Audit and Accountability

8/8/2019 Audit and Accountability

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CSA Lahore

Module Title:

Financial Accountability(The audit function)

Resource Person: Baqar Hussain Bhatti


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PRESENTATIONPLAN

Auditing-The context

Scope of audit in Pakistan

Internal and External Audit

Examples of audit observations

Avoidance of audit observations


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Auditing-The Context


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Definition

Auditing is an independent examination of the record of

transactions of an entity to

Testify the truthfulness and fairness of accounts

Evaluate the regularity and propriety of the expenditure

incurred/receipts earned

Measure the performance of an entity against pre-

determined benchmarks


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Place of Audit in the Budget Cycle


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Internal versus External Audit


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The Internal Audit Function

Internal audit helps an organization accomplish its

objectives by bringing a systematic, disciplined approach

to evaluate and improve the effectiveness of risk

management, control and governance processes.


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Scope of Internal Audit Function


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Internal

Audit

(Scope)

Reliability &integrity ofinformation

effectiveness& efficiency

of operations

Safeguardingof assets

Compliancewith laws,

regulationsand contracts


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Scope ofExternal Audit Function


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External

Audit

(Scope)

Certification

Of Accounts

Performance

Evaluation

ComplianceAudit

ForensicAudit


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Public Sector Audit (external)

The responsibility of public sector organizations audit in

Pakistan is assigned to the institution of Auditor General

of Pakistan (AGP) through Constitutional provisions and

Legislative Orders.

This is a legislative function. Thus audit conducted by

any other agency is not covered here.


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Constitutional

Provisions


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Articles 168-171 of the 1973 Constitution


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Significance of the institution

AGP to be appointed by the President of Pakistan


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Statutory Framework

Functions & Powers of AGP shall be determined by anAct of the Parliament


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The Accountability Mechanism

Reports of the AGP to be laid before the Parliaments

Public Accounts Committee (PAC)


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Accounting Information

AGP to give directions as to the form of the accounts of

the Federation, the Provincial Governments and the

District Governments


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Legislative

Provisions


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AGP Ordinance 2001


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Certification of Accounts

AGP to certify accounts prepared by the Controller

General of Accounts (CGA) forFederation, Provinces &

Districts.


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Other Types of Audit

The AGP is required to conduct audit of all transactions

related to the consolidated fund and the public accounts

of the federal and provincial governments.

The AGP is also required to conduct audit of any

authority or department in Pakistan if directed by the

President of Pakistan or a provincial Governor.


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Financial & Economic Analysis

AGP to conduct financial/economic analysis for the

governments in Pakistan


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Receipts Audit

The AGP is also to conduct audit of all receipts of thegovernments in Pakistan


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Stores Audit

The AGP is to conduct audit of stores & stocks to verifyphysical stock balances.


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Modern Trend

in

Audit


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Modern audit is focused on certifying the accounts andmeasuring the performance of an organization.

Certification (audit) is required to authenticate

accounting information in terms of its truthfulness andfairness

Performance (audit) is evaluated to measure level of

success of an organization against a given benchmark.


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Certification

Audit


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Why Certification Audit?

Increase in the number and complexity of transactions

Development of sophisticated auditing techniques

Need for professional audit opinion


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History of Certification Audit in Pakistan

1947-2001-Financial and Performance Audits Era

2001 onwards- Certification Audit started in the light of

Section 7 of Ordinance 2001


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(AUDIT OPINION)


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Unqualified opinion-This certificate would be

appropriate in the circumstances where the auditorsbelieve that audited accounts are free from any material

error.


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Qualified opinion- This certificate would be appropriate

in the circumstances where the auditors believe thataudited accounts do have material errors but these

errors would not affect the overall truthfulness and

fairness of accounts.


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Adverse opinion- This certificate would be appropriate

in the circumstances where the auditors believe that

audited accounts do not present true and fair viewbecause of the presence of significant material errors in

the accounts (for example, where an entity does not

prepare its accounts under NAM conventions).


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Disclaimer- This certificate would be appropriate in the

circumstances where the auditors are not in a position to

offer any opinion on the entitys accounts. This situationmay arise either where the auditors have been denied

access to record or where the internal controls are

almost non-existent and fair audit cannot be conducted.


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Examples of

Audit Observations


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I. Breach of financial rules

II. Breach of budgetary rules

III. Breach of procurement rules

IV. Buying at inflated prices

V. Pilferage of stocks

VI. Misappropriation of funds, etc.


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Avoidance

of

Audit Observations


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Preventive

Measures


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Develop and implement strong internal controls in the

organization (such as segregation of duties and internal

audit department)

Learn and apply financial rules and regulations for

correct exercise of authority (APPM provides summary

of good practices)

Keep documentary evidence of every expenditure

incurred or order made

Keep your accounting record up to date and in line

with established accounting practices


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Corrective

Measures

(Reply to an Audit Observation)


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The head of the department should take personal

interest in the audit observation.

Read the Audit observation carefully to comprehendthe crux of the matter. This may solve half of your

problem!


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Discuss the audit observation with the auditors to

have clear understanding of the issue.

The reply to an audit observation should only touchissues raised by the auditors.


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Always reply in the light of relevant laws/rules

avoiding flimsy excuses. Dont forget to attach copies

of relevant rules with your reply.

Reply must be made with in a reasonable time

avoiding delay. An Advanced Para (AP) may be

converted into Draft Para because of non-reply by the

executives.


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Thank You

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Audit and Accountability