ASSURANCE IN FINANCIAL AUDITING_part2 pot

A Handbook 27 QUAๆASSURANCE IN FINANCIAL AUDITING Conflict of interest Care should be taken that advice and consultation of the reviewer do not lead to a conflict of interest. Professional secrecy Reviewers should not disclose information obtained in the reviewing process to third parties, neither orally nor in writing, except for the purposes of meeting the QAR objectives. Professional competence and due care Reviewers have a duty to conduct themselves in a professional manner at all times and to apply high professional standards in carrying out their work to enable them to perform their duties competently and with impartiality. Reviewers must not undertake work they are not competent to perform. Reviewers should know and follow applicable auditing, accounting and financial management standards, policies, procedures and practices. Likewise, they must possess a good understanding of the constitutional, legal and institutional principles and standards governing the operations of the RAA. This is trial version www.adultpdf.com A Handbook 28 QUAๆASSURANCE IN FINANCIAL AUDITING Section 4: Institutional Level Quality Assurance Process Purpose To develop a sound understanding of, and be able to apply, the Quality Management System (QMS) for RAA which is based on international good practices. Summary This section provides the background and then the methodology for the RAA to perform an institutional level assessment using the RAA’s-QMS framework. Roadmap This section focuses on the planning, conducting and reporting on an institutional level QA assessment. This includes the following aspects: a. Detailed explanation of the RAA-QMS elements and sub-elements (related Appendices 4A and 4B); b. Planning an institutional level QA review (related Appendix 4C); c. Conducting the review (related Appendix 4D); d. Guidance on evidence gathering methods (related Appendices 4E-4J); e. Guidance on content analysis of qualitative data (related Appendix 4K); and f. Reporting (related Appendices 4L to 4N). Key decisions i. Provide an assessment on the RAA at the institutional level by benchmarking the RAA against the RAA-QMS; ii. Documenting and evidencing the review information in a systematic and professional manner; and iii. Providing feedback to management and other relevant stakeholders. 4.1 Key elements of the institutional level QMS Framework 4.1.1. Overview The RAA is responsible to deliver its mandate to the satisfaction of its stakeholders’ needs. A useful tool to evaluating the achievement of the goal is through the establishment of a quality management system designed to provide it with reasonable assurance that: (a) The RAA and its personnel comply with professional standards and regulatory and legal requirements; and (b) The RAAs’ reports issued are appropriate in the circumstances. A Quality Management System (QMS) is a broad concept which comprises the organizational structures, resources, processes and products needed to implement a quality management framework. It involves all processes in the operational life cycle of RAA’s operations that affect This is trial version www.adultpdf.com A Handbook 29 QUAๆASSURANCE IN FINANCIAL AUDITING quality, from initial identification of stakeholders’ needs to final satisfaction of requirements. It is designed to provide confidence to clients and stakeholders that quality requirements will be achieved in delivered products and services. The RAA-QMS Framework consists of structures and processes relating to certain key institutional management functions that relate to the following elements: 1. Independence and legal framework 2. Human Resources 3. Audit methodology and standards 4. Internal Governance 5. Corporate Support 6. Continuous Improvement 7. External Stakeholder Relations 8. Results If each of the above eight elements are functioning effectively and delivering the desired results, it can be reasonably assumed that the RAA as a whole will deliver products and services of high quality. While the above eight elements can be separated from each other and treated as stand alone components, at the same time they interact and influence each other. Therefore, all the above eight elements with their inter-relationships constitutes the quality management framework of the RAA. Each of the overall elements has a pre defined desired condition which is the overall position the RAA should aim for with regard to the element. The eight desired conditions are summarised in table 1 below. This is trial version www.adultpdf.com A Handbook 30 QUAๆASSURANCE IN FINANCIAL AUDITING Table 1: Desired Conditions for the Eight Elements of the RAA-QMS Element of Framework Desired Condition Independence and legal framework The independence and mandate of the RAA should be as laid down in the Constitution, The Audit Act of Bhutan, 2006, ISSAI 1, INTOSAI’s Lima Declaration on Auditing Precepts and ISSAI 10 the Mexico Declaration on SAI Independence. Human Resources The RAA should have adequate number of competent and motivated staff to discharge its functions effectively (ISSAI 200 Paragraph 1.3 and 1.5). Audit Methodology and Standards The RAA’s audit processes should be based on the RAA Auditing Standards and other international best practices (example International Standards on Auditing) to the extent applicable to the national rules and regulations.