Convergence of public sector audit standards

Convergence of Public Sector Audit

Standards

December 6, 2010

Jeanette Franzel, Managing Director, GAOKelly Anerud, Senior Technical Manager, IFAC

Jan Van Schalkwyk, Corporate Executive, Auditor-General of South Africa

Gail Flister Vallieres, Assistant Director, GAO

Background

•INTOSAI has created a robust set of Financial Audit Guidelines for public sector entities by leveraging international standards and providing relevant guidance for the government environment.

•A group of experts from the INTOSAI community has developed “Practice Notes” to be used in conjunction with the International Standards of Auditing (ISAs) issued by IFAC’s International Auditing and Assurance Board (IAASB).

Objectives

•In this session, we will discuss the guidelines, how they relate to national standards, and how they are being implemented by INTOSAI members.

•In addition, this session will discuss GAO’s Yellow Book in relation to INTOSAI and international standards.

Development of INTOSAI

Financial Audit Guidelines and Collaboration With IAASB

Financial Audit GuidelinesStrategy for Development

•Strategic Objective

To develop high quality guidelines that are globally accepted for the audit of financial statements in the public sector.

•Strategy

To leverage the expertise and resources of the IAASB, an internationally respected auditing standards setting organization, in a strategic and cooperative partnership.

Financial Audit Guidelines

International

Standard on

Auditing

Practice

Note

+

International Standards of Supreme Audit Institutions

=

Financial Audit GuidelinesStructure for Development

INTOSAI Professional Standards Committee

INCOSAI

INTOSAI Governing Board

SAI Independence

Accounting Standards & Reporting

Internal control Standards

Performance Audit

Compliance Audit

Financial Audit Guidelines*

Focus Group

Project Director & Project Secretariat

Reference Panel

Issues Paper

First Read

Exposure Draft

Review of Comments

Final ISA

PSC IAASB

INTOSAI ”Practice Note”

*Led by Swedish National Audit Office. Members include SAIs of Cameroon, Canada, Korea, European Court of Auditors, Mexico, Namibia, Norway, South Africa, United States, United Kingdom

Provide Public Sector Perspectives

•Member and Technical Advisor on IAASB

•Participation in IAASB Task Forces for ISAs

•Public sector input to the ISA

•Parallel development of INTOSAI Practice Note

•Practice Notes Task Forces for other ISAs

•INTOSAI input compiled for IAASB meetings

•INTOSAI representative on IAASB’s Compliance Advisory Group

Specific Public Sector Considerations

•Terminology

•Broader Mandate

•Inability to Withdraw

•Terms of Engagement vs. Legal Mandate

•Quality Assurance

•Documentation

Specific Public Sector Considerations

•Fraud and error

•Communication

•Risk Assessment

•Materiality

•Reporting

Implementation of Auditing Standards

Practical Lessons Learnt

Why do we audit?

•The Auditor-General South Africa has a constitutional mandate and, as the SAI of South Africa, it exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

•This is our reputation promise!!

Standards Defined

•Set of credible, widely acceptable pronouncements that guide the execution of audits.

•Public sector options:•International Standards on Auditing (ISAs), supplemented by the International Standards for Supreme Audit Institutions (ISSAIS)•INTOSAI framework – level 3 standards supported by level 4 guidance•National Standards

SA SAI Situation

•Adopted ISAs during 2005

•Believe in early adoption of any work done by standard-setters, as long as these developments do not contradict current baseline

•Full implementation of clarified ISAs, with first round of independence quality review currently underway

•Same principle applies to the pro-active adoption of ISSAIs

•Involvement in standard-setting•IRBA CFAS•INTOSAI FAS

The Challenge of Implementation

•Status of developments (standards, methodology, working papers, technical guidance)

•Conceptual thinking behind manuals and working papers

•Governance arrangements

•Manuals (development, maintenance)

•Working papers (development, maintenance)

•Training

•Other considerations

Status of Adoption, Methodology and Working Papers

•Adoption of standards•Requires legal standing, possibly after extensive appropriate consultation•SA SAI- annual promulgation of Audit Directive in terms of Public Audit Act (adoption of standards AND key decision-making moments)

Status of Adoption, Methodology and Working Papers (continued)

