going concern assumption in the preparation
and presentation of the financial statements and to conclude whether there is a material
uncertainty about the entity’s ability to continue as a going concern. This responsibility exists
even if the financial reporting framework used in the preparation of the financial statements
does not include an explicit requirement for management to make a specific assessment of
the entity’s ability to continue as a going concern.
2. Other than enquiry of management, the auditor does not have a responsibility to perform
any other audit procedures to identify events or conditions that may cast significant doubt on
the entity’s ability to continue as a going concern beyond the period assessed by
management, which, as discussed in paragraph 13, would be at least 12 months from the
date of the financial statements.
3. Select the most appropriate heading after considering the matters below.
Guidance specific to the public sector

4. The going concern principle should be evaluated within the context of the matters
set out below for a particular type of entity. This evaluation should always be
documented in the audit working papers.
Under the going concern assumption in the public sector, an entity is viewed as likely to
continue business for the foreseeable future. It is rare that the future of an entity cannot be
predicted with some certainty for a period of one year from the date of approval of the
In the public sector, the anticipated provision of a service in the future (as evidenced by the
financial provision for that service in published documents such as the MTEF and DoRA) is
normally sufficient evidence of a going concern.
5. Modified cash basis of accounting
When the financial statements are prepared on a cash basis, ISA 57O does not apply, as
the going concern basis is inherent in this reporting framework. However, the auditor would
still consider whether there are matters affecting the entity’s financial sustainability and
report on these to those charged with governance. This may include large overdrafts as a
result of unauthorised expenditure.
6. Provinces
Section 100(1) of the Constitution with regard to the national supervision of provincial
administration, states that when a province cannot or does not fulfil an executive obligation
in terms of the Constitution or legislation, the national executive may intervene by taking any
appropriate step to ensure fulfilment of the obligation.
7. Public entities, etc.
For entities that are generating own income and are not receiving, or only receive, partial
funding from government, the auditor will need to consider if the going concern assumption
66
is appropriate where the entity is likely to be wound up. This would normally be included in
legislation that would be available in advance of any effective date for such occurrence.
Where a public entity ceases to operate, consideration should be given to whether the
service will continue to be provided, using the same assets, in determining whether to use
the going concern basis in preparing the financial statements.
Cessation of operational evidence is most likely to result from a government policy decision.
Such a decision may be taken to:
- wind up and dissolve an entity when the functions are no longer required
- wind up and dissolve all or parts of an entity, but transfer all or some of its functions
to another entity
- merge some entity or some part of it with another entity.
8. Municipalities
Section 139 of the Constitution states the following with regard to the provincial supervision
of local government:
(1) When a municipality cannot or does not fulfil an executive obligation in terms of
legislation, the relevant provincial executive may intervene by taking appropriate steps to
ensure fulfilments of the obligation including:
(b) assuming responsibility for the obligations to the extent necessary:
(i) to maintain or meet standards for rendering of a service
(ii) to maintain economic unity.
In addition, chapter 13 of the MFMA deals with the resolution of financial problems. The
auditor should enquire about compliance with the processes set out when considering the
financial sustainability of a municipality.
In light of the above, it is unlikely that an entity would be qualified on the
appropriateness of the use of the going concern assumption in the public sector.
However, it may be evident that the entity cannot sustain itself financially without
government intervention. The auditor should enquire what processes the entity has
followed to ensure the continuity of its operations and determine whether this is
adequately disclosed in the financial statements. The auditor should report on the
matters that contribute to this in the management report and an emphasis of matter(s)
paragraph should be included in the auditor’s report.
Refer to the guidance under the “Emphasis of matter” paragraph in chapter 1 relating to the
reporting requirements if the going concern assumption is appropriate, but material
uncertainties exist).
Example report paragraph(s) – (adapt as necessary)

While the [name of the entity] [final: has prepared financial statements on a going concern
basis)/(interim: continues to operate], there are a number of indicators that its financial
sustainability is under threat. These include the following:
o The average debtors payment period has deteriorated from 60 to 120 days and an
impairment loss of R1 million in respect of doubtful debts was necessary for the
current year, compared to R50 000 for the previous year.
o The net loss from operations of Rxx increased to Rxx in the current year.
o The payment period of creditors has gone from 60 days to 90 days.
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o Salary deductions not paid over

o Loan repayments not made on time
o Other matters.
Qualitative aspects of accounting practices (interim and final)
Guidance (ISA 800; SAAPS2; ISA 260.16, A17 and appendix 2)

1. This paragraph should NOT cover contraventions of the applicable accounting standards.
Where such contraventions exist and they are material, they would be reported as
misstatements.
Amendments to the applicable basis of accounting
2. The use of this paragraph is restricted to instances where the auditor wishes to draw
attention to or emphasise any amendments to the applicable basis of accounting, as
granted by the National Treasury that are already presented or disclosed in the financial
statements.
Significant qualitative aspects of accounting practices
3. ISA 260.16 requires the auditor to communicate the auditor’s views about significant
qualitative aspects of the entity’s accounting practices, including accounting policies,
accounting estimates and financial statement disclosures. When applicable, the auditor
should explain to those charged with governance why the auditor considers a significant
accounting practice, which is acceptable under the applicable financial reporting framework,
not to be the most appropriate in the particular circumstances of the entity.
4. Financial reporting frameworks ordinarily allow for the entity to make accounting
estimates and judgements about accounting policies and financial statement disclosures.
Open and constructive communication about significant qualitative aspects of the entity’s
accounting practices may include comment on the acceptability of significant accounting
practices. Appendix 2 identifies matters that may be included in this communication.
Exemption from the applicable financial reporting framework/basis of accounting

5. Include reasons for exemptions obtained and what the impact is on the financial
statements they were

1. Amendments to the applicable basis of accounting
The [type of entity] obtained an exemption from the National Treasury from the basis of
accounting applicable to departments on 31 April 2008, which granted the department
exemption from the disclosure of [accounts receivable].
The impact of this exemption on the financial statements is ….
2. Selection of accounting policies

• Changes to the accounting policies from the previous year.
• Adoption of any transitional provisions.
• Other matters.
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3. Accounting estimates (where estimates are significant) – ISA 540

• Management’s identification of accounting estimates.
• Management’s process for making accounting estimates.
• Risks of material misstatements.
• Indicators of possible management bias.
• Disclosure of estimation uncertainty in the financial statements.
4. Financial statement disclosures

• Issues and judgements made in formulating sensitive financial statement disclosures
(e.g. going concern, subsequent events, contingencies, significant uncertainties).
• Overall neutrality, consistency and clarity of disclosures.
5. Related matters
• Potential impact on the financial statements of significant risks, exposures and
uncertainties, such as pending litigation.
• Extent to which the financial statements are affected by unusual transactions, including
non-recurring amounts.
• Factors affecting asset and liability carrying values, including the entity’s basis for
determining useful lives (explain how factors affecting the carrying values were selected
and how alternative selections would have affected the financial statements).
• Discuss selective correction of misstatements, e.g. those affecting the possible
incurrence of unauthorised expenditure – why were certain corrections made and others
not per the reasons given by management.
Material losses/impairments (interim and final)
Guidance (department guide; PFMA; MFMA)

This paragraph should contain details of losses and impairments incurred due to actions
taken or not taken by management. These would typically include losses of electricity and
water inventory at municipalities, revenue not collected at departments (refer to note 9.6 of
the department guide), the undercollection of revenue due to the valuation roll not having
been updated, other losses as per the department guide (chapter 5, page 58), warranty
losses, the significant impairment of debtors due to poor collection practices, PPE due to
poor maintenance practices, etc.
Example report paragraph(s) (adjust the wording as necessary)
The [type of entity] suffered a significant water loss of xx kilolitres with a value of Rxx during
the year under review.
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Unauthorised/fruitless and wasteful/irregular expenditure (interim and final)
Guidance (PFMA; MFMA)

Unauthorised expenditure
1. If there is an indication of potential unauthorised expenditure due to the late payment of
goods and services (outside of the 30-day legislated period), the auditor should highlight this
here.
A comparison of the amount of the accruals versus the unspent portion of the vote/budget
may indicate that the entity would have incurred unauthorised expenditure if the expenditure
had been paid in a timely manner. If the aging of the accruals indicates that the amount of
the accruals that has not been paid within 30 days as per Treasury Regulation
8.2.3/PFMA/MFMA exceeds the voted funds to be surrendered/surplus on the statement of
financial performance, the matter should be reported.
2. Highlighting of unauthorised expenditure incurred and the reasons: remember expenditure
must be in accordance with the vote, otherwise it is unauthorised (department guide, chapter
6, page 9).
3. Where the entity has retention monies in respect of construction contracts reflected as
either a commitment or an accrual and there is no equivalent saving on the voted
funds/budget, this accrual represents probable unauthorised expenditure.
Fruitless and wasteful expenditure
1. Highlighting of fruitless and wasteful expenditure incurred.
2. Interest incurred on finance leases that were entered into outside of the permissible
circumstances in National Treasury practice note 5 of 2006/07.
3. Payments made to consultants for the preparation of financial statements that are still
subject to material correction resulting from the audit.
Irregular expenditure
1. Highlighting of irregular expenditure incurred.
2. Excessive use of the emergency provisions for purchasing goods and services.
3. Material deviations from supply chain management principles.
4. Deviations from National Treasury practice note 5 of 2006/07.
5. Compliance with ethical standards (Treasury Regulation 16A8).
6. Avoiding abuse of supply chain management system (Treasury Regulation 16A9).

Rxx of the amount disclosed as accruals has been outstanding for periods from xx to xx
days, which exceeds the payment terms of 30 days as set out in the Treasury
Regulations/MFMA. This amount, in turn, exceeds the voted funds to be surrendered/net
surplus for the year by Rxx. Should the [type of entity] have paid the amounts due as
required, an equivalent amount of unauthorised expenditure would have been incurred.
70
or
There is a potential for irregular expenditure, as no framework exists for the delegation of
authority for approving emergency purchases. This means of acquiring goods and services
has been implemented excessively. The goods purchased were not acquired at the most
competitive rates, resulting in excessive costs being incurred on the following projects:
xxxxx
xxxxx
Budgetary control (interim and final)
Guidance (PFMA; MFMA; DoRA)

The auditor is encouraged to draw attention to instances of the following indicators of poor
budget management, which could have, or have had, an impact on service delivery:
1. Material underspending of the budget by the department.

2. Material underspending of government grants/transfer payments by an entity (maybe also
due to the late receipt from the transferring entity).
3. High expenditure in the final months of the year, indicating that the budget has not been
effectively managed.
4. Late payment of transfer payments by a department.
5. Large amounts held by public entities unspent due to amounts received late or not paid
back to the department or the revenue fund
6. Impact of payment in the current year of large accruals from previous year where
unauthorised expenditure was avoided on ability to achieve service delivery.
Example report paragraph(s) (adjust wording for interim scenario)

The [name of entity] has materially underspent its budget. At the date of this report, the
underspending amounted to Rxx and no satisfactory explanation was provided. This
underspending relates to transfer payments [include the relevant item in the budget].
The impact of this underspending is the following:
• Objectives are not achieved.
• xxxxx
Accounting discipline (interim and final)
Guidance
Suspense accounts
1. Where there are uncleared items in suspense or clearing accounts, the debit and credit
transactions should be considered individually, and not just the net balance on the account,
to assess possible misstatements of the financial statements. The pervasiveness of these
uncleared amounts on the fair presentation of the financial statements should also be
71
considered and reported. Refer to Treasury Regulation 17.1 for detailed guidance on the
clearing of suspense accounts.
Reconciliations
1. Significant unreconciled accounts or where there are uncleared items on the
reconciliations.
Other issues concerning accounting controls
Suspense accounts
A recurring issue in recent years is the number of suspense accounts that are not reconciled
and cleared in a timely manner. The impact of these uncleared accounts is a potential
misstatement of:
- accounts receivable
- revenue
- expenditure.
The balances on the uncleared suspense accounts are as follows:
Financial indicators/ratios (interim and final)
Guidance
There may be certain industry norms or certain ratios or indicators that are not favourable
and that should be brought to the attention of management.
The following are key financial ratios/indicators at the [type of entity]. The indicators are not
in line with the expected norms for this type of entity. We recommend that management
implement stringent controls to normalise them to ensure the continued effective operation of
the [type of entity].
- Debt collection/ageing
- Creditor payment
- Inventory ageing
- Gearing
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Significant uncertainties (interim and final)

(ISA 706 and 501; SAAPS 3.22 and .23)
Guidance (ISA 706.6 and A1)

A significant uncertainty is NOT related to a limitation of scope. Significant uncertainty is
defined as a matter, the outcome of which is dependent upon future events and which will
not be capable of reasonable measurement at the date on which the auditor’s report is
signed, by virtue of the nature of the matter in question, the facts of the particular situation,
and the lack of objective evidence. Such a matter is a significant uncertainty when its
potential to affect the financial statements is not so remote as to make its disclosure
irrelevant. The following are examples of circumstances that may create significant
uncertainties, other than a going concern uncertainty:
• The pending outcome of major litigation proceedings and the financial outcome of long-
term construction contracts in progress, particularly at their earlier stages.
• The application of a new accounting standard that has a pervasive effect on the
financial statements in advance of its effective date, where early adoption is permitted.
• A major catastrophe that has had, or continues to have, a significant effect on the
entity’s financial position.
It should be noted that if the outcome of future actions or events are under the control of
management, these would fall outside the definition of a significant uncertainty. The
uncertainty hinges on the outcome of the circumstances themselves, rather than on
limitations imposed by the entity that prevent the auditor from performing audit procedures
to gather sufficient evidence to form a view on the outcome of the matter.

Enquiries of management and the attorneys revealed that the [type of entity] is a defendant
in the following lawsuits:
o Land-claim lawsuit
o Other
The outcome of these lawsuits cannot be determined at present and no provision has been
made for any liability that may result.
Financial reporting systems (interim and final)
Guidance
1. System deficiencies that have an impact on the audit process should be reported here.
This may include systems to record and report on fixed assets, accruals, commitments,
related parties, contingent liabilities, lease payments and receivables for departmental
revenue. The systems may be manual or automated.
73
3. These would include the issues raised by the information systems auditors that directly
relate to the systems of control at the entity. This should not include transversal issues,
as these are not under the control of the entity.
4. Matters related to transversal systems should NOT be included.
The [type of entity] does not have reliable information systems for recording and reporting on:
o commitments
o contingent liabilities
o accruals
o receivables for departmental revenue.
The impact of this lack of systems is that we have been unable to obtain sufficient
appropriate audit evidence on which to base our audit opinion on these disclosures.
Material inconsistencies in other information included in the annual report (final)
Guidance (ISA 706.8 and 720; also see chapter 4 of this guide)
1. The auditor should read the other information to identify material inconsistencies, if any,
with the audited financial statements.
2. If, on reading the other information, the auditor identifies a material inconsistency, the
auditor should determine whether the audited financial statements or the other information
needs to be revised.
3. If the revision of the audited financial statements is necessary and management refuses
to make the revision, the auditor should modify the opinion in the auditor’s report in
accordance with ISA 705.
4. If the revision of the other information is necessary and management refuses to make the
revision, the auditor should communicate this matter to those charged with governance,
unless all of those charged with governance are involved in managing the entity; and either:
• include in the auditor’s report an other matter(s) paragraph describing the material
inconsistency in accordance with ISA 706
• withhold the auditor’s report.

Paragraph xx of the accounting authority’s report indicates that the accounting authority’s
emoluments paid during the year under review amounted to R2 million. This is inconsistent
with the accounting authority’s emoluments of R4,8 million disclosed in note xx to the
or
Paragraph xx of the accounting authority’s report states that the pension plan, to which all of
the entity’s employees belong, is in a healthy financial position. This contradicts note xx to
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the financial statements, which indicates that the liabilities of the defined benefit pension
plan exceed its assets by R230 million.
Revision of the previously issued financial statements (final)
Guidance
ISA 560 Subsequent Events deals with circumstances where it is necessary for the auditor
to issue a new auditor’s report on amended financial statements as a result of the auditor
becoming aware of a fact that existed at the date of the auditor’s report which, if known at
that date, would have caused the financial statements to be amended or the auditor to
modify the auditor’s opinion. In those circumstances, the auditor is required to include an
emphasis of matter(s) paragraph in the new auditor’s report referring to a note to the
financial statements that more extensively discusses the reason for the amendment of the
previously issued financial statements and to the earlier report issued by the auditor.

As disclosed in the note xx to the financial statements, the previously issued financial
statements were amended and revised due to[zzzz].
Accounting reforms
Guidance
1. This portion may be used to report on matters arising from new accounting requirements
in the current year or readiness for requirements that will become applicable in the next
financial year.
2. This could typically include the following:
• Problems encountered in the application of newly applicable GRAP (high- and
medium-capacity municipalities).
• Readiness for implementation of GRAP (low-capacity municipalities).
• Readiness for full accounting and disclosure of inventory (departments).

In terms of the inventory reform programme of the National Treasury, the department will be
required to include disclosures on its inventory in the 2009-10 financial year. Our
assessment of the readiness of the department for this reform indicates the following:
• Lack of reliable systems to record inventory.
• Lack of documentation and control over issues from inventory stores.
• Inadequate physical control over inventory due to a lack of security and segregation
of duties in the inventory stores.
75
GOVERNANCE MATTERS
Internal audit (interim and final)
Guidance (PFMA; Treasury Regulations; MFMA; ISA 315 and 610)

1. Include details here of issues indicating that the internal audit division is, or is not,
performing as required by the PFMA and Treasury Regulations or the MFMA or indicate
that it is fulfilling its responsibilities effectively. This assessment should be aligned with the
reporting as reflected in the matters of governance table below.
2. As per ISA 315.23, if the entity has an internal audit function, the auditor should obtain an
understanding of the following in order to determine whether the internal audit function is
likely to be relevant to the audit:
(a) The nature of the internal audit function’s responsibilities and how the internal audit
function fits in the entity’s organisational structure.
(b) The activities performed, or to be performed, by the internal audit function (refer to
paragraphs A101 to A103).
3. As per ISA 610.8, A4, the external auditor should determine whether the work of the
internal auditors is likely to be adequate for purposes of the audit; and, if so, the planned
effect of the work of the internal auditors on the nature, timing or extent of the external
auditor’s procedures.