(ISSAI 200 Paragraph 1.13) Internal Governance The top management of the RAA should ensure that the institution’s decision making and control mechanism functions economically, efficiently, and effectively and thereby serves as a model organisation in promoting good governance. (ISSAI 200 Paragraph 1.15) Corporate Support The RAA should optimally manage to ensure timely delivery of support services and infrastructure to its departments/divisions/sections. (ISSAI 11 principle 8) Continuous Improvement The RAA should be in a state of readiness to address current issues more effectively, deal satisfactorily with emerging issues and take advantage of new opportunities. (ISSAI 200 Paragraph 1.25) External Stakeholder Relations The RAA should establish and sustain effective working relationship and communication with external stakeholders to ensure higher impact of its audit reports and services. This is trial version www.adultpdf.com A Handbook 31 QUAๆASSURANCE IN FINANCIAL AUDITING Element of Framework Desired Condition Results The RAA should deliver quality audit reports and services that promote accountability and transparency in the public sector, more efficient management and utilisation of public resources and contribute towards good governance. (ISSAI 11 principle 5 and 6) Each of the eight elements, in turn, consists of various components or, what we call, sub elements. The RAA-QMS framework with the key elements and sub elements of RAA is shown in Figure 2 below. The sub elements are each described in detail below. The RAA should consider the sub elements level when considering changes for improvements to its performance. This is trial version www.adultpdf.com A Handbook 32 QUAๆASSURANCE IN FINANCIAL AUDITING Figure 2: RAA-QMS KEY-ELEMENTS FRAMEWORK 1 2 3 4 5 6 7 8 Independence and Legal Framework Human Resource Audit Methodology and Standards Internal Governance Corporate Support Continuous Improvement External Stakeholder Relations Results Independence Mandate Recruitment Retention Career Development Training Well Being Performance Management Standards Manuals & Guidance Tools Leadership & Direction Strategic & Operational Planning Oversight & Accountability Code of Conduct Internal Controls Quality Assurance Financial Resources Infrastructure Technology Support Services Professional Staff Development Research and Development Organizational Development Change Management Audited Entities Parliament/ Head of State/ Executive Public Peers Donors International Organisations Media Professional & Academic Institutions Output (Quality, Quantity) Impact This is trial version www.adultpdf.com A Handbook 33 QUAๆASSURANCE IN FINANCIAL AUDITING 4.1.2. Independence and Legal framework Desired condition: The independence and mandate of the RAA should be as laid down in the INTOSAI’s Lima Declaration on Auditing Precepts. A fundamental principle of auditing is to provide an independent opinion on the performance of the audited entities and its compliance to laws, rules and regulations. Consequently, the INTOSAI’s Lima Declaration on Auditing Precepts underscores that Supreme Audit Institutions can accomplish their tasks objectively and effectively only if they are independent of the audited entity and are protected against outside influence. The Lima Declaration highlights the following dimensions of independence of SAIs that need to be in place: Independence of Supreme Audit Institutions Although state institutions cannot be absolutely independent because they are part of the state as a whole, SAIs should have both functional and organizational independence required to accomplish their tasks. It should be free to determine the nature of its organizational structure and functional processes without outside interference. Ideally, the establishment of SAIs and the necessary degree of their independence should be laid down in the Constitution. The details, however, may be set out in legislation such as in a separate Audit Law. The Lima Declaration recommends that adequate legal protection by a supreme court against any interference with a SAI’s independence and audit mandate should be guaranteed. Independence of the Head of the SAI and officials of Supreme Audit Institutions The independence of Supreme Audit Institutions is inseparably linked to the independence of its head and the staff. The Lima Declaration recommends that the independence of the head should be guaranteed by the Constitution. In particular, the procedures for removal of head of SAI from office should be embodied in the Constitution in a manner that may not impair the independence of the head of the SAI. In their professional careers, audit staff of Supreme Audit Institutions must not be influenced by the audited organisations and must not be dependent on such organisations. Financial independence of Supreme Audit Institutions SAIs should be provided with the financial means to enable them to accomplish their tasks. If required, SAIs should be entitled to apply directly for the necessary financial means to the public body deciding on the national budget, for example the Parliament, instead of depending on the ministry of finance which is one of the auditees of a SAI. In addition, SAIs should be entitled to use and re-allocate the funds allotted to them under a separate budget heading in ways that they consider to be appropriate. Mandate This is trial version www.adultpdf.com A Handbook 34 QUAๆASSURANCE IN FINANCIAL AUDITING The mandate of the SAI shall be clearly defined in the constitution and/or in separate audit legislation. It should clearly spell out the powers and responsibilities of the SAI regarding access to information, the nature of entities over which it has audit jurisdiction and nature, scope and timing of audits. 