ARTICLES

Introduction

1. The original INTOSAI Auditing Standards were issued by the INTOSAI Auditing Standards Committee in June 1992, with INTOSAI code of Ethics being approved at the XVIth Congress of INCOSAI held at Montevideo in 1998. These Auditing Standards were subsequently restructured, and the current INTOSAI Code of Ethics and Auditing Standards were approved by the XVIIth Congress of INTOSAI in Seoul 2001. Both take the Lima Declaration of Guidelines on Auditing Precepts as their foundation. The XVth Congress of INCOSAI in Montevideo also sanctioned the Auditing Standards Committee to develop guidelines for implementing auditing standards.
    
2. In parallel with these developments, the International Federation of Accountants, under the aegis of its newly created constituent bodies the International Auditing and Assurance Standards Board, has been developing global auditing standards covering financial audit work through the publication of International Standards on Auditing (ISAs). In response to this, the INTOSAI Auditing Standards Committee, using INTOSAI Auditing Standards as its starting point, agreed to take forward a project for the development of implementation guidelines for financial audit work that incorporate the guidance contained in ISAs. Further, the Auditing Standards Committee also committed to developing additional guidance in those areas specific to Supreme Audit Institution audit work (e.g. compliance or regularity audit) which are not otherwise covered by ISAs.

Purpose of the Bridging Document

3. The purpose of this INTOSAI Auditing Standards Bridging Document is to provide a link between INTOSAI Auditing Standards and International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB).
   
    
4. In presenting this Bridging Document, the International Organisation of Supreme Audit Institutions (INTOSAI) recognises that INTOSAI Auditing Standards will continue to provide the necessary framework and overriding principles for the performance of financial audit work by Supreme Audit Institutions (SAIs). By design, however, they do not carry the degree of detailed and specific guidance contained in ISAs, insofar as it is relevant to the work of SAIs, and by building upon it with the development of its own implementation guidelines, or ‘Practice Notes”, INTOSAI aims to provide a comprehensive suite of guidance which can be drawn upon by all SAIs in all institutional settings and audit environments.
    
5. While the Bridging Document provides the context for the application of ISAs within the INTOSAI public sector context, it is the function of the Practice Note to provide the detailed guidance on the specific application of each ISA. There will be a separate Practice Note for each ISA, and these will be issued on an ongoing basis as and when the IAASB amends existing, or issues new, ISAs. Additional practice notes will be developed to provide detailed guidance in areas specific to the financial audit work of SAIs which are not adequately covered by ISAs.

INTOSAI Auditing Standards

6. The current INTOSAI Code of Ethics and Auditing Standards were approved by the XVIIth Congress of INTOSAI in Seoul 2001. INTOSAI Auditing Standards contain the basic postulates and principles for the carrying out of audit work by SAIs. While it is the responsibility of each SAI to judge the extent to which the standards are compatible with the achievement of its mandate, viewed in the particular constitutional, legal and other circumstances of the SAI, one of the principles outlined in the Code of Ethics is the auditor’s obligation to apply generally accepted auditing standards.
    
7. The INTOSAI Auditing Standards consist of four elements, being Basic Principles, General Standards, Field Standards, and Reporting Standards. Each element is explained in detail in the original document.
    
8. Basic Principles are the basic assumptions, consistent premises, logical principles, and necessary requirements designed to underpin the development of auditing standards. They are designed to serve the auditors in forming their opinions and reports, particularly in cases where no specific standards apply. Each SAI should consider compliance with the INTOSAI Auditing Standards in all matters which are deemed material, although this must be compatible with the SAI’s fulfillment of its own particular audit mandate. Each SAI should establish a policy on which INTOSAI standards, or other specific standards, should be followed in carrying out the various types of work that the organization conducts to ensure that the work and the products are of the highest quality.
    
9. General Standards are concerned with the qualifications of the auditor and/or auditing institution so that they may carry out the tasks related to field and reporting standards in a competent and effective manner and cover issues such as recruitment, training and development, provision of suitable guidance, planning and supervision of audits, and the review of the efficiency and effectiveness of the SAI’s internal standards and procedures. The General Standards are also concerned with Independence, conflicts of interest, competence, and due care. Taken as a whole, these provide effective guidance for each SAI’s internal quality control procedures.
    
10. Field Standards are designed to establish the framework for conducting and managing audit work. They concern the need to plan, review, supervise, study and evaluate internal control, and provide advice and guidance on regularity audit, audit evidence, and analysis of financial statements. While these standards contain a degree of detailed guidance, the emphasis is still to provide a framework of reference for the auditor. It is predominantly in the audit area covered by the Field Standards that ISAs will provide additional detailed guidance.
     
