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Building Quality into the Financial Audit Process The NAO’s experience Gareth Caller

Building Quality into the Financial Audit Process The NAO’s experience Gareth Caller. Contents. The UK context The financial audit process Review Centrally monitored quality assurance procedures Client feedback. The role of the C&AG and NAO.

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Building Quality into the Financial Audit Process The NAO’s experience Gareth Caller

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  1. Building Quality into the Financial Audit Process The NAO’s experienceGareth Caller

  2. Contents • The UK context • The financial audit process • Review • Centrally monitored quality assurance procedures • Client feedback

  3. The role of the C&AG and NAO The C & AG’s role is to ensure that money allocated by Parliament is spent in accordance with Parliament’s intentions, and report The C & AG does not have a judicial function

  4. The Accountability Cycle Government requests and Parliament grant funds C&AG examines spending and reports to Parliament Government Response PAC session and report

  5. The UK Context • The NAO has 450 financial audit staff • Approximately 550 central government bodies audited annually all with same year end • All need to publish audited accounts before Parliament within 110 days of year end • 25% of financial audit work contracted out

  6. The Financial Audit Process • Most audits in four stages: • Planning (6-8 months into year) • Interim (9-11 months into year) • Final (1-3 months after year-end) • Completion (immediately after final if possible)

  7. An Auditing Framework • Legislation allows the C&AG to use whatever method he wants to conduct financial audits • C&AG has chosen to use International Standards on Auditing (UK & Ireland) • Guarantee of quality for clients • Internal consistency • Comparability • Recruitment

  8. International Standard on Auditing 220 • ISA 220: Quality Control for Audits of Historical Financial Information covers individual assignments • Includes policies and procedures covering: • Leadership responsibilities for quality on audits • Ethical requirements • Acceptance and continuance of engagements • Assignment of engagement teams • Engagement performance • Monitoring

  9. Review by Assignment Managers & Directors • Evidenced Review • Objectives • ensure work supports opinion • ensure work complies with auditing standards • bring more than one level of judgement to bear • Any queries documented and responses required

  10. Detailed Review • By Assignment Manager • all working papers

  11. Overall Review • By Assignment Director, to satisfy themselves that: • audit conducted to auditing standards and NAO standards • sufficient and appropriate audit evidence • certificate is appropriate and supported

  12. Overall Review • The Director must review certain procedures • Planning • Overall approval of plan • Includes a specific confirmation that the audit team have sufficient skills and experience • Final • Specific review of the certification minute • Specific confirmation that the planned approach remains appropriate/changes made as necessary

  13. Standards Assurance Reviews • If there are particular sensitivities, audit risks or difficult judgements (e.g. a qualified opinion) • Detailed criteria for selection • Further review by director independent of team • ‘Hot Review’ - before sign-off

  14. Audit Support Tools • Generic forms to record key decisions for each stage of audit • Compulsory annual training events for all staff • Clearly communicated policies interpreting changes in accounting or auditing rules • Dedicated advice line • All potential qualifications and reports must be reviewed by Financial Audit Policy Team

  15. Other Financial Audit Outputs • Ad hoc advice to clients • The Audit Strategy • Explains approach to clients • Aims to get client buy-in for approach • The Management Letter • Highlights key weaknesses • Includes detailed recommendations for improvements in controls/financial management • Generic training events and/guidance

  16. Centrally monitored quality assurance procedures • Cold review of a selection of audits • Whole of Office procedures • Client feedback • Review by external quality assurance body

  17. Cold Review Process • Annual Process • Purpose of review to ensure that audits comply with NAO procedures and certificate appropriately supported • Set criteria for selecting audits • Independent review teams • Audits are graded • Good practice/lessons learnt disseminated

  18. Whole of Office Procedures • Sample testing of: • Recruitment procedures • CPD returns • Code of conduct declarations • Results reported to senior management

  19. Feedback from our clients • Obtaining client feedback is important • We use a questionnaire • Covers: • Reporting and NAO Impact • Approach and Methods • Working Relationships • General comments

  20. Quality Assurance Directorate Review • QAD Directorate of ICAEW • Quality assurance on audit firms • Cold review of a selection of audits • Whole of office procedures • Recommendations not mandatory

  21. Key Messages • How the NAO thinks about quality: • Process designed to build in quality • Increased quality = decreased costs • High quality financial audits depend on leadership driven team working • Aim to meet and exceed customer expectations • First person (quality is my job) approach for all staff • Holistic focus on entire organisation

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