1. (Audit) Expectation Management
CHU Annual Conference,
Zagreb, Dec 12th 2014
Harry Jansen Senior Audit Manager
Dutch Central Audit Service

2. Introduction (1) Harry Jansen 59 y.o.
38 years Ministry of Finance in various capacities
CPA, IIA, MSc QICA
Director of audit support department (development and implementation of new policies and procedures)
RTA in Estonia and Croatia at the Audit Authority
Current position Senior Audit Manager at the Dutch Central Audit Service
PL Twinning Light Montenegro

3. Dutch Context Almost 17 million people
Major cities: Amsterdam, Rotterdam, The Hague and Utrecht.
Monarchy (Royal Family)
Government of Labour and Liberals
Decentralization within the state:
Central Government: 11 ministries
Provinces: 12 provinces
Municipalities: Approx. 420 municipalities

4. Dutch structure (1) Parliament Court of Audit Ministry of Finance
Minister
Audit Committee
(top management)
Financial and Economic Affairs Department
(internal controller)
Policy Directorates
Court of Audit
(external auditor)
Ministry of Finance
(DG Budget)
Internal Audit Department

5. CENTRAL AUDIT SERVICE Dutch structure (2)
5 separate audit services & 1 department for audit policy
July 2007 decision to merge
August 2008 the start of the Central Audit Service
January 2009 more audit services joined
April 2009 end 1st transition phase
End 2015: all departments join in the central audit service

6. Managing Audit expectations is Complicated  
Moving on ….
Managing Audit expectations is Complicated  

7. Today’s topic

8. Internal Audit (1) 1.
An independent, objective assurance and consulting activity, designed to add value and improve an organization’s operations.
Why?
(Managerial) accountability
Product (Internal) audit provides reasonable assurance on the (financial) statements and the overall performance and reliability of the system.

9. Internal Audit? (2) 2.
It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes

10. Expectation gap !! (1)
Just one (of many) possible examples: An unqualified opinion stating that there are no material mis statements in the annual accounts of the organisation is issued by the internal audit unit of an organisation. Users conclusion: everything is 100% OK ! Reality: materiality level applied: 2% errors detected during audit : 1,75% So still nema problema  ….unqualified opinion justified

11. BUT: Expectation gap !! (2) The Organisation’s budget is 1.000.000.000
And thus the absolute (detected) error amount:
Ooops……this changes everything 

12. The risk of non detected errors The risk of (non detected) Fraud
Expectation gap !! (3)
And then there is……….
The risk of non detected errors
and
The risk of (non detected) Fraud
Quality of personnel and of audit-execution
Non independent position
Restrictions in access to data
Time restrictions
Budget limits

13. Non detection / focus

14. Operational Performance
Expectation gap !! (4)
So it’s all about
Content
in a
Context
and the
Users Perception
Governance
Operational Performance €

15. Perception

16. Different viewpoints Scope Integrity risks Governance risks
Policy risks
Legislative risks
Cultural risks
Financial risks
Political risks
ICT risks
Operational risks
Scope
Economic risks
Audit department
Users
Organisation

17. Making it Simpler Audit Expectation Gap Reasonability Gap
Performance Gap
What can reasonably be expected within the given limits
Professional responsibilities vs execution within the given limits (non detection)

18. And complicated again…. disecting the elements
On the one hand (IA):
Accountability
Reasonable level of assurance
Materiality (true and fair view)
Relative but also absolute
Scope
Effectiveness of operations
And on the other hand:
Objective and subjective expectations (perception) on internal (and external) audit
Context and (lack of) knowledge
Expected confidence and trust
and (not today’s topic) quality of execution

19. So what to do…? (1)… …Not my problem

20. So what to do…? (2) Up to date audit charter internal audit role
purpose
authority
responsibility
inter relationships
promote the chapter througout the organisation
Clear visibility to demonstrate IA’s
level of performance and professionality
it’s added value
it’s applied risk (management) approach
And ……adopt the inherent consulting and advisory role / function

21. So what to do…? (3) Address the general (subjective) perception of
accountant and auditor (what’s the difference?)
policeman
watchdog
Always follow the Code of Ethics (example behaviour)
Be professionals and demonstrate it
Issue clear and unambiguous auditors opinions
and…………………………..

22. So what to do…? (4)
Be transparant……. and

23. So what to do…? (5)
Communicate in a clear and simple way with all users and stakeholders inside and outside the organisations

25. Dutch changes
New text for auditors opinion in preparation and discussion:
Including the materiality level (in % and amount??)
Describing the main focus points of the audit.
Possibly introduced already for this years opinion but for sure introduced for next years opinion (obligatory).

26. If time is left a short movie on communication

27. Hvala
Harry L. Jansen

28. KEEP CALM AND CARRY ON AUDITING