Although the [type of entity] has an internal audit division, it is not adequate for the purposes
of the audit for the following reasons:
• The internal audit function reports to the CFO who determines the internal audit plan,
which affects its objectivity.
• The internal auditors are not technically competent, as they have only limited experience
and training as auditors.
• Due to the lack of an effective methodology and the non-adherence to standards on
internal auditing, the internal audit work is not undertaken with due professional care.
• Other.
Audit committee (interim and final)
Guidance (PFMA; Treasury Regulations; MFMA; King report on corporate

governance; protocol on corporate governance in the public sector)
Report on matters relevant to the existence, independence, duties and responsibilities of
the audit committee. This should be aligned with the assessment in the table on matters of
governance below.
76

The audit committee did not function throughout the year. Members were only appointed
two months before year-end. Consequently, the committee did not approve the internal
audit plan and has not exercised any oversight of the implementation of the matters
reported by the internal audit function.
or
The audit committee did not meet prior to the submission of the financial statements for
auditing on [31 May/30 September], to review the adequacy, reliability and accuracy of the
Management of risk (interim and final)
Guidance (PFMA; MFMA)

Legislation requires that a risk assessment be conducted on a regular basis and that a risk
management strategy, which includes a fraud prevention plan, is documented and used as
set out in [Treasury Regulation 3.2/27]/[section 62(c)(i)/95(c)(i) of the MFMA].
Consider also the impact that any failure to conduct the risk assessment had on the design
and implementation of internal controls to address risks.
Guidance (ISA 240.40-43 and A59-A66; PFMA; MFMA)
ISA 240 contains specific requirements regarding the making and documenting of enquiries
and findings related to actual, suspected and alleged fraud.
When the auditor has obtained evidence that fraud exists or may exist, it is important that
the matter be brought to the attention of the appropriate level of management as soon as
possible. Other matters related to fraud to be discussed with those charged with
governance may include the following:
• Concerns about the nature, extent and frequency of management’s assessments of
the controls in place to prevent and detect fraud and of the risk that the financial
statements may be misstated.
• A failure by management to appropriately address identified significant deficiencies
in internal control, or to appropriately respond to an identified instance of fraud.
• The auditor’s evaluation of the entity’s control environment, including questions
regarding the competence and integrity of management.
• Actions by management that may be indicative of fraudulent financial reporting, such
as management’s selection and application of accounting policies that may be
indicative of management’s effort to manage earnings in order to deceive financial
statement users by influencing their perceptions as to the entity’s performance and
profitability.
• Concerns about the adequacy and completeness of the authorisation of transactions
that appear to be outside the normal course of business.
Appendix 1 to ISA 240 contains examples of fraud risk factors.
77

1. The [type of entity] did not conduct a risk assessment as required by the [PFMA/MFMA].
Consequently, a number of control deficiencies were identified. These include a failure to:
[give detail of key internal control deficiencies and the impact on the financial statements]
2. The [type of entity] has not undertaken a risk assessment to assess any risks of fraud
and has consequently not developed a fraud prevention plan, as required by [legislative
reference]. The following investigations into potential fraudulent activities are currently in
progress:
• xxx
or
The following audit findings indicate that the deficiencies in the respective controls would
not prevent or detect fraudulent activities:
• There is no framework for the delegation of authority for approving emergency
purchases. Consequently, this means of acquiring goods and services has been
implemented excessively. Furthermore, the goods purchased were acquired from
entities in which family members of the CFO have a controlling interest.
• An approved policy did not exist for the impairment of long-outstanding debtors.
Management has not made adequate provision for impairment so as not to incur a
net operating loss for the financial year.
Prior year observations and recommendations addressed (interim and final)
Guidance
Indicate here the actions taken or not taken to clear audit findings of internal and external
audit.

Management has not taken any action to clear audit findings. The following material issues
should be attended to as soon as possible:
• The [type of entity] has not implemented adequate controls over the safeguarding of
assets, in that there is no asset register or a process to verify the physical existence of
assets on a regular basis or to assess the condition of assets, to ensure that they are
appropriately maintained. This matter has been reported in the last three years.
or
Management has begun with a programme to identify all assets that have not yet been
recognised in the financial statements and to establish the fair value thereof. This
programme has been in progress for a number of years and management is urged to
ensure that this is completed as soon as possible.
78
Unavailability of key personnel (interim and final)
Guidance
The unavailability of key personnel during the course of the audit impacts on the
effectiveness of the audit. This unavailability could be at the commencement of the audit
during the risk assessment process or at the conclusion of the audit when responses to
audit findings are requested.

Despite numerous requests, we were unable to arrange an appointment with the director-
general to discuss the risks facing the department and how they are mitigated.
Adequacy and competence of financial reporting personnel (interim and final)
Guidance
Reflect here on the significant number or period of vacancies in key positions. Consider also
the human resource policies which should ensure that skilled and competent personnel are
recruited.
Indicate the impact that this is having on the appointment of consultants to fill vacancies or
to undertake the task of persons not skilled in their positions.

There is an urgent need to appoint a permanent director in the finance department with
appropriate skills and experience. The [type of entity] has not appointed a director
subsequent to the resignation of the previous director on [date].
or
The department appointed a finance manager, who has no knowledge of the accounting
standards applicable to the presentation of the financial statements. Consequently, the
municipality had to employ consultants at a cost of Rxx to prepare the financial statements
submitted for auditing.
Unavailability of expected information (interim and final)
Guidance (ISA 260.16 and A18; PAA – provision of information to the auditors)
1. Significant difficulties encountered during the audit (refer to paragraph 16(b))
A18. Significant difficulties encountered during the audit may include the following:
79
• Significant delays in management providing required information.

• An unnecessarily brief time within which to complete the audit.
• Extensive unexpected effort required to obtain sufficient appropriate audit
evidence.
• The unavailability of expected information.
• Restrictions imposed on the auditor by management.
• Management’s unwillingness to make or extend its assessment of the entity’s
ability to continue as a going concern when requested.
In some circumstances, such difficulties may constitute a scope limitation that leads to
a modification of the auditor’s opinion.
2. The MFMA and the PFMA require the financial statements to be submitted for auditing
within two months of year-end. Report here on any significant delays in this submission and
the reasons that may have contributed to this.

As indicated in our engagement letter, we agreed that all information requested for
purposes of the audit would be submitted within [xx] working days of the request by the
auditors. Despite this agreement, management did not supply the documentation requested
in the following instances:
• [give details of significant delays in providing information]
The information requested was only supplied on 15 July, subsequent to the receipt of the
draft auditor’s report that indicated qualifications in respect of the limitation on the scope of
the audit. Due to the late receipt of the information and the legislated deadlines for the
submission of the auditor’s report, the information was not taken into consideration in the
finalisation of this report.
Late submission of financial statements (interim and final)
Guidance (ISA 260.16 and A18; PFMA and MFMA submission deadlines)
The MFMA and the PFMA require the financial statements to be submitted for auditing
within two months of year-end. Report here on any significant delays in this submission and
the reasons that may have contributed to this.

The [name of the entity] only submitted its financial statements for auditing on [date] and not
on [date], as required by the [PFMA/MFMA]. The reason for the late submission was the
inability of management to prepare the financial statements.
80
Related parties (interim and final)
Guidance (ISA 550.27 and A50; Public Service Act; Municipal Services Act; PFMA;
Treasury Regulations; MFMA)
1. When obtaining sufficient appropriate audit evidence on related parties and related party
transactions, the auditor should not only consider the risks of material misstatement
associated with related party relationships and transactions, but should also address the
risks of non-compliance with laws, regulations and other authority, specifying requirements in
the conduct of business with related parties. The auditor should consider the financial
reporting requirements for related party relationships.
2. ISA 550 contains detailed requirements concerning the following:

• Risk assessment procedures and related activities:
- Understanding the entity’s related party relationships and transactions.
- Maintaining alertness for related party information when reviewing records or
documents.
- Sharing related party information with the engagement team.
• Identification and assessment of risks of material misstatements associated with related
party relationships and transactions.
• Responses to the risk of material misstatements associated with related party
relationships and transactions:
- Identification of previously unidentified or undisclosed related parties or significant
related party transactions.
- Identified significant related party transactions outside the entity’s normal course of
business.
- Assertions that related party transactions were conducted on terms equivalent to
those prevailing in an arm’s length transaction.
- Evaluation of the accounting and disclosure of identified related party relationships.
3. Examples of significant matters to communicate include the following:

• Non-disclosure (whether intentional or not) by management to the auditor of related
parties or significant related party transactions, which may alert those charged with
governance to significant related party relationships and transactions of which they may
not have been previously aware.
• The identification of significant related party transactions that have not been appropriately
authorised and approved, which may give rise to suspected fraud.
• Disagreement with management regarding the accounting for, and disclosure of,
significant related party transactions in accordance with the applicable financial reporting
framework.
• Non-compliance with applicable law or regulations prohibiting or restricting specific types
of related party transactions.
• Difficulties in identifying the party that ultimately controls the entity.
• Conflict of interest.
• Non-disclosure of interests in contracts awarded.
81

The [type of entity] has not implemented controls to:
• identify, account for and disclose related party relationships and transactions in
accordance with the [applicable reporting framework]
• authorise and approve significant transactions and arrangements with related parties.
Performance rewards (interim and final)
Guidance
Indicate here any concerns regarding the awarding of performance bonuses as it relates to:
• approvals
• criteria for awarding the bonus
• policy.

The [type of entity] awarded performance bonuses to senior staff for the year ended [date].
These bonuses were awarded despite the [type of entity] having incurred a net loss for the
period.
or
The management of the entity did not pass the entries required to impair receivables of Rxx
and provide for post-retirement benefits of Rxx, as these would have meant that the [type of
entity] had incurred a net loss for the financial year and thus would not have been able to
pay performance bonuses.
Non-compliance with applicable legislation (interim and final)
Guidance (ISA 250.22-28, A19 and A20; PFMA; MFMA; Companies Act; DoRA;
enabling legislation; PAA)
1. The matters to be reported here are those instances of non-compliance with legislation
that do not affect the fair presentation of the financial statements, in other words, matters
without financial impact. Refer to ISA 250, 22-28 for matters to be reported.
2. A public sector auditor may be obliged to report on instances of non-compliance to
government authorities or to report them in the auditor’s report.
3. Material instances of non-compliance with legislation that do affect the financial
statements should be reported as a qualified/disclaimer of/adverse audit opinion, as
appropriate. Such instances of compliance deviations would include instances of non-
compliance with any legislation with a financial impact, e.g. the VAT Act.
4. The matters to be included in this paragraph are related to instances of material
compliance deviations with those acts in terms of which the financial statements have been
82
prepared:
• PFMA and Treasury Regulations
• MFMA, Municipal Systems Act and Municipal Structures Act
• Entity’s own enabling legislation
• Any legislation governing the mandate of the entity
• Companies Act
• DoRA
• Any other applicable legislation (please note that the restriction as per the auditor’s
report does not apply to the management report)
All findings of this nature should be grouped per act.
Please note: Certain compliance deviations are reported under the matters of governance
section of the report. These instances of non-compliance should not be duplicated here;
they should only be reported in the matters of governance section of the report.
The auditor’s assessment of what is a material compliance deviation is a matter of
judgement and includes considerations of context as well as quantitative aspects (size) and
qualitative aspects (nature) of the transactions or issues concerned. For example, the
auditor considers the needs and expectations of the legislature and other users of the
auditor’s report, the nature of the relevant authorities, and the extent or monetary value of
the non-compliance.
The non-disclosure of irregular, unauthorised as well as fruitless and wasteful expenditure,
which the auditor considers material (qualitatively and/or quantitatively), should be
considered for reporting under the basis for opinion section of the auditor’s report and
should not be reported here (ISA 250, 22-27).

Public Finance Management Act
Members of the accounting authority did not declare their business interests, as required by
section 50(3)(a) and (b) of the PFMA.
or
The accounting officer did not comply with the following legislative requirements to report on
the disciplinary hearing against an official:
Section 38(1)(g) of the PFMA: reporting in writing to the relevant treasury particulars of
discovered unauthorised expenditure.
Section 40(1)(f) of the PFMA: submitting all reports, returns, notices and other
information to the relevant treasury and the Auditor-General, as required by the PFMA.
Section 85(1)(a) and (e) of the PFMA read with Treasury Regulation 4.3.4: submitting a
report to the relevant treasury and the Auditor-General on the outcome of the
disciplinary hearing.
or
Companies Act
A register of directors’ and officers’ interests in contracts with the entity was not maintained,
as required by section 240 of the Companies Act, 1973.
or
Division of Revenue Act
83
The accounting officer did not submit a quarterly performance report for each quarter during
the financial year ended 31 March 2009, as required by section 11(3)(b) of the DoRA.
SCOPA / Oversight resolutions (interim and final)
Guidance
Include information on SCOPA resolutions that have not been actioned or are in progress.

The department attended a SCOPA hearing on [date] in respect of the year ended [date].
As a result of this hearing, SCOPA passed a number of resolutions requiring certain actions
by the department. The status of these actions is as follows:
No. Date Details Progress
84
Key governance responsibilities (final only)
Guidance
Section 20(2)(b) of the PAA requires the auditor’s report to reflect an opinion or conclusion
on financial management. Part of this is reporting that governance policies and practices
operate effectively and are appropriate. Governance is a politically charged area and is
performed and managed by individuals at the top of the organisation. The information
required to assess the effectiveness of governance activities may require access to
sensitive information.
When auditing the implementation/action taken in respect of matters reported previously,
the auditor should obtain the following:
• Written procedures developed in response to reported matters.
• Copies of journal entries for adjustments.
• Copies of account reconciliations.
• Copies of documentation not previously provided.
Procurement of goods and services by means other than through the invitation of
competitive bids – Treasury Regulation 16A6.4 (National Treasury practice note 6 of
2007/08). Refer to Technical memo 9 of 2007 on practice notes.
33. The [PFMA/MFMA] tasks the accounting [officer/authority] with a number of

responsibilities concerning financial and risk management and internal control. Many of
these have been addressed in detail above. The table below reflects how certain of the
financial and governance matters as well as other matters included under the reporting
on performance information below, will be reported in the auditor’s report.
Clear trail of supporting documentation that is easily available and provided in a

timely manner
1. No significant difficulties were experienced The answer here would be based on the
during the audit concerning delays or the matters as reported in the management report.
availability of requested information.
Quality of financial statements and related management information

2. The financial statements were not subject to any Material misstatements should be measured in
material amendments resulting from the audit. terms of those which would have resulted in a
qualification had they not been corrected.
3. The annual report was submitted for The auditor’s report should not be issued as
consideration prior to the tabling of the auditor’s final or be signed until such time as the other
report. information to be included in the annual report
with the audited financial statements is read in
terms of ISA 720. The answer here should be
NO until such time as all audit responsibilities
have been concluded. The report will be
finalised and signed once this has been
accomplished.
85
Timeliness of financial statements and management information

4. The annual financial statements were submitted
for auditing as per the legislated deadlines
[section 40/55 of the PFMA]/[section 126 of the
MFMA].
Availability of key officials during audit

5. Key officials were available throughout the audit This refers to all persons that have executive
process. responsibilities for the conduct of the entity’s
operations. This would include all persons at
CFO level and higher. It would also include
persons charged with governance, such as the
accounting officer and members of the
accounting authority and any of its
subcommittees, such as the audit committee.
Development and compliance with risk management, effective internal control and
governance practices
6. Audit committee
• The [type of entity] had an audit committee If there was no committee for any length of
in operation throughout the financial year. time exceeding two months, the answer
should be NO.
• The audit committee operates in

accordance with approved, written terms of
reference.
• The audit committee substantially fulfilled its If there is no evidence that the committee did
responsibilities for the year, as set out in as required for two or more of the
[section 77 of the PFMA and Treasury requirements, the answer should be NO.
Regulation 3.1.10/27.1.8]/[section 166(2) of
the MFMA].
7. Internal audit
• The [type of entity] had an internal audit If there was no internal audit function for more
function in operation throughout the than two months, the answer should be NO.
financial year.
• The internal audit function operates in terms
of an approved internal audit plan.
• The internal audit function substantially
fulfilled its responsibilities for the year, as
set out in [Treasury Regulation
3.2/27.2]/[section 165(2) of the MFMA].
8. There are no significant deficiencies in the This would reflect on the number of findings
design and implementation of internal control in raised and the root cause for the findings that
respect of financial and risk management. reflected a problem.
9. There are no significant deficiencies in the See guidance under 10 above.
design and implementation of internal control in
respect of compliance with applicable laws and
regulations.
10. The information systems were appropriate to This would reflect on the number of
facilitate the preparation of the financial qualifications resulting from there not being a
statements. system to properly record the information
required for the financial systems. This may be
manual or automated.
86

11. A risk assessment was conducted on a regular This is a compliance matter and should also
basis and a risk management strategy, which reflect the root causes of findings.
includes a fraud prevention plan, is documented
and used as set out in [Treasury Regulation
3.2/27.2]/[section 62(c)(i)/95(c)(i) of the MFMA].
12. Delegations of responsibility are in place, as set This is a compliance matter.
out in [section 44/56 of the PFMA]/[section
79/106 of the MFMA].
Follow-up of audit findings

13. The prior year audit findings have been This would be indicated by the number of
substantially addressed. repeat findings recorded on the summary of
audit findings in the management report.
Substantially would be at least 90%.
14. SCOPA resolutions have been substantially Substantially would be at least 90%.
implemented.
Issues relating to the reporting of performance information

15. The information systems were appropriate to Refer to guidance as part of the aopi audit
facilitate the preparation of a performance report programmes.
that is accurate and complete.
16. Adequate control processes and procedures are Refer to guidance as part of the aopi audit
designed and implemented to ensure the programmes.
accuracy and completeness of reported
17. A strategic plan was prepared and approved for Refer to guidance as part of the aopi audit
the financial year under review for purposes of programmes. This is a compliance matter to
monitoring the performance in relation to the be reported under the heading Other reporting
budget and delivery by the [entity name] against responsibilities.
its mandate, predetermined objectives, outputs,
indicators and targets [Treasury Regulations 5.1,
5.2 and 6.1 (departments)/Treasury Regulation
29.1/30.1 (public entities)]/[section 68/87 of the
MFMA (municipalities)].
18. There is a functioning performance management This would have been part of the audit of
system and performance bonuses are only paid performance bonuses.
after proper assessment and approval by those
All the above contribute to AG best practice 6:

Leadership/supervision and monitoring.
A majority of negative responses to the matters above should result in a negative response on this best practice.
Achievement of good practice indicators
34. [Include information here]
Guidance
These good practices should be assessed as indicated in the table on matters of
governance above.
87
The following good practices are the drivers of audit results. We have indicated our
assessment of the [type of entity]’s achievement of these good practices, based on the
matters included elsewhere in this report.
Good practice Y N
1 Clear trail of supporting documentation that is easily available and provided
timeously.
2 Quality of financial statements and related management information.
3 Timeliness of financial statements and management information.
4 Availability of key officials during audits.
5 Development and compliance with risk management and good internal
control and governance practices.
6 Leadership/supervision and monitoring.
[Include overall reflections / conclusion on the governance framework based on other

key governance requirements, as and where applicable]
88

(interim and final)
Guidance
A high-level summary of the detailed audit findings as per the annexure to the management
report should be compiled. This should focus on the critical matters to be included in the
auditor’s report.

The following shortcomings were identified in relation to the managing of, and reporting on,
performance information:
• There was overall non-compliance with the legislative requirements pertaining to the
planning, monitoring, managing and reporting of performance information.
• There was an overall lack of effective, efficient and transparent systems and internal
controls regarding performance management and reporting.
• The entity has not reported [throughout] on its performance with regard to its
[objectives/indicators/targets], as per the approved [strategic/corporate/annual
performance/integrated development plan].
• Objectives reported in the annual report were not included as predetermined objectives
in the [strategic/corporate/annual performance/integrated development plan] [and/or the
budget].
• Some targets were not (select appropriate option):
o specific in clearly identifying the nature and the required level of performance
o measurable in identifying the required performance
o specific by indicating the time period or deadline for delivery.
• Sufficient appropriate audit evidence in relation to the performance information was not
provided.
• Systems used for generating performance information were not adequate for providing
sufficient appropriate audit evidence.
• The evidence provided to support the performance information was inconsistent with
the performance information reported.
• The source information or evidence provided to support the reported performance
information did not adequately support the accuracy and completeness of the facts
throughout.
• Performance information was not received in time for audit purposes.
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SIGNIFICANT FINDINGS FROM SPECIFIC FOCUS AREAS (interim and final)
Guidance
This section is used to record the findings on the sector audits and the horizontal audits.

To be advised by the champions of these audits.
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STATEMENTS
Investigations (interim and final)
Guidance
Refer to any investigations in progress or completed, irrespective of who is conducting the
investigation, without specifically referring to the name of the entity/persons who are
conducting the investigation. Refer to the working paper Overall conclusion summary for
matters to be reported.
The investigations to be reported should be material to the potential misstatement of the
financial statements, fraud or material non-compliance with applicable legislation.

