Inside INTOSAI

International Journal of Government Auditing – July 2009

Financial Audit Guidelines Subcommittee

Schedule for Exposure of Practice Notes

Practice notes for the following International Standards on Auditing (ISA) are scheduled for exposure from May through July 2009:

  • ISA 402–Audit Considerations relating to an Entity Using a Service Organization
  • ISA 530–Audit Sampling
  • ISA 501–Audit Evidence Regarding Specific Financial Statement Account Balances and Disclosures.
  • ISA 510–Initial Audit Engagements–Opening Balances
  • ISA 520–Analytical Procedures
  • ISA 540–Auditing Accounting Estimates, including Fair Value Accounting Estimates, and Related Disclosures

Practice notes for the following ISAs are scheduled for exposure from June through August 2009:

  • ISA 265–Communicating Deficiencies in Internal Control to Those Charged with Governance
  • ISA 320–Materiality in Planning and Performing an Audit (re-exposure)
  • ISA 620–Using the Work of an Auditor’s Expert
  • In addition to these practice notes, the following two general International Standards of Supreme Audit Institutions (ISSAI) are planned for exposure from July through October 2009 after being approved at the PSC Steering Committee meeting in June:
  • ISSAI 1000–General Introduction to the INTOSAI Financial Audit Guidelines
  • ISSAI 1003–Glossary of Terms to the INTOSAI Financial Audit Guidelines

Subcommittee Meetings

In April 2009, the European Court of Auditors hosted a Financial Audit Guidelines Subcommittee (FAS) meeting in Luxembourg. During the meeting, seven practice notes were approved for exposure and nine practice notes received final approval.

In October 2009, FAS will hold its last meeting before the INTOSAI Governing Board meeting, where 36 ISSAIs will be presented for approval.

Communication of ISSAIs

FAS has begun work on how to present the ISSAIs at INCOSAI XX in South Africa in 2010. It is hoped that the INTOSAI Financial Audit Guidelines will already be familiar to SAIs by that time and that all SAIs will want to implement the ISSAIs in their daily work.

For additional information, please contact the FAS Secretariat:
E-mail: projectsecretariat@riksrevisionen.se
Web site: http://psc.rigsrevisionen.dk/fas

First Meeting of the INTOSAI Working Group on the Value and Benefits of SAIs

The first meeting of the Working Group on the Value and Benefits of SAIs took place in Sun City, South Africa, March 9–11, 2009. The working group consists of 14 members representing almost all of INTOSAI’s regional groups and different audit systems.

Members of the Working Group on the Value and Benefits of SAIs at its initial meeting in South Africa in March 2009

Members of the Working Group on the Value and Benefits of SAIs at its initial meeting in South Africa in March 2009.

During the meeting, the working group participants agreed that the value and benefits of SAIs relate to two key areas: SAIs are to be

  • model independent organizations and
  • institutions that make a difference in the lives of citizens.

The participants then identified the fundamental requirements and related guiding principles that support each area. Taking into consideration the related work that INTOSAI has already done regarding fundamental requirements, the participants documented eight fundamental principles for the first area and five for the second.

The following are the fundamental guiding principles for the first area, SAIs as model independent organizations.

  • the independence of SAIs,
  • the transparency and accountability of SAIs,
  • service excellence and quality considerations in all aspects of SAI functioning,
  • good governance arrangements within SAIs,
  • the ability of SAIs to be responsive to changing environments and stakeholder expectations without compromising independence,
  • the application of a code of ethics by SAIs,
  • knowledge sharing by SAIs,
  • and enhancing the reputation of SAIs.

The following are the fundamental guiding principles for the second area, SAIs as institutions that make a difference in the lives of citizens.

SAI contribute to improving the lives of citizens by enhancing accountability and transparency so that government is held accountable for using resources

    • legally and responsibly;
    • for the purposes intended; and
    • economically, efficiently and effectively.
  • SAIs serve as a credible source of independent insight and guidance to facilitate continuous improvements in government.
  • SAIs empower the public to hold government accountable and responsive through
    • objective information,
    • the simplicity and clarity of their messages, and
    • convenient access to audit reports and messages in relevant languages.
  • SAIs enable the legislature, one of its commissions, or those charged with governance to discharge their responsibilities to respond to audit findings and recommendations and take appropriate corrective action.
  • SAIs follow up on audit findings and recommendations and provide assurance on the implementation of recommendations.

