REPORT WRITING & INDEPENDENT REVIEW - SAIPA · PDF fileETHICAL REQUIREMENTS REPORT WRITING -...

REPORT WRITING &

INDEPENDENT REVIEW

PRESENTED BY FAITH NGWENYA

TECHNICAL & STANDARDS SERVICES EXECUTIVE

REPORT WRITING - CPD 2017

1

Professional Accountant


2

QUALITY CONTROL ISQC 1


3

Leadership

responsibilities

Ethical

requirements Acceptance and

continuance

Human

Resources .

Engagement

performance

Monitoring

ISQC 1

ISQC 1 RISK AND COMPLIANCE


4

Leadership

responsibility

Monitoring

Independence &

ethical

requirements

Client acceptance

& continuance

Human Resources

Engagement

performance

No on -going review of

policies and procedures

No cold file reviews (audit)

-Lack of supervision and

control

-Methodology (audit) not

effective

- References not obtained for new staff

-Fit and proper declarations not obtained

- Insufficient training on ISA/IFRS and record keeping

-Staff appraisals not done or informal

Non-compliance

with ISQC1

Policies and procedures not

documented

- Independence declaration

from staff not obtained

- Register of identified

threats & safeguards not

maintained

- No integrity checks plus

client identification

- Procedures not

documented -

- Engagement letters

not issued


5 Leadership responsibility

Leadership responsibility

Organisation structure

Setting tone from the

top

Establish policies &

procedures

Document policies &

procedures

Communicate with staff

Enforcement of policies

SETTING TONE AT THE TOP


6

Tone at the top

Associate with right

clientsClear

standards & robust

processes

Recruitment of skilled & competent

staffCommitment

to technical excellence &

quality

Performance of effective &

efficient reviews

Commitment to continuous improvement

ETHICAL REQUIREMENTS


7

Code of Conduct

IndependenceEthical

dilemma procedures

INDEPENDENCE


8

Compilation

Independent review

Audit

Independence of Decision making

Independent of business entity

Independence

of record

keeping and

compilation

INDEPENDENCE


9

AppointmentRegulations &

standardsServices agreed

uponExecution of performance

Acceptance & continuance

Engagement letter & planning

Engagement performance

Compliance of performance

Independence

INDEPENDENCE AND ETHICS


10

01 02

04 03

Obtain information on potential threat to

independence & ethicsEvaluate any threats to

independence & ethics

Document & report on

conclusions

Take appropriate action to mitigate

the risks to ethics & independence.

Obtain

information Evaluate

Document Action

ACCEPTANCE AND CONTINUANCE


11

Acceptance and

continuance

Integrity of the client

Can comply with ethical

requirements Practice is competent

and & has sufficient

time, resources &

competence

HUMAN RESOURCES


12

Recruitment and Appointment

Professional

development

Values

Performance evaluation,

compensation &

promotions

MotivationCompetence

Quality of work

Ability/Aptitude

ASSIGNMENT AND ENGAGEMENT TEAM


13

Identity and role of engagement partner communicated

Engagement partner has appropriate capabailities,

competence, authority & time

Responsibilities of engagement partner clearly defined &

communicated

ENGAGEMENT PERFORMANCE


14

Performance

obligations

Regulatory

requirements

Professional

Standards

ENGAGEMENT PERFORMANCE

Performance Activity Performance Criteria

Engagement letter Service/agreed upon deliverables

Resource allocation Competence-engagement fit

Planning engagement Responsibility & accountability duties

Monitoring Quality assurance – supervision & review strategies &

reports

Work flow planning Integrated work plan documented and sign off

Reporting File & report review processes

Performance obligations Document discussions & communicationsREPORT WRITING - CPD 2017

15

CONSULTATION OR SECONDMENTS


16

• Appropriate consultation has taken place on

difficult issues

• Sufficient resources available to enable appropriate

consultation

• Nature and scope of consultations documented

• Conclusions reached from consultations are

documented & implemented

CONSULTATION OR SECONDMENTS

Strategy Objective

Supervision Risk identification & provide guidance

Monitoring Continuous quality assurance review to

prevent risks

Review Ensure compliance & correction of risks

Documentation Proof of evidence


17

MONITORING


18

Establish a monitoring process designed to provide it with

reasonable assurance that policies & procedures relating to

the system of quality control/assurance are relevant, adequate

& operating efficiently.

