New Zealand’s AG “Reflections” in Reprint
PROFESSIONALIZING THROUGH UNDERSTANDING PUBLIC AUDIT VALUE
New Zealand’s Office of the Auditor-General (AG) recently received draft research results from an independent academic research team1 examining the value of public audit. The research specifically focused on financial statement auditing, which comprises nearly 90% of the Supreme Audit Institution’s (SAI) annual expenditure. This study was commissioned due to the strategic importance for the AG’s office to understand and demonstrate relevance to citizens, parliament and stakeholders in the rapidly changing public sector environment.
The investigation used (1) private sector theories as to the reasons for audit, (2) Moore’s (2013) concept of public value2, and (3) International Standards of Supreme Audit Institutions (ISSAI) 12: The Value and Benefits of SAIs—Making a Difference to the Lives of Citizens (Copenhagen, 2012) to explore ways the public auditing sector creates value.
Under Moore’s concept, public value cannot be delivered without an organization aligning legitimacy, capacity and public worth with stakeholders. Applying Moore’s concept to ISSAI 12, without an appropriate level of resources, SAIs will be unable to (1) undertake core work at quality levels that are high enough to deliver public value or (2) support public sector reform without maintaining legitimacy and support from stakeholders.
Sixteen SAIs’ annual reports and annual and strategic plans were analyzed to assess the primary private sector reasons behind the relevancy of public sector audits:
Agency—auditing reduces agency costs where one party delegates authority, especially control over resources, to another.
Information—Managers have better information about the business than outside investors, which can be overcome by an auditor’s assurance.
- Insurance—Stakeholders may demand audits as a way of increasing the chance of recovering losses with the auditor a “target” for recovery.
- Organizational Control—Business owners may purchase audits as part of a system for loss of control.
- Confirmation—audited financial performance and position information is important for verifying earlier unaudited announcements.
- Risk Management and Corporate Governance—Auditing can be useful for organizations whose stakeholders are subject to higher risk.
- Public Benefits, Choice And Externalities—Auditing provides benefits to a range of parties and externalities that could benefit society at large and create incentives for auditing to be used in the political system.
SAIs’ reporting generally supports these reasons (with the exception of insurance and confirmation); however, the tendency is to not discuss negative consequences. The research suggests that this means some measures of value may be misleading.
The New Zealand Office of the Auditor-General is interested in hearing about other projects across the INTOSAI community looking into this question and would also like to hear about additional values associated with public audit research to share such results and seek additional learning as efforts are underway to prepare for the upcoming 2016 INCOSAI in accordance with Theme 2: Professionalization.
To learn more about these research results and share your ideas and experiences with similar projects, contact Ann Webster at Ann.Webster@oag.govt.nz.
1The research team was comprised of: (1) Investigations conducted by: David Hay, Kevin Simpkins and Carolyn Cordery; (2) Advisers: David Emanuel, W. Robert Knechel, and Tony van Zijl; OAG Participant: Karen Smith.
2Moore, M. H. (2013) Recognizing Public Value. Cambridge & London: Harvard University Press.
