Terms of Reference INTOSAI Auditing Standards Committee Working Group on Compliance Audit

Background:

The Lima Declaration, the INTOSAI Code of Ethics and the INTOSAI Auditing Standards constitute the first three levels of standards developed by INTOSAI to give its members guidance in the carrying out of their tasks.

At the XVI INCOSAI in Montevideo in 1998, the Congress pointed out the need for a fourth level, guidance material to provide practical assistance to Supreme Audit Institutions in implementing the Standards in their individual constituents. The Congress decided that the ASC should develop implementing guidelines to complete the INTOSAI set of standards, and thus form the fourth level of the framework.

The ASC has since started the work with the development of the implementing guidelines for both performance and financial auditing. The implementing guidelines for performance auditing have been completed, and will be presented for endorsement by the INTOSAI Congress in Budapest in 2004.

The ASC has also started its work with the development of guidelines for financial audit. This work is carried out in cooperation with the International Federation of Accountants (IFAC) and is based on the IFAC International Standards on Auditing. An INTOSAI guideline on financial auditing will consist of an IFAC International Standard of Auditing together with an INTOSAI Practice Note outlining the special issues that must be taken into consideration in public auditing.

Tasks and objectives:

The ASC has through its meetings and feedback from SAIs identified a need for developing further guidance on compliance audits in the shape of guidelines. It is thus proposed that the Committee sets up a Working Group to develop such guidelines. The guidelines should be incorporated into the fourth level of the INTOSAI guidelines.

Most SAIs are charged with duties regarding financial audit as defined by the INTOSAI Auditing Standards as regularity audit[1]. The Working Group will use the definition of Regularity audit as a starting point for its work. It will take into consideration the work done by other parts of the INTOSAI community (such as the Working Group on INTOSAI Financial Audit Guidelines and the INTOSAI Internal Control Standard Committee) and will in due course identify areas that fall within the scope of compliance audits.

The overall objective of the Working Group is to develop INTOSAI guidelines for compliance audits. Compliance audit is an important and integral part of public sector auditing, and an area where there is a great need for further guidance. It is thus important that the current project to develop INTOSAI financial audit guidelines also includes the special considerations regarding compliance audit in the public sector audit profession.

In more detail, the objectives can be described as:

a) Provide an overview of the different mandates SAIs have regarding compliance audits

b) Elaborate on and clarify the term “Compliance Audit”

- What does it cover and what is meant by the definition.

c) Give practical guidance on how compliance audits should be planned, executed and reported on

Membership:

The Working Group will be a subgroup to the INTOSAI Auditing Standards Committee and will thus be open to membership for all ASC members. While the Working Group should be of a reasonable size, its membership should reflect the diversity of the INTOSAI community with regards to both geography and type of SAI (i.e. both Court and Office model should be represented). The Working Group will be headed by the Office of the Auditor General of Norway, and will report to the Chair of the Auditing Standards Committee.

Work plan:

It is proposed that the Working Group is established for the period 2004 – 2007 (between the INCOSAI in Budapest in 2004 and INCOSAI in Mexico in 2007).

The Working Group will meet regularly during this period, with the first meeting planned for January 2005. One of the annual meetings will be carried out in connection with the annual Auditing Standards Committee meetings.Work between these meetings will be carried out as the members of the Working Group best see fit. Additional meetings can take place, but the work can presumably mainly be performed by use of modern forms of communication such as e-mail, videoconfences or telephone.

The Working Group shall develop a set of guidelines for Compliance Audit that shall be presented for endorsement at the INTOSAI Congress in Mexico in 2007.

The guidelines on compliance audit will be distributed to the INTOSAI community after being approved by the ASC, while they are not yet official INTOSAI documents before being decided by the Governing Board and endorsed by the INCOSAI.

[1]The INTOSAI Auditing Standards point 1.0.39 states that Regularity audit embraces:

(a) attestation of financial accountability of accountable entities, involving examination and evaluation of financial records and expression of opinions on financial statements;

(b) attestation of financial accountability of the government administration as a whole;

(c) audit of financial systems and transactions including an evaluation of compliance with applicable statutes and regulations;

(d) audit of internal control and internal audit functions;

(e) audit of the probity and propriety of administrative decisions taken within the audited entity; and

(f) reporting on any other matter arising from or relating to the audit that the SAI considers should be disclosed