An investigation is being conducted to probe the manner in which the ABC project utilised
funds advanced by the department. The investigation aims to establish whether the funds
were utilised for its intended purpose and in accordance with the approved business plan.
The investigation was still ongoing at the reporting date.
or
An investigation was conducted by an independent consulting firm on request of the entity.
The investigation was initiated based on the allegation of possible misappropriation by
employees of assets that were received from one of the entity’s subcontractors. The
investigation has resulted in criminal proceedings being instituted against two employees.
Performance audits (interim and final)
Guidance
Refer to any performance audit reports issued since the previous auditor’s report, as
envisaged in section 20(3) of the PAA.

A performance audit was conducted during the year under review concerning the entity’s
turnaround time for delivery of services to departments. The report covered the period
March 2003 to February 2005 and was tabled on 31 May 2006.
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Special audits (final)
Guidance
Refer to any special audit reports issued since the last auditor’s report, as envisaged in
section 5(1)(d) of the PAA. This would include any agreed-upon procedure audits that had
been undertaken.

As requested by the [type of entity], an [assurance engagement/audit] was conducted
during the year under review concerning (include a brief description of the audit). The report
covered the period March 2003 to February 2005 and was tabled on 31 May 2006.
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RATINGS OF DETAILED AUDIT FINDINGS (final)
41. For the purposes of this report, the detailed audit findings included in annexures A to C
have been classified as follows:
• Matters to be included in the auditor’s report.

These matters should be addressed as a matter of urgency.
• Other important matters – deficiencies that could adversely affect the entity’s ability to
initiate, record, process and report financial data consistent with the assertions of
management on the financial statements and in accordance with the applicable basis
of accounting. Unacceptable risk that errors and irregularities may occur that will not
be prevented or detected by the internal controls in good time.
These matters should be addressed within the next 12 months.
• Administrative matters – non-material non-compliance with applicable legislation, or
misstatements in the financial statements that are unlikely to affect the decisions of a
user and do not affect the financial statements as a whole, or opportunities for
improvement, or other matters of governance interest.
These matters should be addressed at the discretion of the entity.
42. Failure to address matters reported in a particular category may result in the matter being
rated as more significant in the next financial year.
APPRECIATION
43. We would like to express our appreciation for the courtesy extended and assistance
rendered by the staff of the [name of entity] during the audit.
Yours sincerely
Name and surname of [corporate executive/business executive/senior manager] responsible

for signing the auditor’s report
[Corporate Executive/Business Executive/Senior Manager]: [business unit]
Enquiries: Name and surname

Telephone: (xxx) xxxxxxx
Fax: (xxx) xxxxxxx
Email: xxxxx@agsa.co.za
Distribution:
CEO
CFO
Audit committee chair
Head of internal audit
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SUMMARY OF AUDIT FINDINGS

Page no. Finding Classification Control Impact on auditor’s report In which years was it reported
Reported in previous
component 2007-08 2006-07 2005-06
Other important
Administrative
responsibilities
Other reporting
Other matters
matters
matters
Qualification
Emphasis of
years
matter
Property, plant
and equipment
Inventory
Revenue
Receivables
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Chapter 2: Management
report
ANNEXURE A: MATTERS AFFECTING THE AUDITOR’S REPORT
[Class of transaction/account balance/disclosure]
Audit finding
Guidance
1. State the factual evidence regarding the situation against the required or desired
standard, measure or expectation (what should exist). The criteria are measured
against laws, regulations and standards. The factual and projected misstatements
should be reported. This should include misstatements due to both a disagreement
and a limitation.
2. Document the finding, i.e. the difference between the expected and the present
condition (what does exist).
3. State the auditee’s accomplishment or lack thereof, in terms of improvements since
the previous year. This information is necessary to fairly present the existing
conditions and to provide a proper perspective on the nature and significance of the
audit finding being reported.
For example: This matter was reported in [prior year/20xx-xx] and no steps have
been taken to date to implement the recommendations provided.
Root cause
Guidance
1. State the cause of (reason for) the particular deficiency in internal control, i.e. the
factor or factors responsible for the difference between the expected and the actual
condition (why the difference exists).
2. Use wording in root cause table and contextualise for particular circumstance.
Risk
Guidance
This should be a clear, logical link to establish the impact or potential impact on the
financial statements of the difference between what the auditors found (the condition)
and the required or desired state (criteria) (the impact of the difference). It should
preferably be stated in quantifiable terms.
Recommendation
Guidance
1. The recommendation should include the following:
• The action that should be taken to address the existing conditions or improve
operations.
• Suggestions to correct or enhance performance to achieve the desired results.
2. The recommendation should address the root cause.
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report
Management response
Guidance
The comment requested should include the following:
• Acknowledgement of, or agreement with, the finding and the root cause.
• The corrective action to be taken.
• For findings that affect an amount disclosed in the financial statements, an
indication of what corrections will be made to the population. Alternatively, should
management deem the journal entry unnecessary, the reason as to why such a
conclusion has been reached.
• Who (position) will be responsible for the corrective action to be taken.
• The estimated date by when the corrective action will be complete (refer to agreed
timelines per communication of misstatement).
Name
Position
Date
Auditor’s response
Guidance
1. This section of the communication of audit findings and the management report is
used to facilitate the communication process between the auditor and the auditee and
to indicate to management that the auditor has assessed and understood their
response.
2. Please take careful note that it is not an appropriate avenue to voice differences of
opinion. The auditor must use structures such as the audit committee and audit
steering committee to resolve differences.
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report
ANNEXURE B: OTHER IMPORTANT MATTERS

(Apply same steps and guidance as above)
Audit finding
Root cause
Risk
Recommendation
Management response
Name
Position
Date
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report
ANNEXURE C: ADMINISTRATIVE MATTERS
Audit finding
Root cause
Risk
Recommendation
Management response
Name
Position
Date
98
CHAPTER 3:
MODIFICATIONS TO THE
AUDITOR’S OPINION
99
Chapter 3: Modifications to the
auditor’s opinion
CHAPTER 3: MODIFICATIONS TO THE AUDITOR’S OPINION

PART A: AUDITOR’S REPORT
Purpose
1. The purpose of part A is to provide audit engagement teams with requirements and
guidance to form an opinion on the financial statements as a result of their audit. The
guidance will promote consistent reporting, which promotes credibility and the user’s
understanding.
International Standards on Auditing
2. ISA 700, ISA 705 and ISA 706

Overview of general principles, requirements and procedures
Determine whether an unmodified opinion is appropriate
3. The auditor firstly follows the requirements and guidance regarding the evaluation of
misstatements to determine the type of opinion that has to be expressed. Steps to be
taken by the auditor to evaluate misstatements are summarised below:
• Identify the population.
• Determine the method of testing (100%, specific items, sampling).
• Identify the sampling unit.
• Determine the stratums.
• Select samples from the stratums (at least two samples for the direction of testing).
• Execute audit procedures.
• List disagreement misstatements, calculate the error and identify the contra-entry.
• Document the nature, cause and circumstance of these misstatements.
• Identify anomalous errors.
• Project the misstatements per sample (excluding anomalous errors) to each
stratum.
• List limitation misstatements and document the reasons for the limitation.
• Project the misstatements per sample to each stratum.
• Add the projections of disagreement and limitation misstatements to determine the
projected misstatement of the population.
• Bring forward prior year misstatements.
• Communicate the misstatements to management and request that all
misstatements are rectified.
• Evaluate corrections made.
• If only selective factual misstatements are rectified, deduct the correction from the
total projected and factual misstatements. Projected misstatements may not be
journalised and should be ignored by the auditor.
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auditor’s opinion
• If management indicated that they have corrected the population, perform additional
audit procedures to establish if there are any remaining errors by evaluating the
control implemented, the journal entry and a selection of 30 items.
• If there are remaining errors, retest the population by selecting a new sample and
proceed from the 5th bullet.
4. The auditor has to evaluate whether the financial statements are prepared, in all
material respects, in accordance with the requirements of the applicable financial
reporting framework. This includes consideration of the qualitative aspects of the
entity’s accounting practices, including indicators of possible bias in management’s
judgements.
5. In particular, the auditor evaluates whether, in view of the requirements of the
applicable financial reporting framework:
• the financial statements adequately disclose the significant accounting policies
selected and applied
• the accounting policies selected and applied are consistent with the applicable
financial reporting framework and are appropriate
• the accounting estimates made by management are reasonable
• the information presented in the financial statements is relevant, reliable,
comparable and understandable
• the financial statements provide adequate disclosures to enable the intended users
to understand the effect of material transactions and events on the information
conveyed in the financial statements
• the terminology used in the financial statements, including the title of each financial
statement, is appropriate.
6. When the financial statements are prepared in accordance with a fair presentation
framework, the evaluation required by the above paragraphs also includes whether the
financial statements achieve fair presentation.
7. The auditor’s evaluation as to whether the financial statements achieve fair
presentation includes the consideration of:
• the overall presentation, structure and content of the financial statements
• whether the financial statements, including the related notes, represent the
underlying transactions and events in a manner that achieves fair presentation.
8. The auditor evaluates whether the financial statements adequately refer to or describe
the applicable financial reporting framework.
9. If, after the above evaluations, the auditor concludes that the financial statements are
prepared, in all material respects, in accordance with the applicable financial reporting
framework, an unmodified opinion is expressed.
10. If an unmodified opinion is inappropriate, the auditor follows the requirements and
guidance below.
Types of modified opinions

11. There are three types of modified opinions, namely a qualified opinion, an adverse
opinion, and a disclaimer of opinion. The decision regarding which type of modified
opinion is appropriate depends upon the following:
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• The nature of the matter giving rise to the modification:

o Whether the financial statements are materially misstated.
o Whether there is an inability to obtain sufficient appropriate audit evidence.
• The auditor’s judgement about the pervasiveness of the effects or possible effects
of the matter on the financial statements.
12. The table below illustrates how the auditor’s judgement about the nature of the matter
giving rise to the modification and the pervasiveness of its effects or possible effects on
the financial statements affect the type of opinion to be expressed.
Nature of matter giving Auditor’s judgement about the pervasiveness of

rise to the modification the effects or possible effects on the financial
statements
Material but not Both material and
pervasive pervasive
Financial statements are Qualified opinion Adverse opinion
materially misstated
Inability to obtain Qualified opinion Disclaimer of opinion

sufficient appropriate
audit evidence
Qualified opinion
13. The auditor is required to express a qualified opinion when:
• the auditor (after having obtained sufficient appropriate audit evidence) concludes
that misstatements, individually or in the aggregate, are material, but not pervasive,
to the financial statements
• the auditor is unable to obtain sufficient appropriate audit evidence on which to
base the opinion, but concludes that the possible effects on the financial statements
of undetected misstatements could be material, but not pervasive.
14. The financial statements may be misstated as a result of disagreements with
management on:
• the appropriateness of the selected accounting policies (refer to ISA 705.A4 for
examples)
• the application of the selected accounting policies (refer to ISA 705.A6 for
examples)
• the appropriateness or adequacy of disclosures in the financial statements (refer to
ISA 705.A7 for examples).
The above are assessed in terms of the applicable financial reporting framework (basis
of accounting).
15. The inability to obtain sufficient appropriate audit evidence may arise from:
• circumstances beyond the control of the entity (refer to ISA 705.A10 for examples)
• circumstances relating to the nature and timing of the auditor's work (refer to
ISA 705.A11 for examples)
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auditor’s opinion
• limitations imposed by management (refer to ISA 705.A12 for examples).

When the auditor is faced with a scope limitation, the auditor is required to consider the
nature and magnitude of its potential effects on the account balances, classes of
transactions and disclosures as well as its significance to the overall financial
statements.
Disclaimer of opinion
16. The auditor is required to disclaim an opinion when the auditor is unable to obtain
sufficient appropriate audit evidence on which to base the opinion, and the auditor
concludes that the possible effects on the financial statements of undetected
misstatements, if any, could be both material and pervasive.
17. The term “pervasive” can be defined as a term used, in the context of misstatements, to
describe the effects on the financial statements of misstatements or the possible effects
on the financial statements of misstatements, if any, that are undetected due to an
inability to obtain sufficient appropriate audit evidence. Pervasive effects on the
financial statements are those that, in the auditor’s judgement:
• are not confined to specific elements, accounts or items of the financial statements
• if so confined, represent or could represent a substantial proportion of the financial
statements
• in relation to disclosures, are fundamental to users’ understanding of the financial
statements.
18. The auditor may judge an inability to obtain sufficient appropriate audit evidence about
one or more matters pertaining to the financial statements to be both material and
pervasive when the possible effects of undetected misstatements cannot be confined to
specific elements, accounts or items of the financial statements or, if confined, those
possible effects could represent a substantial proportion of the financial statements.
19. A limitation of scope may arise when, in the opinion of the auditor, the entity’s
accounting records are inadequate or when the auditor is unable to carry out an audit
procedure believed to be desirable. In these circumstances, the auditor would attempt
to carry out reasonable alternative procedures to obtain sufficient appropriate audit
evidence. Examples of the limitation might be that there were no systems that could be
relied on for audit purposes, the records did not permit the application of alternative
audit procedures, or an inability to obtain all the information and explanations
considered necessary.
20. The auditor is required to state the following in the opinion paragraph, when the opinion
is disclaimed due to an inability to obtain sufficient appropriate audit evidence:
• Because of the significance of the matter(s) described in the basis for disclaimer of
opinion paragraph, the auditor has not been able to obtain sufficient appropriate
audit evidence to provide a basis for an audit opinion; and, accordingly,
• The auditor does not express an opinion on the financial statements.
21. The auditor cannot disclaim an opinion based on the impracticability or inability
to quantify the effect of departures from the applicable basis of accounting and
disagreements with management relating to such departures. For such cases the
opinion to be expressed is either a qualified or an adverse opinion.
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auditor’s opinion
Adverse opinion
22. The auditor is required to express an adverse opinion when the auditor concludes (after
having obtained sufficient appropriate audit evidence) that misstatements, individually
or in the aggregate, are both material and pervasive to the financial statements. (Refer
to the definition of “pervasive” above.)
23. The auditor may judge misstatements that are material individually or in the aggregate
to be pervasive to the financial statements when such misstatements are not confined
to specific elements, accounts or items of the financial statements, or if confined, the
misstatements represent or could represent a substantial proportion of the financial
statements.
24. Furthermore, in relation to disclosures, the auditor may judge misstatements that are
material individually or in the aggregate to be pervasive to the financial statements
when the misstated disclosures are fundamental to users’ understanding of the
25. When the auditor expresses an adverse opinion, the following is stated in the opinion
paragraph:
Because of the significance of the matter(s) described in the basis for adverse opinion
paragraph:
• the financial statements do not present fairly in accordance with the applicable
financial reporting framework when reporting in accordance with a fair presentation
framework; or
• the financial statements have not been prepared, in all material respects, in
accordance with the applicable financial reporting framework when reporting in
accordance with an entity-specific basis of accounting.
Basis for modification paragraph
26. The auditor is required to include a basis for modification paragraph when the opinion
expressed is other than unmodified.
27. The paragraph is included immediately before the opinion paragraph and describes the
matter(s) giving rise to the modification.
28. The following headings are used based on the type of opinion expressed: Basis for
qualified opinion, Basis for adverse opinion or Basis for disclaimer of opinion.
29. A heading for each of the misstated account balances/classes of
transactions/disclosure notes is also included.
30. The following are required to be included in the basis for qualified/adverse opinion
paragraph:
For material misstatements relating to specific amounts in the financial
statements
• A description and quantification of the misstatement, unless the quantification is
impracticable.
• If the quantification is impracticable, such a statement needs to be included in the
paragraph.
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The term “impracticable” does not have the same meaning as impractical; it is thus not
when the auditor lacks time and resources to determine the amount of the
misstatement. Impracticable means that it is impossible to determine the amount.
For material misstatements relating to narrative disclosures
• A description of how the disclosures are misstated.
For material misstatements relating to the non-disclosure of information
• A description of the nature of the omitted information. The omitted disclosures can
be included in the paragraph if practicable and if sufficient appropriate audit
evidence about the omitted information has been obtained.
For material misstatements relating to the possible effects of undetected
misstatements
• The reasons for the inability to obtain sufficient appropriate audit evidence.
31. Even if an adverse opinion or disclaimer of opinion is expressed, the reasons for any
other matters that would have required a modification to the opinion and the effects
thereof are also disclosed. Thus, multiple basis for opinion paragraphs are envisaged.
32. The following illustrates what the basis for modification paragraphs consists of:
For qualified/adverse opinions
• Heading that describes the type of opinion expressed.
Basis for [qualified/adverse] opinion
• Heading that describes the account balance/class of transaction/disclosure note.
• Full reference to the applicable accounting standard or legislation and description of
what the requirements are, i.e. what should have been done. (What is the
requirement?/Why is it a problem?)
The South African Statement of Generally Accepted Accounting Practice, IAS 16
(AC 123) Property, Plant and Equipment states that subsequent to initial recognition
at cost, an item of property, plant and equipment should be carried at cost less
accumulated depreciation and accumulated impairment losses or at a revalued
amount less accumulated depreciation and accumulated impairment losses.
• Describe what the misstatement is and refer the reader to the actual line item
in/note to the financial statements where the misstatement occurred. (What is the
problem?)
As indicated in note X to the financial statements, no depreciation is provided for on
property, plant and equipment.
• Briefly state why the misstatement occurred, without giving explanations or making
excuses for the auditee. (Why did it happen?)
This is the result of a decision taken by management at the start of the preceding
financial year and that caused me to qualify my audit opinion on the financial
statements relating to that year.
• Quantify the misstatement, state its impact/effect on all the other classes of
transactions/account balances (i.e. debit and credit sides of the double entry(ies) as
well as the effect on the net profit, accumulated surplus and corresponding figures,
if applicable. If not possible to quantity, state why it is impracticable. Where a
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disclosure has been omitted, describe the nature of the omitted information. (What
is the impact?)
Had depreciation been provided, the surplus for the period would have been stated
at Rxx (31 March 20XX: Rxx), property, plant and equipment would have been
reduced by an accumulated depreciation of Rxx (31 March 20XX: Rxx, and
accumulated surpluses would have been decreased by Rxx (31 March 20XX: Rxx).
For qualified/disclaimer of opinions
Basis for [qualified/disclaimer of] opinion
Accounts receivable
• Describe the limitation and indicate whether it is imposed by the auditee’s
management or by circumstances. (Why is there a problem?)
As stated in note x to the financial statements, a fire broke out at the finance
department on [date], which destroyed the accounts receivable records.
• State whether you performed alternative procedures and, if not, describe why this
was not possible. (What could not be done?)
I was unable to confirm or verify by alternative means the carrying value of
accounts receivable included in the financial statements.
• State on which assertion(s) you could not obtain sufficient appropriate audit
evidence. (What is the impact?)
Accordingly, I was not able to determine whether any adjustments might be
necessary to the amounts shown in the financial statements for accounts
receivable, revenue, surplus for the period, and accumulated surplus.
or
Basis for [qualified/disclaimer of] opinion
Inventories
• Describe the limitation and indicate whether it is imposed by the auditee’s
management or by circumstances. (What is the problem?)
I was unable to observe the count of physical inventories stated at Rxx and to
confirm the existence of accounts receivable stated at Rxx, due to limitations placed
on the scope of my work by the entity.
• State whether you performed alternative procedures and, if not, describe why this
was not possible. (Why is it a problem?)
The entity’s records did not permit the application of alternative audit procedures
regarding inventories and accounts receivable.
• State on which assertion(s) you could not obtain sufficient appropriate audit
evidence. (What is the impact?)
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Consequently, I did not obtain all the information and explanations I considered
necessary to satisfy myself as to the existence of inventories and accounts
receivable.
33. The items under the basis for opinion paragraphs are included in the order of the most
significant to the least significant.
34. Refer to SAAPS 3 Illustrative Auditor’s Reports on Financial Statements for further
guidance and examples.
Matters that do not affect the auditor’s opinion
35. If the auditor considers it necessary to include additional communication in the auditor’s
report that does not have an effect on the auditor’s opinion, the following paragraphs
could be included in the auditor’s report:
• An emphasis of matter(s) paragraph only to draw users’ attention to a matter
presented or disclosed in the financial statements that is of such importance that it
is fundamental to their understanding of the financial statements.
• An other matter(s) paragraph to draw users’ attention to any matter other than those
presented or disclosed in the financial statements that is relevant to users’
understanding of the audit, the auditor’s responsibilities or the auditor’s report.
Emphasis of matter(s) paragraph(s)
36. A widespread use of emphasis of matter(s) paragraphs diminishes the effectiveness of
the auditor’s communication of such matters. Additionally, to include more information
in an emphasis of matter paragraph than is presented or disclosed in the financial
statements may imply that the matter has not been appropriately presented or
disclosed. Accordingly, the use of an emphasis of matter paragraph is limited to, and
only refers to, the matters presented or disclosed in the financial statements.
37. If the auditor considers it necessary to draw users’ attention to a matter presented or
disclosed in the financial statements that, in the auditor’s judgement, is of such
importance that it is fundamental to users’ understanding of the financial statements, an
emphasis of matter paragraph is included in the auditor’s report, provided that the
auditor has obtained sufficient appropriate audit evidence that the matter is not
materially misstated in the financial statements.
38. The auditor follows the following requirements if an emphasis of matter paragraph is
included in the auditor’s report:
• Include the paragraph immediately after the opinion paragraph in the auditor’s
report.
• Use the heading Emphasis of matter(s) or other appropriate heading.
• Include in the paragraph a clear reference to the matter being emphasised and to
where relevant disclosures that fully describe the matter can be found in the
• Indicate that the auditor’s opinion is not modified in respect of the matter
emphasised.
39. The inclusion of an emphasis of matter(s) paragraph in the auditor’s report does not
affect the auditor’s opinion. An emphasis of matter is not a substitute for either:
• the auditor expressing a qualified opinion or an adverse opinion, or disclaiming an
opinion, when required by the circumstances of a specific audit engagement
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• disclosures in the financial statements that the applicable financial reporting

