GOVERNMENT BER aaa AS ° Government isa system through which the affairs of the state are managed and directed for the benefit of the public at large. Government is expected to provide a transparent service with economy, efficiency ang effectiveness to its citizens, ‘The major source of revenue to the government is tax collection which may be in the form of direct tay such a8 income tax, indirect taxes such as VAT; Excise duty; Custom duty, exports, grants and donations fete. The government utilizes this income to declare the budget for national development and the fund ig utilized in various ways to achieve the objective of national growth. ‘Therefore, it is necessary to examine whether the amounts are properly used and any frauds or misappropriation is identified at earliest. The concept of government audit evolves here. Government audit is the systematic and professional examination of financial, administrative and other ‘operations of a public entity. ‘The UN handbook on government auditing defines government auditing as: © The objective, systematic, professional and independent examination of financial, administrative and ‘other operations of public entity, for the purpose of evaluating and verifying them, presenting a report containing comments, conclusion and recommendations and expressing the appropriate professional The Office of the Auditor General Nepal (OAGN) is responsible for performing government audit in Nepal. OAGN was established in on°2016/03/15 B.S after the appointment of ‘Auditor General pursuant to the then constitution. The Office of the Auditor General Nepal (OAGN) , the Supreme Audit Institution of Nepal, is elected as member of the Governing Board of Asian (Organization of Supreme Audit Institutions ( ASOSA\) for a three - year ~term of 2015 -2018. There shall be an Auditor General of Nepal. The Auditor General shall be appointed by the President on the recommendation of the Constitutional Council. The term of office of the Auditor General shall be six years from the date of appointment. Notwithstanding anything contained in Cause (3), the office of the Auditor General shail be deemed vacant in the following circumstances: - a) ifshe/he submits a written resignation to the President, b) if she/he attains the age of sixty-five, 9) if a resolution of Impeachment is passed against her/him as per ‘Article 101, d) If she/he is removed by the President on the recommendation of Constitutional Council for being unable to discharge the duties of ‘her/his office due to physical or mental iliness, or ¢) if she/he dies. ‘Auditor General appointed as per Clause (2) shall not be re-appointed.©) has attained, 2 roe ers of ged (7) The remuneration and conditions of servic Auditor Gener: seve yo 1¢ of the al shall be as ‘Femuneration and other conditions of service of the Auditor General shall Ot, so long as she/he holds office, be altered to her/his disadvantage except in the case of declaration of a State of E : Emergency due to extreme economic (8) A person who has been the Auditor General shall not be eligible for appointment in other Government service. ‘> Provided that, nothing in this Clause shall be a bar to appointment to any position of a political nature, or to any position which has the responsibility of making investigations, inquiries or findings on any subject, or to any Position which has the responsibility of submitting advice, opinions or recommendations after carrying out studies or research on any subject. 1) The accounts of the Office of the President and Vice- president, Supreme Court, the Federal Parliament, Provincial Assemblies, Provincial Governments, Constitutional bodies or their offices, courts, the Office of the Attorney General and the Nepal Army, Nepal Police and Armed Police as well as of all other government offices and courts shall be audited by the | ‘Auditor General in the manner determined by law, with due consideration given to the regularity, economy, efficiency, effectiveness and the propriety thereof. 2) The Auditor General shall be consulted in the matter of the appointment of auditors for carrying out the audit of any corporate body of which the Government of Nepal or Provincial Government owns more thon fifty percent of the shares or assets. The Auditor General may also issue necessary directives setting forth the principles for carrying out the audit of ‘such corporate bodies. 3) The Auditor, General shall, at all times, have access to documents concerning the accounts for the purpose of carrying out the functions specified in Clause (1). it shall be the duty of the Head of the office in question to provide all documents or information which may be demanded by the Auditor General or her/his employees. 4) The accounts to be audited pursuant to Clause (1) shall, subject to the Federal Jaw, be maintained in such form as is prescribed by the Auditor '5) In addition to the accounts of the offices referred to In Clause (1), the Federal law may also require that the accounts of any other office or institution be audited by the Auditor General. Page | 201 Scanned with CamScanner‘e. Body or entity prescribed to be audited by Auditor General pursuant to Federal laws. responsible all submit accounts of The officer of the entities mentioned above shi income and expenditure and financial records pursuant to the prevailing law to, ‘the Auditor General for final audit. 