Cooperation on Audit Standards, Internal Auditors and Supreme Audit Insitutions

Beryl Davis, Director, Standards and Guidance, Institute of Internal Auditors and Bonnie Derby, Senior Auditor of the GAO discussed cooperation on audit standards between internal auditors and supreme audit institutions at the ICGFM Winter Conference. The presentation described INTOSAI GOV 9150 Coordination and Cooperation between SAIs and Internal Auditors in the Public Sector paper.

Ms. Derby introduced the four cornerstones of good governance: public officials; the governing body; internal auditors; and external auditors (SAIs). She concluded that the relationship between internal auditors and SAIs is both critical and beneficial to good governance and the effective use of public resources.

Ms. Derby described the evolution of audit standards, and the roles and responsibilities for internal audit and supreme audit institutions.

According to INTOSAI GOV 9100 (Guidelines for Internal Control Standards for the Public Sector), internal auditors examine and contribute to the ongoing effectiveness and efficiency of the internal control structure through their evaluations and recommendations and therefore play a significant role in effective internal control. Management often establishes an internal audit function as part of its internal control framework. In this tradition, the role of internal auditors is a critical part of an organization's internal control structure.

Ms. Derby introduced the benefits of coordination including:

• Strengthen mutual accountability


• Improved risk management


• More efficient audits

Risks of cooperation on audit standards include:

• Compromise on confidentiality


• Possible conflict of interest


• Use of different professional standards

Ms. Davis advocates the convergence of audit standards. She described the coordination and cooperation on these standards including:

• Communication of audit planning and audit strategy


• Collaborating on certain audit procedures, such as collecting audit evidence or testing data


• Communication of audit reports to each other

Ms. Davis suggested that internal and external auditors could use certain aspects of each other’s work to determine the nature, timing, and extent of audit procedures to be performed. She surveyed the audience to determine that there was not significant coordination between internal and external audit in most countries:

• 24% use each others work, 69% do not


• 18% share training programs 64% do not


• 34% share reports , 52% do not


• 37% work together on strategy, 41% do not

Ms. Davis advocated cooperation between internal and external audit throughout the entire audit lifecycle. She emphasized that assessment and communication should be documented in respective audit documents.

Derby davis coordination et coopération entre les sai et les auditeurs internes du secteur public

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Derby davis coordination and cooperation between sa is and internal auditors in the public sector

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Derby davis coordinación y cooperación entre las instituciones de auditoría suprema (sai) y los auditores internos en el sector público

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Convergence of Public Sector Audit Standards

Jeanette Franzel, Managing Director, Financial Management and Assurance GAO was the moderator for the panel. The session started with an overview by Kelly Anerud, Senior Technical Manager, The International Federation of Accountants (IFAC).

Ms. Anerud described how International Organization of Supreme Audit Institutions (INTOSAI) worked with the International Standards of Auditing with the International Auditing and Assurance Board (IAASB). She described how the "clarity" project enabled the convergence of public sector audit standards. She showed the INTOSAI and IFAC structure for developing standards and how these standards were rationalized.

Mr. Anerud described the differences between private and public sector audit including:

• Terminology differences


• Broader role of government audit, especially in performance


• Inability for the government auditor to "withdrawal"


• Need for confidentiality in private sector audit vs. transparency in public sector


• Differences in materiality in government and what public expects to see reported

Jan Van Schalkwyk, Acting Corporate Executive from Auditor-General of South Africa described lessons learned. He described how audit is critical to democracy. Mr. Van Schalkwyk described the adoption audit standards by the Government of South Africa. Adoption of any standards in government requires legal standing and legal reform. He described challenges and lessons learned in adopting the INTOSAI standards. Mr. Van Schalkwyk pointed out that audit is critical to improving the lives of citizens.

Gail Flister Vallieres, Assistant Director, Financial Management and Assurance GAO described the move from the US "yellow book" standard to INTOSAI and international audit standards. Ms. Vallieres described how GAO could not immediately move to INTOSAI standard. Instead, GAO is sequencing a convergence to the standard. This process was facilitated when the AICPA US private sector auditing converged with ISA. She showed how the audit standards consist of basic accounting principles with standards specific to the public sector.

The exposure draft of the yellow book is available at the GAO web site.

Convergence of public sector audit standards

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Convergencia de los estándares de auditoría del sector público

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Convergence des normes d’audit dans le secteur public

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Materiality in Government Auditing

Frans van Schaik considers the issue of materiality in government auditing in the context of the development of public sector specific guidance on this subject by INTOSAI, the international body for public sector external auditors, based on the private sector standard. The paper finds significant evidence for the materiality level in the public sector to be different to that in the private sector, despite this evidence, such differences are not clearly documented in the auditing standard. In the process, van Schaik reviews the key considerations for materiality for public sector auditors.

Abstract
There is a striking difference in the approach taken in the preparation of public sector specific guidance on accounting and auditing. While the International Public Sector Accounting Standards Board (IPSASB) issues stand-alone public sector accounting standards, the International Organization of Supreme Audit Institutions (INTOSAI) issues practice notes, which provide supplementary guidance for the public sector, in addition to the considerations specific to the public sector contained in the International Standards on Auditing. There is a similarity in that both IPSASB and INTOSAI fly in the jet stream of private sector standard setters. IPSASB only deviates from the International Financial Reporting Standards (IFRS), issued by the IFRS Board, for public sector specific reasons. INTOSAI adds guidance to the International Standards on Auditing, issued by the International Auditing and Assurance Standards Board (IAASB). These public sector specific practice not es are called International Standards of Supreme Audit Institutions (ISSAI).

Materiality in Government Auditing