Substantive procedures:

Assertions about classes of transactions and events for the period under audit:
 Occurrence: transactions and events that have been recorded have occurred and
pertain to the entity.
 Completeness: all transactions and events that should have been recorded have
been recorded.
 Accuracy: amounts and other data relating to recorded transactions and events
have been recorded appropriately.
 Cut-off: transactions and events have been recorded in the correct accounting
period.
 Classification: transactions and events have been recorded in the proper
accounts.

Assertions about account balances at the period end:

 Existence: assets, liabilities and equity interests exist.
 Rights and obligations: the entity holds or controls the rights to assets, and
liabilities are the obligations of the entity.
 Completeness: all assets, liabilities and equity interests that should have been
recorded have been recorded.
 Valuation and allocation: assets, liabilities and equity interests are included inthe
financial statements at appropriate amounts and any resulting valuation or
allocation adjustments are appropriately recorded.

Assertions about presentation and disclosure:

 Occurrence and rights and obligations: disclosed events, transactions, and other
matters have occurred and pertain to the entity.
 Completeness: all disclosures that should have been included in the financial
statements have been included.
 Classification and understandability: financial information is appropriately
presented and described, and disclosures are clearlyexpressed.
 Occurrence and rights and obligations: disclosed events, transactions, and other
matters have occurred and pertain to the entity.
 Accuracy and valuation: financial and other information is disclosedfairly and at
appropriate amounts.
Direction of testing:
Debits (assets/expenses)
Primanry risk: Overstatement (test whether what is recorded, is valid/should have been
recorded)
Primary assertions: Existence/occurrence, rights/obligations, valuation/
measurement/accuracy
Direction: From the accounting records (general ledger) to the source documents
Secondary risk: Understatement
Secondary assertions: Completeness
Secondary direction of testing: From the source documents to the accounting records.
(Completeness)
Standard: Presentation and disclosure.

Credits (liabilities/income/reserves)
Primary risk: Understatement (test whether everything has been recorded)
Primary assertions: Completeness, valuation/measurement/accuracy
Primary Direction: From the source documents to the accounting records (general ledger)
Secondary risk: Overstatement
Secondary assertions: Existence/occurrence, rights/obligations
Secondary direction of testing: From the accounting records to the source of testing:
documents
Standard: Presentation and disclosure.
Substantive procedures:
Provision for fines and penalties:
 Inspect the minutes of the board meeting for the resolution to record a provision
of Rx million to ensure it was approved.
 Request that the client’s management complete an attorney’s representation
letter using the illustrative letter found in Annexure of SAAPS 4 listing inter alia
the nature of the matter and management’s estimate of the financial exposure,
and send it to the company’s attorneys.
 Enquire from management and the attorney about:
o the attorney’s qualifications and experience in dealing with cases relating
to Act contraventions to assess his/her competence
o whether s/he has any relationship with the company and its management
(to assess objectivity).
 Discuss the response received from the attorney based on the representation
letter to ascertain whether any material disagreement exists with management’s
evaluation of the matter.
 Evaluate the reasonableness of the provision recorded as follows:
o Inspect the Act for the fines arising from such an offence
o Shortly before signing the audit report, inspect the latest correspondence
from the attorney to evaluate whether there have been any important
developments since XYZ 2024
o Inspect the notes to the financial statements to ensure that the liability is
correctly and adequately disclosed.

Purchase of new machinery

 Reperform the calculations of the schedule drawn up by the financial manager in
order to test its mathematical accuracy.
 Agree the total of the schedule to the asset general ledger account.
 Inspect evidence (capital budget/minutes of directors/management meetings)
approval was obtained for purchasing the new machinery.
 Inspect the contract to determine the date of ownership passed to the company.
 Inspect the importation documentation to confirm the date on which the rights of
the machinery transferred to the company.
 Obtain and inspect the invoice/contract from the supplier to determine:
o It is made out in the name of the company.
o The amount of the invoice is Rx.
o The invoice/contract relates to the purchase of the specific stated
machinery bought.
 Obtain the exchange rate at the date that ownership of the machinery passes to
company from a reputable financial institution, to confirm it is Rx.
 Reperform the conversion from forgein currenct to SA Rand to determine if it is
the same as that of the schedule Rx.
 Inspect the bank statements subsequent to XYZ 2022 to verify that the amount of
Rx was paid to suppplier.
  Obtain the invoice from Logistics Company transaporting the machinery and
inspect whether:
o It is made out in the name of company.
o The amount of Rx on the invoice agree to that of the schedule.
 Physically inspect the machinery and agree asset numbers to the fixed asset
register.
 Inspect the fixed asset register to confirm that the machinery has been included
at the correct amount.
 Inspect expense/maintenance accounts in the general ledger to identify any other
qualifying costs relating to the installation of the new machinery.
 Obtain a signed management representation letter that specifically address the
occurrence, accuracy, classification, completeness and cut-off of machinery
purchased during the year.
 Inspect the PPE note to the financial statements to confirm that additions were
correctly disclosed.

Loans granted to those charged with goverance and mangement

 Inspect the minutes of the board meeting where the decision to grant the loan
was taken for authorisation of the loan by the board, noting: (section 45)
o Whether the board applied the solvency and liquidity test and was satisfied
that the solvency and liquidity requirements would be met immediately
after the loan was granted.
o The terms under which the loan is proposed to be granted were considered
as fair and reasonable to the company.
 Reperform the solvency and liquidity test to assertion whether the company was
on fact solvent and liquid by:
o Inspecting the statement of financial position/TB to determine of the assets
fairly valued exceed the liabilities.
o Inspecting cashflow forecast for next 12 months to determine if the
company will be able to pay its debts as it become due.
 Compare the terms of the loan with market-related terms to evaluate the fairness
and reasonableness of the terms.
 Inspect the company’s Memorandum of Incorporation (MOI) to ascertain whether
there are any other conditions or restrictions regarding the granting of financial
assistance to directors or otherwise, and if so, inspect the board minutes for
evidence that these were complied with.
 Inspect the minutes of the shareholders meeting for a special resolution passed
within the previous two years where the granting of the loan to the director was
approved.
o Inspect the MOI for any company-specific requirements regarding the
passing of special resolutions.
o Inspect the minutes to ensure that at least 75% of the voting rights (or the
company specific requirement) exercised on the resolution voted in favour
of the resolution at a duly constituted shareholders meeting.
o Inspect a copy of the written notice of the resolution sent to all
shareholders and the trade unions to ascertain compliance with the
requirements of section 45(5) of the Companies Act.
 Inspect the loan agreement to verify:
o The parties to the loan are the company and the directior
o The amount of the loan being Rx
o Details of repayment terms and interest rate
o That the contract was duly signed by both parties.
 Obtain a written confirmation directly from the director about the terms of the
loan agreement.
 Inspect the company’s bank statement for XYZ 2023 for evidence of payment of
the loan.
 Inspect the general ledger account for loans to directors to verify that the loan
was recorded at an amount of Rx.
 Inspect the financial statements to confirm that the loan to director has been
appropriately disclosed.