In South Africa, auditors are required to issue audit reports in line with International Standards of Auditing (ISA) and International Standards on Review Engagements (ISRE) ensuring uniform application of assurance service reporting across the world. However, each jurisdiction has to remain aware of changes in legislation in their jurisdictions that may affect the auditor’s report.

Changes in legislation, particularly the Companies Act of South Africa, have required that the audit report issued by auditors, be revised.  The Independent Reporting Board of Auditors (IRBA) is the regulatory body for auditors in South Africa. IRBA has issued a revised practice statement (South African Auditing Practice Statement 3 - SAAP 3) to assist auditors in South Africa with practical assistance when reporting on financial statements in light of changes in legislation.

The revised practice statements make reference to various updates in laws and regulations that affect South African businesses and will have a direct impact on the auditor’s application of ISA and International ISRE.

Traditionally, an auditor applies ISA 700 (Independent Auditor's Report) for guidance in issuing a report in order to express an opinion on financial statements prepared in accordance with an acceptable financial reporting framework. The Companies Act in South Africa however, also prescribes what information issued would constitute financial statements and also makes mention of specific disclosure requirements and how the information should be prepared and presented, in addition to it being prepared in accordance with prescribed financial reporting standards. This brings about the fact that the auditor’s report must make reference to the financial statements being prepared in accordance with the applicable accounting framework, and also the requirements of the Companies Act. The Companies Act still refers to directors being responsible for the information presented in the financial statements as they are required to approve the financial statements and be signed by an authorised director.

In terms of the new Companies Act, reports conventionally issued with or within the financial statements such as the directors report or audit committee report are now specifically included in the definition of financial statements that are to be audited or reviewed by an auditor or independent reviewer. Often, this information cannot be verified in terms of an identified framework and as it may not represent an assertion being made by management. It is therefore difficult for an auditor to express an opinion on these other reports. SAAP 3 therefore recommends that the audit report refer specifically to the parts of the financial statements on which the auditor is expressing an opinion. This is best achieved through the use of page numbering so that the different parts of the financial statements can easily be referred to. Using page numbering allows the auditor to clearly state which parts of the financial statements the audit opinion has been expressed upon.
Nevertheless, in terms of ISA 720 an auditor has a responsibility to review the information that accompanies financial statements and ensure that the information contained therein is not inconsistent with information obtained during the audit of the annual financial statements. SAAPS 3 therefore recommends that a paragraph be included in the auditor’s report stating the information contained in the stated pages of the financial statement, making reference to “other reports as required by the Companies Act” as having been read and that the reports are not inconsistent with the audited financial statements. If the reports were to include statements that are inconsistent with the auditor’s report, especially in cases where the audit report is modified, the auditor should ask that these reports be amended.

SAAP 3 contains 34 illustrative examples on the types of audit reports that can be issued by auditors in different circumstances. However auditors and independent reviewers are still required to apply their professional judgement and adapt the report appropriately in light of the result of audit work performed.

With South Africa advancing and becoming a recognised contender in global leadership and in keeping with changing legislation, it is important that the auditor’s report be kept up to date and relevant. This will allow it to remain a basis for general decision making in reassuring financial statement users that the financial statements are free from material misstatement and error.

Andrew Young

Audit Partner, Johannesburg