4.1.3. Human resources Desired Condition: The RAA should have adequate number of competent and motivated staff to discharge its functions effectively. People are the most valuable assets of an audit institution. Sound human resources management should provide employees a rewarding and professional environment, as well as maintaining and enhancing the capabilities of the people. As a result, motivated and professionally competent workforce plays a significant role in achieving high quality of audit processes and outputs. The following aspects need to be emphasised in regard to human resources management: I. Establish policy and procedures regarding recruiting, training, motivation and professional development. II. Implement each set of procedures, such as organise and adapt training activities. III. Periodically review results of training and professional development programmes to evaluate whether programmes are being presented effectively and are accomplishing objectives. IV. Establish performance based promotion and advancement system, link performance management with personnel welfare and benefits. V. Assign the responsibility for the professional development function to a person or group with appropriate authority. This human resources element along with its sub-elements is shown in the following flow diagram: Figure 3: Structure of Human Resource Development: : The above structure is explained here after: Recruitment: The INTOSAI Auditing Standards relating to recruitment state that: Human Resource Recruitment Retention Career development & training Well Being Performance management This is trial version www.adultpdf.com A Handbook 35 QUAๆASSURANCE IN FINANCIAL AUDITING The SAIs should adopt policies and procedures to recruit personnel with suitable qualification. SAI personnel should possess suitable academic qualifications and be equipped with appropriate training and experience. The SAI should establish, and regularly review, minimum educational requirements for the appointment of auditors (Standard 3.5). SAIs talent pool should be sustained and built through recruiting, hiring, development and retention policies and practices. These policies/practices are targeted towards building and sustaining competencies, which includes knowledge, skills, abilities and behaviours. These are to be identified to achieve quality assurance of the services delivered by the SAI (Standard 3.9). The following factors should be considered by the RAA to determine standards of qualification and competence of the staff members: I. Recruit multidisciplinary persons with suitable qualifications and experience. II. Supplement internal human resource and skills seeking outside expertise from qualified specialists, consultants and technical experts, professional associations and other organizations as needed. III. RAA should ensure that the specialists and experts are qualified and have competence in their areas of specialization and should document such assurance. IV. Outsourcing: –Audit may also be contracted out to private firms, to undertake audits on behalf of the RAA or participate in joint audits. However, the RAA remains responsible for the quality of the products and should, therefore, ensure strict quality control over the outputs delivered by such external parties. Retention: Salaries and allowances, personnel welfare and benefits for SAI employees are usually covered under the public service regulations in most countries and so it may not always be possible for RAA to provide attractive salaries to retain qualified staff. Therefore, it becomes even more important that the management ensures that the working conditions are sufficiently attractive to retain the services of experienced personnel. At the same time, to the extent possible, RAA may work towards a separate salary structure for its personnel. In cases where it requires expert staff who cannot be recruited on the basis of conditions of the civil service, special arrangements should be concluded with them, placing them outside the regular wage scales. Career development: Career Development is a concept which goes beyond training of individuals. It is the process of managing the professional life, learning and work over the lifespan of an individual. Career development is to identify development priorities of the employees and further to identify priority changes in terms of approach and training needs, which aims at professional development with increased knowledge, skills and abilities of individuals. To ensure proper career development the RAA should specifically: This is trial version www.adultpdf.com A Handbook 36 QUAๆASSURANCE IN FINANCIAL AUDITING a) manage the careers of its staff within and between SAIs b) structures the career progress of their staff c) manage succession planning, especially to higher decision-making positions Training: Training is the process by which employees acquire knowledge and skills needed to accomplish their assigned tasks. The training has assumed critical importance as the RAA needs to be knowledge-centric organization, with people being the key assets. Government auditors need to be armed with knowledge and good understanding of government environment – role of legislature, legal and institutional arrangements governing the operations of the executive and the charter of the public enterprises and of RAA’s auditing standards, audit methodologies, policies, procedures and practices. INTOSAI auditing standards (Paragraph 2.1.5) state, “SAI should adopt policies and procedures to develop and train SAI employees to enable them to perform their task effectively and to define the basis for the advancement of auditors and other staff.” Training has gained further importance as the government practices are changing at a faster pace by adopting newer techniques and more systems are becoming IT based systems. As a result, the audit methodologies must keep pace with the change in government practices. It is desired that the RAA initiate use of new techniques like risk based auditing, application of quantitative techniques and increase the use of IT as an audit tool to improve audit quality. The RAA should have a training function with responsibility to develop, establish and monitor a training plan and conduct training needs assessments, as well as plan