Internal assessment

Functionality & compliance

External assessment

Relevance & benchmarking

Professional assessment

Inspection & compliance

Compilation Engagement

[ISRS 4410]

Prepared by:

Rashied Small, Hashim Salie, Shafiek Dollie & Yaeesh Yasseen


19

Public Interest Score

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

(i) the type of engagement that must be performed,

(ii)accounting framework that must be adopted, and

(iii)corporate governance issues that should

be complied with


20

PUBLIC INTEREST SCORE COMPONENTS


21

PUBLIC INTEREST SCORE - CRITERIA

A number of points that equal the average number of

employees during the financial year.

One point for every R 1 million (or portion thereof) in

third-party liabilities at the financial year end.

One point for every R 1 million (or portion thereof) in

turnover during the financial year

One point for every individual who, at the end of the

financial year, is known to directly or indirectly have a

beneficial interest.


22

1. Is the company a public

company or a state-owned

company?

2. Is company a private company

and controls fiduciary assets

>R5m?

Yes Audit

No

Application of PIS to

Private Companies and

CCs

Owner

Managed

Greater/=

than 350 PIS

Yes

No

Audit

No

Audit/N

o IR

Non-

Owner

Managed

Less than 350 PIS

and

greater/equal to

than 100 PIS

Independe

nt Review

Int Ext

Less than 100 PIS

Is entity

CCYes

Acc

Officer Non CA/CA

CA

Greater/=

than 350 PIS

Less than 350 PIS and

greater/equal to than 100 PIS

EXT

INT

OM <

100

No

Aud/IR

Duties of

Acc Off

PUBLIC INTEREST SCORE - APPLICATION

Public Interest Score Financial Reporting Standard Audit

PIS ≥ 350 IFRS / IFRS for SMEs YES

PIS ≥100 and < 350 and AFS were

internally compiled

IFRS / IFRS for SMEs YES

PIS ≥ 100 and < 350 and AFS

independently compiled

IFRS / IFRS for SMEs NO

PIS < 100 and AFS independently

compiled

IFRS / IFRS for SMEs NO

PIS < 100 and AFS internally

compiled The Financial Reporting Standard as

determined by the company for as long as

no Financial Reporting

Standard is prescribed

NO


24

PUBLIC INTEREST SCORE - PRACTITIONERS


25

COMPILATION – ISRS 4410

Assurance:

A compilation does not involve and audit or review, no assurance about the financial statements is

providedCompilation provide “implied

assurance” about the fair presentation and relevance of the financial statements (requirement of accounting standards) and the procedures prescribed in terms

of ISRS 4410REPORT WRITING - CPD 2017

26

LEGISLATION


27

• Responsibilities of the compiler and the procedures to follow

• Competence required to perform the compilation

• Qualitative characteristics and presentation of financial information

• S 29 and s30 requires the compilation

Companies Act

Accounting Standards

ISRS 4410ISQC 1

Compilation Engagement

Compilation is defined as an

engagement in which the

professional applies his accounting

and financial competence to assist

management to prepare financial

statements in accordance with the

appropriate accounting framework

based on information provided by

management.


28

When should a compilation be performed

Co

mp

ila

tio

n

Assist management in making judgement in compiling financial statements

Management requires reports for decision making

For planning purpose – support financial and tax planning

Supporting documentation – valuation or sale of a business or interest in a business

Purposes of other engagements – base for review or audit engagement


29

Compiler’s Responsibilities


30

Compiler

Independence

Financial statement risks

Verification of information

When are the uses of a compilation?

Use

s o

f c

om

pila

tio

n

Assist management in making judgement in compiling financial statements

management requires reports for decision making purposes

For planning purpose – support financial and tax planning

Supporting documentation – valuation or sale of a business or interest in a business

Purposes of other engagements – based of review and audit engagement


31

What are the benefits of compilations?

