17 hallstrom franzel_public sector auditing structure and standards_eng

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17 hallstrom franzel_public sector auditing structure and standards_eng

  1. 1. Structure of Government Auditing Standards Jonas Hä llström Deputy Director, Financial Audit Project Director, INTOSAI WG on Financial Audit Guidelines Riksrevisionen, the Swedish National Audit Office Sweden Jeanette M. Franzel Director, Financial Management and Assurance Project Director, Government Auditing Standards U.S. Government Accountability Office (GAO) U.S.A 19th International Conference on New Developments in Government Financial Management Miami, Florida – USA May 5, 2005 1
  2. 2. Integrity in GovernmentOur common values of • Accountability • Integrity, trust, and reliability • Confidence and credibility • Independence, objectivity and impartialityAre expressed through our common language of • Ethics and • Standards 2
  3. 3. International Organization of Supreme Audit Institutions (INTOSAI)• INTOSAI – the professional organization of supreme audit institutions (SAI) in countries that belong to the United Nations or its specialized agencies. – founded in 1953 and has grown from the original 34 countries to a membership of over 185 SAIs, or 185 countries. – internationally recognized leader in public sector auditing and issues international guidelines for internal control, financial management and other areas. – develops related methodologies, provides training, and promotes the exchange of information among members. 3
  4. 4. INTOSAI Auditing Standards Committee• The original task for the Committee was to produce a set of auditing standards, which has been fulfilled. Subsequently, the Committee had its terms of reference extended to: – approve the standards by updating them and making any necessary additions (subject to approval of INCOSAI); – facilitate providing INTOSAI members with practical guidance material in support of the auditing standards; – give advice on the development and provision of training material to support effective application of the standards; and – consult with the INTOSAI Secretariat and the Regional Working Groups for administrative support in promulgating the guidance and training material. 4
  5. 5. ASC Goals 2004-2007• Implementation of the INTOSAI Strategic Plan• Develop Financial Audit Guidelines• Case studies on independence• Promotion of SAI independence• Develop guidance on compliance audit• Review of INTOSAI Code of Ethics• Website ( www.rigsrevisjonen.dk/asc)  ASC replaced in 2005 by INTOSAI Accountability and Professional Standards Committee 5
  6. 6. Structure of INTOSAI STANDARDS• Lima Declaration of Guidelines on Auditing Precepts– 1977, Lima• Original INTOSAI Auditing Standards-- June 1992• Code of Ethics– 1998, Montevideo.• Restructured Code of Ethics and Auditing Standards– 2001, Seoul.• Approval for the Auditing Standards Committee to develop guidelines for implementing auditing standards– 1998, Montevideo 6
  7. 7. Structure of INTOSAI STANDARDSLevel 1 Lima Declaration is the foundation with its comprehensive precepts on auditing in the public sector.Level 2 The Code of Ethics contains the values and principles guiding the daily work of the auditors. – One of the principles outlined in the Code of Ethics is the auditor’s obligation to apply generally accepted auditing standards.Level 3 The Auditing Standards contain the postulates and principles for carrying out the audit work.Level 4 Guidance Material provides practical assistance to SAIs in implementing the Standards in their individual situations. 7
  8. 8. Lima Declaration of Guidelines on Auditing Precepts• Orderly and efficient use of public funds is essential for proper handling of public finances and effective decision-making.• To achieve this objective, each country needs a Supreme Audit Institution whose independence is guaranteed by law.• SAIs are even more necessary as countries expand their activities into the social and economic sectors.• The following objectives of auditing are necessary for the stability and the development of countries in keeping with the goals of the United Nations – proper and effective use of public funds; – development of sound financial management; – proper execution of administrative activities; and – communication of information to public authorities and the general public through the publication of objective reports. 8
  9. 9. Lima Declaration of Guidelines on Auditing Precepts• Auditing is inherent in public financial administration as the management of public funds is key to public trust.• Audit is not an end in itself but an indispensable part of a regulatory system whose aim is to – reveal deviations from accepted standards and violations of the principles of legality, efficiency, effectiveness and economy of financial management early enough to make it possible to take corrective action in individual cases, – to make those accountable accept responsibility, to obtain compensation, or – to take steps to prevent--or at least render more difficult--such breaches. 9
  10. 10. INTOSAI Code of Ethics• Contains the basic postulates of ethics.• National differences of culture, language and legal and social systems make it necessary adapt the Code to the environment of the specific country.• The Code is the foundation for SAIs to use when developing their respective codes of ethics.• SAIs Code of Ethics should be a comprehensive statement of the values and principles which guides the daily work of auditors.• The independence, powers and responsibilities of the public sector auditor place high ethical demands on the SAI.• The Code reinforces the INTOSAI auditing standards. 10