The working group anticipates that these requirements, guiding principles, and references to INTOSAI guidance and SAI practices will provide a framework for increasing the value and benefits of SAIs. Members of the working group are currently researching the 13 requirements they identified in order to compile key questions that will form the basis for soliciting further input from SAIs. The framework and evaluation questions will be consolidated into a principal paper, which will be translated into the official INTOSAI languages and distributed to all SAIs in September 2009. SAI responses to the principal paper will be used to compile a discussion paper for theme I of the XX INCOSAI to be held in South Africa in 2010.

The discussion paper will be the focus of the working group’s next meeting, which will be hosted by the SAI of the Accounts Chamber of the Russian Federation in March 2010.

For additional information, contact the South African SAI:
E-mail: namhlam@agsa.co.za
Web site: www.agsa.co.za

Task Force on the Global Financial Crisis

What Role Do SAIs Have in the Global Financial Crisis?

This question was the driving force behind a meeting of the INTOSAI Task Force on the Global Financial Crisis that was held in Washington June 29–July 1, 2009. Representatives from 24 of the 25 member SAIs on the task force met to exchange views on this critical subject and to hear from distinguished experts in the fields of finance, economics, public policy, international development, and public sector audit and accounting. Over the coming years, task force members will continue to consider the vital role of SAIs in addressing the current global financial crisis.

Participants in the meeting of the Task Force on the Global Financial Crisis in Washington

Participants in the meeting of the Task Force on the Global Financial Crisis in Washington.

The meeting was organized around four principal themes that encompassed the objectives from the task force terms of reference. The four themes were

  • lessons learned and the genesis of the financial crisis;
  • initial government responses to avert or minimize the crisis and the real economy;
  • reforms, transparency, and accountability; and
  • challenges to SAIs and international engagement.

The agenda included presentations on the globalization of mortgage finance, the impact of accounting standards on financial statements and international standard-setting activities, economic recovery, and challenges to SAIs. Task force members shared a variety of insightful points of view regarding the following significant themes that recurred throughout the discussions and presentations.

Ethics and Institutional Arrogance

This crisis may be demonstrating that ethics, accountability, transparency, and risk management are all highly interrelated. The causes of the current financial crisis include the role that corporate ethics and institutional “arrogance” may have played as well as a system of incentives that avoided consideration of longer term risks and instead focused on short-term gains and transactional fees. Participants discussed how societies can protect themselves from actions that while not criminal, are ultimately harmful.

The Financial Crisis and the Real Economy

The financial sector’s crisis has spilled over into the real economy. Even if financial markets and banks are stabilized, the current crisis may be prolonged if the real economy does not recover. One presenter suggested that in considering the effectiveness of government responses, we may have to consider moving beyond conventional economic remedies—such as large stimulus packages—since the economies of high-income countries currently have massive excess capacity. This would require finding government stimulus programs that can unclog the “bottlenecks of growth” with innovative projects that can drive short-term job creation and long-term growth. In such a case, the growth of the economy pays for the stimulus projects, instead of future taxes or inflation.

Credibility and Transparency

The credibility and transparency of financial information, financial accounts, and financial instruments (securities, derivatives, etc.) are critical and essential factors in helping to reduce the risk of future crises. SAIs must be independent and can play an important role in addressing the actions of decision makers through best practices, lessons learned, professional standards, and ethics.

Next Steps

The task force is working to organize itself to help the INTOSAI membership address the many challenges that this crisis presents. It is considering dividing its 25 members into smaller subgroups, each of which would focus on one of the following areas:

  • the causes of the financial crisis and possible actions to minimize future crises,
  • actions governments are taking to address the real economy and stabilize financial markets, and
  • challenges facing SAIs.

Communication tools are also being considered to ensure the sharing of knowledge and best practices among task force members and to facilitate collaboration within and across regions.
For additional information, please contact GAO at spel@gao.gov

Pacific Association of Supreme Audit Institutions

Transitional Working Group Meeting Held in Wellington

The Pacific Association of Supreme Audit Institutions (PASAI) Transitional Working Group (TWG) met in Wellington, New Zealand, March 23–25, 2009, to finalize the PASAI Charter, review program funding and staff resource arrangements, discuss a framework for a capacity development program, and develop a proposal for mobilizing a cooperative performance audit. PASAI, formerly known as SPASAI, is changing its organizational structure and the TWG has been set up to oversee the implementation arrangements.

Paul Allsworth, TWG Committee Chairperson and Auditor General of the Cook Islands, commented that the meeting successfully met its objectives, with substantive inputs from auditors general and partner agencies that allowed for good progress on design, planning, and resource allocation for the various initiatives planned under the Pacific Regional Audit Initiative (PRAI).

