The key features needed in an audit report which should be included in the proposal for audit services of the bank include:

(i) The auditors producing the report should be independent from the directors of the entity; (ii) The audit report should give an opinion on whether the financial statements “give a true and fair view”, or “present fairly” the position and results of the entity; and

(iii) The report should consider that the concept of materiality is applied in reaching an audit opinion.

Independence of the auditor

The external auditor must be independent from the directors; otherwise his report will have little value. If he is not independent, his opinion is likely to be influenced by the directors.

True and fair view (fair presentation)

The auditor reports on whether (or not) the financial statements give a true and fair view, or present fairly, the position of the entity as at the end of the financial period and the performance of the entity during the period. The auditor does not certify or guarantee that the financial statements are correct.

This implies that there is no undue bias in the financial statements or the way in which they have been presented.

In preparing the financial statements, a large amount of judgement is exercised by the directors. Similarly, judgement is exercised by the auditor in reaching his opinion. The phrases „true and fair view‟ and „present fairly‟ indicate that a judgement is being given that the financial statements can be relied upon and have been properly prepared in accordance with an appropriate financial reporting framework.

Materiality concept

The auditor reports in accordance with the concept of materiality. He gives an opinion on whether the financial statements, present fairly in all material respects the financial position and performance of the entity.

Information is material if, on the basis of the financial statements, it could influence the economic decisions of users should it be omitted or misstated, for example, the shareholders of a company will not be interested if petty cash was misstated by an insignificant amount of money.

The concept of materiality means that the auditor will not focus on examining immaterial but rather concentrate his efforts on the more significant items in the financial statements, either:

i. Because of their (high) value or

ii. Because there is a greater risk that they could be stated incorrectly.

Management responsibilities

This is a description of management’s responsibility, which is to prepare the financial statements in such as a manner as to present a true and fair view and to establish and maintain an adequate system of internal control.

Auditor’s responsibilities

This is a description of the role of the auditor which is to express an opinion on the financial statements prepared by management and not to detect fraud in order to close the exception gap.

Key Audit Matters

A key audit matters section in compliance with ISA 701; indicating: Areas of higher assessed risk of material misstatement; Significant auditor‟s judgement; and The effect of significant events.

b. The degree of assurance that should be provided on the reliability of financial statements of a company will depend on:

i. The amount of work performed in carrying out the assurance process; and

ii. The results of that work.

The assurance could be:

i. Reasonable assurance

An audit provides a high, but not absolute, level of assurance that the audited information is free from any material misstatement. The auditor’s conclusion in this case is expressed in a positive form. e.g. “In our opinion, the financial statements give a true and fair view”. The objective of a statutory audit is to provide reasonable assurance.

An external audit is performed by an appropriately qualified auditor, appointed by the shareholders and independent of the company. An external audit provides positive assurance that, in the opinion of the auditors, the financial statements do present fairly the financial position and performance of the company.

ii. Limited assurance

This is a moderate level of assurance provided by the auditor‟s conclusion expressed in a negative form, for example, “Based on our review, nothing has come to our attention that can make us to believe that the accompanying financial statements do not give a true and fair view”. The objective of a review engagement is often to provide limited assurance.

This applies to a review in an investigation or report expected to be sent to regulator. In contrast to „reasonable‟ level of assurance provided by an audit, a review into an aspect of the financial statements would provide only a moderate level of assurance that the information under review is free of material misstatement. The resulting opinion is usually (although not always) expressed in the form of negative assurance.

Negative assurance is necessary in situations where the auditor cannot obtain sufficient evidence to provide positive assurance. For example, the management of a client entity may ask the audit firm to carry out a review of a cash flow forecast. A forecast relates to the future and is based on many assumptions, and an auditor therefore cannot provide positive assurance that the forecast is accurate. However, he may be able to provide negative assurance that there is nothing he is aware of to suggest that the forecast contains material errors.

c. The audit committee duties not performed in the bank include:

(i) Overseeing the financial reporting and disclosure process;

(ii) Monitoring choice of accounting policies and principles;

(iii) Overseeing hiring, performance and independence of the external auditors;

(iv) Oversight of regulatory compliance, ethics, and whistleblower hotlines;

(v) Monitoring the internal control process;

(vi) Overseeing the performance of the internal audit function;

(vii) Discussing risk management policies and practices with management;

(viii) Ensuring the development of a comprehensive internal control framework for the company, obtaining assurance and presenting annually the financial report on the operating effectiveness of the company‟s internal control framework;

(ix) Ascertaining that the accounting and reporting policies of the company are in accordance with legal requirements and agreed ethical practices;

(x) Reviewing the scope and planning of audit requirements;

(xi) Reviewing the findings on management matters in conjunction with the external auditor and departmental responses thereon;

(xii) Making recommendations to the Board in regard to the appointment, removal and remuneration of the external auditors of the company;

(xiii) Authorising the internal auditor to carry out investigations into any activities of the company which may be of interest or concern to the committee; and

(xiv) Meeting separately and periodically with management, internal auditors and external auditors.

d. The distinctive features of audit, assurance and attestation

Audit is a form of assurance engagement to enhance the degree of confidence of intended users in the financial statements. This is achieved by the auditor expressing an opinion on whether the financial statements of an entity are prepared, in all material respects, in accordance with an applicable financial reporting framework. Audit provides a high level of assurance and an auditor expresses an opinion on the truth and fairness of the financial statements. Audit is governed by specific auditing standards and regulations set by professional bodies and regulators.

An Assurance engagement is one in which a practitioner aims to obtain sufficient appropriate evidence in order to express a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the subject matter information (that is, the outcome of the measurement or evaluation of an underlying subject matter against criteria). It gives confidence to the party that hired the firm that the information can be relied on.

Assurance engagement is undertaken by a professional accountant in public practice to provide a report for use by user entities (audit client) and their auditors on the controls at a service organization that provides a service to user entities that is likely to be relevant to user entities’ internal control as it relates to financial reporting. Level of assurance engagement can be reasonable or limited depending on the type of engagement.

Assurance engagement follows specific standards and laws depending on the type of engagement and type of assurance being provided.

• In attestation engagement, the practitioner is engaged to attest/affirm/vouch to the fact that certain procedures within the entity have been performed in a prescribed way, but will simply attest to the fact that they have been performed. It follows a specific attestation standard that outlines the guidelines for carrying out an attestation engagement