Be

ne

fits

of c

om

pila

tio

n

Cost effective – save time and money because of the work required

Use of an expert – technical financial reporting competence and ethics

Flexible and targeted engagements – compilation can be used as an agreed upon engagement

Independence – improve the quality and integrity of the financial statements


32

What are the procedures for a compilation?

Accept

• Apply risk assessment of the client – risk profile fit (ISCQ 1)

• Engagement letter – competent to accept the engagement

Plan

• Understand the nature of the business and its operations

• Understand and evaluate the accounting system

Execute

• Reconcile the financial information with the accounting records

• Discuss significant matters and judgements with management

Report

• Discuss the financial statements with management

• Prepare the compilation report


33

What preparation is required for a compilation?

Accepting the

engagement

Code of Ethical Conduct

[objectivity ,integrity,

professional conduct & competence, due care, confidentiality]

ISRS 4410 –Compilation Engagement

[objective, purposes and procedures]

Professional judgement

[fair representation of financial statements]

Quality control

[competence to perform task, quality control procedures]


34

Checklist before accepting a compilation

Ac

ce

pta

nc

e

Ch

ec

klist

Risk assessment of client – fits practice risk profile

Management’s integrity – reliance placed on information provided for compilation

Previous accountant – reasons for change or reason for appointment

Purpose of assignment – needs of the external and/or internal users

Internal controls – reliability of accounting systems to produce accurate information

Competence of professional – ability to perform the engagement


35

Mini Case Study

Client 1:

Technology business that is known for its integrity and innovation. The owners are involved in community activities and established a strong relationship. The client has been referred by the previous accountant (a trusted friend who is retiring) and stated that there is no professional reason not to accept the client.

Client 2:

Entertainment business that opened a casino in the heart of the community. The community including law enforcement agencies has petitioned the establishment and requested the relocation of the business because of their concerns about the possible negative social impact it may have on the community. To date the financial statements of the business was prepared internally.


36

What factors to consider for a compilation?

Fa

cto

rs t

o c

on

sid

er

Public Interest Score – legislative requirements

Purpose of compilation – will external users place reliance on the financial statements

Benefits of professional’s competence – benefits management can gain from the assistance

Limitation of financial statements – historical costs principle and the judgement


37

What are the key contents for a compilation?

En

ga

ge

me

nt

co

nte

nt Customised – specific to satisfy the requirements and

circumstance of engagement

Objectives and scope – explicit statement that it is a non-assurance engagement (no audit)

Responsibilities – details of management’s and professional responsibilities

Purpose of financial statements – users, purposes and distribution

Reporting – nature and type of reporting as well as means/channels of communication


38

What must be done for recurring engagement?

NO CHANGES

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

Changes

- Misunderstanding of compilation

- Changes in terms of engagement

- Changes in management

- Changes in ownership of business

- Changes in nature of business

- Changes in accounting framework


39

What other factors should be considered?

Use and distribution of reports

Publication of financial statements (website)

Supporting schedules prepared by management

Reliance placed on information received from third parties

Billing arrangements

Other Services


40

What are the critical processes in planning?

Planning of compilation

Communication

- Management

- Compilation team

- Team & client staff

Business

- Nature of business

- Governance

Materiality

- Context of IFRS

- Misstatements

- Reliability

Procedures

- ISRS 4410

- System & controls

- Reconcile records


41

What procedures are followed for a compilation?

Pro

ce

du

res

Understanding the business – assess the level of risks and materiality

Understanding the accounting system – type of transactions and accounting records

Estimates and judgement – assess the accuracy and reliability of judgements

Incomplete information – obtain explanations from management (evidence)

Unusual transactions – investigate significant transactions and variances in balances


42

Compilation - Procedures


43

What procedures are followed for compilation?

