How The Independent Review Will Affect The Accounting And Auditing Profession Accounting Essay

In the survey we have brought certain subjects to visible radiation, these subjects are, what an independent reappraisal is, how different the Independent Review is to an Audit, how an independent reappraisal is done and how the new Companies Act of 2008 will impact the alterations in the Accounting and Auditing professions.

We besides touch on an article written by the Project Director of Auditing and Members advice from the South African Institute of Chartered Accountants.

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chapeau is an independent reappraisal and the differences between a Independent Review and an Audited account

In explicating what an independent reappraisal is, the Act does non clearly specify what constitutes an independent reappraisal, the criterion that should be followed or even the individual that will be allowed to publish an independent reappraisal. However, harmonizing to the South African Institutes of Professional Accountants ( SAIPA ) , there is an understanding as to which administrations would necessitate to undergo an independent reappraisal.

An independent reappraisal is compulsory merely for those companies whom appoint managers from individuals other than stockholders. Companies with merely one stockholder or companies where all the stockholders are appointed as managers are exempt from the independent reappraisal demand.

It is of import to maintain in head that non-shareholder-director companies can voluntary choose to hold an audit performed alternatively of the independent reappraisal. The same would use to stockholder -director companies or owner-managed companies who may take to hold their fiscal statements audited or independently reviewed.

Something that stands out about The Companies Act of 2008 is that it does non tie in the independent reappraisal with public involvement. When taking into history the public involvement of a peculiar company/entity, the Minister may merely command that a peculiar company is capable to an audit.

Harmonizing to SAIPA, it is hence recommended that in finding the signifier and content of the independent reappraisal the followers should be good thought-out:

The different international criterions applicable to different types of studies on the fiscal statements.

The public involvement as determined by the economic and societal significance of the company.

The types of entities that are made capable to the independent reappraisal – these are, non public involvement companies, hence to be borne in head that merely public companies and public involvement private companies are capable to a compulsory audit.

Public involvement is non associated with the independent reappraisal as the Act merely defines the audit, although there are lone ordinances for the independent reappraisal.

The audit may non be performed by an employee of the company whereas no such exclusion exists for the independent reappraisal.

The Act allows the stockholders of non-owner managed private companies either to accept the compulsory independent reappraisal or to take a higher degree study in the signifier of the audit.

Harmonizing to Theashen Ashley Vandiar, Project Director: Auditing and Members ‘ Advice, at the South African Institute of Chartered Accountants ( SAICA ) , all companies, whether public or private are required to be audited in footings of the Companies Act of 1973, but in footings of the new Companies Act, the purpose is to take down the regulative load for little houses. He states that merely public companies and companies considered as being in the public involvement are required to be audited. Non – public companies would hold a pick between an audit and an independent reappraisal of their fiscal statements.

Vandiar states that there is a immense misconception as to the cost and work load involved in a reappraisal battle as compared to the lesser benefits derived from it. One misconception is the thought that a reappraisal battle would be cheaper than an audit because no substantial processs are required for reappraisal battles. Vandiar besides says that concerns need to to the full understand the two options ( an independent reappraisal or an Audited account ) available to them in order to do the best pick for the concern.

He besides states that, depending on the size of assets and turnover, a company topic to an independent reappraisal may be required to:

Merely bring forth a digest study, as is presently the instance with close corporations.

Have a independent reappraisal performed in conformity with the International Standards on Related Services ( ISRS 4400 ) , a criterion that relates to hold upon processs, or

Have a reappraisal performed in conformity with the International Standards on Review Engagements ( ISRE 2400 ) .

Vandiar says that merely the 3rd point provides some signifier of confidence. An audit involves trials of controls and substantial processs and would ensue in an sentiment being expressed by a registered hearer and audit consequences in a sensible degree of confidence. An independent reappraisal performed in conformity with ISRE 2400, involves merely enquiry and analytical processs, hence an independent reappraisal therefore consequences in merely limited confidence being expressed by a practician.