  11. 11. INTOSAI Auditing StandardsThe INTOSAI auditing standards •provide a framework for the establishment of procedures and practices by SAIs for conducting audits. •should be viewed in the particular constitutional, legal and other circumstances of the SAI. •Set forth the basic principles, assumptions, consistent premises, logical principles and requirements which help in developing auditing standards and serve the auditors in forming their opinions and reports, particularly in cases where no specific standards apply. 11
  12. 12. INTOSAI Auditing StandardsChapter I -• Basic Principles in Government AuditingChapter II• General Standards in Government Auditing• Standards With Ethical SignificanceChapter III -- Field Standards in Government Auditing• Planning• Supervision and Review• Study and Evaluation of Internal Control• Compliance With Applicable Laws and Regulations• Audit Evidence• Analysis of Financial StatementsChapter IV--• Reporting Standards in Government Auditing 12
  13. 13. INTOSAI Financial Audit Working Group Partnership with IAASB• March 2004 agreement (MoU) between INTOSAI and IAASB – The INTOSAI Auditing Standards Committee will provide experts from their member countries to participate in the work being done by IAASB task forces. – The aim of this work is to ensure that the standards being developed by the IAASB take into consideration, to the greatest degree possible, the specific considerations of public sector audits. – Reference panel of 97 experts from 58 countries (February 2005) working with the IAASB. – The guidance developed do not have a mandatory application in SAIs 13
  14. 14. Reference Panel February 200597 experts and back-office experts 39 from Europe 24 from Asia  9 from Africa  7 from North America  5 from Oceania 13 from South America58 countries represented (7 Court-model) 14
  15. 15. INTOSAI Financial Audit Guidelines• Working Group on Financial Audit Guidelines created as a result of the agreement with the IAASB• 9 member countries• New strategy developed Lima 2005• Chaired by Sweden• A project secretariat created to manage all processes 15
  16. 16. Why Cooperation INTOSAI IAASB There is an international focus on the use of standards in a global economy To ensure high quality in standards and audit work carried out To ensure confidence in profession INCOSAI recommendation: be based on existing standards Effective and efficient: Many of the core principles are the same 16
  17. 17. Working Group on Financial Audit Guidelines • Strategic objective Develop high quality guidelines that are globally accepted for the audit of financial statements in the public sector • Actions to achieve strategic objectives Incorporate public sector consideration into the ISAs Provide guidance above and beyond what is provided in the ISA for public sector audits 17
  18. 18. Working Group Goals 2004-2007• Appoint experts on all ISA Task Forces• Practice Notes to ISAs following task forces, and ”old” ISAs• Comments on IAASB Exposure drafts• Present first draft guidelines at INCOSAI 2007• Secure external funding• Securing diverse expert involvement• Create routines and structures 18
  19. 19. Financial Audit Guidelines• The Guidelines for Financial Audit will form in-depth guidance to the INTOSAI Auditing Standards.• A Guideline will consist of an ISA, which – where applicable – may contain public sector considerations at a general level, and a practice note. – Practice notes will be prepared by the Working Group for Financial Audit Guidelines for decision by the INTOSAI Auditing Standards Committee (ASC). – Practice notes will explain the application of an ISA to the public sector, the extent to which it is applicable, and what adjustments need to be made by a public sector auditor. Where considered necessary, a practice note may contain detailed guidance on the application of an ISA in the public sector.• Guidelines may also be developed by the ASC in areas that are not relevant to the private sector. 19
  20. 20. Financial Audit GuidelinesChapter I• Introduction and Background• Purpose of the INTOSAI Financial Audit Guidelines and relation to other regulations and standard setting bodiesChapter II• General considerations in applying the ISA to the Public sectorChapter III• The relation between INTOSAI Auditing Standards and the International Standards on Auditing (ISA) – INTOSAI- ISA, ISA- INTOSAI, Glossary of TermsChapter IV• Additional guidanceChapter V• Guidance on application of ISAs - Practice Notes/ISAs – General introduction to the use of Practice Notes and relation to ISAs – Practice Note to ISA 120, etc 20
  21. 21. Practice Notes• Practice notes will be issued by INTOSAI within nine months after a new or revised ISA is issued by the IAASB.• Existing ISAs, which are not to be revised in the near future, will be considered by the Working Group and practice notes developed,• The work started in 2004. 21
  22. 22. Practice Notes- status• INTOSAI participation in 7 IAASB projects to revise existing ISAs• PN to these ISAs scheduled in 2006/07• PN to revised ISAs planned 2005- 2008• Goals: – 21 PN to be approved and endorsed in 2007 – 9 PN to be approved and endorsed in 2010 22
  23. 23. ASC IAASB INCOSAI Issues paper INTOSAI Governing Board First read INTOSAI Auditing Standards Committee Exposure draftSub-committee onIndependence Project 1 PA Guidelines Project 3 Project 5 Observers Consideration Bibliography FA Guidelines: Project 2 Working Group ASC Website Project 4 Survey Project Director and Reference Final Project Secretariat Panel IAASB International Standard INTOSAI Practice Note on Auditing ISA 23
