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Audit vs. Independent Review

Thursday, 07 February 2013   (0 Comments)
Posted by: Erich Bell
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Should SA follow the trend?

South Africa has always tried to keep up to date with the international trends and changes. Countries like the United Kingdom, Canada and Australia have removed certain audit requirements to promote entrepreneurship. The new independent review proves to be less burdensome, less rigorous and less costly for smaller companies, but the experience overseas shows that it adds up to approximately 75% of the costs of a normal audit.

The introduction of an independent review raised a lot of questions over the description of such a review and how it differs from an audit. The main purpose of an audit report is to identify any management fraud and irregularities. Reviewers on the other hand are less likely to pick up fraudulent behaviour and are not required to report irregularities discovered.

The objective of an independent review of financial statements is to enable a practitioner to state whether or not anything has to come to his attention that causes him to believe that the financial statements are not prepared in all material aspects, in accordance with an identified financial reporting framework and/or statutory requirements.

Scope of a review

The scope of an independent review engagement is less than that of an audit, and therefore the level of assurance provided is lower. This means that a review can only provide limited assurance and not reasonable assurance. A review does not require the registered practitioner to seek supporting independent evidence or to evaluate the internal controls of a company.

A reviewer seeks to have an overall understanding of a client in order to enable him to identify any material misstatements. The auditor needs to have a more in-depth understanding of such a client to identify any risk of material misstatements. The practitioner will primarily perform analytical procedures and make the relevant enquiries when performing a review to obtain sufficient appropriate evidence.

Liability of the parties

An audit will limit the liability of third parties whilst a review provides no liability protection. Both auditors and reviewers can be sued if they fail the objective standard of what is required from them.

Who must be reviewed?

The Regulations to the Companies Act determines that all Public and State-owned companies should be audited. Companies that proposed a voluntary audit or who passed the public interest test will also fall under these requirements. Private companies; companies who volunteered or who failed the public interest test are not required to be audited but will be reviewed instead.

Reporting of findings

The distinguishing factor between a review and an audit is in the reporting of the findings. The report of a review will be called negative assurance. This level of assurance is lower than that given in an audit opinion. The report provided by the registered practitioner to the client will enable him to complete the review in accordance with the relevant reporting framework. Although sufficient evidence has not been obtained, a review will allow the tax practitioner to report that nothing has come to his attention that caused him to believe that the information being reported is in all material respects in accordance with the appropriate criteria.

Companies meeting the criteria for a review should consider it as it might save them a lot of time and money.

Source: Charl Geldenhuys



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