Public Sector Auditing

Question 1

What are two principles of public sector accountability?

Answer 1

1. Managerial Accountability is concerned with demonstrating the attainment of value for money, by such means as, for example, performance indicators, league tables, indicators and targets.
2. Financial Accountability is concerned with demonstrating how financial resources have been acquired and spent, especially by such means as financial statements and other documentation that provides evidence of the activities performed.

Question 2

What is the key difference between private sector and private sector audit?

Answer 2

Private sector audit is primarily concerned with financial control (verifying the correctness and reliability of corporate accounts).

Public sector audit is additionally concerned with the legality and regularity of the underlying transactions and may also consider performance (value for money issues)

Question 3

What are the differences between internal and external audit?

Answer 3

The statutory duty of external audit is to provide an opinion on whether the financial statements are ‘true and fair’. External auditors also evaluate the performance of internal audit and carry out an overall risk assessment.

Internal audit provides a more detailed risk assessment and evaluates the systems of internal control. This requires a substantial degree of testing. Internal auditors examine all aspects of the organisation’s activities, including operational issues and compliance requirements.

Question 4

Which bodies perform internal and externals audits?

Answer 4

External audits are generally carried out by a Supreme Audit Institution (National Audit Office in the UK, Cour des Comptes in France).

Internal audits are generally carried out by internal audit units within public sector organisations.

Question 5

What are the three principles that underpin public audit?

Answer 5

1. The identifiable independence of the public sector auditor from the organisation being audited.
2. The scope of public audit is much wider than that of the private sector, in that it not only undertakes the audit of financial statements, but is responsible for regularity (legality) audit, probity (propriety) audit and also value for money.
3. The public sector auditor has an additional reporting arm as compared to the private sector auditor in that it can make known their concerns and findings in the form of reports in the public interest to the public and to democratically elected
   representatives.

Question 6

External Audit in the UK

Answer 6

External audit of central government is undertaken by the National Audit Office (NAO).

The NAO reports to Parliament and the Public Accounts Committee on the accounts of public bodies and carries out value for money investigations.

Local government external audit is carried out by private sector audit firms, following the abolition of the Audit Commission.

Question 7

What is the role of internal audit?

Answer 7

Internal audit is a statutory requirement in the public sector, e.g. section 151 officers in local government.

The role of internal audit is to provide independent assurance that an organisation’s risk management, governance and internal control processes are operating effectively.

Question 8

How has modern internal audit developed?

Answer 8

The changing face of internal audit in local government has created a more diverse internal audit service that incorporates the internal control review and the assurance role on risk management. There has been a progression from the conventional, basic and traditional minimum audit service as required by statute to the more corporate image of advisor, business consultant and assurance provider as part of the control mechanisms and risk management linked to corporate governance.