Expsure Draft September 2010 Cmments are requested by 12 Nvember 2010 Prpsed Revised Suth African Auditing Practice Statement (SAAPS) 2 Financial Reprting Framewrks and the Auditr s Reprt
REQUEST FOR COMMENTS The Cmmittee fr Auditing Standards (CFAS), a statutry cmmittee f the Independent Regulatry Bard fr Auditrs (IRBA) apprved the release f the Prpsed Revised Suth African Auditing Practice Statement (SAAPS) 2, Financial Reprting and the Auditr s Reprt at its meeting in August 2010, nw issued fr public cmment. T ensure that all relevant stakehlders are cnsulted and t streamline the cnsultatin prcess, interested and affected stakehlders are invited t submit written cmments t the IRBA. All cmments will be cnsidered a matter f public recrd. Please submit written cmments, preferably by e-mail, r n a cmputer disc t: The Directr-Standards Independent Regulatry Bard fr Auditrs P O Bx 751595 Garden View 2047 Fr Attentin: Mrs. S D van Esch E-mail: svanesch@irba.c.za Fax: +27 86 575 6535 Enquiries shuld be directed t Mrs. S D van Esch Tel: +27 87 940 8871 Fax: +27 86 575 6535 E-mail svanesch@irba.c.za r Mr. B Jantjies Tel; +27 87 940 8862 Fax: +27 86 575 8645 E-mail bjantjies@irba.c.za Cpies f the expsure draft may be dwnladed free f charge frm the IRBA website at http://www.irba.c.za Cpyright Independent Regulatry Bard fr Auditrs 2010 All rights reserved. Permissin is granted t make cpies f this wrk prvided that such cpies, in whichever frmat, are fr the purpse f registered auditrs discharging their prfessinal duties, fr use in academic classrms r fr persnal use and prvided such cpies are nt sld fr incme and prvided further that each cpy bears the fllwing credit line: Cpyright by the Independent Regulatry Bard fr Auditrs. All rights reserved. Used with permissin f the IRBA. Otherwise, written permissin frm the Independent Regulatry Bard fr Auditrs is required t reprduce, stre r transmit this dcument except as permitted by law.
EXPOSURE DRAFT PROPOSED REVISED SOUTH AFRICAN AUDITING PRACTICE STATEMENT (SAAPS) 2 FINANCIAL REPORTING FRAMEWORKS AND THE AUDITOR S REPORT Cntents Page Explanatry Memrandum... 4 Prpsed Revised SAAPS 2, Financial Reprting Framewrks and Auditr s Reprt... 5-16 Page 3 f 16
Explanatry Memrandum This memrandum prvides backgrund t, and explanatin f, the prpsed revised Suth African Practice Statement (SAAPS) 2, nw titled Financial Reprting Framewrks and the Auditr s Reprt. This prpsed revisin was prmpted by the changes that came abut in Internatinal Standards n Auditing which were apprved fr audits f financial statements fr perids beginning n r after 15 December 2009 (the clarified ISAs) and the need fr auditrs t understand the interactin, rather than the difference, between general and special purpse financial statements, general and special purpse framewrks, and fair presentatin and cmpliance framewrks that are a feature f the clarified ISAs. At the same time there have been revisins t the mdificatins requirements and the requirements fr the emphasis f matter and ther matter paragraphs. The risk fr an auditr lies in applying the wrng framewrk in the wrng circumstance and getting his reprt wrng because the applicatin f the clarified ISAs and their interactin is nt understd. This prpsed revisin additinally deals with the requirements f public sectr reprting as cntributed by the Auditr-General and the title has als been changed frm Financial Reprting Framewrks and Audit Opinins t Financial Reprting Framewrks and the Auditr s Reprt, thus indicating a mre cmprehensive applicatin than previusly. In these circumstances it is inevitable that this revisin is lnger than the versin it replaces sme 51 paragraphs against 31 paragraphs, tgether with its appendices. This revised SAAPS 2 is expected t require further revisin when the Cmpanies Act 2008 and its Regulatins are apprved. The Cmmittee fr Auditing Standards apprved this prpsed revisin f SAAPS 2 at its August 2010 meeting fr expsure fr public cmment. Page 4 f 16
