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International Journal of Auditing – April 2005 Guidelines on Audit Quality By Jacek Mazur, PhD, Supreme Chamber of Control, Poland; János Révész, State Audit Office, Hungary; Brian Vella, National Audit Office, Malta; and Harry Havens, formerly U.S. Government Accountability Office This article discusses newly developed guidelines on audit quality that set out specific measures that an SAI should take to ensure high quality in its audit work. These guidelines are applicable to all types of SAIs and all types of audits. Background Recently, concerns have arisen about the reliability of audit activity in the private sector. Since an SAI’s work is, in many ways, comparable to that of a private firm, the heads of the former network of SAIs of Central and Eastern European countries, Cyprus, Malta, Turkey, and the European Court of Auditors (ECA)1 agreed, at their annual meeting in Limassol, Cyprus, in 2001, that quality in the audit process should be discussed, studied, and reported upon. The liaison officers of Hungary, Malta, and Poland (authors of this article) were appointed as an expert group for an initial study to identify the principles and requisites required in an audit institution to ensure that it is adequately organized in order to ensure effective audit work and reports of high quality; analyze the situation of participant SAIs vis-à-vis their quality control practices and procedures relating to audit planning, execution, and reporting; and identify good practices in an SAI to ensure high quality. The expert group circulated a questionnaire in 2002 to obtain information about the state of quality management systems in participant countries and other advanced SAIs. Based on an analysis of replies, a report was completed and presented to the heads of SAIs at their Bucharest meeting in December 2002. After discussing the report, the heads of SAIs extended the mandate of the expert group and requested that it prepare comprehensive and detailed guidelines on audit quality. Representatives of the French Court of Accounts—Anne-Marie Boutin and Christophe Perron—joined the expert group and contributed to the elaboration of the guidelines during 2003-2004. SIGMA2 (http://www.sigmaweb.org) was asked to provide technical support during both the preparation of the report and the elaboration of the guidelines. In particular, Nick Treen, SIGMA’s Senior Advisor for Audit and Financial Control (Nicolasjohn.email@example.com), made a valuable contribution as coordinator of the cooperation. The guidelines on audit quality were presented at the last meeting of the heads of the former network of SAIs in Riga, Latvia, in April 2004. This body approved the document and recommended that it be forwarded to the Contact Committee of European Union (EU) SAIs and to the INTOSAI and EUROSAI general secretariats for their information and consideration. The Contact Committee of EU SAIs approved a slightly amended version of the guidelines during the annual meeting in Luxembourg in December 2004. Overview of the Guidelines The guidelines contain four sections: Section 1–Introduction, Section 2–Quality Control,
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Key points includethe following: Audit planning should consider the number and skills of available staff.intosaijournal. the authors are well aware that wide variations exist within these categories of SAIs and audits. the scope and completeness of the planning and performance of the audit. It is a review completed after the audit by persons who are independent of the audit under review. and the risks that may be encountered. the reliability and accuracy of findings. and objective. In this context. the auditee has taken to address problems raised in the audit. supervision. Quality Assurance–“Cold Review” Quality assurance is an assessment process focusing on the operation of the quality control system. http://www. adequately documented. The qualifications and experience of the audit team should be considered in deciding the type and extent of direction. and external expertise available. and responsible persons and should be reviewed by an experienced auditor.. supervision. audit reporting. and review must be present in each phase of an audit to ensure quality. and risk and materiality assessments. The selection and timing of audits may depend on priority. The guidelines are intended to apply to all SAIs. if any. However. the work of other auditors. tasks. Some time after a report is issued. such as internal auditors. Audit reports should be clear.Technical Article Section 3–Quality Assurance. among others: the significance and value of matters addressed in the audit. The individual performing each audit task should document that fact and the results. Direction. comprehensive. All findings and conclusions must be supported by adequate. Each guideline is accompanied by explanatory text to help the reader understand why that guideline is needed and what it seeks to accomplish. and fair audit evidence in the audit working papers. Audit execution should be performed in accordance with the approved plan. or review. the objectivity and fairness of assessments and opinions. reporting. both regularity and performance. timely.. and follow-up) are carried out in compliance with the SAI’s rules. and Section 4–Institutional Management.INTOSAI . financial and human resources available. The plan should lay out the schedule. including legal requirements. and performed and reviewed by qualified staff.org/technicalarticles/technical. practices. reliable. financial and other resources. The guidelines then set forth recommended procedures to be followed in audit planning. A quality control system should ensure that audits are timely. and audit follow-up. conclusions. Quality Control–“Hot Review” Quality control is a process through which an SAI seeks to ensure that all phases of an audit (planning. and procedures. the time. the SAI should determine what action. Auditee comments should receive fair consideration. and the effectiveness of the audit in terms of results and impacts achieved. quality takes account of the following factors. 2 sur 4 29/11/2012 23:48 . concise. Proposed reports should be reviewed internally by experienced auditors who are independent of the audit and by the auditee. and other matters presented in the audit report. The working papers should be organized to facilitate subsequent preparation and review of the audit report. both courts and offices. audit execution. execution. The principal auditor should review that documentation. and to all audits.
