This element of AQMS of continuous improvement along with its sub-elements is explained in the following flow diagram:
The sub-elements are discussed in subsequent sections.
6.1 Maintenance of high quality work should be a basic operating principle of the SAI. Quality involves every aspect of the operations of the SAI, including its leadership, focus on client needs, management of personnel, audit practices and other processes, and the SAI’s system for measuring performance. Quality requires a commitment from every staff of SAI to strive for continuous improvement.
6.2 A critical feature of the SAI quality management system should be the process for measuring how well SAI is achieving its goals; specially, whether the AQMS is appropriately designed and operating effectively. This is achieved though a variety of review mechanisms.
6.3 SAI should have a policy that internal audit, internal quality assurance review and independent peer review programme are in place and are operating effectively.
6.4 Review is carried out in several ways, but all levels of review are designed to provide that audit practices meet accepted standards, and to help SAI to continuously improve the quality of its outputs and services. SAI may have a system of having the following reviews and self-assessments to improve the quality of audit:
6.5 Other inputs to continuous improvement
6.6 These are discussed in the subsequent sections.
6.7 It is appropriate for audit institution to institute their own internal audit function with a wide charter to assist the SAI to achieve effective management of its own operations & sustain the quality of its performance and also to ensure that various field units within SAI are functioning efficiently and maintaining quality and timeliness in service delivery. The mandate of the internal audit should include ensuring compliance with the internal control policies and procedures within SAI and to derive assurance that the quality control procedures are working effectively. The internal audit checks whether the various processes of SAI management, including internal administration and other activities helping the audit process are being properly followed and are in accordance with the applicable policy instructions, rules and office procedures, etc. and to identify improvements, where appropriate. Internal audit advises management of significant risk areas within the SAI and the extent to which they are being addressed. It provides information, analysis, assessments and recommendations to assist management in the discharge of its responsibilities.
6.8 “It is appropriate for SAIs to institute their own internal audit function with a wide charter to assist the SAI to achieve effective management of its own operations and sustain the quality of its performance.”
6.9 SAI should set up an Internal Audit Unit to be headed by a sufficiently senior SAI functionary reporting to the head of the SAI. The Internal audit unit should be independent of functional audit groups.
6.10 SAI should ensure that experienced personnel should be posted in the Internal Audit Unit and given sufficient authority and independence to carry out the mandate. Internal auditors should individually as well as collectively possess the knowledge, skills, and other competencies needed to perform their individual responsibilities
6.11 The Chief of the Internal Audit Unit should prepare an annual plan of the activities to be performed by the unit and have the plan approved by the head of the SAI. The internal audit unit may decide to review the entire operations of an audit unit, including human resource management, financial management, training and capacity building, etc.
6.12 The internal auditors may also brief the senior executives and staff involved in the work reviewed. The chief of the Internal Audit Unit may prepare a written report of the inspection results, making suggestions for change and forward copies of the report to the concerned unit or group and to the head of the SAI. An action plan may be drawn up by the SAI top management to deal with any issues raised in the internal audit report
6.13 As a further means of ensuring quality of performance, additional to the review of audit activity by personnel having line responsibility for the audits concerned, it is desirable for SAIs to establish their own quality assurance arrangements. That is, planning, conduct and reporting in relation to a sample of audits may be reviewed in depth by suitably qualified SAI personnel not involved in those audits, in consultation with the relevant audit line management regarding the outcome of the internal quality assurance arrangements and periodic reporting to the SAI’s top management”.
6.14 Quality assurance review is part of the overall quality assurance system, which is concerned with all steps and techniques that the SAI auditors must follow to assure good quality audit. INTOSAI Auditing Standards state that ‘SAI should have an appropriate quality assurance system in place. SAI should establish systems and procedures to:
6.15 Compared to the internal audit function, internal quality assurance exercise is generally narrower in scope. The internal audit assesses whether the operating systems function efficiently as per established policies and procedures whereas, internal quality assurance assesses whether individual engagements are performed in terms of applicable standards, policies and guidance.
6.16 An annual plan of the activities to be performed by the ‘Quality Review Group’ may be drawn up, which may have the approval of the SAI top management. Only a sample of completed audit engagements, both in financial and performance audits, should be selected for review by the group.
6.17 Once the audits are selected, the quality review team may review the audit documentation and meet some of the staff members who worked on those engagements. The team may also interview a number of randomly selected staff to determine their familiarity with the audit methodologies, tools and techniques, performance and financial audit guidelines and policy instructions issued by the SAI.
6.18 The SAI may prepare a standard and detailed checklist which can form a framework for quality assurance reviews. This is intended to substantially enhance the quality of the reviews.
6.19 The results of quality assurance reviews may be placed before SAI top management. The structure of the report may consist of:
6.20 The focus of the quality assurance review should be on the quality of processes and task performance, including documentation. Instead of being personnel oriented and critical, the quality assurance review should aim at assisting in improvement of the quality of performance within the SAI.
6.21 SAI management may take appropriate measures to select quality reviewers. For this, the skill, knowledge, work experience and aptitude of personnel selected for quality assurance review may be kept in view.
6.22 At the year-end, the quality review group may provide the SAI top management with summaries of:
6.23 SAI may publish an annual summary of these reviews, for internal use within the department, highlighting the best practices or benchmarks in the units, programme or operations reviewed which may be emulated by others. Such a practice may foster a spirit of healthy competitiveness among audit personnel to attain the highest standard of quality.
