The audit process
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The Auditor-General is an independent officer of the Australian Parliament and has discretion in the performance or exercise of their functions or powers. In particular, the Auditor-General is not subject to direction in relation to: whether or not a particular audit is to be conducted; the way in which a particular audit is to be conducted; or the priority to be given to any particular matter. The Auditor-General must, however, have regard to the audit priorities of the Parliament, as determined by the Joint Committee of Public Accounts and Audit (JCPAA).
The audit process
The Auditor-General’s main functions include financial statement audits, performance statement audits, (on request), performance audits, and assurance reviews.
To assist in fulfilling these audit functions, the Auditor-General has wide access and information-gathering powers. These powers are balanced by confidentiality provisions in the Auditor-General Act 1997. A person conducting an audit must not disclose any information except in the course of undertaking the Auditor-General’s functions. A person with a proposed audit report or any other report must not disclose any information from that report, unless the Auditor-General has consented to the disclosure.
The ANAO treats all audit-related information as ‘in-confidence’. Sensitive information that, in the Auditor-General’s opinion, is not in the public interest will not be included in public reports. In exercising their discretion, the Auditor-General has regard to the reasons listed in section 37 of the Auditor-General Act, which include national security and international relations, Cabinet deliberations, Commonwealth-State relations and unfair prejudice to commercial interests.
In recognition of the Auditor-General’s independent status, the Auditor-General is exempt from the application of the Freedom of Information Act 1982 (FOI Act) and Information Privacy Principles (IPPs) set out at section 14 of the Privacy Act 1988. However, to the extent appropriate, the ANAO provides information on request in the spirit of the FOI Act, particularly in relation to the administration of the ANAO, and complies with the spirit and intent of the IPPs.
Information obtained during an audit or review is stored securely at all times and used only for audit purposes. ANAO staff maintain security clearances which are appropriate for the audit work they perform.
The ANAO’s audit reports and the annual Defence Major Projects Review are tabled in the Parliament and published on the ANAO website. Following the tabling of an audit report, the JCPAA or another committee of the Parliament may conduct inquiries using ANAO reports as key information sources.
Financial statements audits
The primary purpose of financial statements is to provide relevant and reliable information to users about a reporting entity’s financial performance and position. In the public sector, the users of financial statements include Ministers, Parliament and the community. The preparation of timely and accurate audited financial statements is also an important indicator of the effectiveness of an entity’s financial management, which fosters confidence in an entity on the part of users.
The ANAO’s financial statements audits, undertaken in accordance with the ANAO Auditing standards, provide an independent examination of the financial accounting and reporting of public sector entities. They provide independent assurance that financial statements have been prepared in accordance with the Government’s financial reporting framework and Australian accounting standards. The ANAO audits the financial statements of approximately 250 entities.
The ANAO directs audit effort to areas most expected to contain risks of material misstatement, whether due to fraud or error, with correspondingly less effort directed at other areas. Risks may arise due to the nature of, or changes in, the entity’s business environment and business and accounting processes, including information technology. Sources of risk include changes in the entity’s functions or objectives, complexity, financial market volatility, global uncertainty, or changes in legislation or the financial reporting framework.
Effective two-way communication between the ANAO and the entity is a key element of a successful audit. Throughout the audit the ANAO undertakes regular meetings and liaison with the entity to deal promptly with any issues that may emerge. Additionally, audit teams will provide written reports and letters to the key stakeholders within the entities as the audit progresses.
The Auditor-General reports on audits of financial statements to the Parliament twice a year. The first of these reports, Interim Phase of the Audits of the Financial Statements of Major General Government Sector Entities, reports on ANAO coverage of key financial systems and controls in major Commonwealth entities. The second report, Audits of the Financial Statements of Australian Government Entities, reports on the results of the financial statements audits of all Commonwealth entities.
The main phases of a financial statements audit involve planning, obtaining evidence, and reporting.
A performance audit is a review or examination of any aspect of the operations of an entity which is undertaken in accordance with the ANAO Auditing standards. The ANAO’s performance audits are presented to the Parliament and identify areas where improvements can be made to aspects of public administration. They often make specific recommendations to assist public sector entities to improve performance. Performance audits may also involve multiple entities and examine common aspects of administration or the joint administration of a program or service.
