Completing the Financial Statements Engagement In Compliance With The Legislative Requirements

Two pairs of hands brainstorming over paper and laptopsIn general, engagements to issue a report on financial statements should be performed in terms of relevant statutory requirements, common law requirements related to professional competence, due care and a code of conduct issued by a professional body.

A report may only be issued once all the above requirements are met.

The duties of accounting officers are explicitly stated in various statutes.

However, in addition to these statutory duties, accounting officers have certain common law duties, such as:

  • Performing engagements with professional competence and due professional care.
  • Planning and supervising the engagement performance; and
  • Obtaining sufficient relevant data to afford a reasonable basis for issuing an accounting officer report.

In addition to the above duties, an accounting officer should comply with the code of ethics of the professional body of which he is a member. Part A of the IFAC Code sets out the fundamental principles that should be observed by all professional accountants. These are:

  • Integrity,
  • Objectivity,
  • Professional competence and due care,
  • Confidentiality, and
  • Professional behaviour.

It is important that members and their clients agree to the elements of the framework. The framework should also be amended and expanded in accordance with the members own professional judgement.

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Matters to Be Agreed Include The Following:

  • The objective of the service being performed
  • Management responsibility for the financial statements – The scope of the report, including reference to this framework (or relevant national standards or practices)
  • Unrestricted access to whatever records, documentation and other information requested in connection with the engagement
  • A sample of the report expected to be issued
  • The fact that the engagement cannot be relied upon to disclose errors, illegal acts or other irregularities, for example, fraud or defalcations that may exist
  • A statement that an audit is not being performed and that an audit opinion will not be expressed. To emphasize this point and to avoid confusion, the practitioner may also consider pointing out that an accounting officer engagement will not satisfy any statutory or third-party requirements for an audit.

Terms of Engagement

The terms of the engagement should be drafted in an engagement letter and should be agreed to with the representative of the entity. An example of the report to be issued should accompany the engagement letter.

The accounting officer should document matters which are important in providing evidence to support the findings and conclusions reached in the accounting officer’s report, and evidence that the engagement was carried out in accordance with this framework and the terms of any additional requirements as specified.

The accounting officer is required to report whether:

  • The annual financial statements agree with the accounting records of the corporation
  • Accounting policies represented to the Accounting Officer as having been applied in the preparation of the annual financial statements are appropriate
  • The close corporation contravened any provision of the Act. A report should only be made if the accounting officer becomes aware of a contravention whilst performing points a) and b) above. The nature of such contravention should be described in the report
  • The accounting officer is a member or employee of a corporation or is a firm of which a partner or employee is a member or employee of the corporation.

Non-compliance

Non-compliance may result in fines, litigation or other consequences for the client that may have a material effect on its financial statements.

Importantly, such non-compliance may have wider public interest implications in terms of potentially substantial harm to investors, creditors, employees or the general public

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