Discussions

• Nature of business

• Accounting system

• Principles & practice

• Judgements

• Reconcile to records

• Incomplete data

Consideration

• Judgements –reasonability

• Unusual transactions – recognition

• Completeness – cut-off procedures

• Fair representation -truthfulness

Customisation

• Compliance –accounting framework

• Adjustments to statements

• Recommendations to management

• Concerns - resolved


44

What contents is part of compilation report?

Preparation of financial statements – based on information provided by

management

Responsibilities of management – relation to governance, compilation

engagement and financial statements

Accounting Framework used for the preparation of the financial statements

Compliance with format of financial statements – components of the statements

Responsibilities of compiler – complied with ISRS 4410 (procedures) and ethical

behaviour

Not an assurance function:

no need to verify the transactions and information provided by management

No opinion is expressed

Special purpose – description of the engagement and use of the statements


45

Review Engagement

[ISRE 2400]

Prepared by:



46

Review Engagement

A review provides limited assurance that the financial statements conform to generally accepted accounting principles.

This type of assurance is known as negative assurance. This means that as the professional accountant is only providing assurance that nothing has come to their attention that would indicate the financial information is not presented in accordance with accounting standards.


47

What is the objective of a review?

The professional accountant inquires and performs procedures to

determine whether the financial statements prepared by

management is free from material misstatements due to fraud

and errors.

In a review the professional accountant provides limited or

moderate assurance about the fair presentation and reliability of

the financial statements – nothing has come to the attention of

the reviewer that the financial statements do not fairly presents, in

all material respect in accordance with the accounting

framework.


48

When is the independent review used?

Use

of re

vie

w

Provide users of financial statements with some assurance – level of reliability

To support proposals and applications for financing or change in ownership through sale of interest

Provide assurance of compliance to reporting regulations

Supporting management with internal review of the business

Support the risk management strategy and governance of the business


49

What are the benefits of a review?

Be

ne

fits

of re

vie

w

Cost effective – gain limited assurance on the reliability of the financial statements

Limited assurance – financial statements are free of material misstatement

Flexible and targeted engagements – review focuses on the areas of potential risks of misstatement

Use of expert – reviewer’s experience can be used as a risk management strategy


50

What are the pre-condition for a review?

The accounting framework used to prepare the financial

statements must be acceptable and appropriate for the business.

The scope to conduct a review should not be restricted as a result

of management not be willing grant the professional accountant access to the accounting records

and documents supporting the financial statements.

Proceed with

review


51

What are steps involved in a review?

Determine whether a review is necessary and appropriate

Identify potential risks that may result in material misstatement of the financial statements

Perform the review by applying appropriate procedures –analytical procedures as per ISRE 2400

Conduct additional procedure for areas of possible risks of misstatement

Prepare the review report – arrive at a conclusion (limited assurance)


52

Parties Responsibilities


53

What are the procedures for a review?

Accept

• Apply risk assessment of the client – risk profile fit (ISCQ 1)

• Engagement letter – competent to accept the engagement

Plan

• Understand the nature of the business and its operations

• Identify areas of material misstatement in financial statements

Execute

• Perform analytical procedures – obtain sufficient evidence

• Perform additional procedures on areas of risk

Report

• Evaluate evidence obtained – communication with management

• Prepare the review report


54

What preparation is required for a review?

Accepting the

engagement




ISRE 2400 – Review Engagement


Professional judgement

[fair representation of financial statements]

Quality control



55

What is professional skepticism?

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

Attitude to be able to:

Identify and respond to conditions that indicate possible misstatement

Critically assess evidence obtained

Question managements explanations and representations

Draw conclusions based and the facts and evidence obtained


56

What is professional judgement?

Professional judgment involves the application of competence

and experience in making informed decisions about the courses

of action that are appropriate for the circumstances.

