1. The Audit Mandate and Resource Consideration

2. Audit Methodologies and Practices

(a) Tax Audit

(b) The Audit of Public Debt

3. Quality Assurance and Mechanisms for improving the performance of the SAI

1. discretion, subject to particular legislative requirements, to determine the audit reporting policy;

2. discretion to determine the nature, scope and extent of audit, auditing standards, and audit techniques and methodologies;

3. while recognising the budgetary constraints of the government, the SAIs should work towards increased independence in relation to the financial resources required so as to ensure adequate coverage of the audit mandate;

4. availability of adequate avenues for reference to higher authority where resources authorised are insufficient for discharging the audit mandate satisfactorily;

5. authority to determine personnel policy and to engage staff, consultants, and make other arrangements on terms and conditions to be determined by the SAI; and

6. complete disclosure and full access to information, persons and material considered necessary for the proper discharge of the audit function.

1. Audit Mandate

Audit mandates of may SAIs provide generally for the audit of public accounts which include revenues such as tax receipts. However, SAIs should seek clear and specific legal authority for undertaking comprehensive tax audits in conformity with the relevant provisions of the Lima Declaration on Auditing Precepts.

2. Audit of Individual Tax Assessments

It is important that individual tax files are examined to evaluate the adequacy of systems and procedures of tax assessment and collection. As the examination of all tax files is neither feasible nor necessary, best results may be obtained by concentrating on high value and risk areas. Selective auditing of business income cases rather than salary assessments, investigations of reported evasions and use of suitable statistical sampling techniques in the review of files are preferred practices. SAIs should also co-ordinate their examinations with internal audit so as to avoid needless overlap and duplication of effort.

It may be desirable that SAIs have access to the records of taxpayers. Data and information on tax payers collected by the tax authorities may be verified against other independent sources available.

3. Interpretation of Tax Laws

To ensure that the assessment and collection of taxes are regulated strictly in accordance with laws, SAIs should scrutinise the rules, regulations and notifications issued by executive agencies under the tax statutes. The advice of the appropriate legal authority in the respective countries should be sought where the tax auditors and tax authorities differ in their interpretations of the provisions in the tax law.

4. Scrutiny of Decisions of Tax Authorities

Where quasi judicial and discretionary powers are vested in the tax officials, any decisions taken in the exercise of such powers should be scrutinised in audit. Such decisions may also be questioned in audit if the powers are used in a way which prima facie appear improper.

5. Audit Methodology

The audit should be mainly systems based and the scope of the audit should extend to cover the examination of the efficiency, economy, and effectiveness of the administration. The objectives of the audit should be to discover loopholes, lacunae and deficiencies not only in tax administration but also in tax laws. Adequate procedures for identifying and dealing with tax avoidance arising from deficiencies in the laws could be considered so that remedial action including amendments to the laws could be made promptly.

6. Socio-Economic Implication of Taxation

Besides using taxation as a means of raising revenues, it is also generally used as a tool for achieving certain socio-economic goals such as reducing disparities in income, controlling price levels of commodities and regulating the flow of resources to priority sectors of economic development. To evaluate the effectiveness of tax measures, the audit may include review of the systems used in government for monitoring and evaluating the realisation of such goals. Further, the impact of tax rebates and concessions should also be examined in the audit.

7. Reporting on the Results of Tax Audit

Having regard to personal privacy considerations, it is imperative that confidentiality be maintained in reporting individual assessments in the audit reports. Such matters are normally conveyed in a management letter to the tax authorities and only material issues and matters of principle merit mentioned in audit reports.

8. Training of Tax Auditors

Tax audit is a specialisation which requires thorough knowledge of the relevant laws and regulations. SAIs should provide intensive and frequent training for tax auditors taking advantage of the training facilities available in their local tax department's training institutions as well as those with other SAIs.

1. Definition

Public debts means borrowings by the national government, public enterprises and local government. It includes both internal and external borrowings of the public sector and is expressed in local currency.

2. Disclosure of Public Debt

SAIs should ensure that information in government financial statements are accurate, clear and complete. All direct borrowings by the government, related interest and other costs should be fairly and completely disclosed. All other liabilities of the government direct and indirect, actual and contingent, should similarly be disclosed.