  24. 24. IAASB projects with experts from INTOSAIISA no• ISA 230, Documentation• ISA 260, Communication with those charged with governance• ISA 550, Related Parties• ISA 580, Management Representation• ISA 620, Using the work of an expert• ISA 701, (705,706) Modifications to the Auditors report• ISA 800, (701,800) Other Historical Financial Information 24
  25. 25. Old ISAsPrivate Sector Public Sector International  INTOSAI Standards on Auditing Auditing (ISA) Standards Public Sector Perspective in ISAs 25
  26. 26. PN / ISA relationPrivate sectorPrivate sector Public sector Public sector  INTOSAI Auditing Standards  ISAs  Practice notes 26
  27. 27. GAO’s Government Auditing Standards-- Yellow Book• Expands upon the concepts and precepts in the INTOSAI Lima Declaration, Code of Ethics, and Auditing Standards• Represents authoritative auditing standards in the U.S. for audits of government entities, programs, activities, and functions and of government assistance administered by contractors, not-for profit entities, and other nongovernmental entities, when required by statute or when the auditors hold themselves out as following these standards.• Used by GAO, state and local government audit organizations, and auditing firms that audit government programs or activities.• Is widely used, highly regarded, and has been translated into many languages. 27
  28. 28. GAO’s Government Auditing Standards-- Yellow Book• www.gao.gov – Click on “Government Auditing Standards (the Yellow Book)• www.sisepuede.com.ec (la versió n en españ ol) – Leyes • Guías, Manuales, etc. • Normas de Auditoría Gubernamental del la Contraloría General de los EE.UU. (GAO) 28
  29. 29. GAO’s Yellow Book Chapter 1: IntroductionWhen generally accepted government auditing standards (Yellow Book) are requiredThe concept of accountability for public resourcesThe responsibilities of government program managers, auditors, and audit organizations in the audit process. 29
  30. 30. GAO’s Yellow BookChapter 2: Types of Engagements Financial audits Attestation engagements Performance audits Nonaudit services (not covered by the standards, but must be considered in maintaining independence) 30
  31. 31. GAO’s Yellow BookChapter 3: General StandardsIndependence, including personal, external, and organizational impairmentsProfessional judgmentCompetence of audit staffQuality control and assurance, including external peer reviews 31
  32. 32. GAO’s Yellow Book Chapter 3: General StandardsIndependence In all matters relating to the audit work, the audit organization and the individual auditor, whether government or public, should be free both in fact and appearance from personal, external, and organizational impairments to independence.Overarching Principles: audit organizations should not perform management functions or make management decisions audit organizations should not audit their own work or provide nonaudit services in situations where the services are significant/material to the subject matter of the audit 32
  33. 33. GAO’s Yellow BookChapter 4: Financial Audit Fieldwork Incorporates American Institute of Certified Public Accountants (AICPA) fieldwork standards, and adds: Auditor communication Considering the results of previous audits and attestation engagements Detecting material misstatements resulting from violations of contract provisions or grant agreements, and abuse Audit documentation 33
  34. 34. GAO’s Yellow BookChapter 5: Financial Audit Reporting Incorporates AICPA fieldwork standards, and adds: Auditor’s compliance with GAGAS Internal control and compliance Deficiencies in internal control Views of responsible officials Privileged and confidential information, and Issuance and distribution 34
  35. 35. GAO’s Yellow BookChapter 6: Attestation Engagements Incorporates AICPA fieldwork and reporting standards and the general standard for criteria Requirements for fieldwork and reporting similar to those for financial audits 35
  36. 36. GAO’s Yellow BookChapter 7: Performance Audit Field Work Guidance for conducting performance audits, including Planning the audit Supervising staff Obtaining sufficient, competent and relevant evidence Preparing audit documentation 36
  37. 37. GAO’s Yellow BookChapter 8: Performance Audit Reporting Report form Report contents Report quality Report issuance and distribution 37
  38. 38. The Need for Standards• Articulaton of core principles and expectations• Provides guidance to auditors for the conduct of audits• Audit judgments can be anchored to the underlying principles and standards• Provides a good ”anchor” for the audit process and reduced ”negotiations” between auditees or principals• International standards necessary in a global economy An essential element in building understanding of and confidence in the audit process 38
  39. 39. Key Concepts in Our Profession• Public trust vs. personal interests• Recognizing the difference between the floor (e.g., rules, regulations, laws, accounting standards) and the ceiling (e.g., principles, values)• Doing what is right vs. what is acceptable• Economic substance vs. legal form• Being concerned with both fact and appearance (e.g., independence)• Using judgment vs. completing checklists• Recognizing that continuing improvement in today’s rapidly changing world is essential• Remember that trust is hard to earn, but easy to lose 39
  40. 40. Key Personal Attributes Needed By Government Accountability Professionals Leadership Integrity Innovation 40
  41. 41. For more information– http://www.gao.gov– http://www.rigsrevisionen.dk/asc/ Thank You For your Attention 41

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