Circumstances where professional judgement may be used:

Determining materiality for the engagement

Determining areas of possible material misstatement of statements

Allocating of staff members that fits their competence levels

Designing analytical and additional procedures for the engagement

Evaluating evidence to support the conclusion - sufficiency


57

Checklist before accepting a review

Ac

ce

pta

nc

e

Ch

ec

klist

Risk assessment of client – fits practice risk profile

Owner’s and management’s integrity – misuse of the review report (claiming it is an audit)

Quality of information – risk that the information required may not be reliable or available

Purpose of assignment – management may use the review to avoid negative audit reports

Outstanding matters – significant matters impacting performing the review effectively

Complexity of business – financial statements are complex and requires specialized knowledge and experience


58

ENGAGEMENT LETTER


59

Engagement letter

Purpose &

objectiveFinancial

statement risk

Mgnt’sresponsibility

Restriction on scope

Procedures

Reporting

What factors to consider for a review?

Fa

cto

rs t

o c

on

sid

er

Public Interest Score – legislative requirements

Integrity of management – indication of unethical behaviour, infringement of regulations or unwillingness to

provide information

Limitation on scope – restriction on access to information or staff, unrealistic deadlines or quality of information

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


60

What are the key contents for a review?

En

ga

ge

me

nt

co

nte

nt Customised – specific to satisfy the requirements and

circumstance of engagement

Objectives and scope – explicit statement that it is not an audit but limited assurance is provided

Responsibilities – details of management’s and professional responsibilities

Purpose of financial statements – users, purposes and distribution

Reporting – nature and type of reporting as well as means/channels of communication


61

What must be done for recurring engagement?

NO CHANGES

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

Changes

- Misunderstanding of compilation

- Changes in terms of engagement

- Changes in management

- Changes in ownership of business

- Changes in nature of business

- Changes in accounting framework


62

What are the critical processes in planning?

Planning of review

Communication

- Management

- Compilation team

- Team & client staff

Business

- Nature of business

- Governance

Materiality

- Context of IFRS

- Misstatements

- Reliability

Procedures

- ISRE 2400

- Analytical procedures

- Additional procedures


63

MATERIALITY


64

Material risks

Prior results

Industry practice

Mgnt’sjudgement

Transactions

What are causes of material misstatements?

Material misstatement is when it would significantly change or

influence the decisions of informed users of the financial statements.

Possible causes of misstatement of financial statements:

Fraud and errors (recognition and measurement)

Departure from the accounting framework

Inappropriate estimates

Lack of full disclosure of significant matters


65

Review - Procedures


66

Review procedures

Understand business

Accounting systems

Financial statement assertions

Analytical procedures

Accounting framework

Information risk

What procedures are followed for a review?

Pro

ce

du

res

Understanding the business – assess the level of risks and materiality

Identifying misstatements – identify possible risks of misstatement of financial statements

Evaluate internal controls – assess controls to mitigate material misstatements

Analytical procedures – obtain evidence for possible misstatement identified

Additional procedures – investigate and obtain evidence relating to material misstatements


67

What contents is part of review report?

Responsibilities of management – relation to governance, review engagement

and preparation of financial statements

Accounting Framework used for the preparation of the financial statements

Compliance with format of financial statements – components of the statements

Responsibilities of reviewer – complied with ISRE 2400 (procedures) and ethical

behaviour

Limited assurance function:

Evaluate the misstatement of financial statements

Draw a conclusion on whether financial statements are free of material

misstatement

Purpose of engagement – description of the engagement and use of the

statements


68

FORMING AN APPROPRIATE

CONCLUSION


69

Negative Assurance:

Reviewer is satisfied based on the

evidence obtained that the

financial statements are free of

misstatements

Qualification of Assurance:

The nature of matters may render the

financial statements misleading, a

qualified or adverse opinion may be

expressed.

