I NSPECT I ONS
Inspections Findings Newsflash 1 of 2015
Based on the second quarter Inspection Committee results of
2014 that ended on 30 September 2014, we hereby provide
some examples of the most common inspection findings that
resulted in unsatisfactory inspection outcomes.
The examples below should be interpreted with caution and
should be seen neither as exhaustive nor be considered in
isolation. The selection of firms, engagements and focus
areas for inspection is based on identified risk factors and
these results may not be representative of the profession as a
whole. Not all findings apply to every firm and, where they do
apply to more than one firm, there are inevitably differences in
the degree of application.
Engagement Inspections:
The following are examples of findings that resulted in
unsatisfactory inspection outcomes:
Materiality
?
Insufficient or no documented justification on file for the
basis and level of planning-, performance- and final
materiality, that is fundamental to ensure that the
engagement team obtains sufficient audit evidence to
support the audit opinion.
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 ISA240.
?
Revenue was not assessed as a significant risk on the audit
file and there was no documented justification as required by
ISA240.
?
There were no significant risks identified on the audit file.
?
No documented verification of journals, even though it is
deemed a significant risk by ISA240.
?
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 documented evidence on file that all balances
and transactions equal to or greater than performance
materiality were verified by the engagement team.
Other failures to identify material misstatements and/or obtain
sufficient appropriate audit evidence at assertion level
?
Revenue – completeness and occurrence. The source of
the revenue completeness test was not appropriate. It
should be the originating source documents. Revenue
occurrence was tested to inappropriate documentation.
Agreeing an invoice to the ledger does not prove
occurrence.
?
Property, plant and equipment – valuation. No documented
assessment of significant components, method of
depreciation, useful lives and residual values. A mere
conclusion on the useful lives and residual values of
property, plant and equipment is not sufficient audit
evidence. Detailed considerations and analysis should be
documented on file.
?
Property, plant and equipment – completeness. No details of
the verification/considerations documented on file.
?
Shareholders and directors' loans – measurement in terms
of the framework and impairment. There was no
documented verification of the valuation in accordance with
the framework. There is no evidence on file that the year-end
balances are at amortised cost or fair value as applicable.
No documented impairment considerations for debit loans.
?
Inventory – valuation. No documented verification of the
labour and overhead components of work-in-progress and
finished goods.
Completion
?
No documented justification for the audit opinion issued.
The engagement partner should justify in the working
papers why the audit opinion is correct based on the audit
evidence obtained. Individual working papers and
conclusions should not contradict this working paper.
?
No documented consideration of a possible reportable
irregularity as the annual financial statements is approved
later than six months from the year end.
?
No documented consideration of the impact on the audit
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Issue 28 October 2014 - March 2015
