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AUDITING
LECTURE’S OBJECTIVES
• After completion of this chapter, students
should be able to:
– Define and explain the role of audit
– Discuss the different types of audit in
government
– Explain the terms of appointment and
resignation of the Auditor General
– Discuss the nature of conducting government
auditing
– Explain the preparation process of the Audit
Report
WHAT IS AN AUDIT?
• The process by which a competent,
independent person accumulates and
evaluates evidence about quantifiable
information related to a specific economic
entity for the purpose of determining and
reporting on the degree of correspondence
between quantifiable information and
established criteria
Arens et al. (1999)
WHAT IS AN AUDIT?
• A systematic process of objectively
obtaining and evaluating evidence
regarding assertions about economic
actions and events to ascertain the degree
of correspondence between those
assertions and established criteria and
communicating the results to interested
users
The Report of the Committee on Basic Auditing Concepts of the
American Accounting Association
PURPOSE OF AUDIT IN THE
PUBLIC SECTOR
• To determine any embezzlement from the
estimation being planned
• To declare any wrongdoings in relation to
the principles, orders, rules and
regulations
• To declare the elements and factors which
fail to lead for effectiveness, efficiency and
economical utilisation of the government’s
resources
TYPES OF AUDITS
• Internal audit
• External audit
– Financial Audit
– Compliance Audit
– Performance Audit
TYPES OF AUDITS
• Financial Audit
– Attestation audit
– To determine whether the annual financial
statement shows a true and fair view of the
financial position and whether the government
entity has complied with all legal and
regulatory requirements
– Involves obtaining and evaluating of the
evidence of an organisation’s financial reports
– Carried out annually
TYPES OF AUDITS
• Compliance Audit
– To inspect and evaluate the activities of
ministries/departments or agencies
– To determine whether laws and regulations
are fully complied
– Involves the function of obtaining and
evaluating evidence and determining whether
certain financial or operating activities
conform to specified conditions
– Conduct cyclically
TYPES OF AUDITS
• Performance Audit
– Involves studies and evaluation of specified
programmes or activities
– To determine whether the objectives of the
programmes or activities are achieved, and
whether the implementation is carried out in
an economical, efficient and effective manner
– To assure that the budget amount applied and
approved has been fully utilised
TYPES OF AUDITS
TYPE OF AUDIT NATURE OF ESTABLISHED NATURE OF
ASSERTIONS CRITERIA AUDITOR’S
REPORT
FINANCIAL Entity’s financial An identified Opinion on
report data financial reporting fairness or ‘truth
framework and fairness’
COMPLIANCE Implicit claim that Management’s Summary of
data adhere to policies, laws, findings or
relevant regulations or assurance
other third party regarding degree
requirements of compliance
PERFORMANCE Performance or Objective set. i.e. Economy,
operational data by management efficiency, and
or enabling effectiveness
legislation observed
GOVERNMENT AUDIT
FRAMEWORK
FINANCIAL
STATEMENT
• EVENTS
• ACTIVITIES
• TRANSACTIONS - AUDIT - REVISION
PROCESS
- AUDIT - SUGGESTION
STANDARDS
• AUDIT
REPORT
NATIONAL AUDIT
DEPARTMENT
HTTP://WWW.AUDIT.GOV.MY/
INTRODUCTION
•
VISION & MISSION
VISION
MISSION
17
Audit Act, 1957 –
Section 1-10
18
Section 1 - Act Coverage
• apply to the audit of the accounts of the
Federation, of the States and other public
authorities and specified bodies
19
Section 2 - Interpretation
• “public moneys” shall include moneys
received by or on account of any public
authority established under Federal or
State law and the expression:
• “public stores” to include chattels the
property of or in the possession or under
the control of any such authority.
20
Section 3 - Terms & Conditions
of Service of Auditor General
21
Section 4 - Remuneration of
Auditor General
22
Section 5 - Duties of Auditor
General
• to examine, enquire into & audit:
– accounts of accounting officers of Federal &
States;
– accounts of any separate fund established in
the State (for zakat, fitrah & baitulmal).