Kevin Brady, Secretary General of PASAI and Controller and Auditor-General of New Zealand, noted that the initiatives would be managed by the strengthened PASAI Secretariat, once it is established. In the interim, Eroni Vatuloka, formerly Auditor-General of Fiji, has been appointed to be Program Coordinator and will manage preparatory initiatives.

The TWG comprises the auditors-general from the Cook Islands, New Zealand, Palau, Papua New Guinea, Samoa, and Tuvalu. Representatives from the Asian Development Bank (ADB), the Australian Agency for International Development (AusAID), the INTOSAI Development Initiative (IDI), the New Zealand International Aid and Development Agency (NZAID), the World Bank, and the Pacific Islands Forum Secretariat also attended the Wellington meeting.

Improving Public Auditing in Kiribati, Nauru and Tuvalu

As part of a new PASAI initiatives, auditors general from Kiribati, Nauru, and Tuvalu signed a memorandum of understanding in March 2009 initiating the Subregional Audit Support (SAS) Program under the overall framework of the Pacific Regional Audit Initiative (PRAI). The PRAI was developed through an extensive 18-month consultative process guided by PASAI, with support from ADB and AusAID, under the Pacific Islands Forum Secretariat’s coordination. The forum comprises 16 independent and self-governing Pacific states and is the region’s premier political and economic policy organization.

Isaako Kine, SAS Program Committee Chairperson and Auditor General of Tuvalu, said the SAS Program’s objective is to enable the public accounts of Kiribati, Nauru, and Tuvalu to be audited in a timely manner in accordance with uniformly high standards. He stated, “The SAS Program in turn will contribute to good governance through improved accountability and efficiency in providing audit scrutiny and oversight over the use of public resources in Kiribati, Nauru and Tuvalu. . . .The SAS Program will also strengthen in-country financial management capacity and enhance accountability mechanisms.”

Barry Reid, the ADB’s Senior Financial Management Specialist, remarked that the program has the unanimous support of PASAI members and Pacific Islands Forum leaders and economic ministers. Under the SAS program, a team will work with the three participating countries to conduct financial audits and, at a later point, performance audits. “SAS team members will be seconded from the Kiribati National Audit Office, the Nauru Audit Department, and the Office of the Auditor General of Tuvalu and will be led by external audit staff with practical auditing and training experience,” explained Mr Reid. “The initial program period will be 2008–2012, at which point the program will be evaluated.”

Mr. Kine noted that the program will be managed by the strengthened PASAI Secretariat, once it is established, under the oversight of an SAS Program Committee. In the interim, the program will be established and managed by the SAS Program Coordinator under the SAS Program Committee’s oversight.

Tuiloma Neroni Slade, Secretary General of the Pacific Islands Forum Secretariat, said forum leaders and forum economic ministers have identified the audit initiative as an important regional undertaking. He stated that PRAI progress is an excellent demonstration of regional cooperation that pools scarce resources to support improved transparency and accountability in the management and use of public resources. Although more work remains to be done, the good progress reflects the commitment of all relevant stakeholders—national SAIs, which support the initiative; PASAI, which provides leadership and guidance; and the ADB, AusAID, and IDI, which provide financial and technical support.

The SAS Program Committee, which was established to implement the SAS Program, met in Wellington, New Zealand, March 19–20 to make transition arrangements to mobilize staff resources so that cooperative audits can be undertaken in the three participating jurisdictions starting in the third quarter of 2009. The working group comprises the auditors-general from Kiribati, Nauru, and Tuvalu. Representatives from the ADB, AusAID, INTOSAI, and the Pacific Islands Forum Secretariat also attended the meeting.

For additional information, contact PASAI:
E-mail: perca@auditoffice.gov.ck; enquiry@oag.govt.nz
Web site: www.pasai.org

 

-----Side notes-----

(1) In response to the current financial crisis and downturn in global economies, the INTOSAI Governing Board established the Task Force on the Global Financial Crisis at its 58th meeting in Vienna in November 2008. The U.S. Government Accountability Office (GAO) was asked to chair this effort. The first meeting of the task force was conducted by teleconference in late February 2009. The meeting held this June in Washington was the first in-person meeting of the task force.

(2) The United States chaired and hosted the meeting. Auditors general from Canada, Cyprus, Indonesia, Netherlands, Morocco, Saudi Arabia, Sweden, and Venezuela attended the meeting, along with representatives from Austria, Chile, China, Denmark, Estonia, Finland, Hungary, Italy, Japan, Korea, Mexico, Poland, Russia, Slovakia, and the United Kingdom.