Sections

Feedback from public submissions

Proposed amendments reflecting an expectation gap/lack of understanding of operational issues of OAG

Proposed amendments and comments OAG cannot agree with

Proposed amendments and comments OAG agree with

1. Comments by IPFA

Definitions

This change is suggested to clarify that the entities referred to are those mentioned in section 4(2), and would for example exclude non-public sector entities that would be consolidated in a private sector holding company under the Companies Act.

This proposal is accepted due to the fact it clarifies that the entities referred to are those mentioned in section 4(2) of this act and would for example exclude non-public sector entities that would be consolidated in a private sector holding company under the Companies Act.

Although the term auditee is defined, in places such as section 5, 20 and 28 in the Bill the words "institution or accounting entity" have been used? It is proposed that the word "auditee" is used

This proposal is accepted due to the fact that the words "institution or accounting entity" refers to auditees as defined in section 1. However the words "institution or accounting entity" will remain in section 4(1)f as it is a reference in the constitution.

(b) financal and other information, preparted in accordance with appropriate criteria, with the objective of expressing an opinion on the financial statements".

In our opinion this amendment is not necessary due to the fact that this aspect is clearly defined in section 20 and 28 of the bill.

It should be noted that the PA Act is in the process of being revised, and a reference to its replacement (Draft Accountancy Bill) may be necessary in due course

Noted

S 4(2)(c )

Reference to "sole" control here is unclear, and may just confuse the objective of this section by implying that joint venture arrangements are excluded from the scope of consolidated financial statements to be audited by the Auditor-General. Accounting standards to be issued by the Accounting Standards Board for municipalities are very likely to require where there is a jointly controlled entity, the municipality should in its consolidated financial statements, report its interest in a jointly controlled entity using proportionate consolidation. We therefore suggest deleting the term "solely".

As the MFA refers to "sole" control and which is further defined in the MFA as effective control the term "sole" should be retained in the bill.

S 4(3)

This proposal is accepted due to reasons indicated below (see comments under section 20 and section 28).

5(1)(c )

It may be possible that the Auditor-General may want to carry out an investigation at an entity controlled by entities in section 4(1) (being "subsidiaries"), although such controlled entities are not funded by the national or provincial revenue fund or municipality.

All auditees are already covered in either section 4(1) and 4(3). A reference to section 4(2) will not add anything. Section 4(1) and 4(3) include all auditees that the Auditor-General may audit. Section 4(2) only refers to the consolidation of financial statements of auditees already refers to in section 4(1) or 4(3). Section 4(2) does not refer to any new auditees not covered in section 4(1) or 4(3) and therefore section 4(2) will not add anything.

10 (a)

However, there is a lack of clarity of who is to report on what. Is the report envisaged in section 10(a) a separate report to the annual report to be prepared by the Deputy Auditor-General? Is the performance against pre-determined objectives referred to in section 40(1) related to administrative functions of the Deputy AG or related to audits and investigations?

This proposal is accepted due to the fact that it makes a clear distinction between administration matters to be reported on and matters pertaining to audits and investigations. Separating those matters by way of two separate reports (i.e. audit activity report and annual report) appears to be advisable).

We suggest that the Auditor-General in terms of section 10(a) issues a separate "Audit Activity Report" to the Speaker of the National Assembly, taking into account the annual report prepared by the Deputy Auditor-General, or possibly annex or include the Audit Activity Report of the Auditor-General with the annual report prepared by the Deputy Auditor-General. In addition to the financial statements, the annual report referred to in section 40 would therefore contain a report from the Deputy Auditor-General on the administration, a report from the Auditor-General on the Audit Activities, as well as report from the Audit Commission referred to in section 49. (L,P,T)

It should also be noted that in the "Audit Activity Report" of the Auditor-General, he should be reporting audit activities against pre-determined objectives. We are unsure if the intention of the business plan (referred to in section 38) is to set out pre-determined objectives related to audit activity, or if it would contain pre-determined objectives related more to the administration of the Auditor-General. We suggest that a public document on "Audit Activity - Plans and Priorities" should either form part of such a Business plan or be issued as a separate publication. The "Audit Activity Report" of the Auditor-General should then report audit activities against such pre-determined plans and priorities, which in turn should also indicate the standards to be followed in conducting routine type audits

S 10(b)

It seems unsuitable that the National Assembly is only be informed "after the fact" about the audit standards that have been applied in carrying out audits in terms of section 11. It is noted that the audit commission has to be consulted on the audit standards to be used, however, section 13 does not provide for up front public communication on the standards that will be used. It is questioned how the AG can be held accountable to meet standards if they are not clearly specified in a public document?

We could consider whether or not minimum standards for routine audit work (such as the audit of financial statements) should be specified (either in legislation or regulations thereto, or even annually in the suggested report on Plans and Priorities referred to in the comment above on section 10(a)). The Auditor-General should however retain the power to impose additional examination procedures/standards on such routine audits, and specific examinations for non-routine type investigations, as is currently provided for in section 13(3).

We accept the proposal that there should be clear communication of the standards to be applied to audits in a timeous and effective manner. We could also include a reference to the audits standards in the "forward looking" section of a General / Annual Report.

12(3)(b)

Should a reference to subsection 2(b)(ii) not be included in section 12 (3)(a)? Who else will determine the non-accountancy qualifications, experience and competence necessary for a particular audit?

The number "2" should be added before the letter "(b)".

12(3)(b)

Our interpretation of this Bill is that such a "non-accountancy" specialist person will fall within the definition of "authorised auditor", to whom the code of conduct will apply.

Comment noted does not require any amendment.