The ANAO identifies subjects for audit through its planning processes and consults with the Parliament, through the JCPAA, and Australian Government entities during the development of the Annual Audit Work Program. The audit program aims to provide broad coverage of areas of public administration and topics are identified based on consideration of the potential impact of the audit; the level of public and parliamentary interest in a topic; and risks to reputation and service delivery. Each performance audit has a specific objective which is approved by the ANAO Executive and advised to the entity and other relevant parties at the beginning of the audit.
Performance audits involve engagement between the ANAO and the audited entity as well as other stakeholders involved in the program or activity being audited. Throughout the audit the ANAO undertakes regular meetings and liaison with the entity to deal promptly with any issues that may emerge. Additionally, the ANAO provides written reports on preliminary audit findings and the final proposed audit report to key stakeholders within the entity as the audit progresses. The entity has the opportunity to provide comments and a formal response to a proposed report, and the Auditor-General Act provides a period of 28 days for this purpose.
Performance audit reports are tabled in Parliament as soon as practicable after completion and published on the ANAO website on the day of tabling. Performance audits that are in-progress are listed on the performance audits in progress page.
The main phases of a performance audit involve audit planning, evidence gathering and analysis, and reporting. More information about the ANAO's approach to performance auditing, including information about how subjects are identified for audit, is available in A guide to conducting performance audits.
Other assurance reviews
In addition to performance audits and financial statements audits, the Auditor-General undertakes other assurance activities. These can consist of reviews undertaken on request or by agreement with an auditee, may be initiated on the basis of information obtained in the course of performing an Auditor-General function, or in response to requests from stakeholders, including parliamentarians, parliamentary committees, a resolution agreed to by the Senate, community groups and members of the public, or at the discretion of the Auditor-General.
Assurance reviews that are initiated in response to a request from a stakeholder are conducted under section 19A(1) of the Auditor-General Act 1997 (the Act) and in accordance with the Australian Standard on Assurance Engagements (ASAE) 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information, issued by the Australian Auditing and Assurance Standards Board, which forms part of the ANAO Auditing Standards.
Once relevant inquiries have been concluded by the ANAO, the findings from an assurance activity may be handled through the issuing of correspondence, or the review report may be presented to the Parliament under section 25 of the Act. Following its presentation and receipt, assurance review reports are published on the ANAO website. An assurance review provides a limited level of assurance and the review report includes a description of the assurance engagement circumstances, and a negative form of expression of the conclusion.
The Defence major projects report is an annual priority assurance review conducted in accordance with the guidelines endorsed by the JCPAA. Increased transparency and accountability on progress with major Defence equipment acquisitions has been a focus of Parliamentary interest for some time. Beginning in 2007–08, an annual program has been established in conjunction with the Department of Defence to enable the ANAO to review and report to the Parliament on the status of major Defence acquisition projects, as set out in the Defence Major Projects Report. The review includes information relating to the cost, schedule and the progress towards delivery of required capability of individual projects as at 30 June each year.
The ANAO defines audit quality as the provision of timely, accurate and relevant audits, performed independently in accordance with the Auditor-General Act and ANAO auditing standards and methodologies, which are valued by the Parliament. Delivering quality audits results in improved public sector performance through accountability and transparency.
The ANAO has a Quality Assurance Framework, which aims to provide the ANAO with reasonable assurance that:
- the ANAO complies with the ANAO standards, including relevant ethical requirements, and applicable legal and regulatory requirements; and
- reports issued by the ANAO are appropriate in the circumstances.
The ANAO has policies and procedures to promote an internal culture based on the recognition that quality is essential in performing audits. These policies and procedures address each of the following elements:
- Leadership responsibilities for quality within the ANAO
- Relevant ethical requirements
- Acceptance and continuance of client relationships and specific engagements
- Human resources
- Engagement performance
The Auditor-General is ultimately responsible for the system of quality control in place for all assurance and related activities undertaken by the ANAO. From an operational perspective, the Deputy Auditor-General is responsible for ensuring that the system of quality control satisfies the requirements of the ANAO Auditing Standards and is assisted by the Group Executive Directors with this role.
The ANAO Quality Committee is responsible for monitoring the operation of the ANAO quality framework and reporting to the Executive Board of Management (EBOM).