7 To promote public accountability and transparency Y _Tobring forth economy in the mobilization of public resources and enhance efficiency Y Tocenhance effectiveness of public entities ¥ To improve and assure clean practices in the working system of ‘administrative, financial and managerial system; ¥- To.assstin compliance of the existing laws; ¥ Tocencourage abandonment of the discretionary work-style Y Torecommend practical suggestions for improvement by identifying weaknesses and lacunae in the existing approaches, processes, practices and legal provisions; and ¥- Toencourage the practice of taking actions against delinquents and rewarding the excellent performers. ‘OAGN has developed the following guides and policies for the effective conduct of audit of government entities. ‘Administrative Expenditures Audit Guide, Government Auditing Standards Operational Guideline, Performance Audit Guide , Government Auditing Standards , Guidelines for the Audit of Public Sector Enterprises , Performance ‘Audit Guide , Procurement Audit Guide , Revenue Audit Guideline , Policy Guideline AUDIT ELL. Kohler has defined the term propriety as “that which meets the tests of public interest, commonly accepted customs and standards of conduct, and particularly as applied to professional performance, requirements of law, government regulations and professional codes" The main objective of propriety audit is to identify the cases of improper, avoidable ‘expenditure. Sometimes, the expenditure may be made as per rules and regulations but still be wasteful. Propriety audit reports such expenditures. For Example: A building may be constructed to run a health post but remain idle for @ substantial period of time. In propriety audit, is seen whether every offer has exercised the same vigilance in respect of expenditure incurred from public money, as a person of ordinary prudence would exercise in respect of expenditure of his own money under similar circumstances. Principles of Propriety Audit that the expenditure is not prima facie more than the occasion demands and that every official exercises the same degree of vigilance in respect of ‘expenditure as a person of ordinary prudence would exercise in respect of his ‘own money; that the authority exercises its power of sanctioning expenditure to pass an ‘order which will not directly or indirectly accrue to its own advantage: that funds are not utilized for the benefit of a particular person or group of persons unless 4 the amount spent is insignificant 'b,_a claim for the amount could be enforced in the court of law Page | 202the propriety thereof ‘authorization, if in the opinion of the 's a reckless one or is an abuse of national imovable, despite that the expenditure confirms to ‘On the propriety uthort national sae whether authorizations lasued in respect of any grant of evenue, oF any coment Of immovable, fixed or current, or underwriting of amy ie php 3% license oF permits relating to mining, forest, water rere. 'eF act of abandoning movable or immovable, assets of 2. The Auditor General may not include inthe report minor tems of discrepancy and other items deemed as insignificant in view of faved vs de a thet property which wer audit of income and expenditure. ane oer owe 9 oe 3 entities are achieving the real value for money i.e. whether the programs have achieved the desired objectives at the lowest cost and given intended benefits, ‘The objectives of performance audit are: 2: Provision ofa basis for improvement of public sector management of all resources; Improvement of the quality of information on the results of public sector management that is available to policy makers, legislators and the general ‘community; encouragement of the public sector management to introduce processes for reporting on performance and Provision for more adequate accountability Economy audit {t ensures whether the use of human, financial, physical and information resources ‘are made at the appropriate times and at the lower costs. Efficiency Audit It ensures that the use of human, financial, physical and information resources is made in such a way that the projects are carried out in efficient manner by reducing the loss of inputs and giving the expected results. Effectiveness Audit It ensures that the projects and schemes are achieving the objectives and the goals are being met.‘Scanned with CamScannerresponsibilities Sub-section (2) of Section 10, and the followed by them in course audit and provisions {fudtors appointed pursuant to Sub-section (2) of Section 10, shall be fixed by the Auditor General keeping in view the volume of financial {ansactions, ‘status of accounts, number of branches and sub- branches, workload and work progress of the concerned organization The audit of corporate body partially owned by Government of Nepal Shall be done accordance with principles defined by Office of Auditor General. ‘The Auditor General shall be consulted while appointing an auditor for such corporate bodies ‘The concerned organization shall deliver at the Office of the Auditor General 2 copy of the report submitted by the auditor appointed in consultation with the Auditor General ‘The Auditor General may issue directives to the concerned organization in respect of the irregularities observed in the report received and it shall be the duty of concerned organization to abide by such directives ‘Types of Public-Sector ‘Audit ‘It focuses on determining whether an entity's financial information is {ISSAI 100 -Para 22) Presented in accordance with the applicable financial reporting and ni%e regulatory framework. Financial Audit > This is accomplished by obtaining sufficient and appropriate audit © Performance Audit evidence to enable the auditor to express an opinion as to whether the © Compliance Audit financial information is free from material misstatement due to fraud or error. inar