Au­dit­ing 101: What Dif­fer­ent Au­dit Opin­ions Mean

WHAT DIF­FER­ENT AU­DIT OPIN­IONS MEAN

Mmileng - - Contents -

ONCE IN A WHILE THE PUB­LIC

gets flooded with re­ports of the Au­di­tor-Gen­eral and read about how bil­lions of rands of pub­lic funds have been mis­spent, right­fully or oth­er­wise. The re­ports are usu­ally tech­ni­cal and dif­fi­cult to un­der­stand, and the me­dia usu­ally fo­cuses on the neg­a­tives and try­ing to point out who the cul­prits were and what they didn’t do enough of to get to these of­ten neg­a­tive au­dit re­sults with terms such as “fruit­less and waste­ful ex­pen­di­ture” be­ing thrown around for good mea­sure. But most peo­ple don’t usu­ally sit down to get a bet­ter un­der­stand­ing of these terms, and what the re­sults re­ally mean. The sim­plest ex­pla­na­tion of what

“THE RE­PORTS (OF THE AU­DI­TOR-GEN­ERAL) ARE USU­ALLY TECH­NI­CAL AND DIF­FI­CULT TO UN­DER­STAND,AND THE ME­DIA USU­ALLY FO­CUSES ON THE NEG­A­TIVES”

au­dit­ing is, is that it is the process of check­ing whether a de­part­ment or mu­nic­i­pal­ity’s fi­nan­cial state­ments re­flect what has taken place dur­ing the fi­nan­cial year. This can be done through look­ing at what has been promised or re­ported on com­pared to what has been spent ac­cord­ing to the fi­nan­cial state­ments.

CLEAN AU­DIT V CLEAN AD­MIN­IS­TRA­TION

So, if an en­tity re­ports cor­rectly on what it has spent money on and the au­di­tor deems such in­for­ma­tion to be cor­rect, then that is a ba­sis of a clean au­dit. But is this enough? As you can imag­ine, just re­port­ing cor­rectly – as this does not take into ef­fect whether that in­for­ma­tion is truth­ful or not – opens a flood­gate to pos­si­ble fraud

“QUAL­I­FIED AND UN­QUAL­I­FIED ARE USED DIF­FER­ENTLY FROM THE WAY WE USU­ALLY WOULD IN OUR EV­ERY­DAY LAN­GUAGE.”

and cor­rup­tion. If we look closely at why we as pub­lic en­ti­ties ex­ist then it would be safe to con­clude that this isn’t the right ba­sis by which we can go and judge proper man­age­ment of pub­lic funds. This brings us to the all im­por­tant point of a clean au­dit ver­sus clean ad­min­is­tra­tion. Clean ad­min­is­tra­tion is when your prom­ises have been ful­filled and the money al­lo­cated to do those was spent cor­rectly and all funds ac­counted for. For this to take place it is vi­tal that ev­ery­one in­volved in any level of each or­gan­i­sa­tion knows their part and how it con­trib­utes to the

over­all clean ad­min­is­tra­tion. In a per­fect world a clean ad­min­is­tra­tion is what we should all aim to­wards, but in a not so per­fect world a clean au­dit will suf­fice, as this is a con­fir­ma­tion that all funds re­ported on in the fi­nan­cial state­ments have been ac­counted for, that is, there were no ma­te­rial er­rors or omis­sions in the fi­nan­cial state­ments. Break­ing this down fur­ther, you will dis­cover that ma­te­rial doesn’t mean the fi­nances weren’t com­pletely with­out er­rors or omis­sions – it’s just that they were of not a big con­cern. This be­comes an is­sue when the er­rors or omis­sions be­come large enough to in­flu­ence the out­come of the or­gan­i­sa­tion’s out­puts. This is dif­fer­ent for each en­tity as the same amount can mean to­tally dif­fer­ent things depend­ing on the size of their bud­get. For in­stance, if a small mu­nic­i­pal­ity has an er­ror or omis­sion of a mil­lion rand it is to­tally dif­fer­ent com­pared to let’s say a large de­part­ment hav­ing the same amount recorded for the same thing as the two in­sti­tu­tions have dif­fer­ent size bud­get.

QUAL­I­FIED AU­DIT V UN­QUAL­I­FIED AU­DIT

So, other than these ideal out­comes, what else can or­gan­i­sa­tion get in terms of au­dit out­comes? First up we have qual­i­fied au­dit. This means the fi­nan­cials con­tain some ‘ma­te­rial mis­state­ments’, or there isn’t enough ev­i­dence to de­cide whether some amounts are ac­cu­rate enough. Here we need to make the very im­por­tant dis­tinc­tion, which is usu­ally the need cause of con­fu­sion for most peo­ple – the dif­fer­ence be­tween a qual­i­fied and an un­qual­i­fied au­dit. Qual­i­fied and un­qual­i­fied are used dif­fer­ently from the way we usu­ally would in our ev­ery­day lan­guage. In au­dit­ing we al­ways want our re­port to be un­qual­i­fied be­cause a qual­i­fied au­dit means the au­di­tor has some reser­va­tions about the fig­ures. While an un­qual­i­fied au­dit is when the fi­nan­cial state­ments give a true and fair view in ac­cor­dance with the fi­nan­cial re­port­ing frame­work used for the prepa­ra­tion of the state­ments.

AD­VERSE AU­DIT

A fur­ther step down the list is the ad­verse au­dit. This is when an au­di­tor finds the or­gan­i­sa­tion’s fi­nan­cials to have sub­stan­tial mis­state­ments. In other words, the amount of in­for­ma­tion that is wrong or left out is sig­nif­i­cant.

DIS­CLAIMER

Even worse is the dis­claimer. This is when the state­ments are in such a mess that the au­di­tor can­not con­clude an au­dit or the in­for­ma­tion on the fi­nan­cials is deemed to be false.

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