International Standards of Supreme Audit Institutions

ISSAIs इसा�ईसा INTOSAI

International Organisation of Supreme Audit Institutions

Audit manuals as standards

• First edition of Defence Audit Manual 1922

• First edition of P&T Audit Manual 1928 **

• First edition of Railway Audit Manual 1932

• Revenue Audit Manuals 1961 (Customs earlier)

• First edition of MSO 1963

• First Ed of Commercial Audit Manual 1974

• Manual of Audit of Autonomous Bodies 1983

………several other manuals

Origin of INTOSAI Auditing Standards

X Congress 1983 - formed Auditing Standards Committee ASC

Chaired by Saudi Arabia – it had Groups and Group Coordinators

G C - Basic Principles in Government Auditing - USA

G C - General Standards in Government Auditing- Australia

G C – Field Standards in Government Auditing- Sweden

G C – Reporting Standards in Government Auditing- UK

Standards approved in XIII Congress in 1989 (Germany)

Saudi Arabia is replaced by Australia as Chair of ASC in 1989Improvements in 1992 (IX Congress USA) and in 2001 XVII Congress (Seoul)

Sweden took over from Australia as Chair of ASC in 2004During the period several ‘Auditing Guidelines’ came out (not called ISSAI till recently)

Auditing StandardsINDIAN AUDIT AND

ACCOUNTS DEPARTMENT

AUDITING STANDARDS

1st Edition 19942nd Edition 2002

Comptroller and Auditor General of India

Level 3: Fundamental Auditing Principles

• ISSAI 100: INTOSAI Auditing Standards - Basic Principles • ISSAI 200 : INTOSAI Auditing Standards - General Standards • ISSAI 300: INTOSAI Auditing Standards - Field Standards • ISSAI 400 :INTOSAI Auditing Standards - Reporting StandardsReworked into Fundamental Auditing Principles with same

numbers – used for Harmonizing entire set of ISSAIs

ISSAIs इसा�ईसाLevel - I ISSAI 1 Lima Declaration

Level -IIISSAI 10 Mexico Declaration of SAI Independence

ISSAI 11 Good Practices Related to SAI Independence

ISSAI 12 Value and Benefits of SAIs - making a difference to the life of citizens

ISSAI 20 , 21 Transparency Accountability ISSAI 30 Ethics ISSAI 40 Quality Control

Level –III

ISSAI 100,200,300,400 Fundamental Principles of Public Sector Auditing Fundamental Principles of FA, PA, CA

Level-IV

ISSAI 1000 to 4999 Detailed Guidelines of Financial, Performance Compliance Auditing

ISSAI 5000 to 5999 Detailed Guidelines of Specific Subjects (Environment, Debt)

ISSAI 9000 to 9199 Guidance to Governments on Internal Controls

ISSSAI 9200 to 9299 Guidance to Governments on Accounting , Financial Reporting

ISSAI s of the INTOSAI

INTOSAI started in 1953 -

as an autonomous, independent, and non-political organization with the aim of promoting the exchange of ideas and experience between its members, the Supreme Audit Institutions of countries around the globe,

- in the field of government audit

Guided by the motto, “Mutual Experience Benefits All,” Experientia Mutua Omnibus Proudest”

ISSAI s of the INTOSAICongress General Secretariat –Vienna

Governing Board Committees Working Groups

Professional Standards Committee (Denmark) Knowledge Sharing Committee (India)

Financial Audit Sub-committee (Sweden) Working Groups – WG on Debt (Mexico)

Compliance Audit Sub-committee (Norway) WG on Environmental Auditing (Estonia)

Performance Audit (Brazil/Vienna/Sweden) WG on Money Laundering (Egypt)

Accounting-Financial Reporting(Canada) WG Key National Indicators (Russia)

Audit Quality Control (New Zealand) WG on IT Audit (India)

Accountability Transparency (France) WG Value Benefits of SAI (South Africa)

IDI (Norway) INTOSAI Journal (USA)Capacity Building Mexico

Finance Administration – Saudi Arabia

INTOSAI CONGRESSI 1953 CUBA XII 1986 AUSTRALIA

II 1956 BELGIUM XIII* 1989 GERMANY

III 1959 BRAZIL XIV 1992 USA

IV 1962 AUSTRIA XV 1995 EGYPT

V 1965 ISRAEL XVI 1998 URUGUAY

VI 1968 JAPAN XVII 2001 KOREA

VII 1971 CANADA XVIII 2004 HUNGARY

VIII 1974 SPAIN XIX 2007 MEXICO

IX 1977 PERU XX 2010 SOUTH AFRICA

X 1980 KENYA XXI 2013 CHINA

XI* 1983 PHILLIPINES XXII 2016 UAE

a parallel story

• In year LIMA declaration (1977) was made

• An organization by name IFAC was born.

