Technical Articles

International Journal of Auditing – July 2004

A Challenge for SAIs: Quality Management in Public Auditing

Editor’s note: This article is based on a presentation made by Mr. Muhammad Yunis Khan, Auditor General of Pakistan, at the second ASOSAI Symposium on Quality Management in Public Audit on October 22, 2003, in Manila.

Supreme audit institutions (SAIs) serve a diverse clientele—the public, taxpayers, public servants, and legislators who authorize public spending and scrutinize its outcomes with reference to SAI reports. For SAIs, the challenge of quality management in public auditing is to address the differing and sometimes competing interests, expectations, and needs of this clientele by providing adequate assurance regarding public spending and its outcomes.

INTOSAI auditing standards have identified a full range of public auditing that includes financial, regularity, and performance audits. Designing a comprehensive audit product that meets both audit standards and client expectations is an issue still open to debate, research, and improvement. SAIs have to keep on perfecting the outcomes of public auditing. As they do so, they face numerous challenges in both financial and performance auditing.

Challenges Facing SAIs in Financial and Performance Auditing

Financial auditing in the public sector is more complex than simply adopting the best practices of the private sector. At times, public sector accounting and financial reporting are not fully reliable to provide the required level of assurance. The complexity of the public sector, with hierarchical relationships between entities at different levels, also poses conceptual and methodological challenges in financial auditing. The very definition of an accounting entity may become difficult given that the responsibility for spending or operations and financial reporting may be split between the accountant (e.g., the comptroller general) and chief operational officers of different units. Application of performance audit techniques and methodologies becomes difficult due to limited experience in operating against quantified outputs and performance criteria. Another challenge is establishing the proper link between performance, regularity, and financial audits. SAIs that no longer produce independent regularity audit reports have to establish some link between financial and performance auditing to avoid a situation where the two give contradictory results.

As government spending levels and operational complexities grow, the allocation of audit resources becomes increasingly difficult, posing the dilemma of doing justice to the full range of one’s audit mandate while meeting INTOSAI’s auditing standards. In addition, the relationship between auditor and auditee can become adversarial. One of the strengths of performance auditing is its concern with the needs of management and adopting a management-friendly approach. Quality audit output is both an outcome and a precondition for a trusted relationship between the auditor and auditee. But problems arise in drawing a line between the auditor’s desire to add value and the stringent requirements of accountability. Finally, if auditing inhibits the managerial process of positive decision making, it may impede the achievement of organizational goals. The auditor must always be mindful of the auditee’s mandate—the delivery of a service or facility—which is the primary objective of public spending.

Pakistan’s Recent Experience in Promoting Quality Public Management

In its efforts to promote quality public management, the SAI of Pakistan has undertaken a number of initiatives to address the challenges mentioned above. As part of his long-term strategy, the Auditor General of Pakistan no longer has any direct involvement in keeping accounts. That function is now carried out by a national entity known as the Controller General of Accounts, which has been established by law. Recognizing the essential link between accounting and auditing, however, the SAI of Pakistan launched a comprehensive project to modernize public sector accounting before handing over the accounting function. Accounting reforms being implemented through the World Bank–funded Project for Improvement to Financial Reporting and Auditing (PIFRA) include installing a national network of core accounting systems based on Enterprise Resource Planning software, which has accrual reporting features and the potential for upgrading to full accrual reporting. It is expected that sound accounting and financial reporting will provide the basis for effective auditing. At the same time, reliance on the qualitative certification of accounts is being increased as a means for not only providing assurance but also improving the quality of accounts.

These more recent measures have emerged from earlier efforts to introduce modern performance auditing and develop sectoral audit specializations dealing with areas such as revenue, construction works, procurement, and the power sector. The SAI of Pakistan is keen to develop a regularity audit manual fully compliant with INTOSAI’s definition. Ongoing regularity audits have also gone through a number of changes, and omnibus reports have been replaced by entity-specific reports. Other improvements are being implemented with the specific objective of improving the quality of audit output.

The SAI is also working on developing a flexible and powerful resource allocation model that can convert priorities, risk assessments, mandatory audit requirements, and stakeholder preferences into a criteria-driven and computerized resource allocation system. The system would not only be able to deploy audit resources according to annual plans, but also roll over multiyear plans. It would cover aspects such as

  • linking audits based on stakeholder priorities with statutory obligations,
  • prioritizing which entities should be audited in a given year, and
  • determining the adequate level of audit effort for each audit.

The system will be based on risk analysis and weighted according to a systematic perception of the budgeted spending and revenue collection.

While accounting is increasingly making use of information technology (IT) and is now considered an almost natural IT application, auditing has yet to capitalize on the power of IT. Computer-assisted auditing techniques (CAATS) are essentially a means to handle computerized accounting data. The SAI of Pakistan is hoping to launch an expansion of the PIFRA project to establish an organization-wide network of audit management information systems that will link with accounting databases and auditee systems, which will in turn link with internally available information, such as human resources data, auditee profiles, audit report databases, operational activities, and audit guidance. Through this systems development effort, the SAI of Pakistan hopes to create a comprehensive information base to support all aspects of quality management.

While bringing about improvements in the spending of public money remains the
underlying challenge before SAIs, audit reports are just one option available to achieve this goal. Efforts should also be made to strengthen institutional influence for reform where public money is actually spent. The SAI of Pakistan has sponsored an effort to appoint chief financial officers in government ministries and departments and establish a more effective system for internal accountability and departmental audit committees.


The SAI of Pakistan subscribes to the international trend of adopting best audit practices and developing a strong audit discipline. At the same time, it believes that the specific professional requirements of SAIs should be recognized. In the development of audit policies and guidance, factors such as the historical context of management systems, the effectiveness of accountability arrangements, and perceptions of corruption should be important considerations. Public audits should identify public concerns, and corresponding audit reports should address those concerns promptly. Guidance, standards, and methodologies should be developed to ensure that the SAI provides adequate and credible assurance. Under the umbrella of INTOSAI, regional associations such as ASOSAI can play a significant role in identifying region-specific needs and finding focused responses and solutions.