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MANAGEMENTS RESPONSIBILITY TO REVIEW THE ANNUAL FINANCIAL STATEMENTS

MANAGEMENTS RESPONSIBILITY TO REVIEW THE ANNUAL FINANCIAL STATEMENTS. BY DANIEL J DE LANGE Director Finance and Corporate Services and CFO CELL 0825572064 EMAIL- ddelange@cacadu.co.za. Purpose of the Review Process.

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MANAGEMENTS RESPONSIBILITY TO REVIEW THE ANNUAL FINANCIAL STATEMENTS

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  1. MANAGEMENTS RESPONSIBILITY TO REVIEW THE ANNUAL FINANCIAL STATEMENTS BY DANIEL J DE LANGE Director Finance and Corporate Services and CFO CELL 0825572064 EMAIL- ddelange@cacadu.co.za

  2. 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).

  3. 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

  4. 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.

  5. 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.

  6. 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.

  7. 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.

  8. 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.

  9. 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.

  10. 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.

  11. 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.

  12. Detailed Procedures that should be Performed by The Municipal Manager to Review the Quality of Financial Statements

  13. 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.

  14. 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.

  15. Discussion and Questions Thank you for your attention

  16. 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”

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