Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 1 CHAPTER 16 AUDIT AND ASSURANCE SERVICES IN THE PUBLIC SECTOR

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 2 AUSTRALIAN SYSTEM OF GOVERNMENT Three tiers: Federal State Local (municipal councils)

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 3 ACCOUNTABILITY Parliament approves use of various resources. The management of public sector entities is entrusted with public resources on a stewardship basis. Reports are prepared showing use of resources. Public sector auditors provide assurance on reports.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 4 CYCLE OF ACCOUNTABILITY

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 5 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  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 6 STRUCTURE OF PUBLIC SECTOR AUDITING PROFESSION Commonwealth Auditor-General, through Australian National Audit Office (ANAO), is responsible for 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  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 7 AUDIT MANDATE Auditor-General’s comprehensive audit mandate involves: Performance auditing; and Regularity auditing:  Financial report auditing  Compliance auditing

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 8 AUDITING 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  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 9 REPORTING DUTIES Audit report should state whether financial report: Is prepared in accordance with Finance Minister’s orders; and Gives a true and fair view. Requirements are virtually identical to Corporations Act requirements.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 10 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 process Economy, efficiency and effectiveness of administration

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 11 INDEPENDENCE Critical to audit function Auditor-General appointed by Governor-General for a period of 5-7 years and can only be removed by a recommendation of both Houses of Parliament in the same session

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 12 PERFORMANCE AUDITING DEFINED 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 Developing recommendations for improvement or further action

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 13 OBJECTIVES OF PERFORMANCE AUDIT 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  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 14 PERFORMANCE AUDIT Might include a review of: 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 economy, efficiency and effectiveness of management and procedures.

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 15 ECONOMY DEFINED Acquisition of financial, human, physical and information resources of appropriate quality and quantity at the lowest reasonable cost. (Ref. AUS ) Examples of economy include whether the entity has: Followed sound procurement practices Acquired the appropriate type, quality and amount of resources at the right time and for the lowest cost

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 16 EFFICIENCY DEFINED 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 ) Examples of efficiency include whether the entity has: Prevented idleness and overstaffing Prevented duplication of effort by employees

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 17 EFFECTIVENESS DEFINED 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 ) 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  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 18 RELATIONSHIP BETWEEN ECONOMY, EFFICIENCY AND EFFECTIVENESS Ref.: Figure 16.2 (p. 700)

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 19 STAGES OF A PERFORMANCE AUDIT Planning Preliminary study Implementation Reporting Follow up

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 20 CONCEPTUAL FRAMEWORK FOR STAGES IN A PERFORMANCE AUDIT Ref.: Figure 16.3 (p. 702)

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 21 ANALYSING EVIDENCE, DEVELOPING FINDINGS AND RECOMMENDATIONS Ref.: Figure 16.4.(p. 704)

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 22 REGULARITY AUDITS Involves attestation of financial accountability and includes elements of both: Financial report audits (already discussed) Compliance audits

Copyright  2003 McGraw-Hill Australia Pty Ltd PPTs t/a Auditing and Assurance Services in Australia by Gay & Simnett Slides prepared by Roger Simnett 23 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 To report instances of non-compliance with relevant requirements observed during the course of discharging other audit responsibilities