Convergence of Public

Sector Audit Standards

December 6, 2010

Jeanette Franzel, Managing Director, GAO

Kelly Anerud, Senior Technical Manager, IFAC
Jan Van Schalkwyk, Corporate Executive,
Auditor-General of South Africa
Gail Flister Vallieres, Assistant Director, GAO
 Background

•INTOSAI has created a robust set of Financial Audit

Guidelines for public sector entities by leveraging
international standards and providing relevant guidance for
the government environment.
•A group of experts from the INTOSAI community has
developed “Practice Notes” to be used in conjunction with the
International Standards of Auditing (ISAs) issued by IFAC’s
International Auditing and Assurance Board (IAASB).
 Objectives
•In this session, we will discuss the guidelines, how they relate
to national standards, and how they are being implemented by
INTOSAI members.

•In addition, this session will discuss GAO’s Yellow Book in

relation to INTOSAI and international standards.
Development of INTOSAI
Financial Audit
Guidelines and
Collaboration With
IAASB
 Financial Audit Guidelines
Strategy for Development
•Strategic Objective
To develop high quality guidelines that are globally accepted
for the audit of financial statements in the public sector.
•Strategy
To leverage the expertise and resources of the IAASB, an
internationally respected auditing standards setting
organization, in a strategic and cooperative partnership.
 Financial Audit Guidelines

+ =
International Practice International
Standard on Note Standards of
Supreme Audit
Auditing Institutions
 Financial Audit Guidelines
Structure for Development

PSC IAASB
INCOSAI Issues Paper

INTOSAI Governing Board

First Read
INTOSAI Professional Standards Committee

Exposure Draft
SAI Independence

Accounting Review of Comments

Standards & Performance Financial Audit Focus Group
Reporting Audit Guidelines*

Internal control Compliance

Standards Audit Reference Final ISA
Project Director &
Panel
Project Secretariat

INTOSAI ”Practice Note”

*Led by Swedish National Audit Office. Members include SAIs of Cameroon, Canada, Korea, European Court of Auditors, Mexico, Namibia, Norway, South Africa, United States, United Kingdom
 Provide Public Sector Perspectives

•Member and Technical Advisor on IAASB

•Participation in IAASB Task Forces for ISAs
•Public sector input to the ISA
•Parallel development of INTOSAI Practice Note
•Practice Notes Task Forces for other ISAs
•INTOSAI input compiled for IAASB meetings
•INTOSAI representative on IAASB’s Compliance Advisory Group
 Specific Public Sector Considerations

•Terminology
•Broader Mandate
•Inability to Withdraw
•Terms of Engagement vs. Legal Mandate
•Quality Assurance
•Documentation
 Specific Public Sector Considerations

•Fraud and error

•Communication
•Risk Assessment
•Materiality
•Reporting
Implementation of
Auditing Standards

Practical Lessons Learnt

 Why do we audit?

•The Auditor-General South Africa has a

constitutional mandate and, as the SAI of South
Africa, it exists to strengthen our country’s
democracy by enabling oversight, accountability
and governance in the public sector through
auditing, thereby building public confidence.
•This is our reputation promise!!
 Standards Defined

•Set of credible, widely acceptable pronouncements that

guide the execution of audits.
•Public sector options:
•International Standards on Auditing (ISAs),
supplemented by the International Standards for
Supreme Audit Institutions (ISSAIS)
•INTOSAI framework – level 3 standards supported by
level 4 guidance
•National Standards
 SA SAI Situation

•Adopted ISAs during 2005

•Believe in early adoption of any work done by standard-
setters, as long as these developments do not contradict
current baseline
•Full implementation of clarified ISAs, with first round of
independence quality review currently underway
•Same principle applies to the pro-active adoption of
ISSAIs
•Involvement in standard-setting
•IRBA CFAS
•INTOSAI FAS
 The Challenge of Implementation

