PSC INTOSAI Professional Standards Committee Raising Awareness of Compliance Audit Guidelines Tallinn June 2011 Director General Jens Gunvaldsen CAS

PSC INTOSAI Professional Standards Committee Financial audit – the basic infrastructure of controls  Basic controls of public spendings and accountability on an annual basis  Structured and continuous dialogue between the top management and the auditor on  Internal control systems  Financial reporting  Fraud prevention and detection

PSC INTOSAI Professional Standards Committee Financial audit – crucial information, but technically sophisticated

PSC INTOSAI Professional Standards Committee Performance audit – understandable subject matters but a rare guest  Chooses subject matters that politicians and ordinary people care about  Easier to question criteria, judgements and conclusions  Quite few areas can be audited each year

PSC INTOSAI Professional Standards Committee Compliance audit – the missing link  Embedded in the basic structure of annual controls from financial audit  Integrated in the continues discourse between top management and auditors on accountability and improvement  Subject matters that are highly politically interesting

InputProcessProductsEffects Financial audit Compliance audit Performance audit Providing assurance along the entire ”chain of effects”

InputProcessProductsEffects Financial audit Compliance audit Performance audit Providing assurance along the entire ”chain of effects”

PSC INTOSAI Professional Standards Committee The Compliance Audit Guidelines - two main perspectives  ISSAI General introduction to compliance audit  ISSAI deals with compliance audit performed separately from the audit of financial statements, for example as a separate audit task or related to performance audit  ISSAI deals with compliance audit related to the audit of financial statements Written as consistent, stand- alone documents

PSC INTOSAI Professional Standards Committee Why Compliance Audit is important – the extended perspective  Provide guidance for audits of financial statements in the public sector, including;  concerns that public funds are used for the intended purposes  principles of sound management are followed in the execution of the budgets

PSC INTOSAI Professional Standards Committee Compliance Audit Guidelines - integrated approach with Financial Audit Guidelines  Compliance Audit guidelines developed within the same structure  Cross-references made to other relevant ISSAIs  Issues on compliance audit dealt with in the context of auditing of financial statements

PSC INTOSAI Professional Standards Committee Important issues  Politically relevant subject matters  Test of controls and substantive testing  Audit criteria  Materiality  Opinon on compliance  Short form and long form reporting

PSC INTOSAI Professional Standards Committee Compliance Audit – can be integrated in different audit approaches, e.g. ECA DAS

PSC INTOSAI Professional Standards Committee Distinct assurance model

PSC INTOSAI Professional Standards Committee Short form reporting

PSC INTOSAI Professional Standards Committee Compliance Audit – can be integrated in different audit approaches, e.g. Norway business risk model

16 Vague assurance model Long form reporting Financial audits Important subject matters on compliance Narrative style

To sum up  Compliance audit is the missing link between financial audit and performance audit  Compliance audit profits from structure and continuity of financial audit, and the political relevance and methodologically diversity of performance audit  Compliance audit adds power and relevance to the annual audit report  The combination of audit types enable you to give assurance along the entire ”chain of effects”  Compliance audit can be integrated in a variety of audit approaches, tailored to different audit mandates and political cultures