Improving the Quality of Audit Reports

The ContextA paradigm shift taking place in governance. Stakeholders

expectations are rising who expect government to be accountable, transparent, effective , efficient, equitable and inclusive and enforcing the rule of law.

Public auditors have to respond to such rising expectations and provide a report card as to the quality of Governance.

Accordingly, Audit Reports should provide assurance to the stakeholders that public investments are being administered economically, efficiently and effectively thereby significantly contributing to the improvement of public policy,

delivery of public services and quality of governance for the benefit of the people.

In this context the quality of our audit reports assumes significance. There is an urgent need to address quality issues.

The ContextAn added responsibility in view of the Department’s Mission of

promoting accountability, transparency and good governance through high quality auditing and accounting and providing independent assurance to our stakeholders

Existing Guidelines in place to address Quality issuesAuditing StandardsPA GuidelinesFinancial Attest GuidelinesSupplementary Guidelines on Evidence Gathering Analysis and

Evaluation TechniquesAn AQMF developed by the Department to ensure compliance

with the DPC Act, Auditing Standards and Policies and guidelines

Department has thus taken several initiatives to put in place a rigorous quality review and assurance mechanism but these have not been assimilated in our working.

Findings of the Peer ReviewIndias AQMF is conceptually sound..however there is a need

to strengthen the AQMF to increase the level of assurance provided to the C&AG that these Auditing requirements are consistently being met.

The principal area where SAI could improve its adherence to Auditing Requirements is the application of auditing standards. Auditing Standards require the Audit reports to be balanced..there was scope for around half(out of 35)of the reports reviewed to have been more balanced in content and tone.

Background

This Committee was set up in mid-February 2015 to suggest improvement in the quality of the audit reports in line with the rising expectations for good governance. Shri R N Ghosh, DG (WR)Shri Parag Prakash, DG, Defence Services, New DelhiShri P K Mishra, DG (Commercial)Ms. Meenakshi Sharma, DG (PPG)Shri K S Subramanian, DG (IR)Shri Purushottam Tiwary, PD (personnel) – then (PAC)

Audit Quality – a continuous process

The Committee noted that the department has developed a credible audit quality management framework and specific implementation guidelines like Performance Auditing Guidelines, Financial Auditing Guidelines etc.

The Committee felt that quality improvement is work in progress and is an ongoing and a continuous process.

Improving Audit Quality – an ongoing process

there is always scope for further fine-tuning our work methodologies for imbibing the lessons learned from audit experiences to help ensure consistent quality in our audits

that the quality features inbuilt into our audit processes needed to be reiterated and re emphasised to carry forward the goal of improvement and up gradation forward.

Audit Quality – an evolving process

The recommendations in the following slides should be taken as supplemental to the already existing audit guidelines and best practices.

Like any evolving document, these recommendations would need revisiting with the passage of time, with technological advancements and changes in the audit environment and as the audit processes and methodologies further evolve.

Recommendations

What is Quality?Quality DimensionsSignificance and value of matters addressed in auditsScope and completeness in planning and execution of auditsEfficiency in the performance of audits and audit-related workObjectiveness and fairness in assessments

Ensured throughReliability, relevance and validity of the findingsTimeliness of the issue of audit reportsClarity in the presentation of audit reportsEffectiveness in terms of results and impacts achieved

What needs to be fixed?Enormous amount of time is spent in editing the Draft Report. Hardly any time for understanding the entity and study its internal processes and

control systems. Pilot studies are extremely superficial and highlight none of the aspects essential for

effective planning. Planning exercise needs improvement. We need to devote greater time to planning and

field Audit. Unchecked proliferation of audits & Audit Reports is spreading our resources too thin

over too many areas, with none getting adequate attention and timeAverage no of Central reports: 1948-87: 6 ; 2013-14: 32 Average no of State AR: Till 1980s- 1; 2009-10: 3; 2013-14: 6: total impact from 25 in

1987 to more than 140 now

A widely held perception that not enough btime being given for field work.