12(3)(b)

As a further comment, what is not clear from a plain reading of the Bill, is if the term "authorised auditor" refers to all the staff working on a specific audit, or just to the "lead partner". This should be clarified.

It is our opinion that this has been adequately addressed in the definition section (see the definition of "authorised auditor" which includes all persons performing audit functions on behalf of the Auditor-General.

12(3)(c )

It is unclear what is meant with "determine the manner in which an audit referred to in section 11 must be performed". Is this "manner" with reference to the standards for auditing in section 13, or is this in addition to section 13? Does it for example refer to setting deadlines for completion, reporting formats etc?

It is the office's contention that it can include both aspects. "Manner" must be interpreted in its broadest sense to give the Auditor-General the necessary mandate to perform his functions.

13

With reference to audit standards, the main concern is that transparency should be achieved by up front communication of the applicable audit standards to be followed for routine type audits. This can be achieved by inclusion in a Report on Plans and Priorities of the Auditor-General, which should be issued in the beginning of a financial reporting cycle.

See our response on comments made regarding section 10(b)

13

It is also questioned if the term "audit standards" may not be too narrow. The Accountancy Profession Bill uses the term "Auditing pronouncements" to include statements of South African Auditing Standards, practice statements, guides and circulars developed and issued by the ISBA.

It is our opinion that the word "standards" should be retained. However, it is agreed that term should be defined to include the matters listed by IPFA.

14

Our understanding is that if submission is not on time, section 65(2)(b) of the PFMA would allow the AG to report on the delay: hence this section is unnecessary.

We submit that section 14 referring to the submission of financial statements to the Auditor-General is a further accentuation that financial statements should be submitted within the prescribed period. The section 14 should therefore be retained.

20

As a general comment the requirements of section 20 (2) with the comparative section 28 (1) should be aligned. Audit report requirements should be aligned as far as possible, whether the Auditor-General or external auditors perform the audit. Specific comments on this issue have been included in various sections in this comment letter.

These proposals are supported because it will align the reporting responsibilities of the Auditor-General with the reporting responsibilities of the auditor in private practice (see also comments under section 28(1))

S 20

This section contains no reference to transversal type reports (e.g. audit outcomes, status report on financial management etc.) that the Auditor-General issues; however, it is possibly covered under section 5 or section 10 (note that section 10 seems to be limited to an annual report. Transversal type reports may be issued periodically). We suggest making reference to such transversal type reports, or clearly identifying the section under which such reports could issued.

It is our view that sufficient provision has been made for the issuing of transversal audit reports (see inter alia section 5(2)).

20 (2)(a)

We favour standardising on the wording in section 20 (2)(a), it also aligns closer with proposed definition of an audit in the Draft Accountancy Professions Bill

We concur (see comment above under section 20)

20(2)(b)

The Office completed a project researching the audit of compliance with laws and regulations and the reporting thereof in audit reports. Various models to report on the compliance issues have been considered, which resulted in no specific audit assurance (neither a moderate level positive assurance nor a low level negative assurance) to be expressed on compliance matters for the March 2003 reporting cycle. It seems unlikely that the Auditor-General would want move back to expressing a compliance audit opinion after deleting it in the latest reporting cycle. However, in terms of the current wording of the Bill, the AG would be compelled to do so (refer to 20 (2) introduction "must reflect").

We concur with this proposal due to the reasons provided by IPFA

In our view the objective and wording of section 28(1)(b) and 20 (2)(c) should be aligned to ensure consistency between audit assurance expressed by external auditors and the Auditor-General. The legislator should receive similar audit assurance on 'public interest entities', whether or not audited by the AG or private external auditors.

20(2)(c )

Audit reports - audit of performance information The Office has completed a project researching the audit of performance information, and the final report is expected in shortly. The project addressed issues such as the location of performance information in the annual report of the auditee, the mandate of setting standards for reporting of performance information, and the strategy to be adopted by the Auditor-General to such performance information. Without having had the opportunity to refer to the project report, certain observations are set out below, and the impact on the AG Bill is noted.

We concur. Section 20 has been aligned with section 28

The Municipal Systems Act (section 45) provides the mandate to the AG where municipalities provide such information.

The PFMA is silent on audit of performance information of entities (public entities, national and provincial departments, constitutional institution, trading entities etc.) audited by the AG. A separate audit opinion regarding performance against predetermined objectives is only required where private sector auditors are the auditors of public entities.

The mandate could previously be deducted (not in any specific terms) from section 3(3) of the AG Act.

Although the mandate has now been clarified to some extent in the Public Audit Bill in section 20 (2)(c), it is suggested to clarify whether or not it is compulsory or at the discretion of the AG.("may audit and report" as opposed to "must audit and report") in the section of functions of the Auditor-General (as opposed to the only in the section on audit reports). In terms of the current wording of the Bill, the AG would be compelled to provide an opinion or conclusion on performance information (refer to 20 (2) introduction "must reflect").

Issues to consider in this regard would be influenced by the approach and strategy that the AG would adopt to the audit of performance information. For example, international experience such as with the Auditor-General of Victoria (Auditor-General of Victoria 2001), the issuing of an opinion was discretionary for state agencies, and it was initially decided to defer the issuing of opinions.

A discretionary mandate to report on the audit of performance information should be provided for in the Public Audit Bill as a new subsection (1) in section 5.