COMPARISONS

Compilation Independent review Audit

Level of assurance obtained

by Accountants or Auditors

that the financial statements

are not materially misstated

Accountant does not obtain

or provide any assurance that

there are no material

modification that should be

made to the financial

statements

Accountant obtains limited

assurance that there are no

material modification that

should be made to the

financial statements

The auditor obtains a high,

but not absolute, level of

assurance about whether the

financial statements are free

of material misstatement

Objective To assist management in

presenting financial

information in the form of

financial statements without

undertaking to provide any

assurance that there are no

material modifications that

should be made to the

financial statements

To obtain limited assurance

that there are no material

modification that should be

made to the financial

statements

To obtain a high level of

assurance about whether the

financial statements as a

whole are free of material

misstatement thereby

enabling the auditor to

express an opinion on

whether the financial

statements are presented

fairly, in all material respects


70

COMPARATIVE ANALYSIS

COMPARISONSCompilation Independent review Audit

Assurance provided to

the user of the financial

statements

None – the report states that no assurance

is provided

None – the report provides a

statement that the accountant is

not aware of any material

modifications that should be

made to the financial statements

None – the auditor provides an

opinion as to whether the financial

statements present fairly, in all

material respects, the company’s

financial position, results of

operations and cash flows

Situations requiring different

levels of service

Generally appropriate or privately held

companies and are often prepared for

simple situations (e.g., a lender needs IFRS

financial statements instead of the

statements the internal accounting system

produces or the lender needs the comfort

provided by knowing that an accountant

read the financial statements)

Often prepared for privately held

companies because of

requirements of outside third parties

(such as banks, creditors and

potential purchasers) that are

looking for comfort that the

financial statements are not

materially misstated

Often prepared for companies

because outside third parties

(such as banks, creditors,

potential purchasers and outside

investors) require an auditor’s

opinion on the financial

statements


71

Agreed upon Engagement

[ISRS 4400]


72

Agreed upon Engagement

An agreed-upon procedures

engagement is an engagement in

which an auditor/professional

accountant is engaged to carry

out those procedures of an audit

nature to which the auditor and

the entity and any appropriate

third parties have agreed and to

report on factual findings.


73

What is objective of agreed upon engagement?

The objective of an agreed-upon procedures engagement is for the professional accountant to:

carry out procedures of an investigative nature to which the parties have agreed

report on factual findings

No assurance is expressed – provide a factual findings reports without expressing an opinion or making recommendations

Users of the report assess the findings reported and draw their own conclusions from the work performed

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


74

What is the contents of the agreement?


75

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

opinion expressed)

Purpose for the engagement

Identification of the financial information or activities to which the

agreed-upon procedures will be applied

Nature, timing and extent of the specific procedures to be

applied

Anticipated form of the report of factual findings

Limitations on distribution of the report of factual findings

What are steps involved in an engagement?

Determine the nature and complexity of the engagement

Design the procedures to be performed to conduct the engagement

Investigate and obtain sufficient evidence relating to the engagement – documents all evidence

Evaluate the evidence obtained to support the conclusion

Prepare the engagement report – prepare a factual findings report


76

What preparation is required for a engagement?

Accepting the

engagement




ISRS 4400 –Agreed upon Engagement


Procedures

[investigation of financial and non-

financial information]

Quality control



77

What contents is part of engagement report?

Purpose of engagement – description of the engagement and use of the report

Not audit or review – no assurance or opinion expressed

Responsibilities of management – facilitate the engagement process

Responsibilities of professional accountant – complied with ISRS 4400

(procedures) and ethical behaviour

Procedures that will be applied

Limitation of engagement:

Financial information that engagement relates to

Distribution and use of the report

Format of the report

Fee structure and timeframe


78

Engagement Letter

Prepared by:



79

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

Engagement letters are a key document in the relationship between you and your client, providing a written confirmation of the work that will be carried out

“Agreement of service” binding the Profession Accountant with the client.

“Service Level Agreement” which stipulates the nature, type and conditions of services to be performed

Engagement letter is a legal contract which is binding on the parties to the agreement


80

What is the purpose of E.L.?

Ensures both parties are on the

same page

Serves as a risk management tool

Forms the foundation of client

communication and trust

Mandatory in your practice –

quality control.


81

What are the primary contents?

Purpose and objectives of the assignment

Responsibilities of management

A statement stating the professional is an independent

contractor.

Standards that will be followed for the terms of the assignment

Reporting format and communication channels

Deliverables of the assignment

Type and timing of the assignment - timeframe

Basis of determining cost for the assignment

Procedures for amendments to the assignment

State any limitationsREPORT WRITING - CPD 2017

82

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