framework requires management to make.
40. Careful note should be taken when considering the inclusion of a qualification matter
paragraph as an emphasis of matter, as only matters that are similar in nature to those
listed below can be included as an emphasis of matter. When the matter under
consideration does not meet these criteria, the auditor should consider whether it
represents a disagreement with management (on departures from the applicable
accounting standards) and whether a qualified or adverse opinion is appropriate.
41. An emphasis of matter(s) paragraph is included in the following instances:
• ISA 210 Agreeing the Terms of Audit Engagements – paragraph 19(b)
• ISA 560 Subsequent Events – paragraphs 12(b) and 16
• ISA 570 Going Concern – paragraph 19
• ISA 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the
Auditor’s Report – significant uncertainties, highlight matters in the financial
statements
• ISA 800 Special Considerations – Audits of Financial Statements Prepared in
Accordance with Special Purpose Frameworks – paragraph 14
Other matter(s) paragraph(s)
42. The auditor may consider it appropriate to use the auditor’s report as a means of
communicating information relating to matters, other than those that are presented or
disclosed in the financial statements, that may be relevant to users’ understanding of
the financial statements or the audit. Such matters should be addressed under the
heading Other matter(s). Where relevant, one or more subheadings are used to
describe the content of the other matter(s) paragraph. When the auditor considers it
appropriate to communicate matters other than those that are presented or disclosed in
the financial statements, the auditor shall use an other matter(s) paragraph for such
matters with the heading Other matter(s), placed after the auditor’s opinion and any
emphasis of matter(s) paragraph. These other matters are in a separate section of the
auditor’s report to clearly distinguish them from the auditor’s responsibilities for, and
opinion on, the financial statements and from matters highlighted in an emphasis of
matter(s) paragraph.
43. The other matter(s) paragraph does not deal with circumstances where the auditor has
additional reporting responsibilities that are supplementary to the auditor’s responsibility
to express an opinion on the financial statements, or where the auditor has been asked
to perform and report on additional specified procedures, or to express an opinion on
specific matters. Such additional reporting responsibilities are dealt with under the other
reporting responsibilities section of the auditor’s report.
44. An other matter(s) paragraph is included in the following circumstances:
• ISA 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the
Auditor’s Report – unaudited supplementary schedules, internal control
deficiencies, non-compliance with applicable legislation, matters of governance,
investigations
• ISA 710 Comparative Information – Corresponding Figures and Comparative
Financial Statements – paragraphs 13 – 14, 16 – 17 and 19 (this is, however,
generally not applicable in the public sector, as it relates to situations where the
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auditor’s opinion
prior period has not been audited or has been audited by a predecessor auditor and
to the comparative financial statement model)
• ISA 720 The Auditor’s Responsibilities Relating to Other Information in Documents
Containing Audited Financial Statements – paragraph 10(a)
Governance matters
45. The IFAC publication on evaluating and improving governance in organisations
published in February 2009 includes, inter alia, the following information on governance
practices:
46. Governance is the set of responsibilities and practices exercised by the accounting
officer/authority and executive management with a goal of:
• providing strategic direction
• ensuring that objectives are achieved and ascertaining that risks are managed
appropriately
• verifying that the entity’s resources are used responsibly.
47. The governance framework has two dimensions, namely conformance and
performance. Together these dimensions represent the entire value creation, resource
utilisation and accountability framework of an entity.
48. Conformance refers to:
• compliance with laws and regulations
• provision of assurance to stakeholders in general.
49. Conformance responsibilities focus on providing assurances to stakeholders:
• concerning the effectiveness of the identification, prioritisation, management, control,
mitigation and reporting of strategic, tactical and operational risks
• that the entity is working effectively and efficiently to achieve its strategic and
operational goals
• that the systems generating financial and non-financial information are working within
prescribed standards of accuracy and reliability, and that such information reflects
the true performance of the entity
• that management’s fiduciary responsibilities are being met
• that the entity is able to prevent and detect criminal activities, such as fraud, money
laundering, theft and misappropriation
• that the entity complies with all relevant laws and regulations.
50. Performance refers to policies and procedures that:
• focus on opportunities as well as risks, strategy, value creation and resource
utilisation
• guide an organisation’s decision-making.
51. Performance responsibilities focus on strategy, value creation and resource utilisation,
and include the:
• establishment of a robust decision-making process, including the determination of
risk appetite
• oversight of strategy implementation and evaluation of the strategy’s ongoing
relevance and success
• alignment of business operations and resource utilisation with strategic direction
and the entity’s levels of risk appetite
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auditor’s opinion
• identification of the critical points at which an organisation needs to make

decisions in response to changing conditions.
52. Successful organisations adhere to governance principles and evaluate results to
ensure the continuing effectiveness of their governance systems.
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auditor’s opinion
PART B: CORRESPONDING FIGURES

Purpose
1. The purpose of part B is to provide audit engagement teams with requirements and
guidance on corresponding figures that will assist the auditor to form an opinion on the
2. ISA 710
Overview of general principles, requirements and procedures
3. The reporting requirements included in ISA 710 are of particular relevance in the public
sector.
4. ISA 710 deals with the auditor’s responsibilities relating to comparative information.
There are two manners in which comparative information can be presented in the
financial statements, i.e. as corresponding figures or as comparative financial
statements. The manner in which comparative information is presented in the financial
statements depends on the requirements of the applicable financial reporting
framework. The financial reporting frameworks applicable in the public sector require
the corresponding figures model to be used, as opposed to the comparative financial
statements model.
5. The work effort is the same for both models, but the reporting requirements differ.
Obtaining sufficient appropriate audit evidence regarding the corresponding figures
does not mean that the auditor has to apply the same work effort as for the current
figures.
6. The auditor is required to determine whether the financial statements include the
corresponding figures required by the applicable financial reporting framework and
whether such information is appropriately classified. The auditor thus evaluates
whether:
• the corresponding figures agree with the amounts and other disclosures presented
in the prior period
• the accounting policies used in the prior period are consistent with those applied in
the current period or, if there have been changes in accounting policies, whether
those changes have been properly accounted for and are adequately presented
and disclosed.
7. If the auditor becomes aware of a possible material misstatement in the comparative
information while performing the current period audit, additional audit procedures are
performed to obtain sufficient appropriate audit evidence to determine whether a
material misstatement exists. If the auditor had audited the prior period financial
statements, the auditor also follows the relevant requirements of ISA 560, paragraphs
14 to 17. If the prior period financial statements are amended, the auditor is required to
determine whether the corresponding figures agree with the amended financial
statements.
8. As required by ISA 580, paragraph 14, the auditor requests written representations for
all periods referred to in the auditor’s opinion. The auditor also obtains a specific written
representation regarding any restatement made to correct a material misstatement in
prior period financial statements that affect the comparative information.
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auditor’s opinion
9. The decision tree below illustrates the reporting requirements and refers to the
paragraphs of ISA 710 under the possible scenarios in the public sector (i.e. the prior
period was modified or the auditor came across a material misstatement during the
current audit that affects the prior period and the prior period was unmodified).
10. It is important to note that if a prior period modification is not resolved, the auditor will
have to include a modification to the auditor’s opinion until the matter is resolved.
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PART C: AUDIT FINDINGS ON PERFORMANCE INFORMATION FOR THE

MANAGEMENT REPORT
OTHER REPORTING RESPONSIBILITIES
REPORT ON PERFORMANCE INFORMATION
MATTERS TO BE INCLUDED IN THE AUDITOR’S REPORT

Guidance
To ensure consistent and clear reporting on audit of performance information findings, auditors
MUST report such findings under relevant headings as per the examples in this guide.

Refer to chapter 1 for detailed examples.
OTHER IMPORTANT MATTERS

Guidance
These are shortcomings that could adversely affect the entity’s ability to initiate, record, process,
manage and report performance information. These are matters that should be addressed
within the next 12 months.
Management processes not in place

Lack of internal policies and procedures
The [name of entity] did not have documented and approved internal policies and
procedures to address planning, monitoring and reporting processes and events pertaining
to performance information.
(Note: This pertains to the audit findings from the overall system description.)
or
The [name of entity] did not have documented and approved internal policies and
procedures to address the process of collection/recording/processing/reporting of
(Note: This pertains to the audit findings from the programme system description. Relevant
details and examples pertaining to the programmes audited should be included.)
Inadequate management processes

Inadequate internal policies and procedures
The internal policies and procedures of the [name of the entity] did not adequately address
processes pertaining to the planning/monitoring/managing/reporting of performance information.
The details are as follows: [include relevant examples]
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auditor’s opinion
(Note: This pertains to audit findings from the overall system description.)
or
The internal policies and procedures of the [name of entity] did not adequately address the
process of collection/collation/recording/processing/reporting on performance information at a
programme/objective level. The details are as follows: [include relevant examples]
(Note: This pertains to audit findings from the relevant programme system description.)
Insufficient monitoring controls
The [name of entity] did not have sufficient monitoring controls to ensure the proper
implementation of the overall process of planning/budgeting/reporting. The details are as
follows: [include relevant examples]
or
The [name of entity] did not have sufficient monitoring controls to ensure adherence to the
internal policies and procedures at a programme or objective level as well as for purposes of
taking corrective action.
(Note: This pertains to the audit findings from the programme/objective system description.
Relevant details and examples pertaining to the programmes/objectives audited should be
included.)
Internal policies and procedures not aligned to legislative requirements
The internal policies and procedures pertaining to the planning/monitoring/managing/reporting
of performance information were not aligned to the applicable laws and regulations in the
following instances: [include relevant examples]
Non-compliance with internal policies and procedures

The following actual activities/processes and procedures implemented, were not in
accordance with the documented policies and procedures: [list example of actual
activities/processes]
(Note: This pertains to audit findings that can stem from either the overall or the
programme/objective system description.)
Shortcomings in key controls

Lack of key controls
The [name of entity] did not have key controls to address the systems of
collection/collation/verification/storage of performance information. The details are as
follows: [list examples]
(Note: This pertains to audit findings that stem from the system description for significant
systems and relates to key controls that ensure the completeness, validity and accuracy of
input, processing and output of performance information.)
Insufficient key controls
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auditor’s opinion
The following key controls were insufficient to address the systems of

collection/collation/verification/storage of performance information: [include details]
(Note: This pertains to audit findings that stem from the system description for significant
systems and relates to key controls that ensure the completeness, validity and accuracy of
input, processing and output of performance information.)
Changes to reported performance information not disclosed

Changes to the outputs/measures/indicators/targets in the current year’s approved
strategic/corporate/annual performance plan were not disclosed: [list examples]
Reasons for variances between planned and actual performance not included in the
annual report
Variances between the planned and the actual performance of reported performance
information for the following programmes/objectives were not supported by adequate
explanations for the variances in the annual report: [list examples]
Inadequate presentation of reported performance information

Based on a review of the reported performance information in the annual report, it was
noted that the performance information was not presented in a simple, accessible format,
relevant and useful to the intended reader, and/or in accordance with Treasury Regulation
28.2.2 and the relevant preparation guides applicable to annual reports for the financial
year-end.
Quality of performance indicators/measures and targets inadequate

No logical flow of information
The following indicators/measures of the listed programmes/objectives did not logically
relate to the relevant subprogramme/programme/objective: [list examples]
Indicators/measures not well defined
The following indicators/measures of the listed programmes/objectives evaluated, were not
clear or well defined to allow for data to be collected consistently: [list examples]
Indicators/measures not verifiable
verifiable, as it was not possible to validate/adequately validate the processes and systems
that produce the indicator: [list examples]
Indicators/measures not cost-effective
cost-effective, as the usefulness of the indicator did not justify the cost of collecting the data:
[list examples]
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auditor’s opinion
Indicators/measures not appropriate

The following indicators/measures of the listed programmes/objectives evaluated, were
inappropriate to the extent that the indicators/measures did not avoid unintended
consequences/did not encourage service delivery/did not provide managers with incentives
to carry out activities to meet a particular target: [list examples]
Indicators/measures not relevant
The following indicators/measures of the listed programmes/objectives evaluated, did not
appear to be relevant in relation to the institution’s mandate [include details of specific
aspects] and the realisation of the goals and objectives of the entity: [list examples]
Targets do not comply with the SMART criteria
The following targets of the listed programmes/objectives as per the reported performance
information were not specific/measurable/relevant/time bound: [list examples]
Shortcomings in quarterly reporting

Inspection of the [name of entity]'s quarterly reports revealed the following shortcomings:
• Standard reports were not compiled in the prescribed format (National Treasury).
• The format/content of the quarterly reports was not consistent with the performance
objectives, measures and targets as per the strategic plan and/or budget of the entity.
• Quarterly reports were not reviewed, monitored and evaluated by senior management
and/or the internal audit function to ensure the validity, accuracy and completeness of
progress against predetermined objectives.
• The programme manager for [include reference to programme/objective] was not able to
provide information and/or documentation substantiating the reported performance.
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auditor’s opinion
PART D: TIPS ON REPORT WRITING

1. The auditor’s report should be:
• objective – reports should be balanced and free of misstatements and should
enhance the reputation of the AGSA
• clear – reports should be produced with a specific reader in mind and should be
easy to understand, free of any inconsistencies and logical
• concise – reports should be focused and should avoid unnecessary details
• constructive – reports should assist management in improving performance and
preventing occurrences of irregularities in future
• timely
• based on adequate audit evidence
• complete.
2. It is important that management and those charged with governance can clearly tell
what the issues are that have been reported. If not, they will not be able to make
corrections. Issues should be addressed specifically and not in a broad context.
3. Each paragraph should address only one issue and major points should be bulleted.
Audit findings must be clear and logical. They should be concise and coherent, with
enough detail to allow management to understand the control issues, risk factors,
impact on operations and proposed corrective actions.
4. Corrective actions should require management to implement control procedures and
monitor their adherence.
5. The report should begin with the most important issue and progress to the least
important.
6. The purpose of the report is not to make accusations but to provide information about
controls and risks that may threaten the effective operation of the entity.
7. In order to obtain the appropriate management response, the reporting of audit findings
should have an appropriate tone.
8. Reports should be factual, unbiased and free from distortion. It is therefore
recommended that auditors discuss the specific issues with relevant officials in an
attempt to resolve them, before an interim query is raised.
9. The requests for information and samples should be made in writing. The use of a
newly developed standard template working paper Request for information, is
encouraged.
10. Similar to point 10 above, use the standard template Communication of audit findings
for issuing interim queries (previously known as “informal queries”).
11. Patiently review the issues with management.
12. Findings and recommendations should be without prejudice.
13. Listen closely and actively when management challenges the audit findings.
14. Management reports should clearly identify:
a) the addressee as the accounting officer or chair of the accounting authority
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auditor’s opinion
b) distribution (cc) to the CEO, CFO, audit committee chair and chief internal auditor,
as per the template.
15. Findings should be placed in perspective by describing the nature and extent of issues
being reported and the extent of the work performed that resulted in the finding.
16. Include references to communications with officials of the auditee during the audit.
17. Unnecessary technical language should be avoided and sufficient supporting
information should be provided.
18. The language should be clear, fair and express what the auditor means.
19. Reports should lead to improvement rather than criticising errors and control
weaknesses.
20. Understand management’s perspective on the issue, including the level of risk to the
organisation and management’s commitment to control improvement.
21. Never identify individuals by name; use the position/title of the relevant person.
22. Use neutral words that will increase the likelihood of management providing an
appropriate response and taking appropriate corrective action.
23. Do not use vague terms, e.g. “Certain assets that are included in the asset register
appear to not fulfil the recognition criteria of an asset.”
24. All abbreviations and acronyms should be defined and spelt out the first time they are
used; thereafter the abbreviation or acronym is used, e.g. “The value-added tax amount
payable to the South African Revenue Service (SARS) is disclosed in the financial
statements as R3 062 654, while SARS confirmed that an amount of R574 461,24 was
refundable.”
25. When quoting an accounting standard, include the name of the standard together with
its number, e.g. GAMAP 9 Revenue. If an IFRS/IAS is being quoted, also include the
equivalent AC (SA GAAP) standard number in brackets after the IFRS/IAS reference.
Do not refer to appendices in the standards.
26. Quantify the effect of the misstatement/non-compliance. If the auditor is unable to do
so, he/she should attempt to quantify in a different manner (e.g. number of employees
affected) or state why this cannot be done.
27. State the fact that alternative procedures have been performed and describe how they
too, have failed to provide sufficient appropriate audit evidence.
28. The report should not be issued if there are still matters under dispute.
29. It is compulsory to send all auditor’s reports to the AGSA language specialists for
editing. This is also recommended, although not compulsory, for management reports.
30. The words “significant” and “material” should be used consistently and not
interchangeably. The table below may be of assistance:
Material Significant
Definition The ability of an omission or Item or condition that requires
misstatement to influence special audit consideration
(adapted from ISAs'
economic decisions of users of
glossary of terms)
financial statements (size of
item/error/omission/misstatement)
Examples of Material misstatement Significant amount of transactions
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auditor’s opinion
appropriate usage Material weakness Significant measurement

uncertainty
Material accounts Significant bearing on …
Material class of transaction Significant matter
Material journal entry Significant changes in internal
control
Material matter Significant risk
In all material respects
Material effect
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120
CHAPTER 4: SUBSEQUENT
EVENTS, REVIEW OF OTHER
INFORMATION AND DATING
OF THE AUDITOR’S REPORT
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Chapter 4: Subsequent events,
review of other
information and
dating of the
auditor’s report
CHAPTER 4: SUBSEQUENT EVENTS, REVIEW OF OTHER INFORMATION AND