3. Management of Public Debt

Public borrowings are a part of fiscal policies of government. In the management of public debt, governments exercise deliberate controls over the size of borrowings, debt-mix, foreign exchange rate implications, interest rates, debt servicing ratios and other risk factors which might affect the stability of the economy. SAIs should report whether adequate systems and procedures exist for the proper exercise of such controls for effective management of the debt.

4. Effective Utilisation of Borrowed Funds

The scope of audit of public debt should cover the manner of utilisation of borrowed funds and their effectiveness in relation to expected socio-economic and financial benefits accruing, particularly where these are directly related to specific loans.

5. Audit of External Debt

While internal debt involves only a transfer of resources within the country, external debt repayment imposes a real cost to the national economy. SAIs should therefore place special emphasis on the comprehensive audit of external debt. In the audit process, records of borrowings should be scrutinised, written confirmation obtained of the accuracy and completeness of the outstanding debt, calculations of interest costs by debt should be tested; needless commitment charges investigated; new issues and their related costs verified with the authority given by the legislature and checked with source documents.

6. Externally Aided Projects

As external borrowings are largely obtained to finance development projects the use of such funds need to adequately monitored. It is imperative that SAIs ensure that expenditure from external loans comply with the terms of the loan agreements. Where required by aid agencies in agreements or memoranda of understanding, SAIs should undertake the certification of the financial statements relating to the aid projects.

1. Audit Planning

Adequate planning and programming are essential for providing necessary support for the SAIs resource demands and for their effective utilisation. Such planning should ensure realistic audit coverage within the mandate in both the short and long term.

2. Auditing Standards

It is desirable that SAIs adopt auditing standards which embrace all aspects of the performance of an audit from planning to reporting so as to provide the essential climate for enhancing the quality of audit work. SAIs may use as a guide internationally recognised standards, such as, the INTOSAI Auditing Standards so far as they are practicable for their own mandates.

3. Accounting Standards

Because of the close involvement of the auditors with the application of generally accepted accounting principles and standards, it is important for the SAI to participate in the development of such principles and standards particularly those which are relevant and applicable to public sector entities.

4. Financial and Accounting Legislation

The preparation of legislation affecting financial and accounting operations is another area of legitimate interest for the SAI and one in which its participation can make significant contribution to both financial and accounting arrangements in public sector agencies.

5. Availability of Suitably Qualified Staff

Recruitment should include graduates in all disciplines appropriate to the operations of the SAI including accounting and auditing, computing, law and other specialists required for the conduct of performance audits. Employment may be either as full time staff or by short term contract.

6. Induction Training and Professional Development

It is important not only to train new staff in the operations of government and particularly of the SAI but also to provide continuing specialised training and education to enhance their knowledge and capabilities. Such continuing training would also better equip those with ability enabling them to rise to more senior levels and establish a career path within the organisation.

7. Supervision and Review

It is imperative that all tasks are performed effectively if the final audit report is to be accurate, timely and credible. This is facilitated by direct supervision of task performance by experienced officers and, prior to the issue a review of reports by senior staff with the object of ensuring a fair and balanced presentation and the exclusion of material errors and trifling issues.

8. Audit Manuals

The preparation and issue of an audit manual setting out the auditing concepts of audits is an essential element in the exercise of managerial responsibility. Such a manual may contain the auditing standards to be observed or may make suitable reference to them. It should be regularly reviewed and revised.

9. Internal Review

Over and above the activities which contribute to quality control of audits from an operational perspective, good practice requires that periodic internal reviews be undertaken by units separate from the original audit group to assess whether the SAI's standards, policies and practices have been adhered to; to assess the quality of audit work performed, and to propose action to remedy deficiencies. Such internal reviews can be undertaken on a peer basis, with the work of one division, branch or regional office being critically examined by another; alternatively, specialist sections may be established for the purpose.

Internal audit units within the SAI can also perform a review function as well as regularity audits of administrative transactions and should not be overlooked as a means of managerial control over quality assurance.

10. Audit Reports

Effectiveness in the reporting of results depends largely on the quality of the audits carried out and on sound evidence supporting the audit findings. Reports should be objective, balanced, constructive, accurate, and current. SAIs should also be cognizant of the value of wider publicity of their audit reports in including the executive to rectify the deficiencies reported and for public and institutional awareness. SAIs should also work towards the development of adequate mechanisms or processes for follow up of audit recommendations. If these are not present, then repetitive reporting of the issue may be a logical alternative.