The intention should be to cater for a more generic option, and to accommodate progression in the level of assurance to be expressed as time goes by. Suggested wording could be along the following lines:

It is suggested to move section 20 (2)(c) to section 20(3), where the expression of such assurance could be based on the discretion of the AG. Suggested wording as follows

Align wording of section 28 (1) (c) with suggestion in the bullet above. The sentence also has to start with " If required by the Auditor-General". It should be noted that some of the entities that may fall within the ambit of this section may not be public entities or municipal entities that will be required by law to provide performance information

Currently the only reference in the Bill to this mandate is in the sections dealing with reporting (section 20(3) and section 28 (10(d). Suggested wording along the following lines:

"The Auditor-General may audit and report on whether the auditee's resources were procured economically and utilised efficiently and effectively"

Chapter 3 Part 2

Audits of institutions by auditors in private practice

S25(1)

There is no reference to the term of the appointment.

We agree that it is advisable that the period of appointment be indicated (i.e. an annual appointment).

S27 (4)

The interaction with the Audit Committee (for both the Auditor-General and the auditor in private practice) would provide an opportunity for consultation on the proposed time to be spent and audit fee.

We agree with this proposal due to the fact that it will enhance interaction between the Auditor-General and the auditee's audit committee.

S28

Refer to comments above made under section 20 for impact on section 28

Alignment between section 20 and 28 is supported.

S28

Reference to 27 (2) (c ) should be 29 (1) (d)? This cross-reference could be further improved: section 28 (1) (d) deals with audit reports, not investigations?

We agree and the cross reference will be corrected.

Chapter 3 Part 3

Investigations and special audits

.

S29 (1)

Reference to s 5(1)(b) should be to 5(1)(c).

We agree and the correction should be made.

Chapter 4:

Administration of Auditor-General - Part 3: Financial administration

S36

Is there any distinction between (e) and (f)?

Agree with IPFA that both (e) and (f) should remain. Accrual as used in section 36(1)(e) refers to entitlement while section 36(1)(f) can also include donations, which could not be accrual.

S37

Consider the need to open separate bank accounts for "trust type monies" (e.g. donations received for activities of AFROSAI for which the A-G is the secretariat).

Section 37(1) of the Bill already provides for this

S38

Will the business plan set out plans and priorities for the year? (With reference to the pre-determined objectives referred to in section 40(1)?

Yes, we agree with this comment, any proper business plan will set out, the necessary plans and priorities for the following year.

S 38

It is noted that the Audit Commission provides recommendation on the business plan and budget to the Speaker of the National Assembly and National Treasury (refer to section 48(1) (d). It is also suggested that the Audit Commission monitors actual performance against the pre-determined objectives of the AG and Deputy AG, to be set out in the business plan.

Yes, we do not object to this proposal but except that the matter should be consulted with the current Audit Commission.

S 38 (4)

The reference to a surplus should be defined, possible along the lines of "calculated in accordance with SA GAAP"

As the surplus would be included in the annual financial statement of the Auditor-General the principles of SA GAAP would be complied with and therefore we do not agree the a separate definition in this regard.

S40 (1) (a)

"fairly present the state of affairs of the public entity, its business, its financial results, its cash flow information, its performance against predetermined objectives and its financial position as at the end of the financial year concerned

We agree that this addition would improve the bill.

S40(2)

Correct reference is "South African Statements of Generally Accepted Accounting Practice"

We concur

S40(3)

There is no reference here that the external auditor should report on the performance information of the Office. The section only refers to the report on the financial statements. Similar wording as suggested under section 20(2) (c ) could be inserted.

We support this recommendation in order to bring this section in line with the requirements of section 20(2)(c).(requirements of audit reports issued by AG).

Chapter 5

Audit Commission

S51 (2) (b) (i)

Is the reference to the national or provincial legislature correct in this context, seeing that members of the Audit Commission consist of members of Parliament? Should it not be referring to executive rather than legislature? Is the point not also made in 51 (1) (b)?

The reference in the bill is correct as it also include external members making up the Audit Commission.

S61

General comments on the issue of limitation of liability of persons doing work on behalf of the AG

In general we agree with these comments however we do not think that this would require any amendments to the Bill.

Chapter 6:

General

Regarding the audit mandate relating to the audit of performance information: consider the need to amend sections 45 and 46 Municipal Systems Act to clarify and align with the Public Audit Bill (and possibly also the Local Government Finance Management Bill).

Noted the comments will be forwarded to the National Treasury and the Department of Local Government for consideration with regards to the implementation of the Municipal System Act and Local Government Financial Management Act.

Other editorial comments

Page 3 Line 3

Standards with caps

Agree and will be corrected.

Page 24 Line 2, 22 and 25

Reference to 25 (1) (a) should be 25 (1)

Agree and will be corrected.

Page 25 Line 18 and 19

Reference to 27 (2) (c ) should be 28 (1) (d)?

Agree and will be corrected.

Page 30 Line 8

Space between authorised and by

Agree and will be corrected.

Section

Feedback from public submissions

Proposed amendments reflecting an expectation gap/lack of understanding of operational issues of OAG

Proposed amendments OAG cannot agree with

Proposed amendments OAG agree with

2

Comments by Eskom

Section 1 (1)

In terms of section 1(1) an audit means the examination or investigation, in accordance with any applicable audit standards. An attempt should be made to clarify what "applicable audit standards" mean, even if it provides that this will be determined by regulations form time to time.

We concur- see also comments by IFPA pertaining to the public making of audit standards. We agree that the term "standards" should be defined

Section 2 (b)

However, this term should be clarified, in the light of the PFMA, which refers to "accounting authorities".

We concur that this term should be defined in the bill with a reference to the constitution.

Section 5 (1) (a) (i)

The section implies that the Auditor-General should not be seen to be compromising its independence when providing services. It is suggested that the same strict guidance applied for a person registered in terms of the Public Accountants' and Auditors' Act be applied to the Auditor-General, in order to assess independence.