•Development of methodology, manuals and working papers

•Requires appropriate governance process, confirming:

•Adherence to auditing standards•Practical and relevant•Responsive to needs of users (without compromise to independence)•Extensive appropriate consultation

Status of Adoption, Methodology and Working Papers (continued)

•SA SAI – set governance processes with accounting and auditing profession, national treasury, auditors (through product champions), support staff and stakeholders (Parliament, Legislatures, APAC, media)

Conceptual Thinking Behind the Manual and Working Papers

•Speed of implementation•Internal readiness•External readiness•Is the “high” requirements associated with ISA implementation a limitation OR an opportunity to give more momentum to transformation?

Conceptual Thinking Behind the Manual and Working Papers (Continued)

•Level of guidance – detailed, but then auditors go for compliance rather than thinking about what they want to achieve

•Cost of implementation (phasing, more guidance to allow for less skilled users/ lower costs)

•Back-up processes•Governance processes•Training processes•Ongoing guidance•Consultation processes (during audits)

Governance Arrangements

•Oversight – Technical Committee

•Extensive stakeholder interaction program that feeds into TC and related meetings

•Key stakeholders•Tri-lateral strategic meeting (AG, ASB and NT – future strategic issues)•“Wednesday” meetings (AGSA, ASB and NT – ongoing operational issues)

Governance Arrangements (Continued)

•Forums•Profession level

•Accounting – SAICA•Auditing – IRBA / INTOSAI FAS

•Auditors through product champions (user interface)

•Support services (as and when required)

Audit Manuals

•Key interpretation of standards

•Serve as key policy statement, covering all “normal” aspects of work

•Talks directly to credibility of work (“stand in court” principle)

•Address any unique applications in area, due to mandate, legislation, nature of entities at hand, etc

•Can’t stand alone, need back-up through working papers, training, guidance, etc.

Working Papers

•Make the standards and manual practical

•Enough guidance to ensure adherence to standards, but to also allow for auditors to still think

•Give structure to the thinking of the auditor

•Must include prompts to the REQUIREMENTS of the standards

•Must ensure documentation of audit work in line with standards

•Electronic working papers is a must!!!

Training

•Focus on the essence of audit (what do we want to achieve rather than compliance focus)

•Practical, simulation driven

•Just-in time / support during cycle

•Pro-active

•Structured

Other Considerations

•Executive / top management buy-in

•Specific planning sessions with key role players (National Treasury, ASB, auditees) before each audit cycle

•Specific debrief sessions with key role players after each session, leading to agreement on work to be done before next cycle (action plans at auditee level, work by standard-setters, training programs)

Other Considerations (Continued)

•Detailed guidance to back up existing working papers / to deal with unique circumstances

•Confirmed process to source technical opinions (with consideration of specific QC and governance requirements)

•Good relationship with professional bodies

•Back up technical training with good managerial (soft skill) training

•Time… !!!

GAO’s Yellow Book in Relation to INTOSAI and International

Standards

•GAO is required to use U.S. Government Auditing Standards, commonly known as the Yellow Book.

•We believe the Yellow Book is fully consistent with the ISSAIs.

•The Yellow Book incorporates U.S. national auditing standards, which are issued by the American Institute of Certified Public Accountants (AICPA).

•AICPA financial auditing standards are converged with the ISAs.

•Yellow Book standards add public sector considerations and requirements to the AICPA’s private sector auditing standards, just as the INTOSAI practice notes add to the ISAs.

U.S.Government

Auditing Standards

AICPA’s Statementson Auditing Standards

INTOSAI’sInternationalStandards

for SAIs (ISSAIs)

IFAC’s InternationalStandards on Auditing

BasicAccountingPrinciples

Specific toPublic Sector

Yellow Book and the ISSAIs

•GAO is on record in supporting convergence of auditing standards globally.

•GAO staff provided critical support in converging AICPA financial auditing standards with the ISAs, including the drafting of Considerations Specific to Governmental Entities.

•GAO staff served on Special Expert Teams that drafted numerous INTOSAI financial auditing practice notes, and we reviewed and submitted comments on all the practice notes.

•GAO staff also used the ISSAIs as a reference in writing the recently proposed changes to the Yellow Book, issued in August 2010.

Questions ?