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Building Quality into the Financial Audit Process The NAO’s experience Gareth Caller

Learn how NAO ensures high-quality financial audits, from planning to completion, with detailed reviews and assurance processes to meet and exceed customer expectations.

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Building Quality into the Financial Audit Process The NAO’s experience Gareth Caller

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  1. Building Quality into the Financial Audit Process The NAO’s experienceGareth Caller

  2. Contents • The UK context • The financial audit process • Review • Centrally monitored quality assurance procedures • Client feedback

  3. The role of the C&AG and NAO The C & AG’s role is to ensure that money allocated by Parliament is spent in accordance with Parliament’s intentions, and report The C & AG does not have a judicial function

  4. The Accountability Cycle Government requests and Parliament grant funds C&AG examines spending and reports to Parliament Government Response PAC session and report

  5. The UK Context • The NAO has 450 financial audit staff • Approximately 550 central government bodies audited annually all with same year end • All need to publish audited accounts before Parliament within 110 days of year end • 25% of financial audit work contracted out

  6. The Financial Audit Process • Most audits in four stages: • Planning (6-8 months into year) • Interim (9-11 months into year) • Final (1-3 months after year-end) • Completion (immediately after final if possible)

  7. An Auditing Framework • Legislation allows the C&AG to use whatever method he wants to conduct financial audits • C&AG has chosen to use International Standards on Auditing (UK & Ireland) • Guarantee of quality for clients • Internal consistency • Comparability • Recruitment

  8. International Standard on Auditing 220 • ISA 220: Quality Control for Audits of Historical Financial Information covers individual assignments • Includes policies and procedures covering: • Leadership responsibilities for quality on audits • Ethical requirements • Acceptance and continuance of engagements • Assignment of engagement teams • Engagement performance • Monitoring

  9. Review by Assignment Managers & Directors • Evidenced Review • Objectives • ensure work supports opinion • ensure work complies with auditing standards • bring more than one level of judgement to bear • Any queries documented and responses required

  10. Detailed Review • By Assignment Manager • all working papers

  11. Overall Review • By Assignment Director, to satisfy themselves that: • audit conducted to auditing standards and NAO standards • sufficient and appropriate audit evidence • certificate is appropriate and supported

  12. Overall Review • The Director must review certain procedures • Planning • Overall approval of plan • Includes a specific confirmation that the audit team have sufficient skills and experience • Final • Specific review of the certification minute • Specific confirmation that the planned approach remains appropriate/changes made as necessary

  13. Standards Assurance Reviews • If there are particular sensitivities, audit risks or difficult judgements (e.g. a qualified opinion) • Detailed criteria for selection • Further review by director independent of team • ‘Hot Review’ - before sign-off

  14. Audit Support Tools • Generic forms to record key decisions for each stage of audit • Compulsory annual training events for all staff • Clearly communicated policies interpreting changes in accounting or auditing rules • Dedicated advice line • All potential qualifications and reports must be reviewed by Financial Audit Policy Team

  15. Other Financial Audit Outputs • Ad hoc advice to clients • The Audit Strategy • Explains approach to clients • Aims to get client buy-in for approach • The Management Letter • Highlights key weaknesses • Includes detailed recommendations for improvements in controls/financial management • Generic training events and/guidance

  16. Centrally monitored quality assurance procedures • Cold review of a selection of audits • Whole of Office procedures • Client feedback • Review by external quality assurance body

  17. Cold Review Process • Annual Process • Purpose of review to ensure that audits comply with NAO procedures and certificate appropriately supported • Set criteria for selecting audits • Independent review teams • Audits are graded • Good practice/lessons learnt disseminated

  18. Whole of Office Procedures • Sample testing of: • Recruitment procedures • CPD returns • Code of conduct declarations • Results reported to senior management

  19. Feedback from our clients • Obtaining client feedback is important • We use a questionnaire • Covers: • Reporting and NAO Impact • Approach and Methods • Working Relationships • General comments

  20. Quality Assurance Directorate Review • QAD Directorate of ICAEW • Quality assurance on audit firms • Cold review of a selection of audits • Whole of office procedures • Recommendations not mandatory

  21. Key Messages • How the NAO thinks about quality: • Process designed to build in quality • Increased quality = decreased costs • High quality financial audits depend on leadership driven team working • Aim to meet and exceed customer expectations • First person (quality is my job) approach for all staff • Holistic focus on entire organisation

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