and schedule training activities. The RAA should maintain an inventory of skills of personnel to assist in planning of audits as well as to identify professional development needs. Training should be a continuing process and should be adapted to the needs of the RAA so that employees could continuously upgrade themselves and be in tune with the latest technological developments and changes in audit methodologies, techniques and tools. The training activities may be multifaceted and will encompass basically in-house training courses, seminars, workshops, On-the-job training, etc… A detailed list of the training activities is attached at Appendix 4-A. Well being: The RAA should take effective steps to create a motivating working environment that takes cares of the psychological and physical well being of its staff. Measures could include health care programmes, social, recreational and sporting facilities, fitness programmes, housing and counselling services. Some well being measures could be gender specific such as flexible work timings for female staff who are nursing mothers. This is trial version www.adultpdf.com [...]... Preparing a draft report outline (A): As a first step for reporting and identifying individual findings (Appendix 3K), the QAR team should consider the following information: a) Negative observations: All material negative observations should be recorded precisely by stating the nature and extent of the findings While describing the findings in the draft QAR report should (a) list down all findings... risk of each finding, and (c) identify the main reasons underlying each finding b) Impact: This attribute identifies the real or potential effect of the findings The reviewer team should consider how existence of problems or findings may influence the RAA’s policy, independence and audit processes in future c) Cause: The reason for identified findings and problems The reasons underlying the identified... delivery of the vision and mission is based In discharging their responsibilities, the government auditors need to observe the principles of serving the public interest and maintaining the highest degree of This is trial version www.adultpdf.com A Handbook 40 QUA ASSURANCE IN FINANCIAL AUDITING integrity, objectivity, professionalism and independence These principles should be the cornerstone of the... concerning the SAI’s internal control and its importance in the entity The control environment sets the tone of the SAI, influencing the control consciousness of its people It is the foundation for effective internal control, providing discipline and structure This is trial version www.adultpdf.com A Handbook 42 QUA ASSURANCE IN FINANCIAL AUDITING II Risk assessment The SAI management should obtain an... “shelved”, but updated as “a living thing” of interest to all? 4.3 Conducting the Institutional Level QA Review Once the RAA has created it’s QMS, then the Quality Assurance Review Team (QAR Team) is expected to conduct the review This can be a very challenging task for several reasons, including: a) Dealing with senior staff and identifying deficiencies in their practices; b) Obtaining sufficient evidence... guidance on conducting focus groups 4.4.4 Interview An interview is a data and information collection procedure in the form of a carefully planned set of questions that the QAR Team asks the RAA employees with a view to obtain their in- depth ideas and perceptions regarding the RAA Proper set of key questions have to be drafted in advance for this purpose Guidelines on conducting interviews are in Appendix... preparation Based on the observations and findings at the institutional level, the quality assurance review team should prepare the Quality Assurance Review Report This is trial version www.adultpdf.com A Handbook 50 QUA ASSURANCE IN FINANCIAL AUDITING 4.6.2 Reviewing completeness of checklist The QAR team should review completeness of the checklist by ensuring that all information related to the checklists... planning: Organisations that consistently perform at high levels are generally those that are result oriented and demonstrate a clear idea of their long-term intent This is where This is trial version www.adultpdf.com A Handbook 39 QUA ASSURANCE IN FINANCIAL AUDITING strategic planning can play a pivotal role in ensuring consistent high quality performance by RAA Strategic planning: Strategic Planning in. .. Auditing Standards and other international best practices (example International Standards on Auditing) to the extent applicable to the national rules and regulations The RAA top management will have to steer the process of re-examining and refining the RAA’s audit methodologies, processes and procedures and all other institutional This is trial version www.adultpdf.com A Handbook 37 QUA ASSURANCE IN FINANCIAL. .. reports so that the staffs are genuinely involved in its delivery and they contribute to the planning efforts To facilitate this, there should be wide dissemination of ideas, information and good practices within the organisation Performance Measurement The RAA should develop a rigorous performance monitoring and review system to measure progress in delivering targets in line with expectations The senior . 33 QUA ASSURANCE IN FINANCIAL AUDITING 4.1.2. Independence and Legal framework Desired condition: The independence and mandate of the RAA should be as laid down in the INTOSAI’s Lima Declaration on Auditing. re-examining and refining the RAA’s audit methodologies, processes and procedures and all other institutional This is trial version www.adultpdf.com A Handbook 38 QUA ASSURANCE IN FINANCIAL AUDITING. both the institutional and individual audit levels (with specific reference to financial audits). This is trial version www.adultpdf.com A Handbook 44 QUA ASSURANCE IN FINANCIAL AUDITING 4.1.6.