KEY ELEMENTS THAT CREATES AN ENVIRONMENT FOR AUDIT – APPLYING THE AUDIT QUALITY FRAMEWORK TO THE LOCAL GOVERNMENT ENVIRONMENT Imran Vanker IMFO Public Sector finance seminar 14 July

Discussion Points Refresher – 2014 AG’s Message Key element – Audit Quality Elements that create an environment for Audit Quality How municipalities should respond Desired state 2

Refresher – The IRBA Who we are Who we are NOT  Membership body  Supervisor of the Auditor General  Training provider  Regulator for Internal Auditors 3

AG’s Message –“Even though I have consistently encouraged role players to urgently address the weaknesses in supply chain management, the quality of their annual performance reports and submitted financial statements, human resource management and information technology controls, this report shows that there has been little improvement” –“…there were many instances where there were deviations relating to supply chain management and inappropriate reporting on performance” –“I am particularly concerned about the high level of supply chain management transgressions that are driven by uncompetitive or unfair procurement processes, conflicts of interest and internal control failures that have contributed to ……” 4

Audit Quality and a Quality Audit Audit quality encompasses the key elements that create an environment which maximizes the likelihood that quality audits are performed on a consistent basis. A quality audit is likely to have been achieved by an engagement team that: Exhibited appropriate values, ethics and attitudes; Was sufficiently knowledgeable, skilled, and experienced and had sufficient time allocated to perform the audit work; Applied a rigorous audit process and quality control procedures that complied with law, regulation and applicable standards; Provided useful and timely reports; and Interacted appropriately with relevant stakeholders. The responsibility for performing quality audits rests with auditors. However, audit quality is best achieved where there is support from and interactions among participants in the financial reporting supply chain. 5

Audit Quality Framework 6

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Interactions 8 While the primary responsibility for performing quality audits rests with auditors, audit quality is best achieved in an environment where there is support from other participants in the financial reporting supply chain. Each stakeholder plays an important role supporting high-quality financial reporting and the way in which they interact may impact audit quality. Increased interaction is promoted in the Framework for Audit Quality.

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How Municipalities Should Respond 10 Information provided for audit is both reliable and credible Financial Statements: reliable, available on a timely basis and achieves fair presentation Exhibits the values, ethics and attitudes necessary to support quality

How Municipalities Should Respond 11 Individuals appointed have the necessary skill and competences Comply with laws and regulations Provide views on areas that may warrant particular audit attention Create an environment in which management is not reluctant to be challenged by the auditors when discussing difficult issues

Desired state High quality financial management and financial reporting environment High quality external audits Improved audit outcomes / Improved satisfaction of residents 12