•Status of developments (standards, methodology,

working papers, technical guidance)
•Conceptual thinking behind manuals and working
papers
•Governance arrangements
•Manuals (development, maintenance)
•Working papers (development, maintenance)
•Training
•Other considerations
 Status of Adoption, Methodology and
Working Papers
•Adoption of standards
•Requires legal standing, possibly after
extensive appropriate consultation
•SA SAI- annual promulgation of Audit
Directive in terms of Public Audit Act
(adoption of standards AND key decision-
making moments)
 Status of Adoption, Methodology and
Working Papers (continued)
•Development of methodology, manuals and working
papers
•Requires appropriate governance process,
confirming:
•Adherence to auditing standards
•Practical and relevant
•Responsive to needs of users (without
compromise to independence)
•Extensive appropriate consultation
 Status of Adoption, Methodology and
Working Papers (continued)
•SA SAI – set governance processes with
accounting and auditing profession,
national treasury, auditors (through
product champions), support staff and
stakeholders (Parliament, Legislatures,
APAC, media)
 Conceptual Thinking Behind the Manual
and Working Papers
•Speed of implementation
•Internal readiness
•External readiness
•Is the “high” requirements associated with
ISA implementation a limitation OR an
opportunity to give more momentum to
transformation?
 Conceptual Thinking Behind the Manual
and Working Papers (Continued)
•Level of guidance – detailed, but then auditors go for
compliance rather than thinking about what they want to
achieve
•Cost of implementation (phasing, more guidance to
allow for less skilled users/ lower costs)
•Back-up processes
•Governance processes
•Training processes
•Ongoing guidance
•Consultation processes (during audits)
 Governance Arrangements

•Oversight – Technical Committee

•Extensive stakeholder interaction program that feeds
into TC and related meetings
•Key stakeholders
•Tri-lateral strategic meeting (AG, ASB and NT –
future strategic issues)
•“Wednesday” meetings (AGSA, ASB and NT –
ongoing operational issues)
 Governance Arrangements (Continued)

•Forums
•Profession level
•Accounting – SAICA
•Auditing – IRBA / INTOSAI FAS
•Auditors through product champions (user interface)
•Support services (as and when required)
 Audit Manuals

•Key interpretation of standards

•Serve as key policy statement, covering all “normal”
aspects of work
•Talks directly to credibility of work (“stand in court”
principle)
•Address any unique applications in area, due to
mandate, legislation, nature of entities at hand, etc
•Can’t stand alone, need back-up through working
papers, training, guidance, etc.
 Working Papers

•Make the standards and manual practical

•Enough guidance to ensure adherence to standards,
but to also allow for auditors to still think
•Give structure to the thinking of the auditor
•Must include prompts to the REQUIREMENTS of the
standards
•Must ensure documentation of audit work in line with
standards
•Electronic working papers is a must!!!
 Training

•Focus on the essence of audit (what do we want to

achieve rather than compliance focus)
•Practical, simulation driven
•Just-in time / support during cycle
•Pro-active
•Structured
 Other Considerations

•Executive / top management buy-in

•Specific planning sessions with key role players
(National Treasury, ASB, auditees) before each audit
cycle
•Specific debrief sessions with key role players after
each session, leading to agreement on work to be done
before next cycle (action plans at auditee level, work by
standard-setters, training programs)
 Other Considerations (Continued)

•Detailed guidance to back up existing working papers /

to deal with unique circumstances
•Confirmed process to source technical opinions (with
consideration of specific QC and governance
requirements)
•Good relationship with professional bodies
•Back up technical training with good managerial (soft
skill) training
•Time… !!!
 GAO’s Yellow Book in
Relation to INTOSAI and
International Standards
•GAO is required to use U.S. Government
Auditing Standards, commonly known as
the Yellow Book.
•We believe the Yellow Book is fully
consistent with the ISSAIs.
•The Yellow Book incorporates U.S.
national auditing standards, which are
issued by the American Institute of
Certified Public Accountants (AICPA).
•AICPA financial auditing standards are
converged with the ISAs.
•Yellow Book standards add public sector
considerations and requirements to the
AICPA’s private sector auditing standards,
just as the INTOSAI practice notes add to
the ISAs.
Yellow Book and the ISSAIs

Specific to
INTOSAI’s
Public Sector
U.S. International
Government Standards
Auditing Standards for SAIs (ISSAIs)

Basic
Accounting
Principles

AICPA’s Statements IFAC’s International

on Auditing Standards Standards on Auditing
•GAO is on record in
supporting convergence of
auditing standards globally.
•GAO staff provided critical support in
converging AICPA financial auditing
standards with the ISAs, including the
drafting of Considerations Specific to
Governmental Entities.
•GAO staff served on Special Expert Teams that
drafted numerous INTOSAI financial auditing
practice notes, and we reviewed and submitted
comments on all the practice notes.
•GAO staff also used the ISSAIs as a reference
in writing the recently proposed changes to the
Yellow Book, issued in August 2010.
Questions ?