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I NSPECT I ONS c o n t .

Fraud and significant risks

?

Fraud risks were identified on the audit file; however these

were not identified and treated as significant risks as

required by ISA 240.

?

Revenue was not assessed as a significant risk on the audit

file and there was no documented justification as required

by ISA 240.

?

There were no significant risks identified on the audit file.

?

No documented verification of journals, even though it is

deemed a significant risk by ISA 240.

?

No documented Related Party completeness assessment.

Risk of Material Misstatement (RoMM)

?

RoMM for all balances, classes of transactions and

disclosures at the assertion level was assessed as low or

medium.

?

RoMM was assessed as low, but there were no test of

controls documented on file to reduce the control risk to a

risk level that is lower than high.

Sampling

?

There was no documented link between the risk

assessment and sample sizes. (The higher the risk the

greater the sample size.)

?

There was no evidence on file that all balances and

transactions equal to or greater than performance

materiality were verified by the engagement team.

Disclosure and presentation

?

Incorrect/insufficient disclosure in the annual financial

statements, but no documented consideration by the

engagement teamof the impact on the audit opinion.

?

Incorrect classification of loans as long and short term.

Consolidation

?

No documented consideration of whether the

consolidation exemption criteria were met and the

possible impact on the audit opinion.

Other failures to identify material misstatements and/or obtain

sufficient appropriate audit evidence at assertion level

?

Property, plant and equipment (valuation) assessment of

significant components, method of depreciation, useful

lives and residual values.

?

Revenue - completeness and occurrence.

?

Shareholders’ and directors’ loans – measurement in terms

of the framework and impairment.

?

Inventory – classification as an asset or expense.

?

Deferred tax – measurement and justification of deferred

tax assets.

Firm Inspections

The following examples of firm findings resulted in the most

non-satisfactory inspection outcomes:

?

High risk findings not identified and appropriately

addressed on engagement quality control/pre-issuance

reviews (engagement performance element of ISQC1).

?

High risk findings not identified and appropriately

addressed on post-issuance reviews (monitoring element

of ISQC1).

Recommendation

Firms and practitioners are encouraged to analyse the above

deficiencies, and if applicable, incorporate sustainable

solutions into their processes of continuous improvement.

Most of the examples listed above are directly as a result of the

following:

?

Insufficient and/or inappropriate audit evidence

documented to support the audit opinion;

?

Failure to identify and assess material misstatements in

the financial statements; and

?

Deficiencies in the effectiveness of internal quality control

review (EQCR andMonitoring elements of ISQC1).

1 5

Imre Nagy

Director: Inspections

Telephone: 087 940 8800

Fax:

087 940 8874

E-mail:

inspections @irba.co.za

Issue 26 April - June 2014