Part-03SCOPE OF AUDIT

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Muhammad ZafarACMAM.Phil FinanceMA English , M.ComMA Political Science

3.1 Types of AuditsDirectorate General Audit, Federal Government conducts the following types of audit:1. Certification Audit2. Compliance with Authority Audit3. Performance Audit

Additionally the Directorate General also carries out special audit, special studies and theaudit of foreign aided projects. Separate guidelines have been issued by the DAGP for theaudit of foreign aided projects.The following section defines Certification audit, Compliance with Authority audit andPerformance audit.

3.2 Definition of Government AuditAccording to the INTOSAI Auditing Standards, the full scope of government auditingincludes regularity and performance audit. Regularity audit comprises of the attest ofFinancial Statements called Certification Audit and Compliance with Authority Audit.Regularity audit embraces:

1. Attestation of financial accountability of accountable entities, involving examinationand evaluation of financial records and expression of opinion on Financial Statements;2. Attestation of financial accountability of the government administration as a whole;3. Audit of financial systems and transactions including an evaluation of compliance withapplicable statues and regulations;

4. Audit of internal control and internal audit functions;5. Audit of the probity and propriety of administrative decisions taken within the auditentity; and6. Reporting of any other matters arising from or relating to the audit that the Supreme Audit Institution considers should be disclosed.

Performance audit2 is concerned with the auditof economy, efficiency and effectiveness andembraces: 1. Audit of the economy ofadministrative activities in accordance withsound administrative principles and practices,and management policies;

2. Audit of the efficiency of utilizing of human,financial and other resources, including theexamination of information systems,performance measures, monitoringarrangements, and procedures followed byaudited entities for remedying identifieddeficiencies; and

3. Audit of the effectiveness of performance inrelation to the achievement of the objectives ofthe audited entity, and audit of the actualimpact of activities compared with the intendedimpact.

3.3 Certification Audit Objectives: To express anopinion on the Financial Statements to theeffect that: 1. The Financial Statements properlypresent, in all material respects, thegovernment‟s financial position, the results ofits operations, its cash flows and itsexpenditures and receipts by appropriation;

2. Ensure that assessed revenue is promptlycollected and deposited in government treasuryand properly classified in the FinancialStatements; and 3. The sums expended havebeen applied in all material respects, for thepurposes authorised by Parliament and have, inall material respects, been booked to therelevant grants and appropriations.

Financial Statements have a large number ofexternal users and it is necessary that theFinancial Statements properly present thefinancial position of the auditee. In order toexpress an opinion on the Financial Statements,the auditor has to ensure the following:

Financial Statements are evaluated foradequacy against “Presentation and Disclosure”requirements;

Significant line items of Financial Statementsare tested for the following audit assertions: a.Existence and Occurrence b. Completeness c.Measurement d. Regularity (compliance withapplicable laws and regulations)

Methodology:Understanding the auditee;Conducting risk assessment;Defining detailed audit objectives;Developing audit programmes;

Performing analytical procedures;Testing the internal controls;

Determining sample size for substantivetesting of detail;

Conducting substantive tests;Evaluating results;Reporting; andFollow up.

3.4 Compliance with Authority Audit Objective:1. Audit against the provision of funds toascertain whether the moneys shown asexpenditure in the accounts were authorized forthe purpose for which they were spent.

2. Audit against rules and regulation to see thatthe expenditure incurred was in conformity withthe laws, rules and regulations framed toregulate the procedure for expending publicmoney. 3. Audit of sanctions of expenditure tosee that every item of expenditure was donewith the approval of the competent authority inthe Government for expending the publicmoney.

4. Propriety Audit which extends beyondscrutinizing the mere formality of expenditureto its wisdom and economy and to bring to lightcases of improper expenditure or waste ofpublic money.

5. While conducting the audit of receipts of theGovernment, the Auditor-General satisfies himselfthat the rules and procedures have been properlyadopted and ensures that the assessment, collectionand allocation of revenue are done in accordancewith the law and there is no leakage of revenuewhich legally should come to Government.6. Review, analyze and comment on variousGovernment policies relating to different sectors.

Methodology:Updating the understanding of the business

processes with respect to control structure;Identification of key controls on the basis of prior

years‟ audit experience /special directions from thehead office etc.;

Prioritising risk areas by determining significanceand risks associated with identified key controls;

Design audit programmes including analyticalprocedures for testing identified risk conditions;

Selection of audit formations i.e. DDOs on thebasis of: o Materiality/significance o Risk assessment

Selecting samples as per sampling criteria;Execution of audit programmes;Identification of weaknesses in internal controls

and development of audit observations andrecommendations relating to non compliance oflaws, rules, regulations and prescribed procedures;

Integrating the work with financial attest audit ,where possible;

Evaluating results;Reporting; andFollow up.

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