Purpse Prpsed Revised Suth African Auditing Practice Statement (SAAPS) 2 Financial Reprting Framewrks and the Auditr s Reprt 1. The purpse f this Suth African Auditing Practice Statement (SAAPS) is t prvide guidance t the auditr n the applicatin f Internatinal Standards n Auditing (ISAs) in determining the acceptability f the financial reprting framewrk applied in the preparatin f a set f financial statements, thereby establishing: Whether this precnditin fr an audit 1 is present; and The effect f the financial reprting framewrk applied n the auditr s reprt in Suth Africa. 2 2. The guidance cntained in this SAAPS des nt establish new requirements fr, r exemptins frm, the requirements f the ISAs and shuld be read in cnjunctin therewith. The auditr exercises prfessinal judgement t determine the extent t which any f the guidance prvided in this SAAPS may be apprpriate in the light f the requirements f the ISAs and the auditr s particular circumstances. Scpe 3. This SAAPS is based n the ISAs which were apprved fr audits f financial statements fr perids beginning n r after 15 December 2009 (the clarified ISAs). The ISAs that have particular reference t financial reprting framewrks and the auditr s reprt dealt with in this SAAPS are: ISA 200, Overall Objective f the Independent Auditr and the Cnduct f an Audit in accrdance with Internatinal Standards n Auditing (ISA 200) ISA 210, Agreeing the Terms f Audit Engagements (ISA 210) ISA 700, Frming an Opinin and Reprting n Financial Statements (ISA 700) ISA 705, Mdificatins t the Opinin in the Independent Auditr s Reprt (ISA 705) ISA 706, Emphasis f Matter Paragraphs and Other Matter Paragraphs in the Independent Auditr s Reprt (ISA 706) ISA 800, Special Cnsideratins Audits f Financial Statements Prepared in Accrdance with Special Purpse Framewrks (ISA 800) 4. This SAAPS des nt incrprate the requirements f: ISA 805, Special Cnsideratins Audits f Single Financial Statements and Specific Elements, Accunts r Items f a Financial Statement (ISA 805). The principles dealt with in this SAAPS may, hwever, be applied t ISA 805 in determining the acceptability f the financial reprting framewrk and the effect that the financial reprting framewrk has n the auditr s reprt. ISA 810, Engagements t Reprt n Summary Financial Statements (ISA 810), as the applied criteria referred t in ISA 810 is nt the applicable financial reprting framewrk as cntemplated in the preparatin f financial statements. 5. This SAAPS des nt extend t: An engagement t review financial statements in accrdance with 1 ISA 210, paragraph 6(a) 2 ISAs 700, 705, 706 and 800 Page 5 f 16
Terms used in this SAAPS Internatinal Standards n Review Engagements (ISREs). It is nevertheless cnsidered by a reviewer in determining the acceptability f the financial reprting framewrk applicable t a review engagement; and An assurance engagement in accrdance with Internatinal Standards n Assurance Engagements ther than Audits r Reviews f Histrical Financial Infrmatin (ISAEs). It is nevertheless cnsidered by the assurance prvider in determining the suitability f the criteria applicable t the prvisin f assurance in an engagement f this nature. 6. Fr purpses f SAAPS 2 the fllwing terms defined in the ISAs and reflected in the Glssary f Terms (February 2009) have the same meanings attributed t them: 3 applicable financial reprting framewrk ; general purpse financial statements and special purpse financial statements ; general purpse framewrk and special purpse framewrk ; fair presentatin framewrk and cmpliance framewrk ; criteria and applied criteria. 7. The applicable financial reprting framewrk referred t in the ISAs, fr all practicable purpses, is the same as the identified financial reprting framewrk referred t in the definitin f audit in the Auditing Prfessin Act, N. 26 f 2005. 4 8. The term basis f accunting used in this SAAPS is used in the cntext f certain special purpse framewrks. 9. The term management used in this SAAPS refers t the persn(s) r bdy with executive respnsibility fr the preparatin f the financial statements in accrdance with the applicable financial reprting framewrk r basis f accunting, fr example the directrs f a cmpany, the trustees f a trust, an accunting fficer r accunting authrity in the public sectr. Purpse f an audit f financial statements 10. The purpse f an audit is t enhance the degree f cnfidence f the intended users in the financial statements and this is achieved by the expressin f an pinin by the auditr n whether the financial statements are prepared, in all material respects, in accrdance with an applicable financial reprting framewrk. 5 Accrdingly an audit is an assurance engagement. Determining the acceptability f the financial reprting framewrk 11. The Internatinal Framewrk fr Assurance Engagements defines and describes the elements f an assurance engagement and, in particular, prvides guidance in determining the intended users f an assurance reprt and the characteristics f suitable criteria against which the financial reprting framewrk shuld be assessed. 3 These definitins are prvided in Appendix 1 f this SAAPS. 4 The Auditing Prfessin Act (2005) sectin 1. 5 ISA 200, paragraph 3. Page 6 f 16