DATING OF THE AUDITOR’S REPORT
Purpose
1. The purpose of this chapter is to provide engagement teams with guidance regarding the
timelines in the public sector that impact on how subsequent events are dealt with and on
the consideration of other information included in the annual report.
2. ISA 560, ISA 230, IAS 10 (AC 107).9, .11 and .21, and ISA 720
Introduction
3. Due to legislated deadlines for the submission of the financial statements for audit
purposes, the auditor’s report to those charged with governance, and the tabling of the
annual report, there are a number of issues concerning the consideration of other
information and subsequent events that acquire clarification, especially with regard to the
dating of the auditor’s report and any amendments thereto.
4. In the public sector, the auditor has additional responsibilities, through statutory or other
regulatory requirements, in relation to other information that will be included in the annual
report. This "other information" may be prescribed by legislation such as the PFMA, the
MFMA, DoRA and the Companies Act.
5. Although the date of the submission of the financial statements is legislated by the PFMA
and the MFMA, there is no specific date for the submission of the other information,
which the auditor has to consider but on which the auditor has no obligation to report, and
which will be included in the annual report. The consideration of subsequent events and
the date of the auditor’s report have an impact on how this matter should be reported.
Subsequent events
6. Subsequent events are those events, both favourable and unfavourable, that occur
between the date of the financial statements and the date of the auditor’s report as well
as facts that become known to the auditor after the date of the auditor’s report. There are
two types of such events:
• Those that provide evidence of conditions that existed at the balance sheet date
(adjusting events).
• Those that are indicative of conditions that arose after the balance sheet date (non-
adjusting events).
7. The auditor has specific responsibilities concerning these events, which vary significantly
depending on the time period in which the events occurred and/or the facts became
known. The following dates are important to the auditor in the consideration of
subsequent events:
• Date of the financial statements: The last day of the financial year, also called the
"balance sheet date", which is 31 March or 30 June for PFMA and MFMA audits,
respectively.
• Date of approval of the financial statements: The date on which all the statements
that comprise the financial statements have been prepared and those with recognised
authority have asserted that they have taken responsibility for them. In the public
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review of other
information and
dating of the
auditor’s report
sector, this date will be the date of submission to the AGSA for audit purposes, being
31 May or 31 August for PFMA and MFMA audits, respectively.
• Date of submission of the auditor’s report: The date on which the auditor’s report
should be submitted for public sector audits is legislated by the PFMA, the MFMA and
the Public Audit Act, as follows:
o 31 July for PFMA auditees
o 30 November for MFMA auditees
o 31 December for group/consolidated MFMA auditees
• Date of the auditor’s report
The auditor’s report will remain as a final draft pending the submission of the other
information to be included with the audited financial statements in the annual report.
The report will only be signed and dated once this information has been read to
identify any possible inconsistencies between this information and the audited
financial statements. The date of the report should be on or before the date of the
issuing of the financial statements as indicated below.
• Date on which the financial statements are issued: This is the date on which the
auditor’s report and audited financial statements are made available to third parties,
which in the public sector is the date on which the annual report (which includes the
audited financial statements, the auditor’s report and the report of the accounting
officer/authority) is:
o submitted to the executive authority for PFMA entities, which is 31 August or
earlier (refer to sections 55(1)(d) and 40(1)(d) of the PFMA)
o tabled in the municipal council by the mayor for MFMA entities, which is
31 January or earlier (refer to section 127(2) of the MFMA).
8. Subsequent events can be grouped into three categories as follows:
• Events occurring between the date of the financial statements and the date of the
auditor’s report (ISA 560, paragraphs 6 to 9).
• Facts that become known after the submission of the auditor’s report but before the
date on which the financial statements are issued (submitted to the executive
authority for PFMA entities or tabled in the municipal council for MFMA entities)
(ISA 560, paragraphs 10 to 13).
• Facts that become known to the auditor after the financial statements have been
issued (ISA 560, paragraphs 14 to 17).
9. After the date of the auditor’s report, there is no responsibility on the auditor to perform
further audit procedures, unless the auditor came across facts that, had it been known at
the date of the auditor’s report, may have caused the auditor to amend the auditor’s
report. The auditor needs to request management to rectify the misstatements.
Events occurring between the date of the financial statements and the date of the
auditor’s report
10. The auditor is required to perform further procedures designed to obtain sufficient
appropriate audit evidence that all events occurring between the date of the financial
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review of other
information and
dating of the
auditor’s report
statements and the date of the auditor’s report that require adjustment of, or disclosure
in, the financial statements, have been identified.
11. The auditor is required to take the risk assessment into account in determining the nature
and extent of such audit procedures.
12. If the auditor identifies events that require adjustment of, or disclosure in, the financial
statements, the auditor is required to determine whether each such event is appropriately
reflected in the financial statements in accordance with the applicable financial reporting
framework.
Misstatements that become known to the auditor after the auditor’s report date
13. If amendments were made, the auditor is required to amend the report, by either
including an emphasis of matter(s) or other matter(s) paragraph.
14. If no amendments were made, the auditor needs to modify the auditor’s report
accordingly.
Misstatements become known to the auditor after the financial statements have been
issued
15. If management does not take the necessary steps to ensure that anyone in receipt of the
previously issued financial statements is informed of the situation and does not amend
the financial statements, the auditor notifies management and those charged with
governance that the auditor will seek to prevent future reliance on the auditor’s report. If,
despite such notification, the necessary steps are still not taken, the auditor takes
appropriate action to seek to prevent reliance on the auditor’s report.
Other information to be included in the annual report
16. In terms of ISA 720, the auditor is required to read the other information that will be
included in the annual report to identify material inconsistencies with the audited financial
statements. In certain circumstances, the auditor has a statutory or contractual obligation
to report specifically on other information. The auditor needs to give consideration to such
other information when issuing a report on the financial statements, as the credibility of
the audited financial statements may be undermined by inconsistencies that may exist
between the audited financial statements and other information.
17. In order for an auditor to consider the other information, timely access to such information
is of utmost importance. The auditor is required to make appropriate arrangements to
obtain the other information prior to the date of the auditor’s report (ISA 720, paragraph
7). If it is not possible to obtain all other information prior to the date of submission of the
auditor’s report, the auditor is required to read such other information as soon as
practicable after 31 July but before 31 August for PFMA auditees and after 30 November
but before 31 January for MFMA entities.
18. Obtaining the information prior to the date of the auditor’s report enables the auditor to
resolve possible material inconsistencies and apparent material misstatements or non-
compliance with management on a timely basis.
Action to be taken on inconsistencies
19. The auditor is required to determine whether the audited financial statements or the other
information needs to be revised (ISA 720, paragraph 8). Actions to be taken by the
auditor upon identifying a material inconsistency, which exclude withdrawing from the
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review of other
information and
dating of the
auditor’s report
engagement, depend on the time when the material inconsistencies or misstatements of

fact were identified.
Before the date of the auditor’s report
(ISA 720, paragraphs 9 and 10)
20. If an amendment is necessary in the audited financial statements and the entity refuses
to make the amendment, the auditor is required to modify the auditor’s opinion in
accordance with ISA 705.
21. If an amendment is necessary in the other information and the entity refuses to make the
amendment, the auditor is required to communicate the matter with those charged with
governance and to include an other matter(s) paragraph in the auditor’s report in
accordance with ISA 706, paragraph 8.
Subsequent to the date of the auditor’s report but before the annual report/financial
statements are issued to third parties
22. If an amendment is necessary in the audited financial statements, the auditor is required
to follow ISA 560, paragraphs 10 to 17.
23. If an amendment is necessary in the other information, the auditor is required to discuss
the matter with those charged with governance. If the necessary amendments were
made, the auditor performs further procedures; if not, the auditor seeks legal advice to
determine the appropriate further action.
After the annual report/financial statements have been issued to third parties without
the necessary amendments
24. The auditor is required to write a letter to the executive authority for PFMA entities or the
municipal council for MFMA entities as well as inform them of the problem and follow the
appropriate ISA 560 procedure.
Audit documentation
25. In addition to the above, ISA 230 contains specific responsibilities of the auditor regarding
changes to audit documentation after the date of the auditor’s report, as follows:
26. When the auditor performs new or additional audit procedures or when the subsequent
events lead the auditor to reach new conclusions, the auditor should document:
• the circumstances encountered
• the new or additional audit procedures performed, audit evidence obtained and
conclusions reached
• when and by whom the resulting changes to audit documentation were made and
reviewed.
Date of the auditor’s report
27. ISA 700 requires the auditor to date the auditor’s report no earlier than the date on which
the auditor has obtained sufficient appropriate audit evidence on which to base the
opinion on the financial statements, which is on or before the date when the financial
statements are issued. The auditor cannot sign the auditor’s report before the auditee
has approved the financial statements. The date of the auditor’s report informs the reader
that the auditor has considered the events and transactions of which the auditor became
aware and which occurred up to that date.
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review of other
information and
dating of the
auditor’s report
28. In all instances where the auditee subsequently amends the financial statements
submitted for auditing, the financial statements have to be reapproved by the accounting
officer/accounting authority. If the auditor’s report has already been submitted, a new
auditor’s report should be issued with a date no earlier than the date of the approval of
the amended financial statements.
Review of printer’s proof and published annual reports

29. The auditor should review both the printer’s proof of the annual report containing the
financial statements and the auditor’s report AS WELL AS the final published version of
the annual report to ensure that there are no errors or amendments to the information
originally reviewed.
30. In the event of the published version being different to what the auditor had reviewed
previously, the auditor should determine whether the inconsistencies are in the other
information in the annual report or financial statements or the auditor’s report, and follow
the guidance set out in the table below, for time periods 3 and/or 4.
31. It is therefore essential that the auditor reaches an understanding with the auditee at the
planning stage of the audit that the annual report will only be published AFTER the
auditor has signed off on the printer’s proof of the annual report.
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Chapter 4: Subsequent events, review of other information and dating of the auditor’s report
NO. TIME PERIOD AUDITOR’S RESPONSIBILITIES IN TERMS OF ISA AUDITOR’S RESPONSIBILITIES IN TERMS ISA
ISA 720 REVIEW OF OTHER INFORMATION REFERENCES OF ISA 560 SUBSEQUENT EVENTS REFERENCES
IMPACTING ON THE ANNUAL REPORT (NOT IMPACTING ON THE AFS
THE AFS)
1. After the date of the None – not yet received. None Adjusting events: consider impact on the AFS. ISA 560.2
financial year-end up to
the date of submission Non-adjusting events: no action.
of the AFS for audit
(date of approval)
31 March – 31 May for
PFMA
30 June – 30 September
for MFMA or 31 October
for consolidated MFMA
2. Up to the date of the The auditor should read the other information ISA 720.6 – .10 The auditor should perform audit procedures ISA 560.6
auditor’s report that will be included in the annual report to to obtain sufficient appropriate audit evidence
identify material inconsistencies with the audited that the AFS are adjusted for all material
financial statements. adjusting events in this time period.
If material inconsistencies exist, the auditor 1. If the auditee adjusts the AFS = no impact
should consider whether the audited AFS or the on the auditor’s report.
other information in the annual report needs to
be adjusted. 2. If the auditee refuses to adjust the AFS =
consider qualification (qualified or adverse
1. If the audited AFS need to be adjusted: audit opinion), depending on pervasiveness.
- The auditee adjusts the AFS = no impact on the
auditor’s report.
- The auditee refuses to adjust the AFS =
qualified or adverse audit opinion based on the
materiality of the misstatement.
2. If the other information in the annual report

needs to be adjusted:
- The auditee adjusts other information = no
impact on the auditor’s report.
- The auditee refuses to adjust other information
= material inconsistency EoM paragraph in
auditor’s report.
127
THE AFS)
If the auditor had not yet received the annual

report prior to issuing the auditor’s report, follow
the guidance in step 3 below.
3. Up to the date the The auditor should review the other information ISA 720.11 –.13 No specific responsibility to perform audit ISA 560.10 –.13
annual report/AFS are in the annual report as soon as it is available to procedures.
issued to third parties establish whether there are any material
inconsistencies between the other information in However, if the auditor becomes aware of
Date of issue is the date the annual report and the audited AFS. material adjusting events that occurred within
that the annual report is: this time period, discuss with management.
Where the auditor identifies material
• submitted to the inconsistencies, it should be communicated to If the auditee adjusts the AFS, the auditor
executive authority for those charged with governance immediately. should carry out the audit procedures
PFMA entities on 31 necessary. This may include informing all
August or earlier 1. Where a revision of the AFS is necessary, the persons in receipt of the previous version of
• tabled in the municipal guidance in ISA 560 Subsequent Events should the AFS and the auditor’s report of the
council by the mayor be followed. revision.
for MFMA entities on
31 January or earlier. 2. If the other information in the annual report 1. If the audited AFS need to be adjusted and
needs to be adjusted: they have not yet been issued:
- The auditee adjusts other information = no - If the auditee corrects and reapproves the
impact on the auditor’s report. AFS, the auditor should issue a new report
- The auditee refuses to adjust other information with a new date (no other amendment is
= auditor to issue a new auditor’s report with a required). The new auditor’s report should be
material inconsistency EoM paragraph. The dated no earlier than the date of the
date of the auditor’s report will be changed. reapproval of the AFS.
- If the auditee does not correct and reapprove
3. If the auditor’s report has already been issued the AFS, the auditor should issue a new report
– notify the executive authority or the council of with a qualification paragraph on the material
the problem and that they should not publish the misstatement of the particular class of
AFS. If the AFS are nevertheless published, the transaction/account balance/disclosure.
auditor should take action to prevent reliance on
the auditor’s report. 2. If the auditor’s report has already been
issued, notify the executive authority or the
council of the problem and that they should not
128
THE AFS)
publish the AFS. If the AFS are nevertheless
published, the auditor should take action to
prevent reliance on the auditor’s report.
4. After the annual The auditor should read the annual report as ISA 720.16 and No specific responsibility to perform audit ISA 560.14 – .17
report/AFS are issued to soon as possible. If the auditor identifies from the Public sector procedures.
third parties/Date of the other information in the annual report that the perspective,
auditor’s report AFS are materially misstated, the auditor should paragraph A7 However, if the auditor becomes aware of a
follow the guidance in ISA 560 Subsequent fact that existed at the date of the auditor’s
This would be after the Events. report and, if known, would have caused the
annual report has been: auditor to modify the auditor’s report, discuss
Where the auditor identifies a material with management.
inconsistency in the other information contained
• submitted to the
in the annual report and the auditee refuses to 1. If the auditee withdraws the AFS and
minister for PFMA
correct the annual report, the auditor should revises the AFS, the auditor should carry out
entities (31 August)
consider the potential misleading impact of such the audit procedures necessary, including
• tabled in the council for
inconsistency on the users of the annual report ensuring that those persons that are in receipt
MFMA entities.
and take action to prevent reliance on the of the previous annual report are informed of
auditor’s report. the situation, and issue a new report on the
revised AFS with an EoM paragraph on the
revision of the previously issued AFS.
2. If the auditee refuses to withdraw and revise

the AFS, the auditor should notify the
executive authority and the council and
legislatures, as appropriate, of the planned
actions to prevent reliance on the auditor’s
report, and consider legal advice.
129
130
CHAPTER 5:
MANAGEMENT
REPRESENTATIONS
131
representations
CHAPTER 5: MANAGEMENT REPRESENTATIONS

Purpose
1. The purpose of this chapter is to explain the requirement to obtain representations from
management and those charged with governance that they believe that they have fulfilled
their responsibility concerning the financial statements, and to support other audit
evidence. The use of “management” below also refers to those charged with governance,
as appropriate.
2. ISA 580 Written Representations
3. ISA 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial
Statements – paragraph 39
4. ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements –
paragraph 16
5. ISA 450 Evaluation of Misstatements Identified during the Audit – paragraph 14
6. ISA 501 Audit Evidence – Specific Considerations for Selected Items – paragraph 12
7. ISA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and
Related Disclosures – paragraph 22
8. ISA 550 Related Parties – paragraph 26
9. ISA 560 Subsequent Events – paragraph 9
10. ISA 570 Going Concern – paragraph 16(e)
11. ISA 710 Comparative Information – Corresponding Figures and Comparative Financial
Statements – paragraph 9
Requirement to obtain a representation letter
12. The auditor should request management members, with the appropriate responsibilities,
to provide a written representation that they have fulfilled their responsibility for the
preparation of the financial statements in accordance with the applicable financial
reporting framework, including – where relevant – their fair presentation, as set out in the
terms of the audit engagement. The representation should also confirm that all relevant
information and access as agreed in the terms of engagement have been provided, and
that all transactions have been recorded and are reflected in the financial statements.
13. During an audit, management makes many representations to the auditor, both orally and
in writing, in response to specific enquiries or through the financial statements. These
representations are part of the audit evidence but they are not a substitute for the
application of those audit procedures necessary to afford a reasonable basis for an
opinion regarding the financial statements under audit. The auditor obtains written
representations from management to complement other audit procedures.
14. The mandates for audits of the financial statements of public sector entities may be
broader than those of other entities. As a result, the premise relating to management’s
responsibilities on which an audit of the financial statements of a public sector entity is
conducted, may give rise to additional written representations. These may include written
representations confirming that transactions and events have been carried out in
accordance with law, regulation or other authority.
15. Because the preparation of the financial statements requires management and, where
appropriate, those charged with governance to adjust the financial statements to correct
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representations
material misstatements, the auditor is required to request them to provide a written

representation about uncorrected misstatements. In some circumstances, management
and, where appropriate, those charged with governance may not believe that certain
uncorrected misstatements are misstatements. For that reason, they may want to add to
their written representation words such as: “We do not agree that items … and …
constitute misstatements because [description of reasons].” Obtaining this representation
does not, however, relieve the auditor of the need to form a conclusion on the effect of
uncorrected misstatements.
Representations in contradiction of other audit evidence
16. If a representation is contradicted by other audit evidence, the auditor should investigate
the circumstances and consider the reliability of the representations made. Based on the
circumstances, the auditor should consider whether reliance on management’s
representations relating to other aspects of the financial statements is appropriate and
justified.
Dating of the representation letter
17. Because the auditor is concerned with events occurring through to the date of the
auditor’s report that may require adjustment or disclosure, the representation made shall
be as near as practicable to, but not after, the date of the auditor’s report on the financial
statements.
Signing of the representation letter
18. The letter should be signed by those persons with overall responsibility for financial and
operating matters, who are responsible for and knowledgeable about, directly or through
others in the entity, the matters covered by the representations and who are responsible
for the preparation and presentation of the financial statements.
Requested representation letter not provided
19. Management’s refusal to furnish written representations constitutes a limitation on the
scope of the audit, sufficient to cause an auditor to disclaim an opinion. However, based
on the nature of the representations not obtained or the circumstances of the refusal, the
auditor may conclude that a qualified opinion is appropriate. Furthermore, the auditor
should consider the effects of the refusal on his/her ability to rely on other management
representations.
List of ISAs containing requirements for written representations
20. Appendix 1 to ISA 580 identifies paragraphs in other ISAs that require specific written
representations according to subject matter. The list is not a substitute for considering the
requirements and related application and other explanatory material in ISAs.
21. The effects of uncorrected misstatements are immaterial, both individually and in the
aggregate, to the financial statements as a whole. A list of the uncorrected misstatements
is attached to the representation letter. (ISA 450)
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representations
LETTER TO MANAGEMENT REQUESTING THAT THEY FURNISH A REPRESENTATION