We agree that certain independent principles should be provided for in the bill which would ensure that the Auditor-General would only provide an appropriate service which he may not be required to audit at a later stage.

S 9

This section provides for instances where the Deputy Auditor-General is required to assume the role of acting Auditor-General. The bill should clarify that in such capacity, he/she shall have all the powers of the Auditor-General.

For purposes of comprehensiveness this proposal is accepted. The bill to be amended.

Chapter 3

S25 (1)

The process in this regard, and, in particular, the time period within which the decision by the AG should be made should be specifically set out. This will contribute to efficiency and a better governance process.

Due to the fact that this will contribute to efficiency and a better governance process this proposal is accepted. Bill to be appropriated amended - March of each financial year.

S25 (2)

This section should read as follows "Before appointing an auditor in terms of subsection (1), the institution must give notice of the suggested appointment to the Auditor-General...." instead of words "...... such appointment....".

This proposal is accepted due to the fact that the appointment must still me made at that stage. Bill to be amended.

The notice referred to in this section should be in terms of subsection (2) and not subsection (1) as stated in the bill.

Concur. Should be corrected

S25 (3)

This section should clarify that there is automatic acceptance of the appointment, where the proposal in terms of subsection (2) is not rejected within 14 days. )

The subsection implies automatic acceptance.

However, upon further consideration we are of the opinion that the period indicated in the section should be reconsidered as a result of the enormous administrative burden it places on the Office.

S 25 (3)

The section should clearly state that where the appointment is rejected and another auditor is appointed then a subsequent notice of the suggested appointment has to be given in terms of subsection (2).

We concur that this proposal is an improvement to the current wording and we therefore support the proposal. Bill to be amended

S 25(3)

In addition, the entire section should clarify whether consultation with or approval of the Auditor-General is required.

We are of the opinion that it is evident from the wording of the section that approval of the AG is necessary.

S26

In terms of this section only the Auditor-General's consent is required to discharge an auditor appointed in terms of section 25(1). The involvement of the executive authority, as is presently the position in terms of the PFMA, is now not necessary. The drafters should consider whether this change is consistent with good governance practices.

Agree, the contents of Section 59 of the PFMA must be included in this bill as Section 59 of the PFMA is repealed by this bill.

S27 (2)

This section only makes reference to section 15. Reference should also e made to section 16,17 and 18. In order to avoid omitting any sections in the cross-reference, it may be advisable to refer to powers conferred in terms of the bill.

We don't agree as it would be inappropriate to include a reference to sections 16, 17 and 18 with regards to the audit of institutions conducted by auditors in private practice.

S28(3)(a)

The reference to section 27(2)(c ) is incorrect.

Should be corrected to a reference to S 27(2)t

S29(4)

This section allows the Auditor-General to charge a reasonable fee for carrying out an investigation or special audit in terms of this section. The term "reasonable fee' creates uncertainty about the criteria that should be used for calculating the fee, and this should be set out in the regulations or other appropriate directives.

We concur. The fees should be determined as provided for in section 23

S 42 (3) (b)

This section lists the responsibilities of the deputy Auditor-General in relation to the Auditor-General. The responsibilities should be listed as general responsibilities of the Auditor-General and all the Auditor-Generals' staff should comply.

Section 42(3)(b) refers to the Deputy AG's function as accounting officer. It should be noted that all staff are subject to a code of conduct prescribed by the Auditor-General in order to ensure compliance with the provisions of this Act.

S 42(1)

The Auditor-General should be the accounting authority and not the Deputy Auditor-General.

Disagree. The bill refers to an accounting officer and not an accounting authority. The deputy is accountable to the AG. The AG is however ultimate accountable i.t.o of S 30(2) to the National Assembly.

Generally, the governance mechanism should be reviewed to avoid duplication and confusion regarding the Auditor-General and Deputy Auditor-General, and furthermore, to avoid repetition of issues already addressed in terms of the PFMA and other legislation.

It should be noted that the AG as a constitutional institution is not listed in terms of the schedules of the PFMA and therefore not subject to the PFMA. Although the AG is in overall control and accountable to National Assembly he does not fulfil the role of Accounting Officer as described in the PFMA.

Section

Feedback from public submissions

Proposed amendments reflecting an expectation gap/lack of understanding of operational issues of OAG

Proposed amendments and comments OAG cannot agree with

Proposed agreements and comments OAG agree with

3. Comments by SAICA

S 12(3) + 13

In terms of the Bill, the Auditor-General may authorise a person to perform or to assist in the performance of an audit, referred to in section 11, even if such a person is not registered as an accountant and auditor in terms of the Public Accountants' and Auditors' Act (section 12(2)(ii) and 12(b)(ii)). Section 12(3) and 13 require the Auditor-General to lay down standards as well as a code of professional conduct for such persons. In our view, in cases where the authorised auditor is a member of the Public Accountants' and Auditors' Board, the auditing and other professional standards applicable should be those applicable to persons registered as accountants and auditors in terms of the Public Accountant's and Auditors' Act. It is in the best interest of the auditees of the Auditor-General the highest quality is expected of any person involved in auditing in the public arena.

The authorised auditors obtain additional standards in terms of the Bill. Auditors registered in terms of the Public Accountants' and Auditors' Act are fully recognised in various sections of the Bill. However additional audit requirements are applicable in the public sector and this is reflected in the wording of the Bill.

