THE AUDIT

PROCESS
Learning outcomes

List and explain

Understand the
the audit process
audit process.
stages.

List the Define and differentiate tests of

frameworks that controls and substantive
support the audit procedures.
process.

List and explain

List the elements
the types of audit
of an audit report.
opinions.
 The audit process
Applicable to the Good governance/L&R:
company being • King IV principles
Ethics • Companies Act
audited
sections
• Business ethics
• CA(SA)’s in business
Applicable to - CPC
the auditor of
the company

Engagement
acceptance
Audit
Planning
report
• Auditing Link ISA’s/work to the audit
Profession Act process – try to see the BIGGER
(APA) picture, WHY is the procedure
• Companies Act necessary and how it fits in with
sections (auditor the audit process
role) Test of
• Business ethics Completion
controls
• CA(SA)’s in
public practice - Substantive
CPC procedures • Business cycles and
processes
• Reporting framework:
IFRS
• Risks
The aim of an audit of financial statements is to enable the auditor to
express an opinion on whether the financial statements are prepared, in all
material respects, in accordance with an applicable financial reporting
framework (present a “true and fair view”).

The audit process is a series of procedures and activities that are

performed to obtain evidence to support the auditor’s opinion.

The International Standards on Auditing (ISA) is a globally accepted

professional standard for the auditor’s work in fulfilling the objective of
an audit.
 Frameworks that support the audit process

▪ Corporate Governance
▪ Companies Act
▪ King IV
▪ Auditing Professions Act (APA)
▪ Code of Professional Conduct (CPC)
▪ International Standards on Auditing (ISA)
1. Pre-engagement activities
• The objective of engagement activities is to determine the acceptability
of new clients or to consider the viability to carry on as auditors for
existing clients.

Procedures and considerations

❑ Perform a new client investigation, or consider changes in the
circumstances of existing clients.
❑ Determine the skills and competence requirements for the
engagement.
❑ Establish the terms of the engagement in an engagement letter.
2. Planning
Source reference
ISA 300 “Planning an Audit of Financial Statements”
ISA 315R “Identifying and Assessing the Risk of Material Misstatement through Understanding the
Entity and Its Environment”
ISA 330 “The Auditor’s Response to Assessed Risks”
Planning objective
The auditor should plan the audit so that the audit work will be performed in an effective
manner.
Planning consists of
• Overall audit strategy - Planning for the audit at the overall financial statement level
• Audit plan – Planning for the audit at the assertion level. For the conduct of the audit of specific
classes of transactions, account balances and disclosures
2. Planning – Overall financial statement level
Steps
• Obtain an understanding of the entity and its environment
• Obtaining an understanding of the entity’s internal control, including the information systems
• Risk of material misstatement at the overall financial statement level
• Materiality
• Determine an overall audit strategy
2. Planning – Assertion level (audit plan)

CLASSES OF TRANSACTIONS AND ACCOUNT BALANCES AND RELATED

RELATED DISCLOSURES DISCLOSURES

• Existence
• Occurrence
• Completeness
• Completeness
• Accuracy, Valuation and
• Accuracy
allocation
• Cut-off
• Rights and obligations
• Classification
• Classification
• Presentation
• Presentation
3. Further procedures (Fieldwork)
Source reference
• ISA 330 “The auditor’s response to assessed risk”
• ISA 500 “Audit evidence”
The objective of obtaining audit evidence
• The auditor should obtain appropriate and sufficient audit evidence on which to base the audit
opinion.
Methods for obtaining audit evidence
• The auditor obtains audit evidence by way of:
• a combination of tests of controls and substantive procedures;
or
• in some circumstances, substantive procedures only.
3. Further procedures (Fieldwork) - ToC
Test of controls
• Tests of controls are therefore performed by the auditor to determine
whether the controls instituted by management, function effectively.
• The auditor needs to determine whether the internal controls:
• are suitably designed to detect material misstatements; and
• functioned effectively, throughout the period of reliance.
• The results of the tests of controls provide the auditor with a basis to
assess control risk. It directly influences the nature, extent and timing of
the substantive procedures. Substantive procedures could be reduced
based on reliance on the operating effectiveness of controls.
3. Further procedures (Fieldwork) - ToC
Nature of test of controls
The nature of tests of controls refers to the types of tests of controls that the auditor can
perform.
Tests of controls consist of:
• Inspection: This is the investigation of documents, records, reconciliations, etc., for proof that the
internal controls function effectively.
• Observation: Observation of a process or procedure. Observation provides evidence as to the
functioning of the control at the time that it was performed. Conclusions in respect of the tests
should only be made for the period investigated.
• Enquiry: Enquiry of client personnel or third parties as to the functioning of controls.
• Re-performance: This entails the re-performance of procedures carried out by the client.
• Inquiry: Of third parties and management
3. Further procedures (Fieldwork) - SP