LETTER
Address line 1
Address line 2
Address line 3
Address line 4
Address line 5
23 September 200X
Reference: XXXXXXXXXX
Dear Mr/Ms XXX
Representation letter
We are currently finalising the audit of the financial statements of the [name of entity] for the
year ended [31 March/30 June 200X]. As communicated in our audit engagement letter, the
audit is subject to the International Standards on Auditing (ISAs).
These standards require us to obtain written representations on a number of matters from the
person(s) charged with governance at the [name of entity], namely the [accounting
officer]/[accounting authority].
Annexure A to this letter contains an example of the wording to be used in the representation
letter and encompasses issues on matters such as the financial statements, internal control,
legislative and regulatory requirements, completeness of information, fraud prevention, going
concern, subsequent events and performance information.
Annexure B contains an example of the wording and layout for the representation on
uncorrected misstatements. In order to assist you in preparing this representation letter, we
have included information on the uncorrected misstatements which we have identified during
the course of our audit.
Please note that both the representations should be tailored for the specific circumstances
and type of entity. The representation letter should be submitted to us on your official
letterhead and should be duly signed by the [accounting officer]/[duly delegated member of
the accounting authority].
Yours sincerely
Name and surname

Position: Business unit
Enquiries: Name and surname

Telephone: (xxx) xxx xxxx
Fax: (xxx) xxx xxxx
Email: xxxxxx@agsa.co.za
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representations
ANNEXURE A: DRAFT REPRESENTATION LETTER
AUDITEE’S LETTERHEAD
TO: THE AUDITOR-GENERAL DATE (not later than the auditor’s

report date)
REPRESENTATION LETTER
1. This representation letter is provided for the purposes of your audit of the financial
statements of the [name of entity] [and the group] for the year ended [31 March/30 June
200X] for the purpose of expressing an opinion as to whether the financial statements
[were prepared in accordance with [specify the applicable financial reporting
framework/basis of accounting] and [fairly present the financial position, the results of its
operations and cash flows of the [name of entity]] or [have been prepared in accordance
with the basis of accounting disclosed in note xx to the financial statements].
2. We understand that the audit was conducted in accordance with the International
Standards on Auditing. We also understand that the audit was undertaken for the
purpose of expressing an opinion on the financial statements, and that due to the test
nature and other inherent limitations of an audit, together with the inherent limitations of
any information and internal control systems, there is an unavoidable risk that some,
even material, misstatements might remain undiscovered.
3. We confirm, to the best of our knowledge and belief, having made such enquiries as we
considered necessary for the purpose of appropriately informing ourselves, the following
representations with regard to your duties as auditors of the [name of entity] for the year
ended [31 March/30 June 200X].
Financial statements
4. We acknowledge and understand our responsibility as set out in the terms of
engagement dated [insert date], for the preparation and presentation of the financial
statements in accordance with [insert applicable financial reporting framework/basis of
accounting], in particular that the financial statements are fairly presented in accordance
therewith. In this connection we further confirm the following:
• The selection and application of accounting policies are in compliance with the
applicable financial reporting framework/basis of accounting.
• The accounting policies as defined in the financial statements have been applied
consistently with the previous year, except as disclosed.
• The financial statements are free of material misstatements, including omissions.
• There are no material transactions that have not been properly recorded in the
accounting records underlying the financial statements.
• All plans or intentions that may materially alter the carrying value or classification of
assets and liabilities in the financial statements have been accounted for or disclosed
in accordance with the applicable financial reporting framework/basis of accounting.
• There are no off-balance sheet assets or liabilities, including financial derivatives,
except as disclosed in the financial statements.
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representations
• Key assumptions made by us concerning the future and other key sources of
estimation uncertainty at year-end have been adequately disclosed and are
reasonable.
• Judgements made in the process of applying the accounting policies have been
adequately disclosed and are reasonable.
• All events subsequent to year-end for which the applicable financial reporting
framework/basis of accounting requires adjustment or disclosure have been adjusted
or disclosed.
Assets
• Where current assets are not expected to realise at least the value at which they are
recorded in the financial statements, adequate provision has been made for all
uncollectable or doubtful amounts.
• The carrying amount of non-current assets valued other than at fair value has been
reviewed to determine whether it is in excess of the assets’ recoverable amount.
Where an asset’s estimated recoverable amount is lower than its carrying amount, it
has been impaired for any diminution in value.
• Property, plant and equipment:
o acquired during the year has been included in capital expenditure and is stated at
cost or fair value, if acquired at no cost, and represents actual additions
o does not include current expenditure, e.g. repairs and maintenance
o is depreciated at rates that are appropriate for the particular type of asset, and the
useful life and residual value of the asset are taken into consideration
o that has been disposed of, destroyed, misappropriated or abandoned has been
excluded from the financial statements and the asset register
o is properly safeguarded against damage and theft
o is properly maintained to prolong its useful life.
• The [entity type] has satisfactory title to, or control over, all assets disclosed in the
financial statements and, where appropriate, all liens or encumbrances on these
assets have been disclosed in accordance with the applicable financial reporting
framework/basis of accounting.
Liabilities
• All liabilities, both actual and contingent, have been recorded and, where appropriate,
disclosed in accordance with the applicable financial reporting framework/basis of
accounting.
• All material liabilities or contingencies arising from applicable legislative obligations
and non-compliance (e.g. environmental matters, penalties, etc.) have been
adequately disclosed in the financial statements.
• Adequate provision has been made for all known losses at the date of this letter.
• The nature of any guarantee given by, or on behalf of, the [entity type] and [group] is
fully disclosed in the financial statements.
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representations
• All aspects of contractual agreements that could have a material effect on the
financial statements have been complied with, and instances of non-compliance have
been disclosed in accordance with the applicable financial reporting framework/basis
of accounting.
Other
• The identity of related parties, related party transactions and related amounts
receivable or payable (including fees, commissions, purchases and sales, loans,
transfers, leasing arrangements and guarantees) have been properly recorded and
disclosed in the financial statements in accordance with the applicable financial
reporting framework/basis of accounting.
• Except as disclosed in the financial statements, no transactions involving
management and others requiring disclosure in the financial statements have been
entered into. All key management personnel have declared their interests in writing.
• All transfer/grant payments and/or revenue have been properly and completely
accounted for and have been recorded in the proper period.
• All donor funding or donations received have been properly and completely
accounted for in the financial statements.
• The budget was prepared in accordance with the applicable regulations and
instructions and is in line with set criteria and objectives.
• All unauthorised, fruitless and wasteful, and irregular expenditure as well as material
losses have been disclosed as required.
Uncorrected misstatements in the financial statements

• The effects of those uncorrected financial statement misstatements and disclosure
omissions aggregated by the auditor during the audit and detailed in the annexure
hereto are immaterial, individually and in aggregate, to the financial statements taken
as a whole, both quantitatively and due to the nature, cause or circumstance of the
misstatement, for the reasons as stated.
Internal control
5. We acknowledge and understand our responsibility for the design, implementation and
maintenance of internal control relevant to the preparation and presentation of financial
statements that are free from material misstatement, whether due to fraud or error, and
believe that the internal control we have maintained is adequate for that purpose.
6. There have been no irregularities involving management or employees that had a
significant impact on internal control or could have a material effect on the financial
statements that have not been disclosed to you.
Legislative, regulatory and contractual requirements

7. We acknowledge and understand our responsibility for putting in place appropriate
systems and mechanisms to ensure that all applicable aspects of legislative, regulatory
and contractual requirements which impact on the activities and functions of the [entity
type] and [group] have been complied with, including the following:
• Related party transactions
• Supply chain management requirements
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representations
8. All actions during the financial year took place according to and within our powers. In
addition, we have disclosed to you all actual or potential instances of non-compliance
with any legislative, regulatory or contractual requirements which we have considered for
inclusion in the financial statements, as a liability, contingency or commitment.
9. No claims or notices of litigation have been or are expected to be received, other than
[provide details].
10. The [entity type/group] has not been represented by solicitors for the year ended [date],
other than [provide details].
11. There has been no non-compliance with requirements of regulatory authorities that could
have a material effect on the financial statements in the event of non-compliance.
12. All known, actual or possible non-compliance with laws and regulations that may have a
material effect on the purpose, operations or financial management of the [entity type]
has been disclosed to you.
13. All council/SCOPA resolutions as well as all ministerial directives and cabinet resolutions
that became applicable during the year have been complied with.
14. The [municipality/municipal entity] has not contravened the MFMA in terms of:
• conducting commercial activities
• providing municipal services
• making loans to councillors, officials, directors or members of the public
• participating in a municipal bid committee or any other committee evaluating or
approving tenders, quotations, contracts or other bids, nor attendance at such
meeting by a councillor.
Completeness of information and transactions

15. We have provided you with:
• access to all information of which we are aware that is relevant to the preparation of
the financial statements, such as records, documentation and other matters
• additional information that you have requested from us for the purpose of the audit
• unrestricted access to persons within the [type of entity] from whom you determined it
necessary to obtain evidence.
16. All transactions have been recorded in the accounting records and are reflected in the
17. All revenue earned prior to [31 March/30 June] has been taken into account and, except
as disclosed in the financial statements, the results for the year were not materially
affected by:
• transactions not usually undertaken by the [entity type] [group]
• circumstances of an exceptional or non-recurrent nature
• charges or credits relating to prior years
• any change in the basis of accounting or application of accounting policies
• transactions or agreements with related parties (such as subsidiaries, associates,
joint ventures, those charged with governance, management) which were not in the
ordinary course of business or which contravened any applicable legislation.
138
representations
18. All bank accounts, i.e. current, deposit and investment accounts, have been disclosed
and their balances appropriately disclosed as cash and cash equivalents.
19. The annual report and financial statements contain all information and disclosures as
required by the [PFMA, MFMA, DoRA and any other applicable legislation].
Controls to prevent and detect fraud
20. We acknowledge our responsibility for the design and implementation of programmes
and controls to prevent and detect fraud.
21. We have disclosed to you all the information in relation to fraud, suspected fraud or
allegations of fraud which we are aware of or which has been communicated by
employees, former employees, regulators and others, and which affects the entity and
involves:
• management
• those charged with governance
• employees who have significant roles in internal control
• others
where fraud could have a material effect on the financial statements.
22. We have disclosed to you the results of our assessment of the risk that the financial
statements may be materially misstated as a result of fraud.
General
23. All minutes of meetings of executive management, the accounting authority, the council,
audit committees and any other subcommittees of those charged with governance held to
date have been made available to you for inspection, including summaries of recent
meetings for which minutes have not yet been prepared or approved.
24. Personnel expenditure represents payments in respect of services that have been
rendered to the [entity type] by employees.
25. We acknowledge our responsibility to conduct a risk assessment to identify risks and
develop a risk strategy that should be communicated to all employees.
26. No new information systems were introduced during the year which could adversely
impact on the completeness and accuracy of the information systems and underlying
data.
Performance information
27. We acknowledge our responsibility to report performance information that fairly reflects
the achievement of the [entity type] and the [group] against the predetermined objectives.
28. Performance objectives, indicators and targets, as disclosed in the annual report, were
determined on a basis consistent with the prior year and were formally approved prior to
the beginning of this financial period.
29. There is a performance measurement system in place that provides reliable performance
information and enables us to effectively monitor our performance during the year as well
as to report against the predetermined objectives in the annual report.
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representations
Going concern
30. We confirm that, to the best of our knowledge and belief, the [entity type] and [group]
have adequate resources to continue operations at their current level for the foreseeable
future. For this reason we continue to adopt the going concern assumption in preparing
the financial statements for the year ended [31 March/30 June]. We reached this
conclusion after making enquiries and taking into account circumstances which we
consider likely to affect the [name of entity] and [group] during the period for one year
from [date of signing of financial statements], and circumstances which we know will
occur after that date which could affect the validity of the going concern assumption
[insert details of key considerations e.g. operating and cash flow forecasts, forecast
borrowing requirements, commitments and contingencies].
31. We believe that the financial statements adequately disclose the circumstances and any
uncertainties surrounding the adoption of the going concern assumption by the [name of
entity] and the [group].
Subsequent events
32. All events subsequent to the date of the financial statements for which the applicable
financial reporting framework requires adjustment or disclosure have been adjusted or
disclosed.
These representations are made at your request and to supplement information obtained by
you from the records of the [name of entity] and the [group] and to confirm information given
to you orally or in writing during the audit.
Yours faithfully
________________
Accounting officer/ Duly delegated member of the accounting authority
________________
Chief financial officer (CFO)
________________
Chief executive officer (CEO)
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representations
Annexure B
Uncorrected misstatements
This misstatements for the year ended [31 March /30 June 200x] detailed below have not
been corrected for the reasons as indicated.
We believe that the effects of those uncorrected financial statement misstatements, including
omissions of disclosures are immaterial, both individually and in aggregate, to the financial
statements taken as a whole, and consequently we decided not to amend the financial
statements submitted on for audit [31 May/31 August] in respect of these misstatements.
No. Name of the account Amount of the Amount of the Reason for not
balance/class of misstatement misstatement correcting the
transactions/details of the misstatement
(DR) (CR)
omitted disclosure note and
the contra entry R R
1. E.g. Revenue 50 000
Accounts receivable 50 000
2.
3.
4.
5.
.
TOTAL
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142
CHAPTER 6:
INTERNAL CONTROLS
AND ROOT CAUSES
143
Chapter 6: Internal controls
and root causes
CHAPTER 6: INTERNAL CONTROLS AND ROOT CAUSES

CHECKLIST FOR IDENTIFYING ROOT CAUSES FOR PURPOSES OF THE AUDIT AND
MANAGEMENT REPORTS
Purpose
1. The AGSA identifies and reports on the root causes of the matters included in the basis
for qualified/adverse/disclaimer of opinion sections in the auditor’s report and for all
findings included in the management report. The components of internal control, with the
elements of each that are to be used in this assessment, are described below. Each of
the five components should be considered in assessing the root causes of the audit
findings reported.
2. Controls that are relevant to an audit pertain to the entity’s objective of preparing financial
statements that are fairly presented in conformity with the applicable reporting framework.
The auditor should obtain an understanding of each of the five components of internal
control sufficient to plan the audit. A sufficient understanding is obtained by performing
procedures to understand the design of relevant controls. This knowledge is used to:
• identify types of potential misstatement
• consider factors that affect the risk of material misstatement
• design tests of control, when applicable
• design substantive procedures.
3. ISA 210 states that “internal control” encompasses a wide range of activities within
components that may be described as the control environment; the entity’s risk
assessment process; the information system, including the related business processes
relevant to financial reporting, and communication; control activities; and monitoring of
controls.
4. ISA 265 defines deficiencies in internal control as follows:
Deficiency in control exists when:
• a control is designed, implemented or operated in such a way that it is unable to
prevent, or detect and correct, misstatements in the financial statements on a
timely basis
• a control necessary to prevent, or detect and correct, misstatements in the
financial statements on a timely basis is missing.
A significant deficiency in internal control is a deficiency or combination of deficiencies in
internal control that, in the auditor’s professional judgement, is of sufficient importance to
merit the attention of those charged with governance.
5. ISA 315R; INTOSAI Implementation Guidelines on Compliance Audit, ISSAI 4100;
Internal Control over Financial Reporting, COSO – July 2006; ISSAI 1315 Guidelines for
Internal Control Standards for the Public Sector; further information on entity risk
management: INTOSAI GOV 9130 2007
CONTROL ENVIRONMENT
6. The control environment establishes the foundation for the internal control system by
providing fundamental discipline and structure. It sets the tone of the organisation,
144
and root causes
influencing the control consciousness of its people. The control environment has a
pervasive effect on control consciousness and effectiveness within the entity.
The key elements of a control environment are divided into hard controls and soft
controls as follows:
Hard controls are missing or inadequate
• Organisational structure – The entity's organisational structure does not address
areas of responsibility and establish lines of reporting in order to support effective
internal control over financial reporting.
• Assignment of authority and responsibility – Management and employees are not
assigned appropriate levels of authority and responsibility to ensure that they
understand how and for what they are accountable to facilitate effective internal
control over financial reporting.
• Human resources – Human resource policies and practices have not been designed
and are not implemented to facilitate effective recruitment, orientation, training,
evaluation, compensation, disciplining and supervising of personnel.
There are confirmed instances of breakdowns in soft controls
• Integrity and ethical values – Sound integrity and ethical values, particularly of top
management, have not been developed and are not understood in order to set the
standard of conduct for financial reporting.
• Participation by the accounting officer/authority – The accounting officer/authority
does not understand and exercise oversight responsibility related to financial
reporting and related internal control.
• Management’s philosophy and operating style (tone at the top) – Management’s
philosophy and operating style, such as leading by example, independence and
competence, do not support the achievement of effective internal control over
• Financial reporting competencies – The entity does not have individuals competent in
financial reporting and related oversight roles.
RISK ASSESSMENT
7. This involves the identification and analysis by management of relevant risks to achieve
predetermined objectives, forming a basis for determining how the risks should be
managed.
• Identification of objectives – Management has not specified the financial reporting
objectives with sufficient clarity and criteria to enable the identification of risks to
reliable financial reporting.
• Risk identification – The entity does not identify risks to the achievement of financial
reporting objectives.
• Risk evaluation – The entity does not analyse risks to the likelihood of occurrence,
impact and priority.
• Risk appetite and response – The entity has not determined how the risks identified
should be managed (risk strategy).
• Fraud risk – The potential for material misstatement due to fraud is not explicitly
considered in assessing risks to the achievement of financial reporting objectives.
CONTROL ACTIVITIES
8. Control activities comprise the policies, procedures and practices that ensure that
management objectives are achieved and risk mitigation strategies are carried out.
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and root causes
• Financial – Written procedures, authorisations, record keeping, management reviews

and asset safeguards are not segregated to prevent fraudulent financial data and
asset misappropriation.
• Information systems – General, hardware and application controls have not been
designed to ensure the reliability of the operating system, the accuracy of the data
outputs, and the protection of equipment and files.
• Operational – Directive, preventive and detective controls are not adequate and
focused on achieving efficient resource usage and effectiveness, as measured by the
extent to which specific control objectives are achieved.
• Integration with risk assessment – Actions are not taken to address risks to the
achievement of financial reporting objectives.
• Selection and development of control activities – Control activities are not selected
and developed with consideration of their cost and their potential effectiveness in
mitigating risks to the achievement of financial reporting objectives.
• Policies and procedures – Policies related to reliable financial reporting are not
established and communicated throughout the entity, and do not have corresponding
procedures that result in management directives being carried out.
• Performance measurement and reward – Realistic targets are not set for
performance measurement and this, in turn, is not linked to an effective performance
reward system.
INFORMATION AND COMMUNICATION

