Role of Auditor in Public Sector - Research Paper Example

The work is devoted to the analysis of the role of auditor in public sector, his obligations and principles. There will be singled out the main standards and roles of audit in public sector. The research is based on the general information in terms of audit and public sector, ad well as different publications on this topic. The aim of the work is to underline, what role auditor plays in public sector entities, and which functions he must fulfill. So, let's first start with defining what public sector is, what audit is and who the auditors are. To start with, public sector is a sector of economy, which deals with delivering goods and services for the government bodies and through them as well. It can exist in the form of direct administration through tax systems; it can also be represented by publicly owned enterprises, which have more commercial freedom. Nowadays the role of audit and audit committees in public sector plays greater and greater role. Audit is the check of accountant documentation to prove its authenticity. But in more general sense audit is just a check of any phenomenon or activity by an independent expert, who is called auditor. Speaking about the statutory role of auditor in the public sector it should be said that there is an ethic codex for the auditors in public sector. And here we will refer to this codex as the brightest statutory document which singles out the main features of auditors in public sector. An ethic codex is a detailed official list of values and principles which auditors should use as ruling in their activity. There are high demands towards auditors in public sector. The behavior of an auditor must always remain above any suspicion. The wrong behavior presents all auditors in the disadvantageous light. Auditors must promote mutually beneficial and kind relations between each other. In public sector, as in any other, professionalism and trust are the essential traits of auditors. Honesty is the basic demand of the ethic codex. Auditors must keep to the high and worthy standards of behavior in the process of work and their relations with the checking organizations. Auditors are also to support the public trust. Honesty can be defined through the principles of equity, justice and correctness. Honesty demands from auditors following norms of ethics and control standards. So, what's the role of auditor in public sector There are recommendations as for using auditors in checking any enterprises of public sector. And any government body should choose an audit organization to maintain and fulfill the financial oversight. The system of financial control and reporting can be increased and strengthened through using an effective audit. This can also make the audit process more integral. According to Mayhew, 'auditor is an integral part of public accountability and governance. He plays a crucial role in making all financial processes and documentation integral, and also directing the system of internal control and the control of employee management.' (Mayhew, 2001) The role of an auditor depends on the size, sphere and kind of activity of the specific establishment. The main functions of the auditor in the public sector are: approving the general audit scope, financial planning, performing audit in a cost-effective manner. Risk management is also another function of the auditor. There are the three main features which should be peculiar of the auditor in order to fulfill the necessary functions in the public sector. The first of them is independence. In the public sector, the structure of entities does not separate the governing authority and oversight responsibility from the day-to-day management. For example, a public university president may be both the chief executive officer and a board member. (Hollingsworth, 1999) The auditor must be independent, and he must provide the necessary processes for supporting this independence. He is an independent expert, first of all. Communication is another trait of auditor. He must be capable of communicating with financial workers and bodies of public sector, though it may be difficult at times. In the public sector there are entities of different jurisdiction and different specialization, and thus it is necessary to know the entire situation in its minutest details. Especially this is urgent when the budgets of state organizations are being made. So, the auditor's role is now to provide professional and necessary assistance and technical skills in accounting and auditing in terms of financial planning and budgeting. It is necessary for him here to have also enough skills for communication with financial workers on different complex issues. The third important feature is accountability. The role of this feature is in providing the integrity of all account information and documents. It should be pointed out that there are internal and external audit services, and here we are to describe both in brief. AUDIT INTERNAL AUDIT EXTERNAL AUDIT Figure 1. Kinds of audit in the public sector. The role of an internal auditor in the public sector is the following: - understanding the objectives and aims of the entity he is in and supporting these objectives through the right choice of audit means; - understanding if the control existing in the entity can fulfill all necessary functions; - understanding if the existing audit reports in the entity comply to all laws and legal demands; - defining if there have been reported any mistakes or weaknesses in the entity's activity; - suggesting the possible ways of improving the internal audit and correcting the possible weaknesses of the internal audit. If the internal audit is effective, it must have a close communication with management of the entity, with external auditors, and other internal auditors. As for the external audit, which also plays an important role as the means of the internal audit control, it also has its own role in controlling the management activity, and informing them about possible weaknesses and