11. Reporting Standards are concerned with the auditor’s formal audit opinion and provide guidance in respect of report format and modified opinions. The standards also refer to other reports that the auditor may make, such as regularity and performance audit remarks and reporting. Again, the emphasis of the Reporting Standards is on providing a necessary framework within which auditors should meet their reporting responsibilities, and as a result the standards do not contain the degree of detail contained in the relevant ISAs.
     
12. INTOSAI firmly believes that INTOSAI Auditing Standards should remain the primary source of audit guidance for INTOSAI members, and the authority of the INTOSAI Auditing Standards is in no way diminished by the publication of this Bridging Document or the Practice Notes. While INTOSAI Auditing Standards provide the necessary recommended framework within which INTOSAI members should continue to carry out their audits, however, INTOSAI does recognize that this framework would benefit from further guidance in a number of areas. The remainder of this document sets out the relevance of International Standards on Auditing (ISAs) and explains how the Practice Notes developed by the INTOSAI Auditing Standards Committee and endorsed by INTOSAI as a whole will provide the detailed implementation guidelines first envisaged at the XVIth INCOSAI in Montevideo.

IAASB and International Standards on Auditing

13. The objective of the International Auditing and Assurance Standards Board (IAASB), on behalf of the International Federation of Accountants (IFAC), is to improve auditing and assurance standards and the quality and uniformity of practice throughout the world, thereby strengthening public confidence in the global auditing profession and serving the public interest.
     
14. The prime means by which the IAASB attempts to achieve this goal is by establishing International Standards on Auditing (ISAs) containing guidance covering the audit of financial statements that is of such high quality that they are acceptable to investors, auditors, governments, regulators and other key stakeholders across the world. In this respect, the aims of the IAASB can be viewed within the wider context of international harmonization of accounting and auditing practice in general, and it is within this context that INTOSAI is seeking to encourage adoption of the guidance contained within ISAs. Indeed, as ISAs gain increasing recognition within the international community, it is important that INTOSAI Auditing Standards are seen to be consistent with what are an increasingly recognized global set of standards.
     
15. ISAs contain basic principles and essential procedures (identified in bold type black lettering) together with related guidance in the form of explanatory and other material. These basic principles and essential procedures will in most respects be consistent with existing INTOSAI Auditing Standards, albeit covering a wider range of circumstances. The related guidance and explanatory material, however, goes into greater detail than the INTOSAI Auditing Standards.
     
16. While the Bridging Document and Practice Notes aim to support INTOSAI members in the application of ISAs, it will be the responsibility of each SAI to consider the relevance of each ISA to its own particular circumstances. Indeed, the authority attaching to the Bridging Document and Practice Notes is the same as that applying to the wider INTOSAI Auditing Standards within which the detailed guidance of the ISAs is to be applied. The additional guidance does not have mandatory application, but rather it reflects a best practice consensus developed by members of the INTOSAI Auditing Standards Committee. Each SAI must judge the extent to which this additional guidance is compatible with the achievement of its mandate.

17. The adoption of ISAs, suitably interpreted to reflect the work of SAIs, is part of a wider move towards closer working between IFAC and INTOSAI. Following a meeting of the INTOSAI Auditing Standards Committee (ASC) in April 2003, a Memorandum of Understanding has been developed and agreed between the ASC and the IAASB, determining INTOSAI involvement in the future drafting of ISAs.
18. Under the terms of this Memorandum of Understanding the ASC will nominate reference panel experts drawn from the wider INTOSAI membership to participate in IAASB working groups responsible for revising existing ISAs and drawing up new ones.
19. It is envisaged that participation of reference panel experts will help ensure that all new or revised ISAs reflect appropriately the public sector context, and help to ensure that the related guidance is as applicable as possible to the public sector context within which INTOSAI members operate. It is envisaged that the direct involvement of the ASC in the ISA drafting process should ensure that the separate Public Sector Perspectives previously appended to each ISA are no longer required.

