audit and accountability
TRANSCRIPT
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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