Chapter 4: Audit Approach

Chapter 4

Audit Approach

OAGP is the prime national institution for ensuring public accountability and fiscal transparency in governmental operations. The organization is expected to bring about improvements in the financial discipline and internal control environment in the executive departments for minimizing the possibility of fraud and strengthening the government wide systems to deter leakages.

The size of the government has increased many folds in last two decades and has devolved to district and sub district level which increased the work load at OAGP. In addition, public sector accounting is in a transition phase and new accounting paradigm has been developed under PIFRA which includes implementation of New Accounting Model and SAP/R3 software. Furthermore, the government managers and external stakeholders are demanding timely, reliable and useful financial and performance information from OAGP regarding the government programs and policies. However, in spite of these developments the size of OAGP is more or less the same as it was two decades ago.

OAGP is a member of INTOSAI and has adopted INTOSAI Auditing Standards. Recently, INTOSAI and International Federal of Accountants (IFAC) have signed a memorandum of understanding where Supreme Audit Institutions (SAIs) will use International Standards on Auditing (ISA) for financial audit and IFAC will develop public sector guideline for each ISA. As a member of INTOSAI community OAGP is morally committed to implement ISA.

The challenges being faced by OAGP necessitates the need for highly efficient and internationally accepted guidelines which will ensure highly effective and quality audit. Through PIFRA initiative OAGP developed New Audit Methodology which includes;

Financial Audit Manual
Audit Working Paper Kit
Audit Guidelines
ACL (CAAT’s Software)

The focus of the approach is on risk based auditing and focusing high risk areas and organizational systems and creating value for the auditee by identifying areas for improvement and making objective recommendations. The approach becomes more efficient if the data is available electronically.

Audit Approach in a Snapshot

Strategic/ External Analysis

The new audit approach begins by considering how relevant environmental issues are affecting the entity. Entity objectives are analysed and discussed with the management to understand how entity’s strategy responds to the external issues faced in each are of its operations. The outcome will be a balanced picture of the entity: how it functions; what business it is involved in; and how it interacts with external forces. The preparation and discussion of this analysis with the entity’s senior management will provide an independent perspective of the risks which the entity faces and added value feedback in the form of comparison with best practices and guidelines.

Process Analysis

Entity’s key processes, their inherent risks and the way management control those risks will by identified. This part of work will start with a review of the high level controls operated by senior management to evaluate how it managesthe entity. This will include a review of the effectiveness of internal audit and internal controls. This approach enables to set the audit objectives and focus the audit effort on those areas where there is higher risk of significant misstatement or deviation.

Risk Assessment

Risks are identified and through a comprehensive assessment of the risk of material errors. The identification and discussion of these risks with senior management adds value, as it contributes to ensuring that risk management remains up to date and relevant.

Performance Measurement

The audit teams test the controls that have been identified as key and undertake any substantive procedures that are considered appropriate. Financial statements are assessed as a whole: does the picture presented in the financial statements reflect a true and fair view of the state of entity’s affairs; are the results consistent with entity’s strategic objectives and do the financial statements comply with laws and standards? Financial results and are a benchmark of the entity’s performance and through analysis auditor can conclude on the performance measurement objectives.

Suggesting Improvement

The performance of the entity is assessed and control improvement opportunities are identified in the foregoing steps. Practical recommendations are made after obtaining necessary feedback and communicated with recommendations to senior management.

By following the approach described above, we can have a robust audit where the focus is on highlighting system and performance issued rather than addressing the transaction individually.

Making Use of Information Technology

The audit becomes more efficient and effective if the entity has and EDP environment where auditable information is available electronically. Our approach is to assess the reliability of information system data by evaluating general computer control and application controls. If the information system is reliable electronic data will be audited using Computer Assisted Audit Techniques (CAATs)

Maintaining Quality

In conducting our audit work we will work closely with management to ensure that we maintain quality and our work includes the following specific success factors against which the audit will be judged:

–involving key entity personnel in the strategy and planning phases and working closely with the management to ensure that we understand each other's requirements;

–maintaining high quality independent relationships with key personnel;

–being proactive and innovative, delivering added value;

–responding promptly to management requests;

–timely discussion of all relevant issues;

–achieving audit reporting timetable deadlines comfortably; and

–delivering high quality reports to senior management.