INTRODUCTORY STATEMENT FOR THE STANDING COMMITTEE ON THE AUDITOR-GENERAL ON THE GUIDELINE ON FEES FOR AUDITS DONE ON BEHALF OF THE AUDITOR-GENERAL

The Auditor-General approves fixed charge out rates annually to be applied by private firms who conduct audits on behalf of the Auditor-General. He does so after discussions with the South African Institute of Chartered Accountants (SAICA) as well as after consultation with the Standing Committee on the Auditor-General (SCOAG) and National Treasury (NT) in terms of S23(1) of the Public Audit Act No. 25 of 2004.

The enclosed draft guideline covers the charge out rate for the period 1 April 2007 - 31 March 2008. The actual computation of the rates is covered in paragraph 04 of the draft guideline.

The principles applied to determine these rates have been limited to a straight 4% increase on each charge out rate as previously published in SAICA circular 11/2006 (covering the period 1 April 2006 - 31 March 2007, also enclosed for ease of reference). This increase is in line with the Auditor-General's own budgetary assumptions as included in its strategic plan (RP 225/2006, ISBN 0-621-36870-9) for the corresponding period.

This basic amendment to the previous rates is in view of a pending comprehensive research project to be undertaken by SAICA, in consultation with the Auditor-General, which will aim to benchmark the process of determining these rates with other supreme audit institutions. in a selection of countries abroad and to consider relevant market information locally. SCOAG and NT will also be consulted on the terms of reference and conclusions of the research project.

While SAICA is comfortable with the 4% increase in principle, it has proposed further amendments of the monthly earnings scale (as reflected in the annexure to the draft circular) by adding another level of "R55,000 and more" to provide for senior manager salaries estimated to average around R650 000. The corresponding rate for this new scale would amount to R1,383 per hour. SAICA has provided limited details informally of its assessment in this regard as reproduced in the following table:

1. Large firm A 2. Large firm B 3. Large firm C 4. Medium firm 5. Small firms 6. Small firm

500,000 - 600,000 550,000 - 650,000 550,000 - 700,000 630,000 - 780,000 No senior manager No senior manager

SAICA also indicated that if its afore-mentioned proposal to revise the monthly earnings scale is accepted, then it suggests further amendments to the, partner and specialists rates. The revised hourly rates for partners would be R1,453 (computed as in the past as 5% on top of the revised highest rate of R1,383) while the proposed rate for specialists would be R 1,525 (computed again as in the past as 5% on top of the revised partner rate).

The Auditor-General is not in principle opposed to revising the monthly earning scale, partner and specialist rates as proposed by SAICA above. However, limiting deviations to the 4% flat increase would perhaps be the prudent approach at this time pending the outcome of the comprehensive research project, which will have the benefit of a broader sample of data.

National Treasury has confirmed to the AG that it supports the straight 4% increase on each of the prior year rates, i.e. NT supports the draft guidelines as enclosed. The guideline will be published as a SAICA circular once approved by the Auditor-General on 30 March 2007, after considering the views of SCOAG and NT.