an overview of - oag · 2016. 8. 30. · the audit process 6 the supreme audit institution of...

THE AUDIT PROCESS

The Supreme Audit Institution of Uganda The Supreme Audit Institution of UgandaPB 1

AN OVERVIEWOF

THE AUDITPROCESSMarch 2016

THE AUDIT PROCESS

The Supreme Audit Institution of Uganda The Supreme Audit Institution of Uganda2 3

THE AUDIT PROCESS


AN OVERVIEW OF THE AUDIT PROCESS UNDER THE OFFICE OF THE AUDITOR GENERAL OF UGANDA

Mandate of the Auditor General

The O� ce of the Auditor General is headed by the Auditor General who draws his mandate from Article 163 of the Constitution of the Republic of Uganda, 1995 (as amended) and Sections 13 and 19 of the National Audit Act, 2008.

Audits are conducted in accordance with International Standards on Auditing and the International Standards for Supreme Audit Institutions (ISSAIs). Those standards require that the auditor complies with the ethical requirements, plan and perform the audit to obtain reasonable assurance whether the � nancial statements are free from material misstatement. VisionTo be an e� ective and e� cient Supreme Audit Institution (SAI) in promoting e� ective public accountability.

Mission

To audit and report to parliament and thereby making an e� ective contribution to improving public accountability and value for money spent.

Core Values• Integrity• Objectivity• Professional Competence

THE AUDIT PROCESS


Types of audits

There are several types of audits performed by the O� ce of the Auditor General on behalf of government, and these include;

Financial / Regularity audits These are undertaken to express an independent opinion on the � nancial statements prepared in accordance with the applicable � nancial reporting framework and legislation.

Performance audits These are undertaken to assess the economy, e� ciency and e� ectiveness in all government activities.

compliance audits These involve an independent evaluation as to whether the activities of the public sector entities are in accordance with the relevant laws and regulations and authorities that govern such entities.

Forensic investigations To provide evidence that is admissible and used in courts of law for prosecution.

EnvironmentalThese involve an assessment of the extent to which an organization is observing practices that seek to minimize harm to the environment and evaluate compliance to environmental laws.

IT auditIt is a review and evaluation of the organizations information systems availability, con� dentiality and integrity.

THE AUDIT PROCESS


Audit of Classi� ed expenditure

Audit of the Procurement process

• Audit process � owThe OAG has a Regularity Audit Manual which was approved by the Auditor General in April 2013, to guide the audit process. This manual was developed on the fact that the OAG Audit Methodology is based on the risk based approach to audit.

This approach requires an auditor to focus on the entity’s business risk i.e. the risk that the entity will fail to achieve its objectives. Business risks may in government terms be interpreted to mean the risks of the entity failing to achieve the public policy objectives established by law, regulation or other directives.

This manual provides an audit approach in accordance with the ISSAIs (1000-2999); which means full compliance with the International Standards on Auditing (ISA) and the additional guidance as set out in the INTOSAI Practice Notes.

The O� ce of the Auditor General follows � ve key audit processes as summarized below;

• Pre-engagement activities• Strategic Planning• Detailed Planning and Fieldwork• Audit Summary• Audit Conclusion and Reporting

THE AUDIT PROCESS


1. Pre- Engagement Activities (ISSAI 30, 1220, 1210).This stage involves understanding the activities undertaken at the beginning of an audit, determining and communicating the terms of the engagement, assessing and evaluating ethical and resource requirements.

The key activities undertaken therefore, include signing the code of ethics declaration, assessing the resource requirements in terms of time, � nances, appropriate sta� competence and capability and discussing with management of the audited entity the terms of engagement through an engagement letter.

2. Strategic PlanningThis stage involves determining the planning materiality (ISSAI 1320), understanding the entity and its environment including the internal controls (ISSAI 1315), identifying and assessing the risk of material misstatements (RMM), Linking of the identi� ed risks to their respective audit components in the � nancial statements, designing and implementing the overall responses to address the assessed risks of material misstatements at the � nancial statement level; determining the use of the work of others; and selecting high and key value items.

The � nal output for this stage of audit involves developing an Overall Audit Strategy (ISSAI 1300.7) which sets out the scope, timing and direction of the audit; guides the development of a more detailed audit plan and involves the summary of audit work completed during pre-engagement & strategic planning phase of audit.

