Workshop on Implementing Audit Quality Practices March 2006 Building Quality into the Financial Audit Process The NAO’s experience Gareth Caller

Workshop on Implementing Audit Quality Practices March 2006 Contents  The UK context  The financial audit process  Review  Centrally monitored quality assurance procedures  Client feedback

Workshop on Implementing Audit Quality Practices March 2006 The role of the C&AG and NAO The C & AG’s role is to ensure that money allocated by Parliament is spent in accordance with Parliament’s intentions, and report The C & AG does not have a judicial function

Workshop on Implementing Audit Quality Practices March 2006 Government requests and Parliament grant funds C&AG examines spending and reports to Parliament PAC session and report Government Response The Accountability Cycle

Workshop on Implementing Audit Quality Practices March 2006 The UK Context  The NAO has 450 financial audit staff  Approximately 550 central government bodies audited annually all with same year end  All need to publish audited accounts before Parliament within 110 days of year end  25% of financial audit work contracted out

Workshop on Implementing Audit Quality Practices March 2006 The Financial Audit Process  Most audits in four stages: –Planning (6-8 months into year) –Interim (9-11 months into year) –Final (1-3 months after year-end) –Completion (immediately after final if possible)

Workshop on Implementing Audit Quality Practices March 2006

Workshop on Implementing Audit Quality Practices March 2006 An Auditing Framework  Legislation allows the C&AG to use whatever method he wants to conduct financial audits  C&AG has chosen to use International Standards on Auditing (UK & Ireland) –Guarantee of quality for clients –Internal consistency –Comparability –Recruitment

Workshop on Implementing Audit Quality Practices March 2006 International Standard on Auditing 220  ISA 220: Quality Control for Audits of Historical Financial Information covers individual assignments  Includes policies and procedures covering: –Leadership responsibilities for quality on audits –Ethical requirements –Acceptance and continuance of engagements –Assignment of engagement teams –Engagement performance –Monitoring

Workshop on Implementing Audit Quality Practices March 2006 Review by Assignment Managers & Directors  Evidenced Review  Objectives –ensure work supports opinion –ensure work complies with auditing standards –bring more than one level of judgement to bear  Any queries documented and responses required

Workshop on Implementing Audit Quality Practices March 2006 Detailed Review –By Assignment Manager –all working papers

Workshop on Implementing Audit Quality Practices March 2006 Overall Review –By Assignment Director, to satisfy themselves that: audit conducted to auditing standards and NAO standards sufficient and appropriate audit evidence certificate is appropriate and supported

Workshop on Implementing Audit Quality Practices March 2006 Overall Review –The Director must review certain procedures –Planning Overall approval of plan Includes a specific confirmation that the audit team have sufficient skills and experience –Final Specific review of the certification minute Specific confirmation that the planned approach remains appropriate/changes made as necessary

Workshop on Implementing Audit Quality Practices March 2006 Standards Assurance Reviews –If there are particular sensitivities, audit risks or difficult judgements (e.g. a qualified opinion) –Detailed criteria for selection –Further review by director independent of team –‘Hot Review’ - before sign-off

Workshop on Implementing Audit Quality Practices March 2006 Audit Support Tools  Generic forms to record key decisions for each stage of audit  Compulsory annual training events for all staff  Clearly communicated policies interpreting changes in accounting or auditing rules  Dedicated advice line  All potential qualifications and reports must be reviewed by Financial Audit Policy Team

Workshop on Implementing Audit Quality Practices March 2006 Other Financial Audit Outputs  Ad hoc advice to clients  The Audit Strategy –Explains approach to clients –Aims to get client buy-in for approach  The Management Letter –Highlights key weaknesses –Includes detailed recommendations for improvements in controls/financial management  Generic training events and/guidance

Workshop on Implementing Audit Quality Practices March 2006 Centrally monitored quality assurance procedures  Cold review of a selection of audits  Whole of Office procedures  Client feedback  Review by external quality assurance body

Workshop on Implementing Audit Quality Practices March 2006 Cold Review Process  Annual Process  Purpose of review to ensure that audits comply with NAO procedures and certificate appropriately supported  Set criteria for selecting audits  Independent review teams  Audits are graded  Good practice/lessons learnt disseminated

Workshop on Implementing Audit Quality Practices March 2006 Whole of Office Procedures –Sample testing of: Recruitment procedures CPD returns Code of conduct declarations –Results reported to senior management

Workshop on Implementing Audit Quality Practices March 2006 Feedback from our clients  Obtaining client feedback is important  We use a questionnaire  Covers: Reporting and NAO Impact Approach and Methods Working Relationships General comments

Workshop on Implementing Audit Quality Practices March 2006 Quality Assurance Directorate Review  QAD Directorate of ICAEW  Quality assurance on audit firms  Cold review of a selection of audits  Whole of office procedures  Recommendations not mandatory

Workshop on Implementing Audit Quality Practices March 2006 Key Messages  How the NAO thinks about quality: –Process designed to build in quality –Increased quality = decreased costs –High quality financial audits depend on leadership driven team working –Aim to meet and exceed customer expectations –First person (quality is my job) approach for all staff –Holistic focus on entire organisation