THE SOUTHERN AFRICAN JOURNAL OF ACCOUNTABILITY AND AUDITING RESEARCH Volume 1: 1998    Contents of this issue: Message from the Chair of the Editorial Board Performance auditing and policy in South Africa A public interest perspective on the audit standard setting process in South Africa Internet firewall environments: an audit perspective Ouditgelde in Suid-Afrika A normative reference framework for determining audit materiality Audit judgement in sampling Message from the Chair of the Editorial Board The nature of research Herman De Jager: Chair of the Editorial Board One inescapable and fundamental aspect of being human is having to deal with the world. The human spirit has the urge to know, and to absorb knowledge. The process of assimilating knowledge, organising it and expressing it may be called science, or research. Numerous definitions of science, or research, already exist. Although these descriptions are divergent, there is a general consensus about the following: Research is about gathering knowledge through the implementation of scientific methods; the scientific-methodical processing of the knowledge; most recent findings remain provisional, are never complete, final or irrefutable, never "the final word", but remain open to correction and complementation. In its constitution, The Southern African Institute of Government Auditors, states as its first objective: "to promote the scientific development and application of the principles and techniques of government auditing". The research journal, The Southern African Journal of Accountability and Auditing Research seeks, amongst others, to realize this objective by publishing research results and encouraging researchers to explore the field of auditing and accountability. It is important that this field be examined as widely as possible, from the theoretical-fundamental, the socio-political and the technical viewpoints. To gain the full value and benefits of research, it is imperative to remain conscious of the nature of research and to guard against debasing it to serving the objectives of a specific interest group. When a research journal is issued by a particular institute or body, it is not beyond the bounds of possibility that the institute concerned may begin to believe that the results which are published should support and promote the strategies of that institute. As soon as a research journal’s policies decline to such a level, we begin to see covert propaganda and the "research" fails to make any contribution whatsoever. The editors therefore are responsible for maintaining a policy of protecting and promoting genuine research, paying no attention to sectional interests but unconditionally serving science and the broader community. The most profound objective of research, is to expand the horizons of knowledge, and results are never positive or negative – merely new knowledge being shared. It is a fact that sectional interest groups frequently react strongly to research results, either positively or negatively. The positions taken by such interest groups are determined by own interest, and are not geared to the interests of the community or the longer-term benefits which may arise from the new perspective gained. When the results of a research project are termed "negative" by a particular group, for instance when it is found that a certain category of companies do not fulfill particular Companies Act requirements, it should be borne in mind that the results of the research are not negative, but a reflection of the adherence to Companies Act requirements. Groups or individuals, who experience research results as negative, frequently assert that research focuses exclusively on the negative, or on problems. In a sense, this statement is correct. Science and human reasoning is in search of the truth, of the improvement of conditions, of new possibilities and the actualization of a cultural mandate. This requires mankind to be continuously grappling with the reality of our conjectured problems, shortcomings and weaknesses. The researcher frequently addresses those issues about which there are uncertainties, problems or deficiencies of understanding, in order to penetrate them, to reveal new knowledge which may lead to improvements for the benefit of society. But research is never value free. The researcher can never be totally divorced from personal bias, no matter how dedicated the striving to objectivity. The "free market economist" and the "socialist economist" have different preconceptions, yet strive to remain objective within their purview. This truth gives rise to the premise that knowledge is never absolute, but always limited. This truth keeps the researcher humble. [ BACK TO THE TOP ] Performance auditing and policy in South Africa (S Fakie) Although the Auditor-General has a clear mandate to carry out and report on performance audits, the Auditor-General Act does not entitle the Auditor-General to question the merits of political and executive policies, decisions and objectives. This reflects the principle that the merits of Government programs and projects are primarily matters for political debate and ultimately for decision by Parliament or other legislative bodies. This article, by way of practical examples, indicates that the Auditor-General does, however, have a duty to examine issues related to the determination and implementation of these policies and decisions by institutions and functionaries on an operational level. A public interest perspective on the audit standard setting process in South Africa (JD Gloeck) The auditing profession has been criticised that auditing standards favour the self-interests of a limited number of members or certain constituencies of society and not society at large. As auditing is a means of social accountability, all social constituencies have a legitimate interest in defining what is termed as generally accepted auditing standards. The state would undertake the regulatory function of auditing standard setting itself, were it not for the processes administered and managed by the self-regulating bodies. Auditing standards are therefore supplementary to legislation and can be described as quasi- legislatory. This paper examines the auditing standard setting process in South Africa and points to certain shortcomings which challenge the regulators' claims of legitimacy. Internet firewall environments: an audit perspective (AM Bouwer & H de Jager) The aim of this article is to introduce auditors to the Internet, and more specifically to security implications for companies online. The article will look at firewalls as a control measure to protect these companies against the risks of the Internet environment. Guidance will also be given to auditors facing the challenge of auditing Internet firewall environments. [ BACK TO THE TOP ] Ouditgelde in Suid-Afrika (EF Schumann) Very little information is available on the income patterns of individual audit firms in South Africa. There is no statutory requirement for audit firms to disclose any information in respect of its own activities. This study provides some information on the income patterns of the audit firms involved in the audit of the top 300 companies in South Africa during the period 1992 to 1996. A normative reference framework for determining audit materiality (WJJ Botha & JD Gloeck) Materiality is a central concept in the process which is applied during the external audit of company annual financial statements. Guidelines issued by professional standard-setting bodies generally state that the determination of audit materiality is primarily a matter of professional judgement. A normative analysis and description of the materiality concept in auditing led to the formulation of specific normative principles in respect of determining audit materiality which are presented in this article. These normative principles are summarised and discussed in a normative reference framework for determining audit materiality. The normative reference framework represents the factors which should influence the external auditor’s decisions in respect of determining audit materiality and, therefore, provides external auditors with specific guidance in this regard. The application of normatively based decision making processes serves to enhance the accountability of the duties and functions of the external auditor. Audit judgement in sampling (B van Heerden) The cost of an audit as well as the risks associated with erroneous audit opinions are important factors to be considered by an auditor in sample sizes. An auditor should, during the planning stage of an audit, estimate the losses that he may incur if he accepts an unfair set of financial statements as well as the losses that he may incur in rejecting a fair set of financial statements. He should also estimate the costs associated with his audit. In order to determine sample sizes during the planning stage of an audit, it is possible to trade-off the costs of an audit against the risks associated with erroneous audit opinions. This is possible because normally the higher the costs of an audit due to increases in sample sizes, the lower become the risks associated with erroneous audit opinions. If an auditor selects the probability of erroneous opinions in such a manner that the total expected cost of his audit, together with the total expected losses that he may incur if arriving at erroneous opinions, are a minimum, then such selection should lead to optimum sample sizes. [ BACK TO THE TOP ]
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