The Challenges In Implementing Of Compliance Audit Guidelines

Ahmet TANER Senior Auditor, Turkish Court of Accounts, TURKEY

28 October 2014, Vilnus

EUROSAI Seminar on Compliance Audit: Use of the Compliance Audit Guidelines and Best

Practice

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Presentation Overview

The insufficiencies in design of guidelines

The problems arising from poor-defined concepts in 4000 series

The challenges related to identifying reasonable and limited assurance in compliance audit

Issues arising from conducting compliance audit in the environment of a court of accounts

Conclusions/ Suggestions

The Challenges in Implementing Of Compliance Audit Guidelines

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The Challenges in Implementing Of Compliance Audit Guidelines

The issues stemming from poor linkage between theory and practice in implementation of compliance audit standarts

The fundamental challenges concerning implementation 4000 series is that there is a need for comprehensive, systematic and coherent framework for guiding compliance audit.

Because of hybrid feature, there is confusion with how to

apprehend and implement concepts and process relevant to compliance audit.

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The Challenges in Implementing Of Compliance Audit Guidelines

There is barely difference between ISSAI 4100 and 4200 in terms of concepts and audit process

The steps on which the audit is constructed is the similar or same to each other.

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The Challenges in Implementing Of Compliance Audit Guidelines

It is not strait forward to identify the differencies between

both guidelines. Despite the structural differences in compliance audit stand alone and compliance audit together with financial audit,

ISSAI 400 states that depending on their mandate, in the event that SAIs conduct combined audits incorporating financial, compliance and/or performance aspects. The standards relevant to each audit type should be complied with. In face of this regulation, In 4200, it is not evident that how the compliance and financial audit standarts to be harmonized/reconciled

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The Challenges in Implementing Of Compliance Audit Guidelines

Issues arising from poor-defined concepts in 4000 series The challenge in identifying “propriety”, as a one of two basic concepts of compliance audit

Propriety- general principles of sound public sector financial management and conduct of public sector officials.

Despite the fact that it is quite easy to identify the implications of the concept of regularity, there is an ambiquity over the propriety, namely the principles of sound financial management. Propriety require financial transaction, expenses or decisions to comform to general financial principles.

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The compliance audit based on propriety has inherent element of subjectivity.

Determinig suitable criteria for propriety is challenging as these criteria may be less formal and may require considering public expectations regarding the actions and behaviour of government officials. Therefore, the auditor should take actions carefully in deciding on the principles of sound financial system. The auditor may need to refer to professional judgement and professional sceptisim. Yet, naturally, the professional judgement or sceptisim is an issue open to comment

The Challenges in Implementing Of Compliance Audit Guidelines

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The Challenges in Implementing Of Compliance Audit Guidelines

The problems stemming from identifyig the subject matter The challenge coming from identifying subject matter specifically, when an entity is taken as subject matter as whole The process of subject matter determination may not work in line with process stated in 4100 and 4200 Guidelines

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The Challenges in Implementing Of Compliance Audit Guidelines

The challenge coming from identifying audit criteria

The challenge with specifically determining criteria

The problem arising from a doubt as to what is the correct the relevant law, regulation in related to audit subject matter.

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The Challenges in Implementing Of Compliance Audit Guidelines

The challenge about the need to use only certain parts of a law or regulation as a criteria The difficulties arising from the fact that when there is not explicit legal regulations in place to apply to audit subject matter.

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The Challenges in Implementing Of Compliance Audit Guidelines

The risks involved in determinig materiality in compliance audit

The challenge brought by identifiying the materality in compliance audit Generally the materality is a concept that conveyed from financial audit methodology into compliance audit methodology.

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The Challenges in Implementing Of Compliance Audit Guidelines

As materiality is related to risk assesment and reasonable assurance, It is not straight forward to implement the concept of materality throughtly in compliance audit. On contrary to financial audit, due to nature of compliance audit, materality is measured through quantity as well as other factors such as contex in which it occures, public interes, fraud etc. which poses a challenge to implementing compliance audit in line with the framework set by 4100-4200 Guidelines.

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The issues related to identifying reasonable and limited assurance in compliance audit

The challenge coming from incompatibility between ISSAI 400 and 4100/4200 about the quality of limited assurance engagement

Limited assurance engagement is an audit or a review ?

In contrast to 4100/4200 (the view that the limited assurance is not audit ), ISSAI 400 ( The Fundamental Principles of Compliance Audit) states that compliance auditing can be performed to provide either reasonable or limited assurance, which is very important improvement for compliance audit in public sector

The Challenges in Implementing Of Compliance Audit Standarts

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Despite the reasonable assurance being crucial, due to inherent limitation, it may not be convenient to implement for all cases. The recent amendment in compliance audit standarts is critical in that it ensures compliance audit methdology is conducted on the basis of wide range.

The Challenges in Implementing Of Compliance Audit Guidelines

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Issues arising from conducting compliance audit in the environment of a court of accounts

Compliance Audit Guidelines (4100-4200) do not provide comprehensive and sufficient framework including siginificant steps and issues relevant to the judgement function

As the findings of compliance audit is basic inputs for jurisdiction process, compliance audit methodology is closely related to performing jurisdiction function of SAIs

The Challenges in Implementing Of Compliance Audit Guidelines

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For ISSAI 4100/4200 , the jurisdiction function of SAIs operating in a court of accounts environment has two main purpose.

First one is to obtain sufficient and appropriate evidence to enable the auditor to provide proposals on the liability of the responsible persons.

Second one, when dealing with the general state accounts, the objective of an audit is also to obtain reasonable assurance about whether the general state budget is prepared and executed, in all material respects, in accordance with the general budgetary act or similar legislation.

The Challenges in Implementing Of Compliance Audit Guidelines

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The implementation results of general state accounts are different from individual public entity’s accounts, however it is partially based on these.

In 4100 and 4200, with respect to general state accounts, the audit process and steps have not be defined and elaborated, there is barely methodology or procedures in place for auditing general state accounts

The Challenges in Implementing Of Compliance Audit Guidelines

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The Challenges in Implementing Of Compliance Audit Guidelines

In 4100 and 4200, with regard to audit over the general state budget, there is not any assesment or instruction about how to identify subject matter and subject mater information, how to deal with the findings of non-compliance, how to reach conclusion etc.

Another challenge for jursdiction process in a Court of Accounts is to determine personal liability of non-compliance acts. The Guidelines do not provide any guidance about how to identify the personal liability of non-compliance

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In related to this issue, there remain other questions lack of answers in 4100 and 4200

What is responsibility of auditor in the environment of court of

accounts ?

What is criteria for personal liability for non-compliance transaction ?

How to determine the level of assurance in compliance audit in the context of court model

What kind of audit procedures are needed for conducting compliance audit in context of a court of accounts

The Challenges in Implementing Of Compliance Audit Standarts

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There is a need to strengthen the linkage between implementation and theory

There is a need clarification on how to apprehend and

implement basic concepts

The guidelines (4100 and 4200) are needed to be improved in conformity with the requirements of court of accounts

The feedback and suggestions are very crucial for improving the guidelines. Therefore, The SAIs should provide Compliance Audit Sub-committee with necessary support about the implementation of Compliance Audit Guidelines

Conclusions / Suggestions

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THANK YOU FOR ATTENTION !

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