9. This aspect supports all other control components by communicating control
responsibilities to employees and by providing information in a form and time frame that
allow people to carry out their duties. It includes communication between management
and those charged with governance, regulatory authorities and suppliers. The information
system includes infrastructure, software, people, procedures and data. It can be both
manual and automated.
• Financial reporting information – Pertinent information is not identified, captured, used
at all levels of the company and distributed in a form and time frame that support the
achievement of financial reporting objectives.
• Internal control information – Information required to execute other control
components is not identified, captured and distributed in a form and time frame that
enable personnel to carry out their internal control responsibilities.
• Internal communication – Communications do not enable and support understanding
and execution of internal control objectives, processes and individual responsibilities
at all levels of the organisation (employees do not understand their control
responsibilities).
MONITORING
10. Monitoring covers the external oversight of internal controls by management or other
parties outside the process; or the application of independent methodologies, like
customised procedures or standard checklists, by employees within a process.
Monitoring is a process to assess the effectiveness of internal control performance over
time. It involves the assessment of the design and operation of controls on a timely basis,
as well as any necessary corrective actions, which are modified for changes in
conditions.
• Ongoing monitoring – Ongoing monitoring and supervision are not undertaken to
enable management to determine whether internal control over financial reporting is
present and functioning.
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and root causes
• Separate evaluations – Separate evaluations, such as the consideration of the risks

assessed, self-assessment processes, reviews by the internal audit function and an
effective audit committee, are not evident.
• Reporting deficiencies – Internal control deficiencies are not identified and
communicated in a timely manner to those parties responsible for taking corrective
action, and to management and the accounting officer/authority as appropriate.
147
148
CHAPTER 7: LAYOUT OF
AUDIT REPORT AND
MANAGEMENT REPORT
149
Chapter 7: Layout of audit
report and
management report
CHAPTER 7: LAYOUT OF AUDITOR’S REPORT AND MANAGEMENT REPORT

PART A: LAYOUT OF THE AUDITOR’S REPORT
[GROUP] FINANCIAL STATEMENTS AND PERFORMANCE INFORMATION OF [VOTE
NO. X:] [NAME OF ENTITY] FOR THE YEAR ENDED [31 MARCH 200X/30 JUNE 200X]
REPORT ON THE FINANCIAL STATEMENTS
Introduction
The [accounting officer/accounting authority]’s responsibility for the financial statements
Basis for [qualified/adverse/disclaimer of] opinion
[Use appropriate heading for class of transaction/account balance/disclosure]
Opinion/Qualified opinion/Disclaimer of opinion/Adverse opinion
Emphasis of matter(s)
[Basis of accounting/Amendments to the applicable basis of accounting (or both)]
Going concern
[Use appropriate heading for significant uncertainties other than going concern]
Highlighting critically important matters presented or disclosed in the financial
statements
[Unauthorised, irregular or fruitless and wasteful expenditure as well as material
losses through criminal conduct]
Material underspending of the budget
Restatement of corresponding figures
Revision of the previously issued financial statements
Other matter(s)
Material inconsistencies in information included in the [annual report/other
information]
Unaudited supplementary schedules
Internal control deficiencies
Non-compliance with applicable legislation
Matters of governance
Investigations
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
Report on performance information
The [accounting officer/accounting authority]’s responsibility for the performance
information
150
report and
management report

Non-compliance with regulatory requirements
Usefulness and reliability of reported performance information
[Inconsistently reported performance information]
[Reported performance information not relevant]
[Reported performance information not reliable]
[Performance information not received in time]
Other reports
Performance audits
Special audits
APPRECIATION
151
report and
management report
PART B: LAYOUT OF THE MANAGEMENT REPORT

PERFORMANCE INFORMATION OF THE [NAME OF ENTITY] [AND THE GROUP] FOR
THE [PERIOD/YEAR ENDED] [31 MARCH 200X/30 JUNE 200X/INTERIM AUDIT DATE]
INTRODUCTION
THE AUDITOR-GENERAL’S RESPONSIBILITIES
THE ACCOUNTING [OFFICER’S/AUTHORITY’S] RESPONSIBILITIES
SIGNIFICANT FINDINGS FROM OUR AUDIT OF THE FINANCIAL STATEMENTS
FINANCIAL MATTERS
Material misstatements not corrected at the date of this report (interim and final)
Misstatements corrected (interim and final)
Financial sustainability/Going concern (interim and final)
Qualitative aspects of accounting practices (interim and final)
Material losses/impairments (interim and final)
Unauthorised/fruitless and wasteful/irregular expenditure (interim and final)
Budgetary control (interim and final)
Accounting discipline (interim and final)
Financial indicators/ratios (interim and final)
Significant uncertainties (interim and final)
Financial reporting systems (interim and final)
Material inconsistencies in other information included in the annual report (final)
Revision of the previously issued financial statements (final)
Accounting reforms
GOVERNANCE MATTERS
Internal audit
Audit committee
Indicators of fraud risk (interim and final)
Prior observation and recommendations addressed (interim and final)
Unavailability of key personnel (interim and final)
Adequacy and competence of financial reporting personnel (interim and final)
Unavailability of expected information (interim and final)
Late submission of financial statements (interim and final)
Risk assessment (interim and final)
Related parties (interim and final)
Performance rewards (interim and final)
Non-compliance with applicable legislation (interim and final)
152
report and
management report
SCOPA resolutions (interim and final)

Matters of governance (final only)
Achievement of good practice indicators
(interim and final)
SIGNIFICANT FINDINGS FROM SPECIFIC FOCUS AREAS (interim and final)
STATEMENTS
Investigations (interim and final)
Performance audits (interim and final)
Special audits (final)
RATINGS OF DETAILED AUDIT FINDINGS
APPRECIATION
SUMMARY OF AUDIT FINDINGS
ANNEXURE A: MATTERS AFFECTING THE AUDITOR’S REPORT
ANNEXURE B: OTHER IMPORTANT MATTERS (apply same steps and guidance as
above)
ANNEXURE C: ADMINISTRATIVE MATTERS
153
154
CHAPTER 8:
AG DIRECTIVE
155
Chapter 8: AG directive
CHAPTER 8: AG DIRECTIVE
GENERAL NOTICE 616 OF 2008

PUBLIC AUDIT ACT, 2004
Act No. 25 of 2004
1. Under the powers vested in me by section 2 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, hereby determine the following:
REQUIREMENTS OF THE PUBLIC AUDIT ACT, 2004 (ACT NO. 25 OF 2004)
Audits of public entities listed in the Public Finance Management Act, 1999 (Act No. 1
of 1999) and any other institutions envisaged by section 4(3)(b) of the PAA
2. In terms of section 25(1)(a) of the PAA I opt not to perform the audits of any
institutions referred to in section 4(3) of the PAA, which are not already being audited
by me, for the 2008-09 and following financial years, unless advised otherwise prior
to the start of the auditee’s financial year.
3. An auditee may proceed to appoint its own auditors as stipulated by section 25(4) of
the PAA:
if not advised before the start of the financial year that I will perform the audit; and
if not already being audited by me.
4. In this connection the document: Consultation of the Auditor-General (AG) on the

appointment of an auditor attached hereto should be completed as indicated.
Submission of auditor’s report – section 21 of the PAA
5. Where an audit is undertaken in terms of the requirements of the PAA, and there is
no applicable legislation setting out the period within which the auditor’s report is to
be submitted to the relative legislature, the Auditor-General must, in terms of section
21(2) of the PAA, submit such auditor’s report to the relevant legislature within a
reasonable time. I have determined a period of up to a maximum of six months after
the financial year-end of the auditee, depending on the circumstances, to be a
reasonable time.
Duties of auditors in public practice – part 2 of chapter 3 of the PAA
6. Auditors in public practice appointed to audit institutions in terms of section 25(1)(b)

of the PAA should take cognisance of the content of this General Notice, as well as
the requirements contained in sections 25 to 27 of the PAA, dealing with the following
matters:
Appointment of auditors (section 25)
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Discharge of auditors (section 26)

Duties and powers of auditors (section 27)
when conducting audits in the public sector.
7. In terms of the requirements of section 28 of the PAA, the appointed auditor must:
i. in respect of subsections (1)(a), (b) and (c) comply with the matters as stipulated
in paragraphs 10 to 18 of this gazette.
ii. in respect of subsection (3)(c) furnish me with:
three copies of the auditor’s report, together with a copy of the audited
financial statements, within five months after the financial year-end; and
three copies of the annual report, within six months after the financial year-
end.
This information must be furnished to the AG’s Audit Research and Development unit
and must be furnished both in hard copy and on CD.
A. AUDIT FUNCTIONS PERFORMED IN TERMS OF THE PUBLIC AUDIT ACT, 2004

(ACT NO. 25 OF 2004)
8. The Professional Standards Committee (PSC) of the International Organization of

Supreme Audit Institutions (INTOSAI) is in the process of developing a collection of
professional standards and best practice guidelines for public sector auditors to be
known as the International Standards of Supreme Audit Institutions (ISSAIs). The
ISSAIs will state the basic prerequisites for the proper functioning and professional
conduct of Supreme Audit Institutions and the fundamental principles of auditing in
the public sector. When fully developed it is intended that the ISSAIs will incorporate
the International Standards on Quality Control (ISQCs) and International Standards
on Auditing (ISAs) issued by the International Auditing and Assurance Standards
Board (IAASB) of the International Federation of Accountants (IFAC). As soon as the
ISSAIs represent a complete auditing framework, I will consider adopting these for
application in all regularity audits conducted by me.
Regularity audits
9. A regularity audit consists of three broad components – (i) an opinion on the financial
statements, which includes (ii) an assessment of compliance with key applicable
legislation and (iii) a conclusion on performance information. In the absence of a full
suite of ISSAIs, the standards as set out in paragraphs 10 to 17 will be applied by me
in fulfilling my constitutional mandate.
Opinion on the financial statements
10. In terms of section 13(1)(a) of the PAA I have adopted the entire suite of auditing
pronouncements issued by the International Auditing and Assurance Standards
Board (IAASB) of the International Federation of Accountants (IFAC) for application in
all regularity audits conducted by me. In applying these standards I will take
cognisance of the principles and guidance contained in the ISSAIs to ensure that a
public sector perspective is incorporated in the execution of my audits.
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Compliance with any applicable legislation relating to financial matters,

financial management and other related matters – section 20(2)(b) of the PAA
11. In terms of section 20(2)(b) of the PAA an auditor’s report must reflect an opinion or
conclusion on the auditee's compliance with any applicable legislation relating to
financial matters, financial management and other related matters.
12. I have determined that, until further information is published in this respect, no
separate opinion or conclusion as envisaged above should be included in the
auditor’s report. Conclusions in this regard will be reached as part of the financial
auditing process in terms of the International Standard on Auditing (ISA) 250:
Consideration of Laws and Regulations in an Audit of Financial Statements.
13. Reporting on compliance with applicable legislation (not directly impacting on the
opinion on the financial statements), as envisaged in:
the Public Sector Perspective of ISA 250;
Study 3: Auditing for Compliance with Authorities—A Public Sector Perspective,
issued by IFAC's International Public Sector Accounting Standards Board
(IPSASB); and
paragraph 45 of ISA 700: The Independent Auditor’s Report on a Complete Set of
General Purpose Financial Statements,
will be included under Other matters in the auditor’s report.
Auditing of performance information – sections 20(2)(c) and 28(1)(c) of the PAA
14. In terms of section 13 of the PAA I have adopted a phasing-in approach to

compliance with sections 20 and 28 of the PAA until such time as the environment
shows a state of readiness to provide reasonable assurance in the form of an audit
opinion or conclusion.
15. The phasing-in approach to the auditing of performance information constitutes a

review of the policies, systems, processes and procedures for the managing of and
reporting on performance against predetermined objectives. Details regarding the
audit programmes may be obtained from the AG’s Audit Research and Development
unit on request.
16. The performance information should be submitted for auditing together with the
annual financial statements within two months after the end of the financial year.
17. I have determined that, until further information is published in this respect, no
separate opinion on performance against predetermined objectives should be
included in the auditor’s report. Reporting in this regard will form part of the regularity
auditing process. Reporting will be in relation to material shortcomings in the process,
systems and procedures of reporting against predetermined objectives which may
come to the attention of the auditor during the audit and which may impact on the
public interest. This reporting will be contained in the Other reporting responsibilities
section of the auditor’s report.
Evaluation of public finance management
18. The success of transformation in public sector financial management is evaluated as

part of the outcomes of the annual regularity audit process. Accordingly my auditor’s
report format reflects views on:
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the financial information (through the audit opinion on the financial statements
and, where applicable, the related qualifications);
performance information (based on the audit findings on the performance
information);
internal control issues (reflected in the root cause analysis under Other matters);
and
any other pertinent matters related to governance practices (also reflected under
Other matters)
Details on the assessment of and reporting on financial management are

incorporated in the AG’s Reporting guide, extracts of which are available at
www.agsa.co.za.
Other legislative functions
19. In terms of the PAA the AG also fulfils other responsibilities such as performance
audits, investigations and special audits. The standards that guide these processes
are determined in paragraphs 20 to 23 below.
Performance audits – section 20(3) of the PAA
20. In terms of section 13(1)(a) of the PAA I have adopted the ISSAIs with specific
reference to the ISSAI 3000 series issued by INTOSAI’s Professional Standards
Committee (PSC) for application in all performance audits conducted in the public
sector.
Investigations – section 5(1)(d) of the PAA
21. In terms of section 13(1)(a) of the PAA I have developed and adopted interim
policies, standards and guidelines for application in all investigations conducted by
me.
Special audits – section 5(1)(d) of the PAA
22. In terms of section 13(1)(a) of the PAA I have adopted the entire suite of auditing
pronouncements issued by IFAC’s International Auditing and Assurance Standards
Board (IAASB) for application in all special audits conducted by me. In applying these
standards I will take cognisance of the principles and guidance contained in the
ISSAIs to ensure that a public sector perspective is incorporated in the execution of
my special audits.
23. Special audits in the context of the PAA are equated to special purpose audits in
terms of the International Standards on Auditing and consequently my report on such
will be issued in accordance with ISA 800: The Independent Auditor’s Report on
Special Purpose Audit Engagements.
B. ASSESSMENT AND RECOGNITION OF THE BASES OF ACCOUNTING

IMPLEMENTED BY THE NATIONAL TREASURY
24. The objective of an audit of financial statements is to enable the auditor to express an
opinion on whether the financial statements have been prepared, in all material
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respects, in accordance with an identified basis of accounting. The following three

types of bases of accounting may be applicable:
Financial reporting frameworks
25. A financial reporting framework is a basis of accounting that has been established by
authorised or recognised standard-setting bodies, and is designed to achieve fair
presentation.
26. I recognise the following as financial reporting frameworks:

South African Statements of Generally Accepted Accounting Practice (SA
Statements of GAAP), as codified by the Accounting Practices Board (APB) and
issued by the South African Institute of Chartered Accountants (SAICA); and
International Financial Reporting Standards (IFRSs), issued by the International
Accounting Standards Board (IASB).
27. Statements of Generally Recognised Accounting Practice (GRAP) are still in the
process of development. While still in the development and/or implementation stage,
these statements will be dealt with in terms of paragraphs 29 to 31 below.
28. My auditor’s report on auditees who have applied either of the above two financial
reporting frameworks in the preparation of their financial statements will be issued in
accordance with:
ISA 700: The Independent Auditor’s Report on a Complete Set of General
Purpose Financial Statements; and
ISA 701: Modifications to the Independent Auditor’s Report.
Comprehensive basis of accounting
29. A comprehensive basis of accounting comprises a set of criteria used in preparing

financial statements which applies to all material items and which has substantial
support. A comprehensive basis of accounting applies to a class of entities. It is a
basis of accounting determined by a body other than:
the preparers of the financial statements; or
an authorised/recognised standard-setting body,
and may be codified in legislation or guidance notes, issued by a regulator or
professional body.
30. I recognise the various sets of criteria prescribed by the National Treasury for use by
different classes of entities in the preparation of their financial statements as
comprehensive bases of accounting.
31. My audit report on auditees who have applied a comprehensive basis of accounting,
prescribed by the National Treasury, in the preparation of their financial statements
will be issued in accordance with:
ISA 800: The Audit Report on Special Purpose Audit Engagements; and
ISA 701: Modifications to the Independent Auditor’s Report.
Entity-specific basis of accounting
32. An entity-specific basis of accounting comprises a set of criteria used in preparing

financial statements which applies to all material items and which has been designed
specifically for the preparation of the financial statements of an individual entity.
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33. An exemption/departure/deviation from a financial reporting framework or a

comprehensive basis of accounting, whether granted by the National Treasury or
adopted by the auditee itself, or a conglomeration of accounting conventions to suit
an individual auditee, results in an entity-specific basis of accounting.
34. In such instances I will not express my audit opinion in accordance with ISA 700, ISA
701 or ISA 800, but will express a “prepared in accordance with …” audit opinion
in terms of:
the International Framework for Assurance Engagements; read together with
South African Audit Practice Statements 2: Financial Reporting Frameworks and
Audit Opinions.
C. REPEAL OF PRIOR GOVERNMENT GAZETTES
35. General Notices 645, 646, 647 and 648 of 2007, issued in Government Gazette No.
29919 of 25 May 2007, are hereby withdrawn and replaced by the requirements as
set out in this General Notice.
36. This General Notice is effective for financial periods beginning on or after 1 April 2007
and will apply until further notice; a similar General Notice will not necessarily be
issued annually.
D. ENQUIRIES
37. Any enquiry related to this notice should be addressed to the following office:
Business Executive: Audit Research and Development

The Auditor-General
Tel: (012) 422 9823
Fax (012) 422 9822
Email: janvs@agsa.co.za
38. Documentation related to this directive will be available on the AG website.
Signed and approved:
T M Nombembe
Auditor-General
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ANNEXURE TO THE DIRECTIVE
CONSULTATION OF THE AUDITOR-GENERAL ON THE APPOINTMENT OR

DISCHARGE OF AN AUDITOR IN TERMS OF SECTIONS 25 AND 26 OF THE PUBLIC
AUDIT ACT, NO. 25 OF 2004
INSTRUCTIONS
1. This checklist should be completed and submitted with supporting documentation to the
Auditor-General’s Audit Research and Development unit.
2. The checklist should be accompanied by a copy of your policy on the appointment of
auditors and the allocation of non-audit services to auditors.
INFORMATION REQUIRED
3. Particulars of entity
Name
Postal address
Physical address
Fax number
Telephone number
Email address of CFO
Accounting authority chairperson
Name
Contact details
Responsible minister (executive authority)
Name
Contact details
Responsible department
Contact person at department
Financial year in question
DISCHARGE OF AUDITOR
4. Particulars of the audit firm discharged
Name(s) of audit firm(s) Number of years engaged to date
5. Provide the notice to the auditor giving the reasons for the impending discharge
6. Provide written concurrence by the executive authority for the planned discharge
7. Costs of audit and non-audit services provided by the auditors during their term of office
(last three years)
Financial year
Audit fees
Fees for other services
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Total fees
Non-audit fees as a percentage of total fees
Nature of services performed
APPOINTMENT OF NEW AUDITORS

8. Particulars of audit firms short-listed for appointment
Name(s) of audit firm(s) Estimated Estimated fee for
audit fee other services
Firm 1
Firm 2
Nature of other services to be performed:
9. Audit firm proposed and anticipated date of appointment