23
Section 5 - Duties of Auditor
General (cont’)
• accounts of any other public authority or
body;
• accounts of any other body (including
companies) in receipt of grant or loan from
the government; for a company with half of
its paid up share capital held by
government.
24
Section 5 - Duties of Auditor
General (cont’)
• accounts of any other public authority with
public interest.
• audit fees shall be determined by Treasury
in consultation with the Auditor-General.
25
Section 6 - Nature of Audit
• The Auditor General may examine to ascertain:
– whether all reasonable precautions have been taken
to safeguard the collection & custody of public
moneys;
– whether issues & collection of public moneys were
made in accordance with proper authority & payments
were properly chargeable & are supported by
sufficient vouchers or proof of payment;
26
Section 6 - Nature of Audit
(cont’)
– whether due care has been taken to account
for & to ensure proper use, control,
maintenance & disposal of all public stores or
other stores subject to his audit;
– whether all accounts & other records have
been & are properly & faithfully maintained;
– whether moneys have been applied according
to appropriation or authority;
– whether every thing comply with relevant
rules
27
Section 7 - Powers of the
Auditor General
• may call any person for any explanation or
information;
• may search any book, documents or
records in any public office;
• to have access to all records, books,
vouchers, documents, cash or other
property subject to his audit;
• may examine any person necessary for the
due performance of his functions;
28
Section 7 - Powers of the
Auditor General (cont’)
• may authorize any public officer to conduct
any inquiry, examination or audit;
• may obtain advice of law officer upon any
question of law.
• Any of those powers may be exercised by
a public officer authorized by the Auditor
General;
29
Section 7 - Powers of the
Auditor General (cont’)
• the Auditor General may authorize any
person he deems competent to conduct on
his behalf;
• Every person called upon for any
explanation shall be legally bound to
furnish such explanation or information.
30
Section 8 - Secrecy
• Neither the Auditor-General nor any other
person shall divulge or communicate,
except in the course of duty to another
person performing duties under this Act
any information which has come to his
knowledge.
31
Section 9 - Audit Reports
• As required by Section 16 of the Financial
Procedure Act 1957, accounts of the
government have to be prepared &
transmitted to the Auditor General for his
examination, audit & prepare reports
thereon.;
• if statement is not received seven months
after the close of the financial year, the
Auditor General may submit report to
Parliament/State Legislative Assembly.
32
Section 9 - Audit Reports (cont’)
• the Auditor General will submit a report
based on the accounts of the
Federal/State to the Minister/Chief
Minister.
• If any serious irregularities have occurred,
he shall immediately bring the matter to
the notice of the Secretary General to the
Treasury/State financial authority;
33
Section 9 - Audit Reports (cont’)
• Auditor General may make
recommendation & comment upon all
matters relating to public accounts, public
moneys & stores
Topic 5 34
Section 9 - Audit Reports (cont’)
• Auditor General may submit a certificate &
observations on special funds such as the
Zakat, Fitrah and Baitulmal.
• Auditor General may present his certificate
& observation upon those accounts to the
heads of those authorities on any matter
which in his opinion requires immediate
attention.
35
Section 10 - Regulations
• the Minister may after consulting the
National Finance Council may make such
regulation not inconsistent with this Act as
are necessary for the purposes of the Act.
