External Audit of Public Internal Financial Control System (TCA Audit) Erol Akbulut TCA Member of 5th Chamber. Workshop on “Audit/Evaluation of Public Internal Financial Control (PIFC) Systems” Ankara , 8 – 9 July 2008. Outline of the Presentation.
External Audit of Public Internal Financial Control System
TCA Member of 5th Chamber
Workshop on “Audit/Evaluation of Public InternalFinancial Control (PIFC) Systems”Ankara , 8 – 9 July 2008
Outline of the Presentation
Changes in financial system and internal control system
Arrangements concerning internal control in draft TCA Law
INTOSAI Auditing Standards and internal control
Draft Financial Audit Manual and evaluation of internal controls
Internal Audit and TCA Audit
Draft TCA Law was prepared in compliance with the law no:5018 and INTOSAI auditing standards.
This law is still pending in the Parliament.
Draft TCA Law include various provisions envisaging that the internal control, a function of auditee, should be considered at TCA audits. These are:
Purpose of Auditing
Article 34-The audit shall be performed with a view to;
a) Submitting credible information about the activities of public administration and their results to the Turkish Grand National Assembly and to public as a requirement of the budget right of the Turkish Grand National Assembly,
b) Executing public financial management in line with laws and protecting public resources,
c) Improving the public management,
d) Encouraging the public administrations to evaluate their own performance,
e) Establishing and expanding accountability
General Principles of Auditing
Article 35- The general principles of auditing are as follows:
a) Audit shall be the examination of the accounts, transactions and activities and the internal control systems of the public administrations; evaluation of the effective, economic, efficient and legal usage of the public resources.
d) The audits shall be carried out by attaching necessary attention to current audit methodologies including system based technique, analytical investigation technique, statistical sampling and information systems.
The audit of the Turkish Court of Accounts shall cover the regularity audit and performance audit. The Regularity Audit shall be carried out through;
a) Determining whether the revenues, expenditures, properties and other accounts and transactions of the public administrations are in accordance with the laws and other legal arrangements or not,
b) Evaluating and giving opinion on the accuracy of the financial reports and statements of the public administrations,
c) Evaluating whether the financial decisions and the transactions of the public administrations and the programs and activities are in compliance with the laws or not,
d) Evaluating the financial management and internal control systems.
Article 46- The municipalities and the public administrations stated in subparagraph (b) of Article 4 shall have their accounts and transactions audited by independent external auditors upon the demand of the Turkish Court of Accounts. The Turkish Court of Accounts shall benefit from the reports of independent external auditors in its audits.
Article 47-The Turkish Court of Accounts, during the audit activities, shall also benefit from other audit reports about the public administrations.
The Turkish Court of Accounts shall carry out the audits of the public administrations whose accounts are audited by independent external auditors in accordance with their establishment laws and other legal arrangements by utilizing of external audit reports.
In Law No:5018, it is stated that external audit shall be carried out in line with international auditing standards.
INTOSAI is an international organization and TCA is a member of it. For this reason, INTOSAI international auditing standards are primary resource for TCA.
Fundamental standards with regard to internal control are as follows:
3.0.3 c) The auditor should review and assess the reliability of internal control of auditee when deciding on the scope and extent of an audit.
3.1.3 e) In planning an audit, the auditor should identify key management systems and controls and carry out a preliminary Evaluation to identify both their strengths and weaknesses.
3.3 Study and Evaluation of Internal Control : “The auditor, in determining the extent and scope of the audit, should study and evaluate the reliability of internal control.”
3.3.2. The study and evaluation of internal control should be carried out according to the type of audit undertaken.
3.3.3. The extent of the study and evaluation of the internal control depends on the objectives of the audit and on the degree of reliance intended.
3.3.4 Where accounting and other information systems are computerized, the auditor should determine whether internal controls are functioning properly to ensure the integrity, reliability and the completeness of data.
With a view to developing an audit in compliance with new financial system; cooperation with NAO in various fields was established with funds obtained from EU resources.
Within this cooperation, draft financial audit manual was prepared.
In this manual, issues related to evaluation, testing and identifying weaknesses of internal controls and internal audit, and their phases of planning, performing and reporting are covered.
In order to obtain assurance from internal controls, the auditor can define risks of the auditee and plan audit based on these risks through understanding the auditee with its all aspects, understanding and assessing its control environment, accounting and IT systems.
Auditor should understand and assess the control environment through applying methods for understanding internal control by examining following factors:
Integrity and ethical values
Approach of the management
Auditor examines whether the following factors do exist in terms of risk assessment of auditee.
Auditor evaluates the following control activities:
Auditor examines and evaluates high management’s monitoring activity on controls.
Due to the fact that certain mechanisms such as internal control, internal audit introduced by the Law No:5018 have not been fully implemented on the basis of institutions, relevant chapters of financial audit manual cannot be tested practically.
That draft TCA law is not enacted has delayed the implementation of all elements of manual including evaluation of internal controls.
Since the evaluation of internal control is a new field for TCA, time and effort is needed to enhance existing audit experience.