Intended users 12. The intended users 6 f the auditr s reprt n the financial statements are the persn, persns r class f persns fr whm the auditr prepares the auditr s reprt. Examples f intended users are the fllwing: A wide range f users fr which general purpse financial statements are prepared. These include: Thse established by statute, such as the members in the case f the Cmpanies Act, N. 61 f 1973 as amended t whm the auditr s reprt is addressed; Thse established in terms f cmmn law, such as financial institutins, regulatry authrities, the Suth African Revenue Service and creditrs; and Thse in the public sectr, such as Parliament, Prvincial Legislatures, elected fficials, Natinal / Prvincial Treasuries, dnrs, institutinal and individual lenders, special interest grups and the general public. Specific users fr which special purpse financial statements are prepared. These include: Characteristics f suitable criteria Thse established by agreement between the auditr, the respnsible party (usually, but nt necessarily, the client) and thse engaging the auditr (the client); Thse established by a funding dcument, such as the trustees f a trust; and Thse specific t the circumstances f the entity, such as the members f a club r religius institutin and the parents f learners in a schl. 13. The auditr cnsiders whether, in the cntext f the engagement circumstances, a financial reprting framewrk exhibits the fllwing characteristics f suitable criteria: 7 Relevance: relevant criteria cntribute t cnclusins that assist decisinmaking by the intended users. Cmpleteness: criteria are sufficiently cmplete when relevant factrs that culd affect the cnclusins in the cntext f the engagement circumstances are nt mitted. Cmplete criteria include, where relevant, benchmarks fr presentatin and disclsure. Reliability: reliable criteria allw reasnably cnsistent evaluatin r measurement f the subject matter (ther histrical financial infrmatin) including, where relevant, presentatin and disclsure, when used in similar circumstances by similarly qualified practitiners. Neutrality: neutral criteria cntribute t cnclusins that are free frm bias. Understandability: understandable criteria cntribute t cnclusins that are clear, cmprehensive, and nt subject t significantly different interpretatins. 6 ISA 210, paragraphs A2 A10 prvide further guidance, ISA 800, paragraphs 8(b) and A5. 7 Framewrk, paragraph 36, ISA 200, Appendix 2 and ISA 800, paragraph A8. Page 7 f 16
14. The evaluatin r measurement f a subject matter n the basis f the auditr s wn expectatins, judgments and individual experience wuld nt cnstitute suitable criteria. 15. The relative imprtance f each f these characteristics t a particular engagement is a matter f judgement, and depends n the engagement circumstances. Fr example, even thugh a financial reprting framewrk designed fr a special purpse may nt result in the preparatin f histrical financial infrmatin that is neutral, that framewrk may still be acceptable in the engagement circumstances. Precnditins fr an audit 16. In rder t establish whether in the cntext f engagement acceptance the precnditins fr an audit are present, the auditr inter alia determines the acceptability f the financial reprting framewrk 8 t be applied in the preparatin f financial statements. The auditr further btains an understanding f the entity s selectin and applicatin f accunting plicies as part f btaining an understanding f the entity and its envirnment. 