Practice Notes

20. Although the involvement of ASC nominated reference panel experts should help ensure that new and revised ISAs are relevant and applicable to the particular environment within which INTOSAI members audit, it would be unrealistic to expect the majority of ISAs to be directly applicable to the public sector without the need for further guidance interpreting the ISAs in an SAI context. Each ISA is written to have the widest possible applicability to all industry sectors, and cannot therefore be expected to include any substantial degree of detail in respect of the public sector context.
21. The ASC has therefore undertaken to produce a suite of additional interpretative guidance in the form of Practice Notes. The Practice Note is the fundamental mechanism for facilitating the link between INTOSAI Auditing Standards and ISAs, with each Practice Note providing detailed guidance on the specific application of each ISA to the SAI context, highlighting any special consideration that need to be born in mind when applying the ISA and clearly setting out links back to the INTOSAI Auditing Standards.
22. Each Practice Note will have a standard format, consisting of the following constituent sections:

• Summary of the main guidance contained in the ISA and reference to relevant sections and paragraphs where applicable.
• Reconciliation of the ISA to the wider framework of INTOSAI Auditing Standards.
• Detailed supplementary guidance for auditors where there are specific SAI considerations and impacts in relation to the guidance contained in the ISA.
• Further explanation of matters with legal implication where not fully addressed by the ISA.
• The provision of illustrative procedures, reports, letters and other relevant extracts and documents.
• An overt statement that no additional guidance is required where this is relevant.
23. There may also be occasions where audit issues specific to the SAI context are not covered by the extant suite of ISAs. Where this is the case, additional Practice Notes will be appended to the Bridging Document providing additional guidance in these areas. A pertinent example would be the need for detailed guidance in the area of compliance or regularity audit, which is not covered by either existing or planned ISAs.

The Role of the SAI

24. The role and responsibilities of a SAI differ quite considerably from those of a private sector auditor. These differences stem both from the specific responsibilities of the SAI, as well as from the different context in terms of legislation and accountability within which the SAI operates.
     
25. Public sector bodies who are responsible for the conduct of public finance and for spending public money are generally accountable for ensuring that public business is conducted in accordance with the law, that public money is safeguarded and properly accounted for, and is used economically, efficiently and effectively.
     
26. The external audit role carried out by the SAI is an essential element in the process of accountability and makes an important contribution to the stewardship of public money.
     
27. SAIs act and report in accordance with the mandates that govern their activities and provide the authority for them to carry out and report the results of their work. These mandates are embodied in legislation and, in some circumstances, set out in codes of audit practice established in accordance with legislation.
     
28. The mandates of SAIs vary in accordance with the requirements laid down in the legislation relevant to the each particular jurisdiction and geographical area. Typically however, these mandates will include some or all of the following responsibilities:

• The audit of financial statements;
• The audit of the state budget;
• Compliance with legislative and other authorities (also referred to as regularity audit);
• Economy, efficiency and effectiveness (also referred to as performance or value for money audit); and
• Other review and reporting assignments such as performance information, grant claims, corporate governance, and standards of financial conduct.

29. The legislative framework governing public sector bodies will typically set out the requirements on the public bodies in relation to the preparation of financial statements, both in terms of necessary format and timetable. In addition, the requirements on the public sector auditor will also be set out, determining amongst other matters, who that auditor is, their remit, the format of their audit opinion (whether the financial statements give a true and fair view, present fairly, or properly present the entity’s transactions and balances), and the certification timetable.
     
30. The remit of the SAI even simply in relation to the audit of financial statements will differ from that of the private sector counterpart. For example, the remit in respect of fraud and corruption is likely to extend beyond simply the potential impact on the financial statements, both in terms of identification and reporting responsibilities. Similarly, SAIs are likely to have a wider regard to law and regulations beyond the impact that non-compliance may have on the financial statements. It is clear also, that consideration of the going concern principle in the preparation of financial statements has a very different context within the public sector. It is in areas such as these where Practice Notes will provide the necessary SAI interpretation.
     
31. Perhaps the biggest difference between private and public sector auditing however, is the requirement to report on compliance with regulations (e.g. a “regularity Opinion”) as part of the audit report. For may public sector bodies, public sector auditors express an opinion on whether transactions included in the financial statements conform, where appropriate, with the legislation that authorizes them. Even where there is no requirement for auditors to express an opinion on the regularity of transactions, it is common for the auditor to be required to be alert to the question of legality and compliance with authorities, and to review the arrangements set in place by the audited body to ensure the legality of transactions. Where such transactions or events come to the auditors’ attention they are often empowered under legislation to report to the appropriate authorities. And in those jurisdictions where SAIs carry out a quasi-legal function, their powers in these areas will extend even further.
     
32. Key to the responsibility to report on public bodies’ arrangements to secure economy, efficiency and effectiveness in the use of resources is the performance audit. The INTOSAI Auditing Standards Committee is completing a separate project to develop implementation guidelines governing performance audit, and auditors should refer to this for guidance in carrying out performance audits. However, relevant aspects of economy, efficiency and effectiveness to financial auditing will be incorporated in the Practice Notes to provide guidance to the performance of work in this area.