6.24 A peer review (GAO Policy Manual, USA) is performed by an independent entity which may be internal or external to the SAI to evaluate whether an organization’s internal quality control system is suitably designed and operating effectively to provide the entity with reasonable assurance that established policies, procedures and applicable standards (in the context of SAI, the government auditing standards) were being followed. The peer review involves testing the entire quality control system and not work in process; the peer reviewers will have to allow the entire system to operate before reaching their conclusion.
6.25 The peer review is designed to provide reasonable assurance that SAI’s quality management policies and procedures are suitably designed and operating effectively.
6.26 The scope of the peer review should cover the following:
6.27 For the peer to be eligible to review, the following requirements need to be met:
6.28 The peer review team will develop a plan and programme for conducting the work. SAI will provide the review team with all necessary documentation, manuals, policy instructions and guidelines etc. The peer review should be based on SAI’s audit documentation and interviews of the SAI’s staff members. The peer reviewers will not interview staff of the organizations SAI audits or have access to their records. In addition, they will not interview or survey readers of the SAI reports, including legislators.
6.29 The peer review team will also rely on internal quality assurance review and internal audit reports to reduce the scope of its work. The peer review team will treat the inspection report and its findings as part of the evidence for reaching its opinion.
6.30 The peer review team leader will provide a briefing for SAI top management before issue of its report; the briefing will discuss suggestions to improve SAI’s quality control system and procedures.
6.31 The review team should communicate the results of the peer review in writing. The report should indicate the scope of the review, including any limitations thereon, and should express an opinion on the organisation’s system of internal quality control. When there are expressions of opinion on inadequacies of internal control, review team should report a detailed description of the findings, recommendations and suggestions to improve SAI’s quality control system, either in the peer review report or in a separate letter of comment or management letter, to enable the reviewed organisation to take appropriate remedial action. The peer review should identify areas for improvement in the quality of audit, including planning, evidence gathering, documentation, reporting etc., as well as overall performance of the SAI.
6.32 The peer reviewers will issue their report to the SAI top management. A senior management functionary of the SAI should be made the point of contact for the peer review and he/she will be responsible for disseminating the findings of the peer review within the SAI for appropriate action by the concerned groups and monitoring the progress of implementation of its recommendations. A periodic report will be placed before the top management of the SAI to this effect.
6.33 SAI should have a system of self-evaluation whereby audit teams may review audit practices through post-audit discussions. The self-evaluation/assessment may be used as a learning instrument as well as an instrument for internal accountability. The results of the self-evaluation may be reported to the senior management.
6.34 The report of the project leader with the results of self-evaluation, both positive and negative, may be discussed in the meeting of the senior management of the SAI. The lessons to be learnt should be disseminated across the organisation.
6.35 The purpose of continuous improvement assessments and lessons learned from audit experiences is to help ensure consistent quality in SAI audits and improve SAI’s processes on a continuing basis.
6.36 SAI should have a well laid down system incorporated in the manuals and office procedures for disseminating the lessons learned from previous audit experiences. Regular meetings, workshops and seminars should be organized to deliberate on audit experiences, methodologies adopted, and any changes needed in them in the light of experiences gained so that appropriate steps are initiated for improvement.
6.37 Reviews of internal and external quality assurance programmes for both financial and performance audits work should feed into a learning process which is designed to disseminate wider lessons to all the staff members in the SAI.
6.38 The SAI should strive to maintain sound and effective relationships with other SAIs. Good practices should be shared through exchange of information and conferences and symposia and well as through relationships with representatives from other SAIs. The SAI should keep itself informed of new developments and methodologies and techniques in the field of auditing and accounting through participation in organizations such as INTOSAI, ASOSAI, ARABOSAI, IFAC, etc. SAIs need to work more closely to address audit issues that have emerged in the wake of globalization, privatization and the information revolution and be part of the web-based ‘Knowledge Sharing Initiative’ which seeks to promote people to people contact among audit organizations.
6.39 SAI may consider securing external quality certification such as ISO in specific areas/ segments of the audit and the internal management processes like certification of accounts, training of SAI functionaries, etc. This will help SAI to have independent assessment of the performance of the various processes of the quality management system, through a set of predetermined objective criteria and measurable performance indicators.
6.40 SAIs are facing the critical challenge of demonstrating better performance and enhancing effectiveness that ultimately contributes in securing public confidence. The effectiveness of the SAI would lie not only in its ability to perform the statutory functions, but also in its being seen as an institution contributing towards good governance. The effectiveness of audit would increase if it could successfully prevent the recurrence of under assessment of revenue, inappropriate expenditure and violation of the propriety rules for expenditure. Perceived usefulness of audit by the auditee organizations, as reflected in their level of compliance and implementation of recommendations, improvement in the overall accountability mechanism and transparency, etc. have generally been considered as the parameters of assessing audit effectiveness by SAIs.
6.41 Basic Parameters of Audit Effectiveness may include the following:
| Sl. No. | Area | Effectiveness Parameters | How could these be measured? |
| 1. | Statutory function | Effective performance of statutory functions | Timely completion of audit reports |
| 2. | Public Expenditure Management | (a) Perceived as an agency improving the effectiveness of public funding and government interventions | Specific, implementable recommendations which are accepted by the implementing agencies |
| (b) To successfully prevent recurrence of underassessment/shortfalls in revenue, inappropriate/wasteful/ infructuous/ improper expenditure to improve credibility and transparency of government operations |
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| 3. | (a) Quality of audit | (a) Quality of audit observations and their perceived utility by the auditee unit/organization |
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| (b) Improving the accountability mechanism | |||
| 4. | Audit cost and management | (a) Transaction cost of Audit |
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| (b) Audit Management | |||
| 5. | Audit Results | Audit Results covered by the media | News published |