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The public expect that those responsible for handling public money are held fully accountable for

the use of that money. The prime responsibility for ensuring that public money is handled with
absolute integrity and spent wisely rests with Ministers, elected members of the National
Assembly, governing bodies, managers and officials. Public sector audit is an important link in
that chain of accountability. It strengthens accountability, both upwards to the elected members
who provide resources, and outwards to the consumers and beneficiaries, taxpayers and the
wider community at large.

Public sector audit adds value not merely by analysing and reporting what has happened after the
event but also by being forward looking, by identifying lessons to be learnt and by disseminating
good practice. External public sector auditors thereby help to promote better management and
decision-taking, and thus a more effective use of taxpayers resources, and play an important role
in the corporate governance arrangements of public bodies.


The term 'audit' is increasingly being used in a general sense, to meanany form of scrutiny or
review of systems, processes or outputs. However, in thesense in which it has more traditionally
been used, audit is the process by which theannual accounts of public and private sector bodies
are subject to external scrutinyto provide independent assurance that they have been prepared in
accordance with relevant legal and professional standards and give a 'true and fair' view of the
financial performance and financial position of the audited body. However, this is one of the
basic principles of audit in the public sector.

Public Sector Audit

For the International Federation of Accountants (IFAC) Auditing is a verification or examination

of the documents of accountability executed by an auditor with the objective of providing him
the ability to express an opinion of those documents in such a way as to provide them with
greater credibility

The International Organization of Supreme Audit Institutions ( INTOSAI), who develops auditing
requirements for the public sector, defines auditing as an examination of operations, activities
and systems of aspecific entity, to verify that they are executed or function in conformity with
certainobjectives, budgets, rules and requirements.

As can be seen from the above definition of INTOSAI, the scope of the audit in the public sector
should go beyond giving assurance on the accounts, to include examination of aspects of
corporate governance and the use of resources, commonly described as 'value for money'.

Public sector audit comprises two principal elements: the financial element of the audit
('financial audit') and the performance element of the audit ('performance audit').

Financial audit covers the audit of the accounts and the underlying financial systems and
processes, whether public money was spent for the purposes for which it was intended and the
financial aspects of corporate governance, such as internal control and risk management.
Essentially, it provides assurance that public money has been safeguarded and accounted for

Performance audit is concerned with the value for money of services, functions, programmes or
specific projects, and the systems and processes put in place by the body to manage its activity
and use of resources and to prepare and publish performance information.

The Principles of Public Sector Audit

The Public Audit Forum in the United Kingdom believes that there are three fundamental
principles which underpin public sector audit:

the independence of public sector auditors from the organisations being audited.

the wide scope of public audit, that is covering the audit of financial statements, regularity (or
legality), propriety (or probity) and value for money.

the ability of public auditors to make the results of their audits available to the public,and to
democratically elected representatives.


Public audit must be independent of the organizations being audited so that the auditors cannot
be improperly influenced by those whose work they audit and so that they can carry out their role
freely. Whether in the private or public sectors, confidence in auditing rests to a great degree on
the independence and objectivity of the auditor. The methods of appointment of the auditors of
public services should ensure that the appointed auditor is, and is seen to be, independent of the
audited body and can report without fear or favour.

The independence of the national audit agencies from the bodies being audited is guaranteed by

The wide scope of public audit

Public audit not only involves providing an opinion on the financial statements prepared by
public bodies, but also covers such issues as regularity, propriety and value for money

External reporting

For public audit to be effective, appropriate reporting arrangements are required. Public auditors
report the results of their audits to the representatives of the public responsible for funding the
activities concerned or directly to the public themselves where it is in the public interest to do so.

This completes the cycle of accountability.

Responsibility for maintaining records and preparation of financial statements

In all organizations, whether in the public or private sector, the responsibility for the accurate
recording of transactionsand the preparation of financial statements, in accordance with
appropriate accounting policies, rests with themanagement of the entity. Such responsibilities
include putting in place and maintaining accounting records and internalcontrols, preventing
fraud and error, and safeguarding assets.

The auditor must carry out such examination of the financial statements and records and control
systems as is necessary to formtheir opinion.

Public Sector Auditing Part of Effective Governance

In a system of representative democracy, the institutions of government and the officials exist to
serve the interests of the public. In such a constitutional system, the Parliament is the publics
representative forum and it derives its ultimate legitimacy from the public on whose behalf it has
been elected and acts. Parliament has the responsibility to promote the goals of openness,
accountability and integrity.

The public sector auditor is normally referred to as the Office of the Supreme Audit Institution
(SAI) or Auditor-General (Director of Audit in Mauritius).It provides a critical link between the
public sector on the one hand, and the parliament and the community on theother. It alone
subjects the practical conduct and operations of the public sector as a whole to regular,
independent investigation and review.

A SAIs role is to assist Parliament to scrutinise the effectiveness, efficiency, and accountability
of the public entities that are accountable to it.It is, therefore, important for Parliament to ensure
that the audit scope of the SAI covers the whole of government, all publicsector agencies
including state-owned enterprises, companies, and joint ventures in which the government has a
controlling interest.