AUDIT REPORTS

S 20

Although auditors are appointed in terms of S 12 to assist the AG with the performance of audits in terms of S 4, these audits are performed on behalf of the AG and therefore all reports flowing from these audits are to be finalised in terms of S 20. In practice the authorised auditor will prepare a draft audit report which will be submitted to the AG for his approval and consideration.

21(4)

Section 21(4) allows the Auditor-General to submit an audit report beyond the normal users of such a report. In terms of the Public Accountants' and Auditors' Act, a registered accountant and auditor may, under certain circumstances, be liable to users of the audit report. We question whether the limitation of a liability as set in section 61 of the Bill will relieve the registered accountant and auditor of such liabilities. This should be clarified in the Bill.

Any audit performed in terms of the Bill would indemnify the authorised auditor from liability as provided for in section 61 of the Bill. In performing the function of a authorised auditor the registered accountant and auditor becomes an agent of the AG and the limitation of liability as contemplated by section 61 will also be applicable to the registered accountant and auditor.

22(b)

We are also of the opinion that it will be inappropriate for the AG to take a decision in terms of 22(b) "in consultation" with an authorised auditor as this would require that consensus should be reached with the authorised auditor.

AUDIT FEES

S 23

An authorised auditor is an agent of the Auditor-General. The appointment of an authorised auditor will not have any impact on the payment of audit fees. It remains the responsibility of the AG to pay the authorised auditor. The guidelines for contract work is clear on this matter and would be included in the proposed regulations/ instructions.

S 23(1) + 29(4)

It is normal practice to consult on the cost of auditing. However to require that it should be done "in consultation" with the auditee could cause constitutional difficulties as it would require that the AG should reach consensus with the auditees pertaining to the calculation of audit fees (and therefore compromising his/her independence).

S 23(6)

It is unclear why the provision of section 23(6) could result in a scope restriction on the audit. It will not result in a scope restriction as the excess of 1% would be recovered from NT (it is an administrative matter).

PUBLIC ENTITIES AND OTHER INSTITUTIONS AS SET OUT IN SECTION 4(3)

S 25

As S25 merely reflects on the consultation when the AG has opted not to perform the audit it is not deemed necessary to include issues such as standards, fees, etc. Section 27 clearly states that the audits are to be performed in terms of S 20 of the PAAB act and therefore the relationship is hereby regulated in terms of the said act.

S 25(3)

Section 25(3) is not clear as to whether the Auditor-General will also give notice if the appointment of the auditor is accepted. We believe the institution should be notified whether it is an acceptance or a rejection.

Disagree. This is implied in the wording of section 25 (3) and also in line with the current practice.

S 25(3)

Furthermore, it is assumed that, where the appointment has been rejected, the Auditor-General will follow the same process as detailed in section 25 until a suitable auditor has been appointed by the institution.

We agree with this interpretation of section 25 (3). See also similar comment by Eskom.

28(1)(d)

As normal practice the auditee will be informed about this. It is in our opinion not necessary to explicitly regulate this matter.

FINANCIAL STATEMENTS TO COMPLY WITH SOUTH AFRICAN GENERALLY ACCEPTED ACCOUNTING PRACTICE

S 40(2)

We fully support the intention that the highest level of accounting standards should be applied. However, in light of the requirements of the Financial Reporting Bill, we believe that, once the Financial Reporting Bill has been enacted, this section should refer to the "financial reporting standards as set our in the Financial Reporting Act" rather than "South African Generally Accepted Accounting Practice".

the financial statements must be in accordance with at least South African Generally Accepted Accounting Practice or any other standards as determined by the Auditor-General.

Section

Feedback from public submissions

Proposed amendments reflecting an expectation gap/lack of understanding of operational issues of OAG

Proposed amendments and comments OAG cannot agree with

Proposed agreements and comments OAG agree with

4

Comments by National Treasury

Constitutional functions

S 4

Section 4(1) refers to institutions whose accounts, financial statements and financial management should be audited by the Auditor-General. With the exception of "accounting entity" the various institutions are defined in section 1 of the Act. It is proposed that an "accounting entity" also be defined.

Agree, see comments by IPFA.

Other functions

S 5

It is proposed that the functions of the Auditor-General in terms of sec 5(1) be extended to provide for investigations, special audits and transversal audits on request of other role-players (e.g. executive authority, treasury) after proper consultation with the Auditor-General.

We agree and the section (5)(1)(c) to be amended by the inclusion of the words "or request".

Annual report to Parliament

S 10

Section 10 determines that the Auditor-General must annually report to the National Assembly on his or her activities and the performance of his or her functions. Section 40(4) also requires that the Auditor-General must submit the annual report, the financial statements and the audit report on those statements to the Audit Commission and the National Assembly. It isn't clear whether only one or two separate reports are required. It is proposed that the Bill be amended to clearly indicate the submission of only one annual report.

This proposal is supported due the fact that it will create more certainty also refer to inputs of IPMA.

Searches of premises, vehicles and persons

S 16

Section 16 provides for the Auditor-General to act under the authority of a warrant. It is proposed that the specific authority responsible for issuing the warrant be inserted.

For purposes of clarity this proposal is accepted

Audit reports

S 20 + 28

The requirements for audit reports as set out in section 20(2) and section 28(1) should be aligned.

IPFA made a similar recommendation. This proposal is accepted.

Submissions of audit reports

S 21

In terms of section 21(1) the Auditor-General should submit an audit report in accordance with any Legislation applicable to the institution or accounting entity which is the subject of the audit. Subsection (2) requires that the Auditor-General should submit all audit reports to the relevant legislature. Subsection (3) requires that audit reports should be tabled in the relevant legislature within a reasonable time.