Substantive procedures
Substantive procedures are audit procedures which are performed to
detect material misstatements at the assertion level (of classes of
transactions, account balances and disclosures) in the financial
statements. They comprise:
• tests of detail (inspection, observation, inquiry, confirmation,
recalculation and reperformance); and/or
• substantive analytical procedures (Evaluating financial information
through analysis of plausible relationships among both financial and
non-financial information)
• Combination of the above
4. Completion and reporting
Source reference
• ISA 260: “Communication to Those Charged with Governance”
• ISA 330 “The Auditor’s Response to Assessed Risk”
• ISA 560 “Subsequent Events”
• ISA 570 “Going Concern”
• ISA 700, 705, 706 “Forming an Opinion and Reporting on Financial Statements”

The objective of evaluation, concluding and reporting activities

These are performed at or near the end of the audit to enable the auditor to assess whether
the financial information is consistent with the auditors knowledge of the business, audit
evidence obtained and whether the information is fairly presented.
4. Completion and reporting
• Procedures and considerations
• Perform an overall review of the financial information and evaluate audit
differences
• Conclude on the fair presentation of the financial information.
• Reporting.
Audit report
 Elements of an audit report
Component Description
1. Title and addressee company: “to the shareholders of”; heading “Independent Auditor’s Report”

2. Auditor’s opinion AFS has been audited, identifies the components of AFS, date and period covered by AFS, opinion (wording will
depend on type of opinion issued), reference to accounting framework
3. Basis for opinion Audit was conducted in accordance with ISAs, auditor is independent (ethics), sufficient and appropriate audit
evidence has been gathered.
4. Going concern Separate going concern section – material uncertainty related to going concern if there is uncertainty

5. Key audit matters Specific for listed entities, but may voluntary include KAM in reports

6. Other information This section is for reporting in accordance with the requirements of ISA 720 (Revised) under the heading “Other
Information”. This section is included immediately after the “Key Audit Matters” section in the audit report.
7. Responsibilities for financial statements Preparation AFS, entity’s ability to continue as going concern, maintaining internal controls

8. Auditor’s responsibilities This section has now been positioned within the body of the audit report, below the “Opinion” section in order to add
value to the users of financial statements.
9. Other reporting responsibilities The other reporting responsibilities shall be addressed in a separate section in the auditor’s report with a heading
titled “Report on Other Legal and Regulatory Requirements”
10. Name of partner The name of the engagement partner shall be explicitly included in the audit report for listed entities unless there is a
significant personal security threat to the engagement partner.
Audit report opinion diagram
Audit opinions
 Audit Opinion
Unqualified opinion - “In our opinion, the accompanying financial statements
present fairly in all material aspects or give a true and fair view of the financial
statements of X for the year ended X in accordance with [the applicable financial
reporting framework]”
Qualified opinion – “Financial statements present fairly the financial information
in all material respects, except for…”
Adverse opinion – “Financial statements do not present fairly the financial
information in all material respects”
Disclaimer of opinion – “We do not express an opinion on the accompanying
financial information.”

Unqualified audit report - No modification of audit opinion, no “emphasis of

matter” or “other matter” paragraphs/sections