Despite proliferation of reports, assurance is missing.

Quality deficit – the elements

Assurance on adherence to manuals and guidelines:The Committee felt that the only way to ensure

quality is to re-emphasize the need to follow the control procedures as laid down in our Guidelines.

Weak evidence gathering and weaker documentation

Level of acceptance of audit observations and their compliance (i.e. audit observations/ recommendations accepted and acted upon by government) is low.

Quality deficit – the elementsThe size of the reports. Often too voluminous and

verbose. Excessive emphasis of facts and figures; not enough

analysis and insightLanguage used is extremely monotonous and does not

hold reader attentionAny report that tends to be verbose and is replete with

excessive facts and figures not central to the Audit findings induces reader fatigue and ennui and does not address stakeholders’ expectations.

Suggestions for enhancement of quality.Shift in audit orientation from fault finding to assurance.

There is an urgent need for a decisive shift in the focus of audit on exception reporting of shortcomings to a more holistic approach and providing a balanced view.

There is need for Institutionalising assurance mechanism on adherence to Manuals and Guidelines

Setting evidence and documentation requirementsThere should be rigorous adherence to guidelines relating to

evidence gathering and documentation at every stage of the audit process.

Insistence on documenting the entire universe of audit work, and not merely of what was detected will ensure audit accountability and improve adherence to auditing standards and guidelines.

Suggestions for enhancement of quality

Improving acceptability of audit resultsWe need to reiterate our existing PA Guidelines instructions

about engaging actively with audited entities throughout the audit process, by means of constructive interaction

Consultation with outside experts – drawing up a panel

Reporting of audit resultsA good Audit should result in findings/ recommendations that

are specific, actionable and implement able .

Suggestions for enhancement of quality

Setting benchmarks for audit effectivenessBenchmarks for various stages of audit process

could be prescribed to set standards of audit quality and effectiveness.

Perceived usefulness of audit by the auditee organizationsas reflected in their level of compliance and

implementation of recommendations,Improvement in the overall accountability

mechanism and transparency have generally been considered as the parameters of assessing audit quality and effectiveness by SAIs.

Role of Headquarters vis-a-vis Field Offices

Role of Headquarters vis-a-vis Field Offices:There is need to firmly chalk out the responsibility of

Headquarters vis-a-vis field offices in processing and finalising of audit reports.

The accountability at each level needs to be delineated so that quality controls are firmly established.

The responsibility of checking of facts and figures should be squarely placed in the domain of the field offices.

The Headquarters’ role would be that of providing higher quality assurance in terms of the broad thrust and direction of audit, of audit meeting the objectives set out and in overall improvement of audit quality.

Suggestions for enhancement of quality

Quality Assurance procedures- Post Audit Quality ReviewsThe quality control assessment procedures should include post-

audit reviews of a selected sample of completed audits and the associated working papers, performed by individuals and/or groups who are independent of the audits under review.

Review Teams should have broader application across the SAI. The results of the sample of Post Audit Quality reviews that is

representative of SAI’s work along with recommendations for improvement, need to be presented to the top management or to an audit collegium specifically constituted

Suggestions for enhancement of quality

Institutionalising the space for innovation in audit: Audit procedures, while inculcating a sense of

discipline and professionalism need not curb the initiative and good judgement of the auditor in adapting to particular circumstances.

An innovative mind and spirit should be cultivated and nurtured to enhance quality of our audit products and processes.

Towards this end, there is need allow space for innovation and flair in audit, without, of course, in any way lowering the rigour to follow the control procedures as laid down in our Manuals and Guidelines.

Take awayReduce the number of reports.Improve the relevance of Audit ReportsImprove readability.Shift from fault finding to assurance.Involve experts during the course of Audit.Draft Audit Report to be peer reviewed by persons not

associated with the Audit.With Audit areas getting more and more complex build in

specialisation.

All philosophers have interpreted the world. The task however is to change it.