Page 1

Committee presentationAn overview of the external audit process and types of audits12 May 2010

2

Reputation promise/mission

The Auditor-General has a constitutional mandate and, as the Supreme Audit Institution (SAI) of South Africa, it exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

KEY MESSAGES

Key message 1: The AG has a constitutional mandate and is the Supreme Audit Institution of South Africa

•The Auditor-General is founded in the Constitution of South Africa. In Chapter 9, Section 181 of the Constitution, its reason for existence is defined as “a state institution that supports democracy”.

•The Auditor-General is independent and subject only to the Constitution and the law. As such it is required to remain impartial and to be able to exercise its powers and perform its functions without fear, favour or prejudice. Its independence is protected through the provisions of the Constitution and no person or institution is allowed to interfere with the work of the AG.

3

KEY MESSAGES

• The AG is accountable to the National Assembly and must report on its activities and the performance of its functions at least once a year.

• In Section 188 of the Constitution, the Auditor-General’s functions are clearly outlined. It is responsible for auditing and reporting on the accounts, financial statements and financial management of the public sector. Since it is the only audit institution mandated to perform these functions, it is regarded as the Supreme Audit Institution of South Africa.

4

KEY MESSAGES

Key message 2: Strengthening our country’s democracy

• The AG strengthens our country’s democracy by contributing to the quality of life and well-being of South Africans through enabling oversight, accountability and governance in the public sector.

• The AG does so by performing independent quality audits to assess the executive government’s compliance with the applicable laws and its use of public resources, which ultimately affect the public sector’s ability to effectively deliver public services and which therefore impacts on the stability and strength of South Africa’s constitutional democracy.

5

KEY MESSAGES

Key message 3: Enabling accountability and governance in all three spheres of government and in public entities

• The Auditor-General contributes to enable accountability and good governance in the public sector by helping the legislature and any other relevant authority, as the representatives of the people of South Africa, to oversee the executive government and public entities on national, provincial and local spheres.

•For the legislature and relevant authorities to hold the executive government and public entities on all three spheres accountable for its use of public resources and its adherence to governance issues; it inter alia relies on the AG to provide quality audits & value-added services to give assurance and objective, independent information on how the executive government and public entities used South Africa’s public resources and adhered to governance principles.

6

KEY MESSAGES

Key message 4: Building public confidence

• As the Supreme Audit Institution of South Africa, the Auditor-General enjoys a high level of independence (in legal, professional, financial, operational and administrative terms), which are prescribed in the Constitution and the Public Audit Act (PAA). This is how the function of the AG is protected, to enable it to audit and report on the public sector without fear, favour or prejudice. Even though the AG is independent; the National Assembly has an oversight mechanism in place to oversee the activities and performance of the Auditor-General.

• This level of independence highlights the critical need for the AG to build a strong corporate reputation as an institution that is effectively delivering on its constitutional mandate; while it remains independent; transparent and honest. Public confidence in the AG is further strengthened by the knowledge that the organisation strives to act

7

8

The benefits of external auditing by the AGSA

The benefits of external auditing are to:

• add credibility to the information provided, • assist in the strengthening of oversight, accountability and

governance in the public sector,• assist in giving momentum to the process of transformation

of financial management in the public sector, and• provide insights to facilitate foresight of decision-makers,

thus, making a difference in the lives of citizens.

9

International Standards on Auditing (ISAs)

(determined through due process by IFAC involving the whole international auditing profession

Regularity auditing

Full application of ISAs

Supplemented by public sector perspectives based on ISSAIs

Performance auditing

Full application INTOSAI standards

Structure of the auditing standards

Investigations

Based on ISA principles

Own documented standards and methodology

Special audits

Full application of ISAs, after consideration of decisions to accept in own guidance

ISSAIs – International Standards for Supreme Audit Institutions (public sector perspective to ISAs)

10

Audit communication

Objective: to clarify audit expectations, ensure a smooth process and prevent surprises in the audit report

This can take the form of:• Leadership visibility• Engagement letters• Letters requesting evidence or clarifying audit findings• Structured meeting agendas• Audit steering committees• Report discussion meetings

Therefore much effort is placed on ensuring that the audit reports are beyond reproach

11

Responsibilities – management

– Prepare financial statements– Design, implement and maintain internal controls– Select accounting policies– Disclose non-compliance with laws and regulations– Monitor and report on performance information– Provide access to auditors– Identify, prevent, detect and disclose fraud– Account for and disclose related party transactions– Develop and implement action plans to address audit findings and

improve financial management and accountability

12

Responsibilities – auditor

– Independence– Ensure leadership visibility throughout the audit– Determine if financial statements are free from material misstatement– Do test checks on amounts and disclosures in financial statements– Consider internal control– Evaluate accounting policies– Evaluate presentation of financial statements– Evaluate non-compliance– Evaluate controls regarding performance information– Provide reports that ensure simplicity and clarity of audit messages

13

Questions