9 17. Factrs that are relevant t the auditr s determinatin f the acceptability f the financial reprting framewrk t be applied in the preparatin f financial statements include: 10 The nature f the entity; The purpse f the financial statements; The nature f the financial statements; and Whether law r regulatin prescribes the applicable financial reprting framewrk. Additinal factrs t be cnsidered fr special purpse financial statements include: 11 The intended users; and The steps taken by management t determine that the applicable financial reprting framewrk is acceptable in the circumstances. General purpse and special purpse framewrks 18. In rder t determine the acceptability f the financial reprting framewrk, the auditr determines whether the financial statements are prepared t meet the cmmn financial infrmatin needs f a wide range f users (general purpse financial statements) r the financial infrmatin needs f specific users (special purpse financial statements). General purpse financial statements are prepared in accrdance with a general purpse framewrk and special purpse financial statements are prepared in accrdance with a special purpse framewrk. 19. At present there is n bjective and authritative basis that has been generally recgnised glbally fr determining the acceptability f general purpse financial reprting framewrks and in the absence f such a basis, financial reprting standards established by rganisatins that are authrised r recgnised t prmulgate such standards t be used by certain types f entities are presumed t be acceptable fr general purpse financial statements prepared by such entities, prvided the rganisatins fllw an established and transparent prcess invlving deliberatin 8 ISA 210, paragraph 6(a), A2 A10 and Appendix 2. 9 ISA 800, paragraph 10. 10 ISA 210, paragraph A4. 11 ISA 800, paragraph 8. Page 8 f 16
and cnsideratin f the views f a wide range f stakehlders. 12 20. Law and regulatin may prescribe the financial reprting framewrk t be used by management in the preparatin f special purpse financial statements fr a certain type f entity. In the absence f indicatins t the cntrary, such a financial reprting framewrk is presumed acceptable fr special purpse financial statements prepared by such entity. 13 21. The recgnised accunting standard setters in Suth Africa are the Accunting Practices Bard (APB) and the Accunting Standards Bard (ASB). The auditr relies n the prcesses fllwed by these standard setters in develping framewrks acceptable fr general purpse financial statements. A bdy authrised by statute t prescribe financial reprting framewrks t be applied in preparatin f financial statements by certain entities des nt cnstitute a recgnised accunting standard setter. 22. The framewrk t be applied by particular entities may be prescribed by law r regulatin. The fllwing, fr example, cntain prescribed requirements: The Cmpanies Act; 14 The JSE Listings Requirements; The Public Finance Management Act, N. 1 f 1999 (PFMA). The Public Audit Act, N. 25 f 2004 (PAA) empwers the Auditr-General t prescribe the financial reprting framewrk t be applied by a public sectr entity in the absence f any requirement regarding the financial reprting framewrk in the legislatin applicable t that entity. In additin t the prescriptin in the PFMA, the PFMA als empwers the Natinal Treasury t prescribe the accunting standards fr public sectr entities in the absence f implementatin dates f GRAP. 23. The fllwing are examples f general purpse framewrks: Standards apprved by the APB Internatinal Financial Reprting Standards (IFRS) Suth African Statements f Generally Accepted Accunting Practice (SA GAAP / GAAP) Internatinal Financial Reprting Standards fr Small and Mediumsized Entities (IFRS fr SMEs) 15 Standards apprved by the ASB Standards f Generally Recgnised Accunting Practice (GRAP) The Departmental Financial Reprting Framewrk prescribed by the Natinal Treasury 24. The fllwing are examples f special purpse framewrks: Where management des nt have a chice in the applicatin f the framewrk: The financial reprting framewrk apprved by the Financial Services Bard fr the financial statements f retirement funds is an 12 ISA 210, paragraph A8 and ISA, 200 paragraph A7. 13 ISA 800, paragraph A6. 14 Refer t Appendix 3 in this SAAPS fr further guidance. 15 Suth African Statement f GAAP fr SMEs may still be applied by entities fr financial perids ending n r befre 31 August 2010. Page 9 f 16
