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9.1 INTRODUCTION
In the previous learning unit we looked at the auditing profession and noticed that
it is highly regulated through legislation, standards and codes. Although external
auditors perform many different functions in practice (non-assurance engage-
ments), for the purposes of this module the main function of the external auditor
registered with the IRBA is to perform the external audit of financial statements
(assurance engagements). So, what do auditors really do when they audit finan-
cial statements? All of the auditor’s work is summarised in an audit report that
accompanies the annual financial statements. The end product of the auditor’s
work is reflected in the audit report.
We all have bought something from Shoprite, so let’s go to their annual financial
statements. Google “annual financial statements Shoprite” and then select and
open an example of their latest annual financial statements. Scroll through the
document (heavy stuff) but I want you to read the page titled “Independent Auditor’s
Report to the Shareholders of Shoprite Holdings Limited”. Note that the report sets
out the director’s responsibilities, the auditor’s responsibilities and the audit opinion.
As stated in Jackson & Stent (2016:1/2) registered external auditors are auditors
who express an independent opinion on whether the annual financial statements
of a company fairly present the financial position and results of the company’s
operations. The external auditor is not an employee of the company. The external
auditor enhances the degree of confidence which users of the financial statements
will have in the information in those financial statements. Registered auditors offer
their services to the public. They are described as being “in public practice” and
must be registered with the Independent Regulatory Board for Auditors.
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LEARNING UNIT 9: Assurance by the external auditor
the intended users, other than the responsible party, about the outcome of the
evaluation or measurement of a subject matter against the criteria”.
The work performed by the auditor can be divided into levels of assurance.
STUDY
t
es
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hi Reasonable assurance eg. Standard
audit “Fairly present”
Levels of Assurance
Limited assurance eg. Reviews
“Nothing came to our attention”
low
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ACTIVITY 9.1
Refer to the Shoprite annual financial statements. Identify the level of assurance
provided by their auditors.
ACTIVITY 9.2
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TOPIC 3: THE EXTERNAL AUDITOR
(2) The auditor does not certify or confirm the absolute correctness of financial
information, but rather, expresses an opinion on its fair presentation. The audit
is designed to provide reasonable assurance that the financial statements,
taken as a whole, are free of material misstatement, not that they are one
hundred per cent correct. The International Standards of Auditing, defines
reasonable assurance as a “high but not absolute” level of assurance.
STUDY
•• Jackson & Stent (2016:1/13–14) – The public interest and public interest scores
•• Jackson & Stent (2016:1/14) – Chart summary
ACTIVITY 9.3
A private company or close corporation with a public interest (PI) score of 350
points and above is subject to an audit in terms of the Companies Act.
List the four elements that make up the public interest score calculation.
1. The average number of employees per year equals the same number of points.
2.
3.
4.
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LEARNING UNIT 9: Assurance by the external auditor
earlier in this learning unit, the level of assurance provided by a financial state-
ment engagement is one of “reasonable assurance”.
ACTIVITY 9.4
Refer to your notes you made in your workbook after completing the following
activities.
After having worked through the learning unit and the study references are you
able to:
•• explain the objective of an audit?
•• identify the level of assurance provided by external auditors?
•• identify organisations subject to a financial statement audit?
In the next learning unit we will discuss the professional conduct requirements
for external auditors.
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