• It formed an International Auditing Practices Committee (IAPC) to work on Auditing and Assurance Standards, [renamed as IAASB in 2002 – (referred to as IFAC)]

• 1973 -an accounting standard setting body IASC born International Accounting Standards Committee got [2001 renamed IASB International Accounting Standard Board]

• IASB produced International Accounting Standards, IFRS

• IFAC produced International Standards on Auditing (ISAs) – and IPSAS (Public Sector Accounting Standards

another parallel story • During 1970s pro-market, anti-government,

anti-Keynes Chicago School Economists led by Milton Friedman emerged as significant group with theories of public choice, transaction cost

• Management theory turned into a popular academic subject for use in private sector MBAs

• Neo-classical public administration scholars came up with New Public Management using Principal –Agent theory. It proposed that market principles should be applied in public sector

• Chicago School Economists entered IMF & WB in good numbers – shaping ideology of IMF,WB

• IMF, WB and these economist got engaged in Chile, Bolivia headed by dictators- experiments

• Recession, high unemployment in late 70s led to election of Thatcher and Reagan -influenced by emerging ideology and the experiments

• Public Sector Management should be like that of Private Sector

• Public Sector Managers should be like those of Private Sector Managers

• Public Sector should imitate the private sector• For example- private sector accounting is

efficient because it has accrual accounting• If Public Sector (Govt.) has to be efficient it

should move over to accrual accounting • IFAC produced IPSAS (International Public Sector

Accounting Standards) • Passionate implementation of NPM and Accrual

Accounting made New Zealand a poster boyRecession ended leading to boom time (Clinton, Tony

Blair) - a feeling that new ideology led to prosperity

• Public Sector should imitate the private sector• If it can’t, it should give way to private sector,

compete with them and stay alive in business• By end of 1990s more than 100 countries have

privatized its ‘PSUs’ -value of a Trillion USD • Like all other public sector functions, even the

audit functions of SAI came for privatization, haven’t become as efficient as KPMG etc

• ‘Annual Financial Audits’ of Municipalities in some countries put on sale- SAIs can compete and take the contract

• Private firms that bid for Municipalities said, they have ‘Auditing Standards’ but SAIs do not have auditing standards

• INTOSAI – basic principles, general standards field standards, reporting standards - not enough

• Sweden, NAO etc argued that Performance Auditing is the specialization of SAIs

• Private Auditors - Financial Auditing is a superior function, we can also do performance audits

• In 2002 Sweden was heading the INTOSAI ASC (Accounting Standards Committee)

• 2003 INTOSAI working group USA, Sweden, Denmark etc –thought it is better to tie up IFAC for preparing Financial Auditing Standards

• Meetings held between INTOSAI ASC, IFAC, World Bank (for funding $ 100 million)

• 2004 emergency INTOSAI board meeting followed by MoU IFAC (IAASB) and INTOSAI

2004 Seoul Congress- task force- strategic goals-“leading by example and promoting the

development and adoption of appropriate professional standards in each member country”

IAASB (IFAC)-INTOSAI-WB Collaboration produced about 40 financial auditing guidelines-standards

Resource persons from different SAIs engaged

Financial Auditing can only be with reference to the accounting (financial reporting) format used by auditee (audited) entity –PSU, AB, PRI, Govt.

INTOSAI took it granted that accounting of all the governments would be on IPSAS accrual basis.

ISSAI 1000 series are meant for Financial Audit of financial reports prepare on IPSAS accrual basis

Question-1- what is financial audit?

Do our audits of Finance

Accounts and Appropriation

Accounts of Union Government

and State Governments qualify

to be called as Financial Audit?

If not what do we call it?

