Transcript MANAGEMENTS RESPONSIBILITY TO REVIEW THE ANNUAL …

MANAGEMENTS RESPONSIBILITY
TO REVIEW THE ANNUAL
FINANCIAL STATEMENTS
BY DANIEL J DE LANGE
Director Finance and Corporate Services and CFO
CELL 0825572064
EMAIL- [email protected]
Purpose of the Review
Process
The objective of a review of financial statements is
to enable the reviewer / practitioner to state
whether, on the basis of procedures which do not
provide all the evidence that would be required in
an audit, anything has come to the reviewer /
practitioners attention that causes the reviewer/
practitioner to believe that the financial statements
are not prepared, in all material respects, in
accordance with the applicable financial reporting
framework (negative assurance).
MFMA
In terms of section 122 of the Municipal Finance
Management Act (MFMA) No 56 of 2003, every
municipality and every municipal entity must for
each financial year prepare annual financial
statements which fairly represent the state of
affairs of the municipality or municipal entity, its
performance against its budget, its management of
revenue, expenditure, assets and liabilities, its
business activities, its financial results and its
financial position at the end of the financial year. It
must disclose the information required in terms of
section 123, 124 and 125 of the MFMA
MFMA
In terms of section 62(1)(b) of the MFMA, the
accounting officer must ensure that full and proper
records of the financial affairs of the municipality are
kept in accordance with any prescribed norms. This
would include the annual financial statements.
The only reference to the review of the Annual
Financial Statement in the MFMA is found in section
133, which deals with the establishment and duties of
the Audit Committee, however the requirement of
section 62(1)(b) implies that the accounting officer
should ensure that the annual financial statements are
properly prepared.
Audit Committee Review
In terms of section 133 (2) (b) the Audit Committee
must review the Annual Financial Statements to
provide Council of the municipality with an
authoritative and credible view of the financial
position of the municipality or municipal entity, its
efficiency and effectiveness and its overall level of
compliance with the MFMA and other relevant
legislation.
Internal Auditors
During the past number of years, municipalities in
their endeavours to improve their audit outcome
have also included a review of the Annual
Financial Statements to be undertaken by the
internal auditors.
Have the internal auditors used the disclosure
checklist issued by National Treasury to ensure
completeness of the GRAP disclosures and
requirements? Discuss any issues arising from
this review with the person who completed the
disclosure checklist.
Management review
of the AFS
The focus now is to develop a structured approach
by management to the review of the Annual
Financial Statements
There is no doubt that judging from the municipal
audit outcomes in 2012, 13(5%) municipalities
achieved a clean audit, that there is room for
improving the review process of the Annual
Financial Statements.
THE REVIEW PROCESS
A review of financial statements in accordance with
recognised standards consist primarily of making
enquiries of management and others within the
municipality or municipal entity involved in financial
and
accounting
matters,
applying
analytical
procedures, and evaluating the sufficiency and
appropriateness of evidence obtained. A review also
requires performance of additional procedures when
the reviewer / practitioner becomes aware of matters
that cause the reviewer / practitioner to believe the
financial statements as a whole may be materially
misstated.
THE REVIEW PROCESS
(Cont)
It must be understood that the procedures that will
be performed by the Accounting Officer, Audit
Committee and Internal Audit in the review
process are substantially less than those
performed by the Office of the Auditor-General
who performs an audit in accordance with
International Standards on Auditing.
Review Template
It has been suggested that to assist the
Accounting Officer to review the Annual Financial
Statements, a template be developed that details
the procedures that should be performed in the
review of the Annual Financial Statements.
Review Template
(Cont)
By following the procedures as detailed in the Review
Template that can be downloaded from the IMFO website:
www.imfo.co.za, it will assist the Accounting Officer to
conclude whether there is anything that has come to his /
her attention that causes him to believe that the Annual
Financial Statements have not been prepared in all
material respects, in, accordance with the accounting
policies, GRAP standards and applicable legislation and
regulations.
This will allow the Accounting Officer to take necessary
action to ensure that the appropriate corrections are
made to the Annual Financial Statements prior to
submission to the Auditor-General.
Detailed Procedures that should be Performed by The Municipal Manager to Review
the Quality of Financial Statements
Financial Statements and Administrative Performed
Quality Review
By and Date
The inquiry and analytical review procedures carried
out in a review of financial statements are
determined by the Accounting Officer’s judgement.
It is not intended that all the procedures suggested
apply to the review. This Appendix
Is intended to serve as a program or checklist in the
conduct of a management review.
1.
General
1.1 Inquire whether all financial information is
recorded:
(a) Completely;
(b) Promptly; and
(c) After the necessary authorization.
1.2 Obtain the trial balance and determine whether it
agrees with the general ledger and the financial
statements. Has the trial balance been cross
referenced to lead sheets?
1.3 Consider the results of previous audits and
review
engagements,
including
accounting
adjustments required.(Obtain Evidence that all the
findings in the AG’s report for the previous financial
year have been appropriately dealt with.)
Comments
1.4. Inquire whether there have been any significant
changes in the entity from the previous year.
1.5 Inquire about the accounting policies and
consider whether:
(a) They comply with GRAP standards;
(b) They have been applied appropriately; and
(c) They have been applied consistently and, if not,
consider whether disclosure has been made of any
changes in the accounting policies.
1.6 Read the minutes of meetings of Mayoral
Committee and Council, the board of directors CDA
and other appropriate committees in order to identify
matters that could be important to the review.
1.7 Inquire if actions taken at Council, board of
directors or comparable meetings that affect the
financial statements have been appropriately
reflected therein.
1.8 Inquire about the existence of transactions with
related parties, how such transactions have been
accounted for and whether related parties have been
properly disclosed.
1.9 Inquire about contingencies and commitments.
1.10 Inquire about plans to dispose of major assets or
business segments.
Can the Improvement of the
AFS Review Process
Improve Audit Outcomes?
The improvement of the quality of the review
process will also assist the Accounting Officer in
his duty to prepare and provide the AG with the
management representation letters and a complete
Audit File.
There are probably many municipalities who have
already developed a structured approach to review
the Annual Financial Statements by management.
Can the Improvement of the
AFS Review Process
Improve Audit Outcomes?
The AFS Review Template on the IMFO website
should be a living document that can be
updated and amended from time to time to suit
the circumstances.
Your comments and suggestions to improve
the review procedures of the Annual Financial
Statements will assist in the process of
improving audit outcomes at municipalities.
Discussion and Questions
Thank you for your attention
REFERENCES
• Prof. Steven Firer: CA (SA); B Com (Hons); CTA; MBA;
DBA’ Cert (IFRS) is a registered auditor and a Technical
Partner – Visiting Professor at Rhodes University, and
an accredited IFRS Advisor at JSE Limited.
•
• International Standard on Review Engagements (ISRE)
”Engagements to Review Financial Statements”