This proposal is accepted due to the fact that it gives more clarity on the statutory requirements for the submission of audit reports.

It appears as if the requirements of section 21 is in contradiction with the requirements of the PFMA. Section 40(2) of the PFMA determines that the Auditor-General should audit the financial statements submitted by the department, trading entity or constitutional institution and should submit an audit report on those statements to the accounting officer within two months if receipt of the statements. In terms of section 40(1) of the PFMA the accounting officer for a department, trading entity or constitutional institution should submit their annual report, financial statements and Auditor-General's report to the executive authority responsible for that institution within five months at the end of the financial year

Audit fees

S 23(4)

It is proposed that section 23(4) be amended to also provide for notification of the relevant provincial treasury.

Where a provincial treasury is an interested party, it should also be notified.

S 23(6)

It is proposed that section 23(6) be amended as follows: "If the cost of auditing an auditee, excluding national and provincial departments, for any ......". These departments are fully funded from the relevant Revenue Fund and should provide sufficient funds for audit cost in estimates of expenditure. (T)

This proposal is supported due to the fact that national and provincial departments are fully funded from the relevant Revenue Fund and should therefore provide sufficient funds for audit cost in estimates of expenditure

Budget and business plan

S 38(1)&(2)

The budget process of Government provides for medium term expenditure estimates (three-year spending plans). It is also a requirement in terms of the PFMA that institutions tabled strategic plans (covering a three-year period) in Parliament. Therefore, it is proposed that information to be submitted in terms of section 38(1) & (2) to National Treasury for planning and budget preparation purposes also be done for a three year period.

This proposal brings the Auditor-General in line with the requirements applicable to departments to budget for multi- term periods.

Annual report and financial statements

S 40(1)(b)

To be consistent with proposals in the envisaged PFMA Amendment Bill the following amendments is recommended:

For purposes of comprehensiveness and better accountability this amendment is supported.

(i) any material losses through criminal conduct and any material irregular or fruitless and wasteful expenditures that occurred during the financial year

Accepted.

Sections 20 & 28 prescribed minimum information that should be reflected in an audit report. It is proposed that section 40(3) be amended to include similar requirements regarding the audit report on the financial statements of the Auditor-General.

Retention of surpluses

38(4)

The Bill currently provides for the retention of surplus funds that do not exceed an amount equal to 10% of the total operating expenditure during that year. Based on the current year's budget it might result in retention of surplus funds to the magnitude of R50,0 million.

This proposal is accepted due to the reasons put forward by National Treasury

It is the view of the Treasury that this approach to limit retention to a certain percentage, whether 10% or 5%, is also not supported as circumstances might differ from year to year. It is therefore proposed that the Bill be amended to provide for the retention of any surplus funds after having consulted the Audit Commission and the National Treasury. Such a provision will not compromise the independence of the Office but will provide a further control mechanism.

Composition and membership of the Audit Commission

S 50(1)

During discussions with the Auditor-General on the Bill, the Minister of Finance questioned whether the Audit Commission is sufficiently strong, keeping in mind the functions of the Commission (e.g. advising the Auditor-General on standards for auditing)

No comments

The Bill currently provides for the following category of persons to service on the Commission:

• eight members of Parliament (including the chairperson of the Standing Committee on Public Accounts and at least two permanent delegates of the National Council of Provinces) and

• three other persons of stature and good character, who have knowledge of and experience in auditing, state finance and administrative affairs. These members may not occupy a position in the national or provincial legislature or executive, including the public service or any organ of state.

It is the view of the National Treasury that the proposed composition of the Commission should be further strengthened by including more persons:

• who have a holistic knowledge and understanding of financial reporting and auditing;

• * who have the ability to contribute to the development of best auditing practices; and

• * who have the ability to act in the public interest.

It is proposed that the number of members in the second category be increased without necessarily increasing the total number of Commission members.

Section

Feedback from public submissions

Proposed amendments reflecting an expectation gap/lack of understanding of operational issues of OAG

Proposed amendments and comments OAG cannot agree with

Proposed agreements and comments OAG agree with

Additional comments by NT

S10(2)+40(4)

Both sections 10(2) and 40(4) refer to submission of an annual report by the Auditor-General to the National Assembly. It is still not clear whether one or two separate reports are required. It is proposed that section 10(2) be amended to also refer to section 40(4) to avoid any confusion (e.g. "as required in terms of section 40(4)")

Agree. Section 40(4) to be amended appropriately to also refer to section 10(2).

S 13(1)

In section 13(1) the reference to "standards" is now replaced with "approach". It is important that the standards that will be used are clearly specified and communicated. It is proposed that section 13(1)(a) be amended as follows: "the approach, including the standards, to be applied..."

It is our opinion that the word "standards" should be retained. However, it is agreed that term should be defined to include the matters listed by IPFA.

S 23(6)

In a recent claim received by NT from the OAG for audit fees in exess of 1% if total current and capital expenditure an amount for the Gambling Board was also included. After investigation it did appear that the Board had sufficient funds to settle its total audit fees. It is proposed that section 23(6) be amended to provide for such cases (e.g. such excess must be defrayed from the NT vote should the auditee have financial difficulty to settle the cost of auditing).

40(1)(b)(i)

Section 40(1)(b)(i) should be amended as follows: "any material losses through criminal conduct, and any material irregular and wasteful expenditure that occurred during the financial year."

Agree bill to be amended.

S 40(4)

Section 40(4) determines that the Auditor-General submit the annual report, etc within five months after the end of the financial year. In terms of the PFMA, institutions are required to table annual reports in the legislature within six months after year-end.