Question -2 what is the difference between FA, PA and CA

Auditors-Skills, ethics, independence, objectivity, professional behaviour

Exercising professional care/scepticism, quality standards during audit

Audit involves three parties – auditor, auditee user- terms of engagement

Subject matter to be audited, understanding the entity, audit risk, planning the audit

Audit objectives

Audit criteria

Audit procedures

Materiality, significant deviations

Sufficient appropriate audit evidence

Audit findings, conclusions

Documentation of entire audit process and evidence

Reporting

Question 3: are ISSAI assurance oriented ?

Assurance reporting Exception reporting

Short form report Long form report

Depends on AO? PA- Criteria

How do ISSAIs view PA? How do we view PA?

Question 4 : What do ISSAIs say about review of internal controls and substantive testing?

Year 1992 – after some major corporate financial scandals

UK-Cadbury Committee, Turnbull Report

USA- Tread Way Commission- COSO – Internal Controls

Same year- INTOSAI Internal Controls Standards – Copy Paste

Relegated to INTOSAI GOV – recommendations to Government to follow

Mandatory for CPAs to certify that controls are reviewed and found to be adequate

Review of controls by Audit : Elephant and blind men

Question 4 : What is Compliance Audit according to ISSAI?

ISSAI 400 - Para 12, 13 , 40

IA&AS Strategic Plan 2020 - IA&AD Perspective Plan 2015

AGs Conference 2012 - Theme Paper Compliance Audit – Approach Reporting

IFAC issued ISA 250 (International Standard of Auditing 250) ‘Consideration of Laws and Regulations in an Audit of Financial Statements’

AICPA (SAS) 74 titled “Compliance Auditing Considerations in Audits of Governmental Entities and Recipients of Governmental Financial Assistance” modified as SAS No 117

Public Sector Auditing

Public Sector Auditing (Government Audit) is a

form of legislative oversight under constitutional

arrangement over the executive … that provides

assurance to the Legislature on the functioning

of the Executive

and seeks to enhance accountability and seeks to

promote improvement in use of public resource

UK /US Internal controsl As one that encompasses the policies, procedures,

tasks and behaviour and other aspects of a company taken together that

• (a) Help ensure compliance to laws and regulations with respect to conduct of business

• (b) Help ensure the quality of internal and external reporting, essentially financial /accounting

• (c) Facilitates its effectiveness and efficient operation.

INTOSAI

Plans of an organisation, management’s attitude, methods, procedures and other measures that provide reasonable assurance that the following general objectives are achieved.

• (a) Developing and maintaining reliable financial and management data and fairly disclosing that data in timely reports

• (b) Promoting orderly, economic, efficient and effective operations and quality products and services consistent with the missions of the organisation

• (a) Safeguarding resources against loss due to waste, abuse, mismanagement, errors and fraud and other irregularities

Public Sector Audit looks at the departments as follows

A public sector entity is created to deliver a service. Primary function is to fulfil its service delivery mandate efficiently.

Their operational performance is expected to efficient- first responsibilityEntity to carry out their operations -provided with

financial resources, budget. acquires all other resources like men, material, assets, land, building etc that they need for their activities. Procurement rules, GFR, FR&SR, Travel Conduct Rules, Budget Rules -to safeguard from- theft, loss, misuse, abuse, mismanage

Safeguard of resources at all the times by following the related rules is the second responsibility.Entities to keep an ‘account’ of all financial

transactions and related administrative records ( sanctions)

Keeping an account of financial ‘transactions’ in the books of accounts --reporting within financial reporting framework – the third responsibility

Audited with an objective to examine • ‘to what extent the entities service delivery operations are

efficient and economical’ is performance audit.

• ‘to what extent entity could safeguard all the resources with which it is entrusted or responsible for - from theft, loss, mismanage, misuse, abuse, waste, by complying with rules at all the times compliance audit. (also natural resources)

• ‘to what extent the entity’s financial reporting is reliable’ i.e., to what extent correctly recognised, measured, the figures are classified, captured, reported in the financial statements is financial audit.

Compliance Audit

Legislature exercises controls over mobilization, allocation and utilization of resources. The executive is expected to safeguard all the resources at all the times. Certain laws, regulations, rules and instructions are made and modified from time to time to achieve this broad objective.

From what? from loss, theft, misuse, abuse, rent-seeking misappropriation,..by complying to those rules put in place to mitigate those risks

All the resources

All the times - (PA-CA)