example f a special purpse framewrk established by a regulatr t meet the requirements f that regulatr. Where management has a chice in the applicatin f the framewrk: A basis f accunting applied by an entity that cmprises a set f criteria used in preparing financial statements which applies t all material items and which has been designed specifically fr the intended users f the financial statements f the entity. Fair presentatin and cmpliance framewrks 25. A financial reprting framewrk, whether a general purpse framewrk r a special purpse framewrk, may be classified as either a fair presentatin framewrk r a cmpliance framewrk. 26. In cnsidering whether a framewrk may be classified as a fair presentatin framewrk, the auditr cnsiders whether it cntains the acknwledgements in the definitin f a fair presentatin framewrk. It shuld be nted that the departures referred t in the acknwledgements are nly t achieve fair presentatin. 27. The fllwing financial reprting framewrks apprved and issued by standard setters in Suth Africa are recgnised as fair presentatin framewrks: Internatinal Financial Reprting Standards (IFRS); Suth African Statements f Generally Accepted Accunting Practice (GAAP); Internatinal Financial Reprting Standards fr Small and Medium Sized Entities (IFRS fr SMEs); 16 Standards f Generally Recgnised Accunting Practice (GRAP). 28. A financial reprting framewrk, whether prescribed by law r regulatin r management, which is nt a recgnised financial reprting framewrk established by a standard setter and where the entity may nt deviate frm its prescribed frm and cntent, is a cmpliance framewrk. When the financial statements are prepared in accrdance with a cmpliance framewrk the auditr is nt required t evaluate whether the financial statements achieve fair presentatin. 29. When a departure frm the prescribed financial reprting framewrk is granted by the bdy r entity wh prescribed the framewrk, the auditr determines whether that framewrk is still a fair presentatin framewrk and whether the framewrk is still acceptable. 17 30. Where management has selected a cmpliance framewrk r basis f accunting where it has a chice, the auditr determines the acceptability f the basis f accunting 18 given the factrs referred t in paragraph 17 abve. 31. In determining the acceptability f a cmpliance framewrk fr general purpse financial statements the auditr shuld especially cnsider whether such financial statements may be suitable fr general purpses, as the users may nt understand the basis f accunting. 32. The financial reprting framewrk applied by an entity such as a schl, club, religius institutin, farming peratin, trust, partnership and bdy crprate in the preparatin f its financial statements may be a requirement f law r regulatin, an agreement r stipulatin in that entity s funding dcument, fr example, a trust deed. 16 Suth African Statement f GAAP fr SMEs may still be applied by entities fr financial perids ending n r befre 31 August 2010. 17 ISA 800, paragraph A3. 18 ISA 800, paragraph 8. Page 10 f 16
The specified basis f accunting may be a fair presentatin framewrk r a cmpliance framewrk. The effect f the financial reprting framewrk r basis f accunting n the auditr s reprt 33. The auditr s reprt n general purpse financial statements, whether prepared in accrdance with a fair presentatin framewrk r a cmpliance framewrk, fllws the guidance in ISA 700. When the financial statements are special purpse financial statements, whether prepared in accrdance with a fair presentatin framewrk r a cmpliance framewrk, the auditr s reprt additinally fllws the guidance in ISA 800. 34. The requirements f the applicable financial reprting framewrk and any legislative requirements determine the frm and cntent f a set f financial statements and affects the wrding in the auditr s Reprt n the Financial Statements. Law r regulatin may impse additinal reprting respnsibilities n the auditr which have n effect n the financial reprting framewrk applied in the preparatin f the financial statements. These are dealt with in the auditr s Reprt n Other Legal and Regulatry Requirements. 35. The auditr s reprt n a cmpany s financial statements refers t the applicable fair presentatin financial reprting framewrk fllwed by... and in the manner required by the Cmpanies Act f Suth Africa. The latter refers t the financial reprting requirements additinal t thse cntained in the identified financial reprting framewrk, which include the requirements f the Cmpanies Act, such as thse cntained in Schedule 4. The reference t the Cmpanies Act als indicates that the financial statements are that cmpany s statutry financial statements and is mitted when the financial statements are nt a cmpany s statutry financial statements. 