Agree.

Section

Feedback from public submissions

Proposed amendments reflecting an expectation gap/lack of understanding of operational issues of OAG

Proposed amendments and comments OAG cannot agree with

Proposed agreements and comments OAG agree with

5

Comments from IDASA

Sections 2 and 3 of the Public Audit Bill are to be welcomed. The Bill has taken the same position as the Australian legislation by referring to the independence of the Auditor-General [A-G] as the starting point of the legislation. The Australian law could also be instructive in this regard however as it is far more explicit on the issue of independence. The Australian Auditor-General Act states as follows in section 8:

Furthermore section 13(1)(b) states that the AG after consultation with the Audit Commission determines the nature and scope of the audit. This provision further enhances the statutory independence of the AG. Its our believe that this independence provisions are suffient.

(1) The Auditor-General is an independent officer of the Parliament.

(a) each House of the Parliament; and

There are no implied powers of the Parliament arising from the Auditor-General being an independent officer of the Parliament.

Wording along these lines may serve to better indicate the full intention of compliance with section 181 (4) of the South African Constitution.

Part 2: Appointment and conditions of employment:

In the South African Auditor-General Act 12 of 1995, section 2 covers the "Conditions of service of the Auditor-General". This appears to be far more comprehensive than the proposed Bill in respect of conditions of employment. Unlike in the 1995 Act, which in section 2 (b) states that decisions concerning remuneration and other conditions of service of the A-G "shall be made on the basis of consensus", in the proposed Bill, section 7 (1) requires that the Audit Commission consults with the candidate and makes a recommendation to the President.

The consultation in terms of S 7(1) implies that consensus would be reached.

In our opinion the mere acceptance of the position of Auditor-General implies that the Auditor-General agreed to the conditions of service attached to the position.

In addition, the new Bill does not make any allowance for pension benefits explicitly. It is suggested that this issue be dealt with separately as it is in the 1995 legislation. In addition, both the Auditor-General Act of Canada and the Indian and Australian legislation make separate provision for this. The Canadian Act for example states the following:

We consider the terminology condition of employment to be all-inclusive and will therefore also include pension benefits. This is also in line with best practice.

(2) The provisions of the Public Service Superannuation Act , other than those relating to tenure of office, apply to the Auditor General except that a person appointed as Auditor General from outside the Public Service may, by notice in writing given to the President of the Treasury Board not more than sixty days after the date of his appointment as Auditor General, elect to participate in the pension plan provided for in the Diplomatic Service (Special) Superannuation Act in which case the provisions of that Act, other than those relating to tenure of office, apply to him and the provisions of the Public Service Superannuation Act do not apply to him. 1976-77, c. 34, s. 4; 1980-81-82-83, c. 50, s. 23, c. 55, s. 1.

In terms of the current Audit Arrangements Act membership to a pension fund is not compulsory and the choice of pension is a personal matter.

The issue is important because the terms and conditions of service which govern the position of the A-G will determine the type of candidate one attracts to the position. Since the position is such a crucial one, it is important that the highest calibre of persons is attracted to the position. In addition, it provides security to the person taking up the position.

Chapter 3: Status and functions:

Section 5 (1): Other functions: It is submitted that this section could be more specific with regard to the additional powers and functions of the A-G. In the 1995 legislation- section 5 includes various sub-sections which deal in detail with the content of the reports submitted by the A-G. This has been excised from the new Bill. It may be useful to include them again as it defines clearly the powers of the A-G and could also serve to assist Parliament when examining the A-G's report as tabled. This may mean that sections 5 (2) and 20 (3) of the new Bill should be broadened.

Section 5 of the current AG Act refers to additional directives to the AG in connection with the reporting on accounts. This provision was necessary due to the fact that at the time when that act (current AG Act) was promulgated there were no specific reporting responsibility applicable to the auditees. This has been changed by the provisions of the PFMA which give specific reporting responsibilities to the entities subject to the PFMA (e.g. section 20 of the PFMA).

Protection of information:

S18(1)

Section 18 (1) refers to "secret or classified information" which may be obtained by the A-G. The Bill does not define what is meant by "secret or classified information." This has the potential for complication. Specifically one needs to take into consideration the Promotion of Access to Information Act [PAIA] which makes provision for access to information and is only narrowed if such information is covered by an exemption or a public interest over-ride.

The provisions of the Bill regarding the disclosure of info obtained in terms of section 15 (1) or (2) or 16 will be superseded by the Promotion to access of Information Act. The example quoted from the New Zealand Public Audit Act (S28(1)) relates to access of info by the AG which is similar to Section 15(1) of the Public Audit Bill.

" A person who is required by any enactment to maintain secrecy or not to disclose information relating to a matter may be required by the A-G to do any of the things ....even though the person would otherwise be in breach of that person's obligation of secrecy or non-disclosure." It goes on to state in s 28 (2) that: "Compliance with a requirement of the A-G under the sections above...is not a breach of the relevant obligation of secrecy or non-disclosure or of the enactment by which that obligation is imposed."

We agree that S15(1)(b) of the bill should be extended to also include access of classified info which is protected by the Protection of Information Act.

It is clear therefore that in terms of the New Zealand legislation there are far fewer restrictions on secrecy and non-disclosure than appear in the new South African Bill. Perhaps this is not the intention of the legislature however it may be worth canvassing these issues during the consultation phase within Parliament.