Vandiar finds that many view the reappraisal battle as an option to an audit, as cheaper and simpler, but most fail to recognize that a reappraisal is a double-edged blade. It might look quicker than an audit, since a reappraisal comprises merely of analytical processs and enquiries and therefore it would be by no agencies cheaper or simpler, given the degree of expertness required of the referee and his experience and cognition of the client.

How an Independent reappraisal is done and who can make it

The new Companies Act states that private companies do non hold to be audited as was the instance antecedently ; they merely need to hold independent reappraisals.

So how is an independent reappraisal conducted, who can make it and is at that place any process set out for it?

The Companies Act does non specify the independent reappraisal, nor does it specify the preparation and competences required for the person who will be executing the said independent reappraisal.

As the Companies Act does non specify an independent reappraisal it is hence ill-defined as to what is expected in footings of the three inquiries asked.

Here are two readings of how an independent reappraisal should be conducted:

1 ) From an scrutinizing position point and the other,

2 ) From an accounting position point.

1. From an scrutinizing position point, the undermentioned processs are performed.

Harmonizing to ISRE2400 ( International criterions on Review Engagements ) includes:

Understanding the entity ‘s concern, industry, accounting policies and processs

Analytical reappraisal processs

Reviewing of accounting accommodations made during the fiscal twelvemonth under reappraisal

Review of execution of direction determinations which straight influence the Financial Statements

Inquires from those responsible for accounting records, to find: ( a ) whether all minutess have been recorded, ( B ) consciousness of and conformity to accounting policies, alterations in accounting criterions and policies

Agring the Trial Balance to the General Ledger and the Financial Statements

Reviewing Bank Reconciliations

Surprise hard currency count

Inventory count

Confirmation of sums of liabilities

Confirmation of Assetss

These processs are used to find the importance of the independent reappraisal in the heads of the respondents, viz. the company being Audited. An independent reappraisal in corporate jurisprudence takes the format of the reappraisal as harmonizing to ISRE 2400 which reveals the competency and makings of the person who performs the reappraisal and besides refers to a practician when explicating the intent of the criterion. The definition of a practician as per the glossary of footings of the International Auditing and Assurance Standards Board ( IAASB ) is linked to the definition of a Professional Accountant in Public Practice.

A Professional comptroller in bend is defined as any individual who is a member of any professional organic structure that is besides registered with IFAC ( International Federation of Accountants ) . A Professional Accountant in public pattern is defined as a professional comptroller irrespective of functional categorization ( e.g. audit, revenue enhancement or consulting in a house that provides professional services. )

Although public pattern is non clearly defined within the International criterions the definition is provided in the Auditing Professions Act and this will be used. The Act clearly states that public pattern is the pattern of a registered hearer who places professional services at the disposal of the populace for wagess. From the above it is clear that lone members of the Independent Regulatory Board for Auditors ( IRBA ) will be allowed to execute the independent reappraisal map until the Companies Act will supply a clear definition of this function.

2. From an accounting point of position.

Harmonizing to the Companies Act the mode, signifier and processs for the behavior of an independent reappraisal is mentioned in subdivision 30 subdivision ( 2 ) ( B ) ( two ) ( BB ) , every bit good as the professional makings of the individuals who may carry on independent reappraisals.

The Companies Act hence, does non pull a relationship between the independent reappraisal with the Auditing Professions Act of 2005, scrutinizing criterions, or the registered hearer. The independent reappraisal should besides non be confused with the term reappraisal as associated with auditing criterions. The Act does non tie in the term independent reappraisal with the term reappraisal as defined in the IAASB ( International Auditing and Assurance Standards Board ) Handbook.

There is besides no association between the Companies Act and the independent reappraisal with the construct of public involvement. When sing the public involvement of a peculiar company the Minister may merely mandate that a peculiar company should be capable to the audit.