36. In the case f a public sectr entity, which may als be a cmpany, the auditr s reprt als refers t the PFMA, Lcal Gvernment: Municipal Finance Management Act, N. 56 f 2003 (MFMA), the Divisin f Revenue Act (DORA) r any specific enabling legislatin which prescribes the financial reprting framewrk and any additinal financial reprting requirements, additinal t thse cntained in the applicable financial reprting framewrk. Fr example, in the case f a cmpany which is a public entity as defined in the PFMA, the auditr s reprt refers t the applicable fair presentatin financial reprting framewrk fllwed by... and in the manner required by the Public Finance Management Act f Suth Africa, and in the manner required by the Cmpanies Act f Suth Africa. Reference is made t the PFMA because the entity has financial reprting requirements additinal t the identified financial reprting framewrk and thse in the Cmpanies Act. 37. The financial reprting framewrk referred t in the financial statements and auditr s reprt must be available t the intended users t allw them t understand hw the financial psitin, financial perfrmance and cash flws have been evaluated r measured in the case f a fair presentatin framewrk, r whether the financial statements have been prepared in accrdance with the applicable basis f accunting in the case f a cmpliance framewrk. 38. Legislatin, regulatry requirements and legal agreements ften refer t generally accepted accunting practice (gaap), which is neither an identified fair presentatin financial reprting framewrk nr a descriptin f a cmpliance framewrk in accrdance with Internatinal Standards n Auditing. In such circumstances the cmpliance framewrk referred t in the auditr s reprt is described as the basis f accunting described in Nte X t the financial statements. Page 11 f 16
39. Special purpse financial statements prepared in accrdance with a cmpliance framewrk shuld indicate their purpse and, if necessary, identify the intended users; cnsequently: The basis f preparatin paragraph shuld adequately describe the basis f accunting. Where the basis f accunting is based n a fair presentatin framewrk with certain departures (where the aim is nt t achieve fair presentatin), it is preferable t describe the basis f accunting, fr example, IFRS except fr thse identified standards (r cmpnents f identified standards) that have nt been cmplied with, as the user is better able t understand the described basis f accunting than when the descriptin simply refers t the accunting plicies set ut in the financial statements. Where management has a chice in the basis f accunting, it is recmmended that the financial statements include a statement that management cnsiders the basis f accunting applied t be suitable fr the intended users. The auditr s reprt refers t the purpse f the financial statements and cntains an emphasis f matter paragraph alerting users f the auditr s reprt that the financial statements are prepared in accrdance with a special purpse framewrk and that, as a result, the financial statements may nt be suitable fr anther purpse. 19 40. When the auditr expresses an unmdified pinin in accrdance with a fair presentatin framewrk, the auditr s pinin, unless therwise required by law r regulatin, includes the phrase the financial statements present fairly, in all material respects, the financial psitin, financial perfrmance and cash flws, in accrdance with and refers t ne f the financial reprting framewrks identified in paragraph 27 abve. 41. When the auditr expresses an unmdified pinin in accrdance with a cmpliance framewrk, the pinin states that the financial statements are prepared, in all material respects, in accrdance with the [describe applicable financial reprting framewrk]. 42. The auditr issues an apprpriately mdified auditr s pinin in accrdance with ISA 705: When the auditr cncludes that the financial statements d nt adequately describe r refer t the applicable financial reprting framewrk r basis f accunting. When an entity departs materially frm the applicable r prescribed financial reprting framewrk and the aim f the departure is nt t achieve fair presentatin. 43. Where the auditr is bliged by law r regulatin t use the phrase present fairly in the auditr's pinin and the financial reprting framewrk is nt a fair presentatin framewrk, the auditr's reprt cntains an 'ther matters' paragraph when the auditr cncludes that an explanatin is required t mitigate any pssible misunderstanding f the phrase 'present fairly'. 44. When the auditr cncludes that an explanatin in the ther matters paragraph cannt mitigate any pssible misunderstanding, the auditr evaluates the effect f the misleading nature f the financial statements and mdifies the auditr's pinin accrdingly. 19 ISA 800, paragraphs 14, A14 and A15. Page 12 f 16
