Chapter 16 Audit and Assurance Services in the Public Sector Copyright  2006 McGraw-Hill Australia Pty Ltd 16- Learning Objective 1: Australian System of Government • Three tiers: – – – Federal State Local (municipal councils) Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-2 Learning Objective 2: Accountability • Parliament approves the use of various resources • The management of public sector entities is entrusted with public resources on a stewardship basis • Reports are prepared showing the use of resources • Public sector auditors provide assurance on reports Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-3 Cycle of Accountability Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-4 Learning Objective 3: Government Accounting • Australian accounting standards apply to public sector entities • Government departments that are reporting entities are required to prepare general purpose financial reports on an accrual basis Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-5 Learning Objective 4: Public Sector Audit Requirements • Commonwealth Auditor-General, through Australian National Audit Office (ANAO), is responsible for the audit of Commonwealth government departments, statutory authorities and government corporations • Each State and Territory has an Auditor-General, who has similar responsibilities at the State and Territory level Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-6 Audit mandate • Auditor-General’s comprehensive audit mandate involves: – – Performance auditing; and Regularity auditing:   Financial report auditing Compliance auditing Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-7 Audit standards in the public sector • Audits should be performed in accordance with Australian auditing standards • Standards should be applied to the extent that they are not inconsistent with or unnecessary to public sector audit mandate Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-8 Reporting duties • The audit report should state whether the financial report: – – • is prepared in accordance with Finance Minister’s orders; and gives a true and fair view of the matters required by those orders Requirements are virtually identical to Corporations Act requirements Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-9 Additional reporting matters • • • • • • • Administrative operations; Significant breaches of legislation; Public money not correctly accounted for; Accounting and other records not properly maintained; Propriety and probity of transactions; Recommendations to improve administrative processes; and Economy, efficiency and effectiveness of administration Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-10 Independence • Critical to the audit function • Auditor-General is appointed by Governor-General for a period of 5-7 years and can only be removed by a recommendation from both Houses of Parliament in the same session Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-11 Learning Objective 5: Performance Audits • A performance audit is an independent, expert and systematic examination of the management of an organisation, program or function for the purposes of: – – – assessing performance; identifying opportunities for improvement; and developing recommendations for improvement or further action Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-12 Objectives of the audit performance • To provide Parliament with assurance of the quality of management of public resources • To assist public sector managers by identifying, promoting and protecting better management practices Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-13 Performance audit • Might include a review of: – – – • the use of human, financial and other resources information systems, performance measures and monitoring arrangements procedures followed by audited bodies for remedying identified deficiencies Emphasis is on the economy, efficiency and effectiveness of management and procedures Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-14 Economy defined • Economy: Acquisition of financial, human, physical and information resources of appropriate quality and quantity at the lowest reasonable cost (Ref AUS 806.03) • Examples of economy include whether the entity has: – – followed sound procurement practices; and acquired the appropriate type, quality and amount of resources at the right time and for the lowest cost Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-15 Efficiency defined • Efficiency: Use of a given set of resource inputs to maximise outputs, or the use of minimum input resources for a predetermined level of output It is essentially a resource usage concept (Ref AUS 806.04) • Examples of efficiency include whether the entity has: – – prevented idleness and overstaffing; and prevented duplication of effort by employees Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-16 Effectiveness defined • Effectiveness: The achievement of objectives or other intended effects of activities It focuses upon the results or outcomes of resource usage and organisational operations Therefore, effectiveness is ends oriented rather than means oriented • (Ref AUS 806.05) • Examples of effectiveness include: – – an audit of a program to determine whether it has achieved its objective an analysis of the relevance of an entity's activities to its objectives Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-17 Relationship between economy, efficiency and effectiveness Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-18 Stages of a performance audit • • • • • Planning; Preliminary study; Implementation; Reporting; and Follow up Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-19 Conceptual framework for stages in a performance audit Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-20 Analysing evidence, developing findings and recommendations Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-21 Learning Objective 6: Regularity Audits • Involves attestation of financial accountability and includes elements of both: – – Financial report audits (already discussed); and Compliance audits Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-22 Compliance audits • Two primary forms: – – to express an opinion on whether an entity has complied with relevant requirements or a specific requirement, such as legislation, regulations, directives or municipal by-laws; and to report instances of non-compliance with relevant requirements observed during the course of discharging other audit responsibilities Copyright  2006 McGraw-Hill Australia Pty Ltd Revised PPTs t/a Auditing and Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16-23 ... Simnett 16- 16 Effectiveness defined • Effectiveness: The achievement of objectives or other intended effects of activities It focuses upon the results or outcomes of resource usage and organisational... prepared by Roger Simnett 16- 11 Learning Objective 5: Performance Audits • A performance audit is an independent, expert and systematic examination of the management of an organisation, program or... Assurance Services in Australia 3e by Grant Gay and Roger Simnett Slides prepared by Roger Simnett 16- 4 Learning Objective 3: Government Accounting • Australian accounting standards apply to public