Workshop on Implementing Audit Quality PracticesMarch 2006

Building Quality into the Financial Audit

Process The NAO’s experience

Gareth Caller

Workshop on Implementing Audit Quality PracticesMarch 2006

Contents

The UK context The financial audit process Review Centrally monitored quality assurance

procedures Client feedback

Workshop on Implementing Audit Quality PracticesMarch 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 PracticesMarch 2006

Governmentrequests and

Parliament grant funds

C&AG examines spending and

reports to Parliament

PAC session and report

GovernmentResponse

The Accountability Cycle

Workshop on Implementing Audit Quality PracticesMarch 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 PracticesMarch 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 PracticesMarch 2006

Workshop on Implementing Audit Quality PracticesMarch 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 PracticesMarch 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 PracticesMarch 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 PracticesMarch 2006

Detailed Review

– By Assignment Manager

– all working papers

Workshop on Implementing Audit Quality PracticesMarch 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 PracticesMarch 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 PracticesMarch 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 PracticesMarch 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 PracticesMarch 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 PracticesMarch 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 PracticesMarch 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 PracticesMarch 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 PracticesMarch 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 PracticesMarch 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 PracticesMarch 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