3. Detailed Planning and Field Work (ISSAI 1330, 1530, 1500)This stage requires that for each � nancial statement audit component identi� ed in the audit lead schedule, the auditor documents the system description by identi� cation and assessment of more risks, controls and assertions;

THE AUDIT PROCESS


documents the preliminary reliance on key controls; designs an audit program; determines the appropriate sample size for test of controls; performs the test of controls and documents � nal reliance on key controls; determines the sample size for substantive testing and performs the appropriate substantive procedures (Test of details and substantive analytical procedures).

4. Audit SummaryThe key activities involved under this stage include;

• Performing of the overall audit programs (presentation and disclosure- ISSAI 1330.24, 1700.13 - 15, 1710.7, subsequent events review-ISSAI 1560, � nal analytical review and obtaining management representations).

• Aggregate and conclude on audit results (ISSAI 1450).• Assessing � nal compliance with the code of ethics

5. Audit Conclusions and Reporting (ISSAI 1700)This stage involves two key steps;

• Audit reporting procedures • Compilation of the management letter (written communication prepared by the auditor and addressed to the management of the audited entity bringing out the weaknesses identi� ed during the audit process) - ISSAI 1265. • Obtaining Audit management representations for all the changes which are made to the auditor’s report as it progresses up the line and provides for statements by senior/top SAI management relating to the audit work.• Forming an audit opinion and preparation of the fi nal audit report for signing by the Auditor General (ISSAIs 1700, 1705, 1706, 1710).

THE AUDIT PROCESS


Types of Audit Opinions

Auditor’s opinions generally are of four types; the � rst type is an unquali� ed opinion, and the other three types are modi� ed opinions. The decision regarding which type of modi� ed opinion is appropriate will depend upon;

I. The nature of the matter giving rise to the modi� cationII. The pervasiness of the e� ects or possible e� ects of the matter on the � nancial statements

1. Unquali� ed Opinion (Unmodi� ed Opinion)-ISSAI 1700From the point of view of the audited company or organization, the unquali� ed opinion is the best possible audit outcome. This is when the auditor has examined the � nancial reports and is of the opinion that the � nancial information is presented fairly and in conformance with Generally Accepted Accounting Principles (GAAP). However, when not satis� ed the Auditor will need to issue a modi� ed opinion as detailed below:-

2. Quali� ed opinion ( Modi� ed Opinion)-ISSAI 1705A quali� ed opinion means the auditor found the � nancial reports essentially in conformance with Generally Accepted Principles, except for one or a few areas which are material but not pervasive to the � nancial statements and the auditor cannot, or does not want, to assert conformance thereupon.

THE AUDIT PROCESS


3. Adverse opinion ( Modi� ed Opinion)An adverse opinion means the auditor having obtained su� cient appropriate evidence concludes that misstatements individually or in aggregate are both material and pervasive to the � nancial statements with signi� cant departures from GAAP.

4. Disclaimer Opinion ( Modi� ed Opinion)The auditor may issue a disclaimer of opinion, that is, report that he has chosen not to issue an opinion. This may occur when the auditor is unable to obtain su� cient appropriate evidence on which to base the opinion and concludes that the possible e� ects on the � nancial statements of undetected misstatements, if any, could be both material and pervasive.

THE AUDIT PROCESS


Notes

THE AUDIT PROCESS


THE AUDIT PROCESS

The Supreme Audit Institution of Uganda The Supreme Audit Institution of Uganda12 PB

REGION ADDRESS

GULU PLOT NO. 2 AIRFIELD RDBOX 120, GULUTEL NO. 0471432071

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SOROTI PLOT NO. 18-20 CENTRAL AVENUE STREETP.O BOX 459 SOROTI

JINJA PLOT NO. 41A BUSOGA AVENUEP.O BOX 771, JINJATEL: 0434120565

ARUA PLOT NO. 5 PAJULU RDP.O BOX 332, ARUATEL: 0476420015

Offi ce of the Auditor GeneralAudit House Plot 2C Apollo Kagwa Road, P.O Box 7083, KampalaTel: +256 -41- 7 336 000, Fax: +256 414 345 [email protected]

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an overview of - oag · 2016. 8. 30. · the audit process 6 the supreme audit institution of...

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