it ‘> It comprises an audit of set of financial statements that include = ¥ a statement of financial position; ¥ asstatement of financial performance; ¥ a sstatement of changes in net assets/equity; Y acash flow statement; ¥ a comparison of budget and actual amounts — either as a separate additional financial statement or as a reconciliation; ¥ Notes, comprising a summary of significant accounting policies and other explanatory information. ~ In certain environments a complete set of financial statements may also include other reports, such as reports on performance and. appropriation reports, Page | 205 Jos : Scanned with CamScannerPerformance audit 7 It focuses on whether interventions, programmes and institutions are performing in accordance with the principles of economy, efficiency ang effectiveness and whether there is room for improvement. Y Performance is examined against suitable criteria, and the causes of deviations from those criteria of other problems are analyzed 7 The aim is to answer key audit questions and to provide recommendations for improvement, Compliance audit Tt focuses on whether a particular subject matter is in compliance with authorities identified as criteria. ¥ Compliance auditing is performed by assessing whether activities, financial transactions and information are, in all material respects, in compliance with the authorities which govern the audited entity These authorities may include rules, laws and regulations, budgetary resolutions, policy, established codes, agreed terms or the general principles governing sound public-sector financial management and the conduct of public officials 115.5 ELEMENTS OF PUBLIC SECTOR AUDIT | Element of public sector auditing parties ibject Matter Criteria ‘Subject __Matter| 1. Auditor > It is the} | These are the information 2 The responsible information, bench marks||> It refers to party condition, or to evaluate ‘outcome of > As determined activity that in subject matter. evaluating or by constitutional measured or or legislative arrangement 3. Intended users >For whom the auditor prepares report measuring the. evaluated against subject matter certain criteria. against criteria, CA. Sunt Josh Scanned with CamScannerthe audit report in the form of findings, conclusions, recommendations or an opinion. For Example: Performance Audit ‘An assurance can be either Reasonable Assurance OR. Limited Assurance General Principles of public sector audit under ISSAI (ISSAI 100 --Sec 36-43) ‘independence |v Auditors should comply with the relevant ethical requirements and be independent Professional judgment, | Auditors should maintain appropriate professional behavior by applying ‘due care and skepticism Professional skepticism, professional judgment and due care throughout the audit. Professional skepticism means maintaining professional distance and an alert_and questioning attitude when assessing the sufficiency and appropriateness of evidence obtained throughout the audit ‘Quality control ¥ Auditors should perform the audit in accordance with professional | standards on quality control ‘Auditteam management | 7 Auditors should possess or have access to the necessary skills In order to conduct in an efficient manner by good team management and supervision. ¥ Auditors should manage the risks of providing a report that is inappropriate in the circumstances of the audit. ¥ Auditors should consider materiality throughout the audit process. ‘Documentation Y Auditors should prepare audit documentation that is sufficiently detailed to Provide a clear understanding of the work performed, evidence obtained and conclusions reached. ‘Communication ‘7 Communication should include obtaining information relevant to the audit and providing management and those charged with governance with timely ‘observations and findings throughout the engagement. Y The auditor may also have a responsibility to communicate audit-related matters to other stakeholders, such a legislative and oversight bodies. fe Page | 207 Jos , Scanned with CamScanner‘Scanned with CamScannerfor an audit of financial statements in accordance with the | ISSAN' Sieg metcctewss mereemncrnas Santee et ay Financial Reporting | The financial reporting framework used for preparation of the financial | Framework statements should be deemed acceptable by the auditor. ‘Acknowledgement of | V For preparation of the financial statements in accordance with the applicable Responsibility by financial reporting framework, including, where relevant, their fair Management presentation; Y For such internal control that management deems necessary for the preparation of financial statements that are free from material misstatement, whether due to fraud or error; and Y To provide the auditor with unrestricted access to all information of which it is aware and that is relevant to the preparation of the financial statements Requirement of = ‘The auditor should access whether the preconditions for an audit of financial ipre-condiions statement have been met. Frameworks prescribed by law or regulation will often be deemed acceptable by the auditor. However, even if deemed unacceptable, such a framework may be allowable it ¥ the management agrees to provide the necessary additional disclosures in the financial statements to avoid their being misleading; and ¥ the auditor's report on the financial statements includes an Emphasis of Matter paragraph drawing user's attention to such additional disclosures. | Attributes of the Y ‘Relevance Financial Statements ¥ Completeness ¥ Reliability Y_ Neutrality and objectivity v Understandability Page | 209 Scanned with CamScanner