The cornerstone of effective governmental audit services is auditor independence from executive

Similaritiesbetween Public and Private Sector Auditing

There are many similarities. Auditors in both sectors adhere to the same high ethical principles,
use the same basic methods and apply the same independent auditing standards. All have robust
quality assurance processes in place and subject themselves to quality-control peer reviews.

Differences between Public and Private Sector Auditing

Company auditors are appointed by the shareholders, whereas in the public sector the
appointment of the auditor (Director of Audit in case of Mauritius, and Auditor General in most
countries) has been legislated by Parliament making the Auditor General the auditor of all
government entities and most statutory bodies.

Besides the clear distinction between the reporting role of an SAI and the manner of his
appointment to that of an auditorin the private sector, there are three differences worth noting.

One difference is materiality. An auditor in the private sector is given guidance by the
professional auditing standardsin determining what constitutes materiality. The private sector
auditor, within the professional standards, can ignorecertain financial variations in the published
accounts. However, the public sector auditor in similar circumstanceshas to report on the basis
that the disclosure is in the public interest. An example is when payments have been made
without authority, irrespective of the amount involved.

The second one is legality and compliance issues, whereby the auditor is required to provide
assurance that the transactions recorded in the financial statements are in accordance with the
relevant authority, legislation and regulations. Legality and regularity has always been a primary
focus of the public sector auditor. Failure to report to Parliament of abuse of the processes of
government by executive government can facilitate a culture of corruption within government.

Private sector audit has a much narrower scope, essentially being limited to a true and fair
opinion on the companys financial statements, whereas, in the public sector it must cover not
only the audit of financial statements, but also aspects of corporate governance and arrangements
to secure value for money

Auditing Methods

In the public sector, prior to 1970, the normal auditing function of expressing an opinionhad
beencarried out after a comprehensive examination of the financial transactions. This approach
had the effect of placing relatively more emphasis on the transactions and less on the system
from which the transactions were derived. It required more human resources.

With the increase in complexities of government activities, coupled with the growth and
expansion of advanced computer systems, the introduction of a more efficient and economical

manner of conducting audits became necessary. This resulted in the adoption of system based

System-based auditing consisted mainly of two segments: a) study and evaluation of the system
of internal control forthe period subject to the audit; and b) actual verification of assets,
liabilities, revenues, and expenses which, together withthe assurance provided by the system of
internal controls, provide sufficient evidence to support the expression of an opinion on the
financial statements.

In the early 1990s, a risk-based approach was adopted for financial audits. This methodology
which provides a rigorous audit planning process enabling auditors to more directly and
effectively assess the risk components of each audit has led to greater efficiency in the conduct
of financial audits and a corresponding increase in the level of audit assurance.

Audit Standards

Financial audits in the public sector are carried out in accordance with the International
Standards of SAIs (ISSAIs) developed by INTOSAI. ISSAIs include the International Standards
on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board
(IAASB) and Practice Notes (PN). The PNs provide a clear statement on applicability of the ISA
to the audits of public sector entities as well as supplementary guidance to public sector auditors
on the ISAs. There is a separate PN for each ISA.

Audit reports of the public sector

The outputs from both sets of external auditors are similar in many respects. Both provide an
audit plan, give an opinion on the accounts and provide audit management letters. Nonetheless,
there are some aspects unique to the public sector and these are enshrined in statute. These
include: considering reporting in the public interest where there is a matter that may need to be
brought to the attention of the public. Also the relevance of audit reports for the public sector is
different from the audit reports of the private sector, due in part to the following facts:

The range of users of the financial information of the public sector is much wider.

General governments should render account to all citizens.

Emergence of Performance Auditing

By the end of the 1970s, there was increasing recognition worldwide that the accountability of
public service managers must extend further than compliance with the laws and regulation
governing the use of public funds. It was becoming obvious that whilst the system-based audit
methodology provided a rigorous examination of financial systems, it did not produce
information that enabled audit to report to the parliament on whether the organizations resources
were being managed so as to give the community value for its money.

Hence this led to the development in the public sector of what today is generally referred to as
Performance Auditing.Performance Auditing is oriented towards examining economy, efficiency,
and effectiveness of public administration. It covers not only specific financial operations, but
also the full range of government activity including both organizational and administrative
systems.Performance auditing requires a different audit methodology to financial auditing.

Recent changes from zero-based budgeting to Program based budgeting render Ministries and
public sector bodies henceforth accountable for performance of well defined targets/objectives
and to establish clear performance indicators to monitor achievements. Amendments to statutes
have likewise enlarged the powers and the responsibilities of the Auditor General and the SAI to
report, in addition, on the 3Es, economy, efficiency, effectiveness in the use of resources by the
Public Sector in general.

Performance auditing has thus become the new and modern challenge for Public Sector Auditing.
These steps regarding more effective accountability and audit reporting would definitely bring
enormous benefits to the community at large.