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What accountants need to know about assuring public schools’ financial statements

South African Institute of Professional Accountants
11 July 2018

Members of the South African Institute of Professional Accountants (SAIPA) need to be aware of the legislation involved when accepting an engagement from a public school. There are several risks involved with self-review and SAIPA members with clients in the education sector must take note of the potential pitfalls of doing the school’s “audit”.

A Professional Accountant (SA) may not audit financial statements, says Faith Ngwenya, Technical and Standards Executive at SAIPA. An audit may only be done by a registered auditor and conducted in terms of the Audit Professions Act. The only form of assurance service that may be offered by a SAIPA member is an independent review.

“Many times, a school doesn’t have the resources to prepare their own financial statements. If they have appointed a member of SAIPA for this task, the SAIPA professional must take precautionary measures to address the threat that exists when the client expects them to handle the preparation of the establishment’s financial statement as well as conduct an independent review on those same financial statements,” says Ngwenya.

Legalities involved with separation of duties

According to the South African Schools Act, the governing body of a public school must draw up annual financial statements in accordance with the guidelines determined by the Member of the Executive Council within three months of the end of each financial year. Within six months of the end of each financial year, a copy of the annual audited financial statements must be submitted to the heads of the regional education department.

The auditor/independent reviewer should not do the bookkeeping of the school, other than the year-end journals and adjustments. According to the International Standard of Review Engagements (ISRE 2400), the audit/review of the school’s financial statements must not be carried out by the same accounting professional who was involved in the preparation of the statements.

It is also important to note that the registered auditor performing the audit function to a school must not compile the annual financial statements. The compilation must be done by an accountant who will not be responsible for the audit or review of the same financial statements. To reduce the self-review threat that exists, members can help the school to find another accounting firm to prepare their financial statements or refer the accounting work to another professional accountant.
“There needs to be a clear separation of responsibilities to reduce the threat of an accountant preparing the financial statements and providing assurance on the same documents. Separate entities need to be appointed for each task, which may be challenging for small companies and sole practitioners,” says Ngwenya.

Collaboration is key to minimising risks

The governing body of a public school must appoint a person registered as an auditor in terms of the Audit Professions Act of 2005. If this is not reasonably practicable, it must appoint a person who is qualified to perform the duties of an accounting officer of Close Corporations (section 43(2)(a) of SASA).

“I believe many accounting officers will need to reduce and minimise the threat that exists if they are preparing financial documents for schools as well as providing independent reviews. Collaboration is key to protecting yourself professionally and to ensure that your client – the public school – is receiving the due diligence that is needed in South Africa.

SASA’s goal is to ensure that all learnings have access to quality education without discrimination and a large part of this responsibility resides with ensuring that financial documents are correct, transparent and correct. I would like to urge SAIPA members to work together and refer to each other to separate responsibilities to help minimise risks and stay in line with the new legislation,” concludes Ngwenya.