S 22

Audit reports on confidential, secret or classified accounts:

Section 22 (1) of the proposed Bill, it is submitted should be excluded. The pieces of legislation referred to in this section are apartheid-era legislation referring to "confidential special accounts established by an Act of Parliament." Section 22 (1) (a) states that the A-G "must have due regard for the special nature of the account". It is further submitted that this is sufficient caution and that sub-section (b) concerning the possibility of consulting the President or a Cabinet member and that the A-G may thereafter may limit the audit report, is unnecessary and could lead to a negative perception on the part of the public that there is interference from the executive when the A-G is exercising his/her powers. To exclude this sub-section would be in line with for e.g. the legislation in Canada, Australia, New Zealand and India.

It should also be noted that the Canadian Auditor-General is restricted in terms of the number of audit reports that may be issued. No such limitation is applicable to the South African AG.

In sections 22 (1) in addition, there is reference to the disclosure of facts which "would harm the national interest". Again, there is no definition of what the "national interest" is and who would take the decision that a disclosure of facts "would harm the national interest."

See comments above.

S 22

The Auditor General may make a special report to the House of Commons on any matter of pressing importance or urgency that, in the opinion of the Auditor General, should not be deferred until the presentation of the next report under subsection 7(1).

We are of the opinion the section 5(2) makes sufficient provision for the urgent tabling of reports of the AG.

Part 3: Financial administration:

S 38(1)

There are at times concerns about the funds available to Chapter 9 institutions. It is vitally important that these oversight institutions are properly resourced. If not, they will be unable to fulfill their Constitutional mandate. The Canadian Auditor-General Act includes the following section to ensure that the A-G's office is well-resourced at all times:

We do not agree. Currently the AG as part of its independent role recovers audit fees direct from the auditees and therefore does not normally receive direct funding from Parliament. The Bill does provide in S23(4) that National Treasury / a Provincial Treasury may be informed of any non payment by the auditee.

(2) The Auditor General may make a special report to the House of Commons in the event that amounts provided for his office in the estimates submitted to Parliament are, in his opinion, inadequate to enable him to fulfil the responsibilities of his office.

S 23(5) could be amended in order to request NT to indicate an account from which any audit fees may be defrayed in the case of non payment.

It may be worthwhile to include such a clause in the new Bill.

Section

Feedback from public submissions

Proposed amendments reflecting an expectation gap/lack of understanding of operational issues of OAG

Proposed amendments and comments OAG cannot agree with

Proposed agreements and comments OAG agree with

6. Willem Opperman's comments

Long title

With the state's vested and acknowledged interest in the tax base, should the Constitution's mandate not create one audit profession for public and private sectors alike?

Unfortunately the AG does not manage and/or regulate the private audit profession.

Preamble

While so freely used, why not clearly define independence suitable for objective assessment, also by the public in whose interest audit opinions are expressed?

Is clarity of independence in fact and appearance, not fundamental to a reliable audit opinion?

The independence of an auditor is already defined in the audit standards (SAAS) which the office complies with and the office's internal code of ethics.

S 13

Why should one person, or a small group, determine audit standards?

Why suddenly change the current use of South African Auditing Standards, that is aligned to international standards of IFAC, a body representing millions of auditors and accountants from private and public sectors of most countries, also setting standards for both sectors?

Currently the AG subscribes to SAAS but there are certain audits which are unique nature and extent to which the AG must determine specific nature and extent guidelines.

S 13

Why this seclusion while IFAC standards are debated worldwide by millions; and its interactive database, of audit standards too, is available on the internet to anyone on earth at no cost?

There are certain public sector audits which are unique and which require specific alternative standards

S 7(2)(a)

Why are the qualifications required for the state auditor vague and not clear like for PAAB auditors?

Why are the same level qualifications in auditing and accounting, and other requirements that the state prescribes for PAAB auditors not required for its own auditor?

The vats majority of staff in the office are not qualifies in terms of PAAB standards, therefore an alternative qualification (grading) had to be accepted

S 12(2)(a)

Why the need for different audit qualifications and not only what the state prescribes for PAAB auditors?

Why so, while the alternative to PAAB is vague, not public knowledge or readily accessible by the public like PAAB? Who benefits?

In terms of the PAAB Act a person can only sign an audit report if he is a Registered Accountant and Auditor i.e. passed all the required examinations, completed the required training contract and is registered with the PAAB. If this is to be applied, it will have a significant impact on the office with respect to the number of CA's which will be required

S 12(3)(a)

Why should one and the same person determines the qualifications, experience and competence of state auditors?

Why not prescribe the same of what the state prescribes, correctly, for private sector auditors namely: post-graduate level university studies in advanced auditing and accounting, a number of years contractual training under supervision of a register auditor, passing of a most stringent public qualifying examination, and registration with the statutory regulator (PAAB) as an auditor in public practice?

See comments above (S12(2)(a))

S 12(3)(a)

Why not determine audit competence with an audit quality review by an independent qualified competent auditor before the audit opinion is signed?

S 12(1)

Once again, why should one and the same person also authorize other persons to audit?

Why can all audits not be tendered for publicly, objectively, transparently and directly by PAAB registered auditors (statutory authorized by the state)?

See comments above (S12(2)(a)The auditing of public funds is allocated, in terms of the constitution, to the AG

S `12(1)

Why is this excellent opportunity to transfer skills to newcomers in a very cost-effective manner not realized or used?

This comment is unclear

S 12(1)

How possibly can one person audit and sign knowingly the right audit opinions for the vast number of state audits and with one law prescribed target date?

This comment is unclear

S 12(3)(b)

Yet again, why should one and the same person prescribe a code of conduct?

Should such code not in the first place apply to the auditor with executive powers to sign audit opinions?

The AG is head of the administration and therefore subject to its own act..

ADDITIONAL REQUIREMENT