36
THE AUDITOR GENERAL (AG)
• TERMS & CONDITIONS
– The AG is an officer of the general public
service of the Federation
– Appointed by the YDPA on the advice of PM
– Eligible for reappointment but NOT for any
other appointment in the service
– AG may at any time resign, but shall not
removed from the office EXCEPT in the
grounds an manners of removing a judge
RESPONSIBILITIES & DUTIES
• The AG has the powers and duties to audit
and report on the accounts of the Federal
and States (Art 106, FC)
• The AG may also perform other duties in
relation to the accounts of the Federal,
States and public authorities, as specified
by the YDPA
• The AG is responsible to enhance the
standard of public accountability by
reporting and providing an assurance
RESPONSIBILITIES & DUTIES
• Section 591) of the Audit Act 1957:
– The AG shall examine, inquire and audit:
• The accounts of the Federation and States
• The accounts of any separate fund established in a State or
Federal Territory under Art 97(3) of FC
• The accounts of any public authority or body so provided by
law, and if it is not provided by the law, at the request of that
authority with the consent of MOF to be notified in the
Gazette
• The accounts of any other body including a company
registered under the Companies’ Ac; in receipt of public grant
or loan or a company that half of its paid up capital held by
the Government
• The accounts of any other public authority, upon the request
by the MOF in the interest of the public
NATURE & SCOPE OF WORK
• To ascertaining and ensuring whether:
– All reasonable precautions have been taken
to safeguard the collection and custody of
public money
– Payments were made in accordance with
proper authority, properly charged and
supported by sufficient vouchers/proof of
payments
– Due care has been taken into account to
ensure proper use, control, maintenance and
disposal of public stores
NATURE & SCOPE OF WORK
• To ascertaining and ensuring whether:
– All accounts and other records have been and are
properly and faithfully maintained
– Moneys have been applied accordingly, for which
they were appropriated or authorised and the related
activities have been managed in an efficient manner
with due regards for economy and avoidance of
waste or extravagance
– The provisions of the FC and the FPA 1957 and any
other written law have been complied with
POWERS OF THE AG
ACCOUNTABILITY
WHAT IS ACCOUNTABILITY?
• The liability to give account for something
to somebody or the responsibility to give a
formal statement of money dealing
Chamber’s Dictionary
• Federal Sector
• All 28 ministries (now 27 ministries)
• 4 main revenue collecting departments i.e Customs Department, Immigration
Department, Road Transports Department and the Royal Malaysian Police.
•
• State Sector
• State Treasury - 13
• State Islamic Religious Councils - 13
• State Economic Development Corporations - 13
ACCOUNTABILITY INDEX
RATING
• For the Rotational Category, the number of agencies involved were
as follows:-
– Federal Sector
• Federal Departments 31
• Federal Statutory
Bodies 26
– State Sector
• State Ministries/Departments 62
• State Statutory
Bodies 4
• Local Authorities 22
CHAIN OF ACCOUNTABILITY PROCESS IN MALAYSIA
PROBLEMS TO ACHIEVE
ACCOUNTBILITY
• No real directive or guidelines on the new
system introduced
• Insufficient post created in enhancing
better accountability
• Failure of internal control system
• Resistance to change
• Failure to recognise relationship between
business processes and records
• Lack of top management support
RECOMMENDATION TO
IMPROVE ACCOUNTABILITY
• Disciplinary actions to staffs who failed to
perform tasks
• Create sufficient post
• Set up audit committee
• Cooperation from other parties
• Continuous revision of policies and
circulars
• Effective recording system
IT SUPPORTS
ACCOUNTABILITY
• Larger productivity gains in government
service
• Greater transparency and accountability
• Improved reporting of expenditure
• More updated and accurate information
• Fostering national competitiveness
• Reduced cost
• Enhance the deployment and use of public
resources
IT SUPPORTS
ACCOUNTABILITY
• Standard Accounting System for
Government (SAGA)
• State Government Computerized
Accounting Systems (SPEKS)
• Micro Accounting System (MAS)
• Government Financial and Management
Accounting System (GFMAS)
• Electronic Budget Planning and Control
System (eSPKB)
AUDIT SUPPORTS
ACCOUNTABILITY
• Prosser (1995): part of auditing could give comments on
the government’s accountability for provincial debt,
internal control, and other aspects of systems and
procedures that assist the government in its operations
and financial accountability
• Audit practitioners should engage in the development of
new accountability mechanisms that would support the
decision-making process in public sector
• Auditor also play some role in developing and
administering the public policy and accountability-
reporting frameworks