AUDITING NOTES FOR SOUTH AFRICAN STUDENTS TENTH EDITION JACKSON AND STENT

AUDITING NOTES FOR SOUTH AFRICAN STUDENTS TENTH EDITION JACKSON AND STENT PREFACE TO THE TENTH EDITION This tenth edition of the book has been compiled specifically to assist students at tertiary institutions in South Africa with their studies in auditing. The book is not designed to be used on its own and will work best when used in conjunction with the Companies Act 2008 and its Regulations 2011, the International Standards on Auditing and the (SAICA) Code of Professional Conduct as well as the King IV Report on Corporate Governance for South Africa. Extensive reference is made to these and other pronouncements. The major changes to the ninth edition are that Chapter 4 – Corporate Governance has been completely re-written to accommodate the publication of the King IV Report on Corporate Governance for South Africa 2016 and that Chapter 18 – The Audit Report has also been completely re-written to accommodate the revision of a number of reporting statements and the issue of entirely new reporting statement ISA 701 – Communicating Key Audit Matters in the Independent Auditor’s Report (effective for audits of financial statements for periods ending on or after 15 December 2016. Chapter 15 – Going Concern has also been revised to accommodate important changes in ISA 570 (Revised) – Going Concern which is also relevant for audits of financial statements for periods ending on or after 15 December 2016. Changes have also been made to a number of chapters to accommodate the “conforming amendments” arising out of the Disclosures project and the Auditor Reporting project. Perhaps the most far reaching of the conforming amendments, besides the increased emphasis on disclosure, are the changes to the definition/description of the financial statement assertions. Formally divided into three categories, they are now presented in two categories with the former “presentation and disclosure” assertions being merged into the transaction and events, and account balance assertions. Our intention has been to ‘simplify’ what has proved to be a difficult subject for many generations of auditing students. We hope that we have achieved this. Any comments or suggestions to improve subsequent editions would be most welcome, especially from students who use the book. R D C Jackson B.Acc (Natal), M.Com (Rhodes), CA(SA) Former Professor in the School of Accounting, University of KwaZulu-Natal, Durban. W J Stent B.Com (Hons) (Rhodes), M.Com (RAU), HDE (Rhodes), PhD (Massey), CA(SA), CISA. Former Senior Lecturer in the School of Accounting, University of KwaZulu-Natal, Durban. Copyright subsists in this work. No part of this work may be reproduced in any form or by any means without the publisher’s written permission. Any unauthorised reproduction of this work will constitute a copyright infringement and render the doer liable under both civil and criminal law. © 2016 LexisNexis 215 North Ridge Road Morningside, Durban 4001 Telephone: 031 ISBN softcover 978 0 409 12460 6 e-book 978 0 409 12478 1 CONTENTS Please see the end of the book for detailed chapter by chapter index Chapter 1 Introduction to Auditing 1/1 - 1/24 Chapter 2 Professional Conduct 2/1 - 2/53 Chapter 3 Statutory Matters * Companies Act 2008 and Regulations * Close Corporations Act 1984 * Auditing Profession Act 2005 3/1 - 3/93 Chapter 4 Corporate Governance 4/1 - 4/66 Chapter 5 General Principles of Auditing * Internal control * Audit evidence * The auditor’s toolbox * Audit sampling 5/1 - 5/34 Chapter 6 An Overview of the Audit Process 6/1 - 6/25 Chapter 7 Important Elements of the Audit Process * Understanding Audit Risk * Understanding the Entity and its environment * The concept of materiality * The auditor’s responsibilities relating to fraud 7/1 - 7/46 Chapter 8 Computer Audit - The Basics 8/1 - 8/50 Chapter 9 Computer Audit - Networks and Related Concepts 9/1 - 9/35 Chapter 10 Revenue and Receipts Cycle 10/1 - 10/73 Chapter 11 Acquisitions and Payments Cycle 11/1 - 11/53 Chapter 12 Inventory and Production Cycle 12/1 - 12/29 Chapter 13 Payroll and Personnel Cycle 13/1 - 13/43 Chapter 14 Finance and Investment Cycle 14/1 - 14/31 Chapter 15 Going Concern and Factual Insolvency 15/1 - 15/17 Chapter 16 Reliance on Other Parties 16/1 - 16/12 Chapter 17 Sundry Topics * Initial Audit Engagements - Opening Balances – ISA 510 * Subsequent Events – ISA 560 * Related Parties – ISA 550 * Audit Documentation – ISA 230 * Specific types of Audit Evidence 17/1 - 17/26 External confirmations – ISA 505 Enquiries regarding litigation and claims – SAAPS 4 External confirmations from financial institutions – SAAPS 6 Written Representations – ISA 580 Analytical Procedures – ISA 520 * Using a Service Organisation – ISA 402 Chapter 18 The Audit Report 18/1 - 18/40 Chapter 19 Review Engagements and Related Service Engagements * Engagements to review historical financial statements * “Agreed upon procedures” engagements * Compilation engagements 19/1 - 19/22 .....................................................continued........................................