and improving the quality management system to ensure that the SAI is competently organized to deliver high-quality work.. and recruit staff to fill those needs. and continuing education to ensure that auditors maintain and enhance their capabilities An SAI should also give attention to the career development of its personnel through effective performance appraisal systems and individual development plans. In either case. independent from the audit being reviewed. and feedback from auditees One approach to internal review is establishing a separate office. or peer reviews and to help ensure the comparability of assessments. Peer review assesses the extent to which an SAI meets international standards. managerial training to allow employees to acquire skills to direct the work of audit units. the reviewer selects a sample of audits. In external review. any gaps in the controls. The guidelines recommend an annual quality assurance report for each SAI to sum up general findings and recommendations for improvement. a private audit firm might be asked to review a sample of attestation audits. Feedback from auditees can help the SAI understand auditees’ needs and expectations. Another possible approach is having staff members from different structural units. SAIs should spend time. irrespective of the type of SAI and the type of audit it performs. SAIs should also provide effective training. An essential element is a strategy for recruiting and selecting new staff members. operating. the purpose of the review is not to criticize specific audits. conducting reviews. examines them in detail. peer review. and reports the results along with recommendations for improvement. managing institutional risks. A management consulting firm or academic experts could be asked to review selected performance audits. external review.intosaijournal. SIGMA has organized peer reviews of the SAIs in new EU member states and in candidate countries.org/technicalarticles/technical. and other ways of improving the audit quality system. requiring it to give high priority to managing human resources. 3 sur 4 29/11/2012 23:48 . The guidelines include checklists to facilitate internal. It is also responsible for creating an environment conducive to consistent high quality and continuous improvement.INTOSAI . anticipate its future needs. independent from the audit units. and managing external relations Individual auditors and managers play key roles in the performance of audits. Such a review generally involves experienced auditors from other SAIs. technical training to equip auditors with the skills to perform audit tasks. including introductory training to help new arrivals adapt to the SAI. Rather. There are four main types of quality assurance: internal review. energy. Quality assurance necessarily involves the examination of specific audits. The SAI should seek excellence in the people it employs. However.. Other peer reviews have resulted from agreements between particular SAIs or groups of SAIs. external. and budgetary resources on managing their human resources. it is to determine what controls were intended to be applied to those audits. how those controls were implemented. reporting directly to either the president in an audit office or the relevant collegium in a court of audit.Technical Article http://www. Institutional Management The SAI’s management is responsible for establishing. maintaining.
which started in 2004 (see the ASOSAI Web page for details). Also included is information on quality control for regularity audits by the International Federation of Accountants and for performance audits by INTOSAI. among others.vella@gov.Technical Article http://www. Audit Quality Management System.. as well as the audit quality checklists noted previously. Inappropriate management of those risks can undermine the SAI’s credibility. controversy associated with the audit. Conclusion Audit quality is an increasingly important issue and should be a useful area of exchange of national experiences. the 7th ASOSAI Research Project. or havensh@aol. contact the authors: reveszj@asz. an SAI should establish good contacts and cooperate with Parliament and its committees.com. The authors hope that the guidelines on audit quality will facilitate future discussions of this issue. For more information.hu. The guidelines are available in electronic format. For example. Jacek_Mazur@nik. the media.mt. the Ministry of Finance and other line ministries. To maximize its effectiveness. brian. The SAI’s management should establish a procedure for assessing institutional risks that considers complexity of the audit.gov.org/technicalarticles/technical.intosaijournal. This requires a clear strategy in each case. and cooperation or resistance of the auditee.INTOSAI .pl. 4 sur 4 29/11/2012 23:48 .. Not all audits are equally difficult and risky. Annexes The annexes include a list of reference documents received from international and national organizations. SAI management should allocate resources to minimize institutional risks. audit costs. and private sector auditors.
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