REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE FINANCIAL STATEMENTS AND PERFORM4NCE INFORMATION OF THE SOUTH AFRICAN STATE THEATRE

For the year ended 31 March 2007

2.3 REPORT OF THE AUDITOR GENERAL

ON THE FINANCIAL STATEMENTS

Introduction

1. I have audited the accompanying financial statements of the South African State Theatre

which comprise the "statement of financial position as at 31 March 2007, statement of financial performance, statement of changes in net assets and cash flow statement for the year then ended, and a summery of significant accounting policies and other explanatory notes, as set out on page [29] to [49].

Responsibility of the accounting authority for the financial statements

1.
The accounting authority is responsible fort the preparation and fair presentation of these financial statements in accordance with Generally Acceptance Accounting Practice and in the manner required by the Public Finance Management Act, 1999 (Act No.1 of 1999). This responsibility includes:

          designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error

 

          selecting and applying appropriate accounting policies

 

          making accounting estimates that are reasonable in the circumstances.

 

Responsibility of the Auditor-General

2.
As required by section 188 of the Constitution of the Republic of South Africa, read with section 4 of the Public Audit Act, 2004 (Act No. 25 of 2004) my responsibility is to express an opinion on these financial statements based on my audit.

3. I conducted my audit in accordance International Standards on Auditing, General Notice 647 of 2007, issued in Government Gazette No. 29912 of May 2007. Those standards required that I comply with requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the risk of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls.

5. An audit also includes evaluating the:

          appropriateness of accounting policies used

 

          reasonableness of accounting estimates made by management

 

          overall presentation of the financial statements

 

6. I believe that the audit evidence I have obtained is sufficient appropriate to provide a basis for my audit opinion.

Basis of accounting

7.
The entities policy is to prepare financial statements on the basis of accounting determined by
the National Treasury, as set out in note 1 to the financial statements.

2S




Opinion

8.
In my opinion, the financial statements present fairy, in all material respects, the financial

position of the South African State Theatre as at 31 March 2007 and its financial performance and cash flows for the year then ended, in accordance with the basis of accounting determined by the National Treasury of South Africa, as set out in note 1 to the financial statements, and in the manner required by the PFMA.

Emphasis of matters

I draw attention to the following matters:

9. Lack of control over parking income

It is not feasible for The South African State Theatre to institute accounting controls over parking income and refreshment sales prior to the initial entry of such income in the accounting records. Accordingly, it was impracticable for us to extend the examination beyond receipt actually recorded. Monthly rental received from contracts could be verified.

OTHER MATTERS

I draw attention to the following matters that are ancillary to my responsibilities in the audit of the financial statements:

10. Material non-compliance with applicable legislation

10.1 Non-compliance with PFMA and Treasury Regulations

          Section 51(1)(b): Effective and appropriate steps were not taken to collect revenue due to the entity and managing liabilities as debts have been outstanding for a period longer than 90 days and creditors for a period of 180 days.

 

10.2 Non-compliance with Generally Accepting Standards

          Useful lives of assets were not assessed for the year as requested by South African Statements of Generally Accounting Practice, [AS 16 (AC 134) Property, plant and equipment, and as a result certain assets are disclosed in the financial statements at R1, while still in use.

 

11. Internal audit

I did not plan to place any reliance on the work performed by internal audit section due to the internal audit work planned for 2006-07 only being done in March 2007. The reliance placed on the work performed by internal audit will be revisited during the audit to be conducted in the 2007-08 financial year.

12. Material corrections made to the financial statements submitted for auditing

Non-compliance with Generally Accepted Accounting Practice (GAAP) regarding various accounting balances emanated from manager's failure to properly assess the impact that accounting pronouncements have on the entity and as a result the financial statements had to be amended.

The financial
statements, approved by the accounting authority, as submitted for auditing on 31 May 2007, have been significantly revised in respect of the following misstatements identified during the audit:

          Bonus provision were understated by R71 807

 

          South African Statements of Generally Accepted Accounting Practice, IAS 39(AC 133) Financial Instruments, requires that the receivable be initially recognises at its fair value. Payables/receivables were not discounted, resulting in an adjustment of R290 000

 

          Short-term portion of deferred income was overstated by R3 926 627

 

13. Progress on SCOPA resolutions

As previously reported, in terms of SCOPA resolution 137 of 2003, various organs of state were requested to take action to resolve the outstanding issues relating to the loss of investments by the State Theatre in 1999. Details of the progress are reflected on page 28 of the annual report.

OTHER REPORTING RESPONSIBILITIES

Reporting on performance information

14. I have audited the performance information as set out on page 14 to 16

15. The accounting authority has additional responsibilities as required by section 55(2)(a) of the PFMA to ensure the annual report and audited financials statements fairly present the performance against predetermined objectives of the public entity.

Responsibility of the Auditor-General

16.
I conducted my engagement in accordance with section 13 of the Public Audit Act, 2004 (Act No. 25 of 2004) read with General Notice 646 of 2007, issued in Governments Gazette No. 29919 of 25 May 2007.

17. In terms of the foregoing my engagement included performing procedures of an audit nature to obtain sufficient appropriate evidence about the performance information and related systems, processes and procedures. The procedures selected depends on the auditor's
judgement.

18. I believe that the evidence I have obtained is sufficient and appropriate to provide a basis for the audit finding reported below.

Audit findings

19. A formal policy to govern the reporting against measurable objectives has not been drafted or implemented.

APPRECIATION

20. The assistance rendered by the staff of the South African State Theatre during the audit is sincerely appreciated.

A H Muller for Auditor-General

Pretoria

31 July 2007