Harmonizing to SAIPA the undermentioned demands to be considered when carry oning an independent reappraisal:

The Companies Act allows the stockholders of non-owner managed private companies to either accept the compulsory independent reappraisal or to take a higher degree study in the signifier of the audit. In finding the group of individuals that would be allowed to publish the independent reappraisal the followers should be considered:

The separate maps performed by accounting officers and hearers in footings of the Close Corporations Act, 1984 and the Companies Act, 1973, severally ;

The function and map of accounting officers in footings of assorted legislative acts to publish studies on facets of fiscal statements and conformity to statute law ;

Independent reappraisal suppliers should be defined in the ordinances as dwelling of individuals that are members of an accounting organic structure that is a member of IFAC. Internationally such a individual is known as a professional comptroller. If acknowledgment is provided in the mode proposed it would intend that the competency of South African study suppliers will be aligned to that required by the International Federation of Accountants ( IFAC ) .

How the Independent Review will impact the Accounting and Auditing Profession

First to execute or give the independent reappraisal a professional comptroller does non hold to be a registered hearer although they should be a member of a professional organic structure that has rank with the International Federation of Accountants i.e. South African Institute of Professional Accountants ( SAIPA ) .

The remotion of the audit demand is likely to hold an consequence when it comes to the preparation of new and existing hearers. This is because some accounting ( including the large five accounting companies ) houses may happen a lessening in their audit concern wing.

The academic demands differ to be registered with SAIPA as to with SAICA. The demands to register with SAIPA are a Degree with the following nucleus topics from a SAIPA accredited Tertiary Institution which must include the undermentioned nucleus topics:

Fiscal Accounting 3 ;

Tax 1 ;

Auditing 1 OR Internal Auditing 2 OR Internal Control & A ; Code of Ethics 1 & A ; 2 ;

Corporate Law 1 OR Commercial Law 2 ; and

Management Accounting

Coupled with three old ages ‘ supervised preparation at an Approved Training Centre.

There is a less rigorous demand to be a member of SAIPA, and adds some kind of uncertainty as to whether the Professional Accountant will hold the necessary competency to really publish or execute a independent reappraisal.

As to the independency issue, the Professional Accountant executing the independent reappraisal does non hold to be independent of the entity who he is reexamining. The Professional Accountant can besides be employed by the company he is reexamining, where as an audit study the professional comptroller has to be a registered hearer.

The issue of the Independent reappraisal creates more chances for professional comptrollers that do non transport the appellation CA ( SA ) . The independent reappraisal offers a less degree of confidence as to an audit study.

The independent reappraisal fee will be less than an audit fee, so if private companies and close corporations do elect on holding their fiscal information reviewed it could intend that there is a loss ( in footings of what they could be acquiring ) for audit houses compared to when an audit is compulsory.

The independent reappraisal will play an of import function in the coverage construction of entities which means that comptrollers and hearers will hold more work to make.

The relationship between comptrollers and concern proprietors is a extremely sensitive issue. Regardless of the fact that preparers of fiscal statements, whether they are employed by a concern or hired from outside, will be personally apt for inaccuracies, and can be fined or even jailed. Preparers of fiscal statements can hence be expected to forbear from accepting payoffs in order to demo a good public presentation of that company under reappraisal.


In decision we have taken you through what an independent reappraisal is, the differences between an Independent Review and an Audit, the effects that the new Companies Act of 2008 will hold on the Accounting and Auditing profession. We have excessively highlighted that the Act does non hold a set definition for an Independent Review, nevertheless gives a brief account as to who can execute the Independent Review and which companies can choose to hold an Independent Review done.

Furthermore companies should be careful when choosing for an Independent Review and the benefits of the reappraisal should be weighed up against the concern demands. What besides became clear is that an Independent Review enables Professional Accountants other than comptrollers with the appellation CA ( SA ) to execute these reappraisals and one would hold to maintain in head that an Independent Review requires a Professional Accountant to hold good analytical accomplishments and an in deepness apprehension of the client.


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