When a financial reprting framewrk is nt acceptable 45. If it is determined that the financial reprting framewrk is nt acceptable, and the precnditins fr an audit have nt been met, the auditr refers t ISA 210, paragraph 8, fr guidance. 46. If it is determined that the financial reprting framewrk prescribed by law r regulatin wuld be unacceptable but fr the fact that it is prescribed by law r regulatin, the auditr refers t ISA 210, paragraphs 19 and 20, fr guidance. 47. If the auditr has determined that the financial reprting framewrk prescribed by law r regulatin wuld be unacceptable but fr the fact that it is prescribed by law r regulatin, the auditr evaluates the effect f the misleading nature f the financial statements n the auditr s reprt and mdifies the auditr s pinin accrdingly. 20 48. It is unlikely that a fair presentatin framewrk, apprved and issued by a standard setter in Suth Africa (see paragraph 23 abve), may be unacceptable in the circumstances f the engagement. It is als unlikely that, where management des nt have a chice in the applicatin f a cmpliance framewrk, such as that required by a regulatr, such framewrk may be unacceptable. It is mre likely that where management has a chice in the applicatin f the framewrk, such framewrk may be unacceptable. Other matters 49. The applicatin f the financial reprting framewrks dealt with in this SAAPS is presented by way f a diagram in Appendix 2. 50. Illustrative auditr s reprts n financial statements are cntained in SAAPS 3. Effective date 51. This SAAPS prvides guidance fr the implementatin f the Internatinal Standards n Auditing (ISAs) that became effective fr audits f financial statements fr perids beginning n r after 15 December 2009. 20 ISA 210, paragraph 20 Page 13 f 16
Prpsed Revised Suth African Auditing Practice Statement (SAAPS) 2 Financial Reprting Framewrks and the Auditr s Reprt Appendix 1 Definitins 21 a) Applicable financial reprting framewrk is the financial reprting framewrk adpted by management and, where apprpriate, thse charged with gvernance in the preparatin f financial statements that is acceptable in view f the nature f the entity and the bjective f financial statements, r that is required by law r regulatin. b) Applied criteria (in the cntext f ISA 810) are the criteria applied by management in the preparatin f summary financial statements. c) Cmpliance framewrk refers t a financial reprting framewrk that requires cmpliance with the requirements f the framewrk, but des nt cntain the acknwledgements in the definitin f a fair presentatin framewrk. d) Criteria are the benchmarks used t evaluate r measure the subject matter including, where relevant, benchmarks fr presentatin and disclsure. There can be different criteria fr the same subject matter. Suitable criteria are required fr reasnably cnsistent evaluatin r measurement f a subject matter within the cntext f prfessinal judgement. e) Fair presentatin framewrk refers t a financial reprting framewrk that requires cmpliance with the requirements f the framewrk and: Acknwledges explicitly that, t achieve fair presentatin f the financial statements, it may be necessary fr management t prvide disclsures beynd thse specifically required by the framewrk; r Acknwledges explicitly that it may be necessary fr management t prvide disclsures beynd thse specifically required by the framewrk t achieve fair presentatin f the financial statements. Such departures are expected t be necessary nly in extremely rare circumstances. f) General purpse financial statements are financial statements prepared in accrdance with a general purpse framewrk g) General purpse framewrk is a financial reprting framewrk designed t meet the cmmn infrmatin needs f a wide range f users. The financial reprting framewrk may be a fair presentatin framewrk r a cmpliance framewrk h) Special purpse financial statements are financial statements prepared in accrdance with a special purpse framewrk i) Special purpse framewrk is a financial reprting framewrk designed t meet the financial infrmatin needs f specific users. The financial reprting framewrk may be a fair presentatin framewrk r a cmpliance framewrk. 21 Refer t paragraph 6 These definitins referred t in SAAPS 2 are terms defined in the ISAs and reflected in the Glssary f Terms (February 2009) and have the same meanings attributed t them. Page 14 f 16