Name
Date
10. Details of any prior involvement with the entity, including the costs
11. Indicate how the performance of auditors will be evaluated
12. Indicate any matter that may influence a decision regarding the independence or
objectivity or perceived independence of any of the auditors
REAPPOINTMENT OF AUDITORS
13. Details of firm to be reappointed
Name
Financial years previously appointed
14. Provide details of the audit committee's assessment of the effectiveness and efficiency of
the performance of the external auditors
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15. Provide details of significant disagreements between the external auditors and the
accounting authority during the preceding financial year, if any
16. Indicate any matter that may influence a decision regarding the independence or
objectivity or perceived independence of the auditors
17. Indicate name of partner in charge of audit for the last five years
18. Indicate name of audit manager in charge of audit for the last five years
Completed by
(signature)
Designation
Date
INFORMATION:
S25 (2) Must give notice of the suggested appointment, including information on the extent to which the auditor would
provide other services than audit services during the duration of the appointment and any other information
required by the AG.
(3) If the AG, within 14 days of receiving notice in terms of subsection 2 or such longer period as agreed to,
rejects the auditee’s appointment, the auditee must, in terms of that subsection, recommence the process to
appoint another person as its auditor.
(4) Appointment may only be for one year.
S26 (1) Discharge before expiry of term – only with consent of the AG and the relevant executive authority if
applicable.
(2)(a) Give the auditor notice in writing setting out the reasons.
(2)(b) Give the auditor opportunity to make written representation to the AG within 20 days of receipt of the notice.
(3) The AG must report any discharge of the auditor to the relevant legislature.
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CHAPTER 9:
GLOSSARY OF AUDIT
TERMS
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Chapter 9: Glossary of
audit terms
CHAPTER 9: GLOSSARY OF AUDIT TERMS
A
Accuracy (Ac) assertion – Amounts and other data relating to recorded transactions and
events have been recorded appropriately (as well as disclosed fairly).
Adverse opinion – An adverse opinion is expressed when the effect of a disagreement with
management regarding departures from the financial reporting framework is so material and
pervasive to the financial statements that the auditor concludes that a qualification of the
report is not adequate to disclose the misleading or incomplete nature of the financial
statements.
Analytical procedures – Evaluations of financial information made by a study of plausible
relationships among both financial and non-financial data. Analytical procedures also
encompass the investigation of identified fluctuations and relationships that are inconsistent
with other relevant information or deviate significantly from predicted amounts.
Appropriateness – The measure of the quality of evidence, that is, its relevance and reliability
in providing support for, or detecting misstatements in, the classes of transactions, account
balances, and disclosures and related assertions.
Assertions – Underlying representations, explicit and implicit, made by management that the
financial statements have been prepared to give a true and fair view of the entity’s financial
affairs in accordance with the applicable financial reporting framework and that the various
elements of the financial statements and related disclosures are appropriately recognised,
measured, presented and disclosed.
Assertions can be grouped as follows:
Classes of Account balances Financial statement presentation
transactions/events and disclosure
Occurrence Existence Occurrence, rights and obligations
Completeness Completeness Completeness
Accuracy Rights and obligations Classification and understandability
Cut-off Valuation and allocation Valuation and accuracy
Classification Compliance Value-for-money
Value-for-money
Audit evidence – All of the information used by the auditor in arriving at the conclusions on
which the audit opinion is based. Audit evidence includes the information contained in the
accounting records underlying the financial statements and other information.
Audit matters of governance interest – Those matters that arise from the audit of financial
statements and, in the opinion of the auditor, are both important and relevant to those
charged with governance in overseeing the financial reporting and disclosure process. Audit
matters of governance interest include only those matters that have come to the attention of
the auditor as a result of the performance of the audit.
Audit of financial statements – The objective of an audit of financial statements is to enable
the auditor to express an opinion on whether the financial statements are prepared, in all
material respects, in accordance with an applicable financial reporting framework.
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audit terms
C
Classification (CI) assertion – Transactions and events have been recorded in the proper
accounts.
Comparatives – Comparatives in financial statements may present amounts (such as
financial position, results of operations, cash flows) and appropriate disclosures of an entity
for more than one period, depending on the framework. The frameworks and methods of
presentation are as follows:
(a) Corresponding figures where amounts and other disclosures for the preceding period are
included as part of the current period financial statements, and are intended to be read in
relation to the amounts and other disclosures relating to the current period (referred to as
“current period figures”). These corresponding figures are not presented as complete
financial statements capable of standing alone, but are an integral part of the current
period financial statements intended to be read only in relationship to the current period
figures.
(b) Comparative financial statements where amounts and other disclosures for the preceding
period are included for comparison with the financial statements of the current period, but
do not form part of the current period financial statements.
Completeness (Co) assertion – All transactions, events, assets, liabilities and equity interests
that should have been recorded, have been recorded.
Compliance (Cm) assertion – All activities, financial transactions and disclosed information
are in accordance with the relevant laws, legislation, regulations and agreements.
Comprehensive basis of accounting – A comprehensive basis of accounting comprises a set
of criteria used in preparing financial statements that applies to all material items and that
has substantial support.
Computer assisted audit techniques – The application of audit procedures using the
computer as an audit tool (also known as CAATs).
Cut-off (Cu) assertion – Transactions and events have been recorded in the correct
accounting period.
D
Disclaimer of opinion – A disclaimer of opinion is expressed when the possible effect of a
limitation of scope is so material and pervasive that the auditor has not been able to obtain
sufficient appropriate audit evidence to form an opinion and accordingly is unable to express
an opinion on the financial statements.
Disclosure (Di), classification and understandability assertion – Financial information is
appropriately presented and described, and disclosures are clearly expressed.
Documentation – The material (working papers) prepared by and for, or obtained and
retained by, the auditor in connection with the performance of the audit. Working papers may
be in the form of data stored on paper, film, electronic media or other media.
E
Emphasis of matter(s) paragraph(s) – An auditor’s report may be modified by adding (an)
emphasis of matter(s) paragraph(s) to highlight (a) matter(s) affecting the financial
statements which is/are included in a note to the financial statements that more extensively
discusses the matter. The addition of such (an) emphasis of matter(s) paragraph(s) does not
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audit terms
affect the auditor’s opinion on whether the financial statements are fairly presented. The
auditor may also modify the auditor’s report by using (an) emphasis of matter(s) paragraph(s)
to report matters other than those affecting the financial statements, such as the material
inconsistency of other information included in the annual report.
Engagement letter – An engagement letter documents and confirms the auditor’s acceptance
of the appointment, the objective and scope of the audit, the extent of the auditor’s
responsibilities to the client, and the form of any reports.
Error – An unintentional misstatement in financial statements, including the omission of an
amount or a disclosure.
Existence (Ex) assertion – Assets, liabilities and equity interests exist and are not fictitious.
F
Fraud – An intentional act by one or more individuals among management, those charged
with governance, employees or third parties, involving the use of deception to obtain an
unjust or illegal advantage. Two types of intentional misstatement are relevant to the auditor:
misstatements resulting from fraudulent financial reporting and misstatements resulting from
the misappropriation of assets.
Fraudulent financial reporting – Involves intentional misstatements, including omissions of
amounts or disclosures in the financial statements, to deceive the users of the financial
statements.
G
Going concern assumption – Under this assumption, an entity is ordinarily viewed as
continuing in business for the foreseeable future with neither the intention nor the necessity
of liquidation, ceasing trading or seeking protection from creditors pursuant to laws or
regulations. Accordingly, assets and liabilities are recorded on the basis that the entity will be
able to realise its assets and discharge its liabilities in the normal course of business.
Governance – Describes the role of persons entrusted with the supervision, control and
direction of an entity. Those charged with governance ordinarily are accountable for ensuring
that the entity achieves its objectives, financial reporting, and reporting to interested parties.
Those charged with governance include management only when they perform such
functions.
L
Limitation of scope – A limitation on the scope of the auditor’s work may sometimes be
imposed by the entity (for example, when the terms of the engagement specify that the
auditor will not carry out an audit procedure that the auditor believes is necessary). A scope
limitation may be imposed by circumstances (for example, when the timing of the auditor’s
appointment is such that the auditor is unable to observe the counting of physical
inventories). It may also arise when, in the opinion of the auditor, the entity’s accounting
records are inadequate or when the auditor is unable to carry out an audit procedure
believed desirable.
M
Management fraud – Fraud involving one or more members of management or those
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audit terms
Management representations – Representations made by management to the auditor during

the course of an audit, either unsolicited or in response to specific enquiries.
Material inconsistency – Exists when other information contradicts information contained in
the audited financial statements. A material inconsistency may raise doubt about the audit
conclusions drawn from audit evidence previously obtained and, possibly, about the basis for
the auditor’s opinion on the financial statements.
Material misstatement of fact – Exists in other information when such information, not related
to matters appearing in the audited financial statements, is incorrectly stated or presented.
Materiality – Information is material if its omission or misstatement could influence the
economic decisions of users taken on the basis of the financial statements. Materiality
depends on the size of the item or error judged in the particular circumstances of its omission
or misstatement. Thus, materiality provides a threshold or cut-off point.
Misstatement – A misstatement of the financial statements that can arise from fraud or error
(also see Fraud and Error).
Modified auditor’s report – An auditor’s report is considered to be modified if either (an)
emphasis of matter(s) paragraph(s) is/are added to the report or if the opinion is other than
unqualified.
N
Non-compliance – Refers to acts of omission or commission by the entity being audited,
either intentional or unintentional, that are contrary to the prevailing laws or regulations.
O
Occurrence (Oc) assertion – Transactions and events that have been recorded (as well as
disclosed), have occurred and pertain to the entity.
Opinion – The auditor’s report contains a clear written expression of opinion on the financial
statements as a whole. An unqualified opinion is expressed when the auditor concludes that
the financial statements give a true and fair view (or are presented fairly, in all material
respects) in accordance with the applicable financial reporting framework (also see Modified
auditor’s report).
Other information/other matters – Financial or non-financial information (other than the
financial statements or the auditor’s report thereon) included – either by law or custom – in
the annual report.
Overall audit strategy – Sets the scope, timing and direction of the audit, and guides the
development of the more detailed audit plan.
P
Planning – Involves establishing the overall audit strategy for the engagement and the
development of an audit plan, in order to reduce audit risk to an acceptably low level.
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audit terms
Q
Qualified opinion – A qualified opinion is expressed when the auditor concludes that an
unqualified opinion cannot be expressed but that the effect of any disagreement with
management regarding departures from the financial reporting framework, or a limitation of
scope, is not so material and pervasive as to require an adverse opinion or a disclaimer of
opinion.
R
Rights and obligations (R&O) assertion – The entity holds or controls the rights to assets,
and liabilities are the obligations of the entity.
S
Significance – The relative importance of a matter, taken in context. The significance of a
matter is judged by the auditor in the context in which it is being considered. This might
include, for example, the reasonable prospect of it changing or influencing the decisions of
intended users of the auditor’s report; or, as another example, where the context is a
judgement about whether to report a matter to those charged with governance, whether the
matter would be regarded as important by them in relation to their duties. Significance can be
considered in the context of quantitative and qualitative factors, such as relative magnitude,
the nature and effect on the subject matter, and the expressed interests of intended users or
recipients.
Significant deficiency in internal control – A deficiency or combination of deficiencies in
internal control that, in the auditor’s professional judgement, is of sufficient importance to
merit the attention of those charged with governance.
Significant risk – A risk that requires special audit consideration.
Subsequent events – There are two types of events occurring after period-end:
(a) Those that provide further evidence of conditions that existed at period-end.
(b) Those that are indicative of conditions that arose subsequent to period-end.
These conditions can be either favourable or unfavourable.
Substantive procedures – Audit procedures performed to detect material misstatements at
the assertion level, including:
(a) Tests of details of classes of transactions, account balances and disclosures.
(b) Substantive analytical procedures.
Sufficiency – Sufficiency is the measure of the quantity of audit evidence. The quantity of the
audit evidence needed is affected by the risk of misstatement and also by the quality of such
audit evidence.
T
Tests of control – Audit procedures performed to obtain audit evidence about the operating
effectiveness of controls in preventing, or detecting and correcting, material misstatements at
the assertion level.
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audit terms
U
Uncertainty – A matter of which the outcome depends on future actions or events not under
the direct control of the entity but that may affect the financial statements.
Understanding of the entity and its environment – The auditor’s understanding of the entity
and its environment consists of the following aspects:
(a) Industry, regulatory and other external factors, including the applicable financial reporting
framework.
(b) Nature of the entity, including the entity’s selection and application of accounting policies.
(c) Objectives and strategies and the related business risk that may result in a material
misstatement of the financial statements.
(d) Measurement and review of the entity’s financial performance.
(e) Internal control.
V
Valuation and allocation (Va) assertion – Assets, liabilities and equity interests are included
in the financial statements at appropriate amounts and any resulting valuation or allocation
adjustments are appropriately recorded.
Value-for-money (VM) assertion – A transaction, event, programme, project, part of project,
process, etc. promotes the economical acquisition and the efficient and effective use of
resources.
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CHAPTER 10:
ABBREVIATIONS
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Chapter 10: Abbreviations
CHAPTER 10: ABBREVIATIONS
AG: Auditor-General
AGSA: Auditor-General of South Africa
ARD: Audit Research and Development
ASB: Accounting Standards Board
BU: business unit
CEO: chief executive officer
CFO: chief financial officer
DG: director-general
DoRA: Division of Revenue Act, 2007 (Act No. 2 of 2008
ED: Exposure Draft
Exco: executive committee
GAAP: Generally Accepted Accounting Practice
GAMAP: Generally Accepted Municipal Accounting Practice
GRAP: Generally Recognised Accounting Practice
HoD: head of department
IAS: International Accounting Standards
IASB: International Accounting Standards Board
IDP: integrated development plan
IFAC: International Federation of Accountants
IFRS: International Financial Reporting Standards
IMFO: Institute of Municipal Finance Officers
IRBA: Independent Regulatory Board for Auditors
ISA: Information Systems Auditing
ISAs: International Standards on Auditing
MFMA: Local Government: Municipal Finance Management Act, 2003 (Act No. 56 of
2003)
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Chapter 10: Abbreviations
MSA: Local Government: Municipal Systems Act, 2000 (Act No. 32 of 2000)
PAA: Public Audit Act, 2004 (Act No. 25 of 2004)
PAM: Public audit manual
PFMA: Public Finance Management Act, 1999 (Act No. 1 of 1999)
RSM: Reputation and Stakeholder Management
SAAPS: South African Auditing Practice Statements
SAI: supreme audit institution
SAICA: South African Institute of Chartered Accountants
SAS: Specialised Audit Services
175
176
CHAPTER 11:
BIBLIOGRAPHY
177
Chapter 11: Bibliography
CHAPTER 11: BIBLIOGRAPHY
PART A: International Standards on Auditing (ISAs)

1. ISA 200 Overall Objective of the Independent Auditor, and the Conduct of an Audit in
Accordance with International Standards on Auditing
2. ISA 210 Agreeing the Terms of Audit Engagements
3. ISA 220 Quality Control for an Audit of Financial Statements
4. ISA 250 The Auditor's Responsibilities Relating to Laws and Regulations in an Audit of
Financial Statements
5. ISA 265 Communicating Deficiencies in Internal Control
6. ISA 320 Materiality in Planning and Performing an Audit
7. ISA 402 Audit Considerations Relating to an Entity Using a Third Party Service
Organization
8. ISA 450 Evaluation of Misstatements Identified during the Audit
9. ISA 500 Considering the Relevance and Reliability of Audit Evidence
10. ISA 501 Audit Evidence Regarding Specific Financial Statement Account Balances and
Disclosures
11. ISA 505 External Confirmations
12. ISA 510 Initial Audit Engagements – Opening Balances
13. ISA 520 Analytical Procedures
14. ISA 530 Audit Sampling
15. ISA 550 Related Parties
16. ISA 560 Subsequent Events
17. ISA 570 Going Concern
18. ISA 580 Written Representations
19. ISA 610 The Auditor's Consideration of the Internal Audit Function
20. ISA 620 Using the Work of an Auditor's Expert
21. ISA 700 The Independent Auditor's Report on General Purpose Financial Statements
22. ISA 705 Modifications to the Opinion in the Independent Auditor's Report
23. ISA 706 Emphasis of Matter Paragraphs and Other Matter(s) Paragraphs in the
Independent Auditor's Report
24. ISA 710 Comparative Information – Corresponding Figures and Comparative Financial
Statements
25. ISA 800 Special Considerations – Audits of Special Purpose Financial Statements and
Specific Elements, Accounts or Items of a Financial Statement
26. ISA 805 Engagements to Report on Summary Financial Statements
PART B: South African Auditing Practice Statements (SAAPS)

1. SAAPS 1 Quality Control
2. SAAPS 2 Financial Reporting Frameworks and Audit Opinions
3. SAAPS 3 Illustrative Auditor's Report
4. SAAPS 4 Enquiry Regarding Litigation and Claims
5. SAAPS 1100 Bank Confirmations
PART C: Legislation
1. Companies Act, 1973 (Act No. 61 of 1973)
2. Constitution of the Republic of South Africa, 1996
3. Division of Revenue Act, 2007 (Act No. 2 of 2008)
4. Local Government: Municipal Finance Management Act, 2003 (Act No. 56 of 2003)
5. Public Audit Act, 2004 (Act No. 25 of 2004)
6. Public Finance Management Act, 1999 (Act No. 1 of 1999)
178
Chapter 11: Bibliography
PART D: Other reference sources

1. The Principles and Practices of Auditing, G Puttick, S van Esch & S Khana
2. INTOSAI Implementation Guidelines on Compliance Audit, ISSAI 4100
3. Internal Control over Financial Reporting, COSO – July 2006
4. Mexico Declaration of Independence, ISSAI 10
5. INTOSAI Auditing Standards, ISSAI 1220, ISSAI 1230, ISSAI 1260, ISSAI 1300,
ISSAI 1315, ISSAI 1320, ISSAI 1330, ISSAI 1450, ISSAI 1800, ISSAI 1805
6. New Zealand Audit Office, Auditor-General’s Auditing Standards
7. Internal Auditor Journals
179

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REPORTING

CHAPTER 1: AUDITOR’S REPORT 12

CHAPTER 1: AUDITOR’S REPORT

REPORT OF THE AUDITOR-GENERAL TO [THE APPROPRIATE ADDRESSEE] ON THE

REPORT ON THE FINANCIAL STATEMENTS

The [accounting officer/accounting authority]’s responsibility for the financial

The Auditor-General’s responsibility

Basis for [qualified/adverse/disclaimer of] opinion

[Basis for qualified opinion]

[Basis of accounting [/] [and] A/amendments to the applicable basis of accounting]

The [type of entity’s] policy is to prepare financial statements on the basis of

Example report paragraph(s)

3. If adequate disclosure is made in the financial statements, an unmodified opinion is

Example report paragraph(s)

• An uncertainty relating to the future outcome of exceptional litigation or regulatory

Example report paragraph(s)

[Unauthorised, irregular or fruitless and wasteful expenditure as well as material

Example report paragraph(s)

Material underspending of the budget

Example report paragraph(s)

Restatement of corresponding figures

Example report paragraph(s)

Revision of the previously issued financial statements

the auditor’s report.

Example report paragraph(s)

[Material inconsistencies in] [other] information included in the [annual report/other

Example report paragraph(s)

Unaudited supplementary schedules

Example report paragraph(s)

Non-compliance with applicable legislation

• PFMA and Treasury Regulations

Example report paragraph(s)

22. [Section 38(1)(a)(i) of the PFMA/Section 51(1)(a)(i) of the PFMA/Section 62(1)(c)(i) of

Par. no. Basis for [qualified/adverse/disclaimer of] opinion CE RA CA IC M

23. [Include detailed information]

Key governance responsibilities

Clear trail of supporting documentation that is easily available and provided in a

Quality of financial statements and related management information

Timeliness of financial statements and management information

Availability of key officials during audit

No. Matter Y N Guidance

• The audit committee operates in

Follow-up of audit findings

No. Matter Y N Guidance

Issues relating to the reporting of performance information

25. [Include detailed information]

Example report paragraph(s)

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

Report on performance information

The [accounting officer/accounting authority]’s responsibility for the performance

The Auditor-General’s responsibility

Audit findings (performance information)

Non-compliance with regulatory requirements

No strategic/corporate/annual performance plan3

Submission of strategic/corporate/annual performance plan

Content of strategic/corporate/annual performance plan

Lack of reporting on all predetermined objectives in annual report

performance plan that were not reported on.)

No or inadequate quarterly reporting on performance information

No integrated development plan or service delivery/other agreement

• submit an auditor’s report to the [name of council] regarding the performance

to performance management, if relevant and applicable to the auditee.)