Prpsed Revised Suth African Auditing Practice Statement (SAAPS) 2 Financial Reprting Framewrks and the Auditr s Reprt Appendix 2 Diagram f the financial reprting framewrks Financial statements Wide range f users Specific users General purpse financial statements ISA 700 Specific purpse financial statements ISA 800 General purpse framewrk Special purpse framewrk Fair presentatin framewrk Cmpliance framewrk Fair presentatin framewrk Cmpliance framewrk Examples IFRS IFRS FOR SMEs SA GAAP GRAP N examples, as a cmpliance framewrk is seldm suitable fr general purpse financial statements Examples IFRS IFRS FOR SMEs SA GAAP GRAP Examples Where management des nt have a chice The financial reprting framewrk r basis f accunting prescribed by a regulatr t meet the requirements f that regulatr Where management has a chice The basis f accunting adpted by a club, schl r a religius institutin Auditr s pinin Auditr s pinin Auditr s pinin Auditr s pinin the financial statements present fairly, in all material respects, the financial psitin, financial perfrmance and cash flws the financial statements are prepared, in all material respects, in accrdance with the financial statements present fairly, in all material respects, the financial psitin, financial perfrmance and cash flws the financial statements are prepared, in all material respects, in accrdance with Page 15 f 16
Prpsed Revised Suth African Auditing Practice Statement (SAAPS) 2 Financial Reprting Framewrks and the Auditr s Reprt Appendix 3 Financial reprting framewrks and the Cmpanies Act a) The Cmpanies Act, 2008 prvides that the Minister, after cnsulting with the Financial Reprting Standards Cuncil, which is still t be established, may make regulatins regarding financial reprting standards. Until such regulatins are prmulgated, the authrity fr general purpse framewrks is the Accunting Practices Bard (APB). b) The Cmpanies Act, 2008defines financial reprting standards as Statements f Generally Accepted Accunting Practice adpted by the APB prir t the establishment f the Financial Reprting Standards Cuncil (FRSC). At present the financial reprting standards adpted by the APB apply. c) The financial statements f a widely held cmpany cmply with financial reprting standards and the prvisins f the Cmpanies Act, 1973 and Schedule 4 that are applicable t public interest cmpanies. The financial reprting framewrks that may be applied by a widely held cmpany are IFRS and SA GAAP. A cmpany listed n the JSE Limited (JSE) is a widely held cmpany and, additinally, cmplies with the JSE Listings Requirements which require that the financial statements f JSE listed entities be prepared in accrdance with IFRS, which includes certain Suth African interpretatins in the AC 500 statements issued by the APB. d) The financial statements f a limited interest cmpany cmply with the accunting standards develped by the FRSC fr limited interest cmpanies and the prvisins f the Act and Schedule 4 f the Cmpanies Act, 1973 that are applicable t limited interest cmpanies. At the time f issuance f this SAAPS, such accunting standards have nt been develped. Accrdingly, the financial reprting framewrks that may be applied by a limited interest cmpany in the transitinal perid are IFRS, SA GAAP r IFRS fr SMEs. Hwever, the latter may nly be applied by a limited interest cmpany if it des nt have public accuntability as defined in the Standard. e) Paragraph 5 f Schedule 4 t the Cmpanies Act, 1973 which permitted departures frm any f the accunting cncepts stated in SA GAAP apprved by the APB if it appears t the directrs that there were reasns fr ding s, has been deleted by the Crprate Laws Amendment Act. A departure still permitted by the Cmpanies Act, 1973 relates t sectin 290(1) which states that, a limited interest cmpany need nt cnslidate financial statements if the directrs are f the pinin that the required infrmatin abut the state f affairs, business and prfit r lss f the cmpany and its subsidiaries wuld be presented mre effectively and meaningfully in the manner set ut in sectin 290(2). Grup annual financial statements in a frm ther than cnslidated financial statements are subject t the disclsure requirements f paragraph 61 f Schedule 4. Page 16 f 16