mistakes in their actions. So, the main role of external auditors in the public sector is the following: - testing the internal audit and its following the necessary laws and norms; - discovering of possible weaknesses in the internal control which have not been discovered by the internal auditors; - defining the influence of the discovered weaknesses on the possible inadequacies and inaccuracies in the account and budget information and reports; - defining if the activity of the internal audit is not enough for lowering the risks of management; - understanding the areas of the highest management risks and looking for the means of lowering these risks. The main role of the external audit is letting the management of the entity know about any inadequacies or violations in the work of the internal audit. Management in public sector is a very important issue and should not be underestimated. In new developing countries public entities are absolutely different from the commercial ones, while in western countries all state public establishments work as if they were commercial organizations, with their budgets, profits and expenditures, and the citizens become a kind of their shareholders, who are interested in getting the cheapest service of the highest level. The main function of the management in public sector is to follow the main objectives and aims of the state policy. The secondary role is to control the correspondence of all actions to the laws of the state and the correctness of all account documentation. And here audit comes into action through fulfilling its direct functions, which have been mentioned before. It should still be mentioned that despite of the audit presence, public entities are still responsible for their activity and authenticity of all account documents. It is also very important that auditors in public sector support political neutrality. They must support their independence from political influence, so that they should be able to effectively fulfill their obligations. Financial management of the public sector is not its hallmark, and often faces challenges. The reason is that people working in public sector are often underestimated, underpaid, and different government structures often go through restructuring. But still the call for the better management in the public sector becomes louder every day. And here an auditor is to play his key role, through finding the right direction in correcting different public systems and institutions, because public sector has always been too open for shocks. The community now understands the importance of developing a skilled financial management in public sector. And it is necessary to ensure that integration with audit organizations is essential to achieve this aim. Auditors in public sector should take the initiative and they will achieve good results. Their role is to make a comprehensive assessment of the government risks and to single out the trends of their possible development. For many years one of the most risk areas was a state pension planning. So the role of the auditor here is to see all the vulnerabilities and weaknesses of the plan in the long-term perspective and to translate the received results into the language which would be understandable to the government officials, so that they should be able to take the necessary decisions. This activity must become a rule, rather than an exception. I believe that it is a unique role of an auditor - to meet the challenge of providing and supporting the usefulness and effectiveness in the public sector financial management. With all the focus on improved public sector financial management, there is room for new leadership to emerge and for credibility to be reestablished. Nothing will really happen unless and until this community takes the lead and shows what can be achieved with an integrated approach and what is lost without it. (Hollingsworth, 1999). What concerns the government activity, the role of auditor here is to inform about spending the central government money. He is to contact with all public sector bodies in terms of spending public money. The auditor in the public sector carries out the audit of accounts of all public entities and makes reports to the government. In case there are no mistakes and discrepancies, the auditor is still to prepare the report on other significant matters. The auditor is to inform the government about their opinion as for the accounts of all public entities, whether they are free from mistakes or misstatements. If there are any mistakes in accounts, it is necessary to make a qualified opinion about them. The main three aims are to be achieved in spending the public money: to spend less, to spend well and to spend effectively. And the auditor here is to provide the necessary consultation as for the best ways to achieve the abovementioned aims. So, let's make conclusions. Public sector of economy is now rapidly growing, at the same time being open and wide for shocks and changes. It is very necessary today to develop the correct system of the financial management in the area of public sector, because this problem has long been unsolved. Good financial management of public sector entities will bring better understanding of the financial processes similar to those going in commercial organizations. As well as for the private companies, audit is necessary to control everything that deals with finances and their management. The role of the auditor in the public sector is to check all the accounts of public entities for the presence or absence of any mistakes or discrepancies, to suggest ways of correcting these mistakes and to suggest ways for the more effective financial management. The auditor is to make reports to the government as for the spending of public money and other significant matters concerning this item. The auditor in public sector is to posses three main features 9see Table 1): Feature Description Independence As far as in public sector it often happens that the governing authority is inseparable from the day-to-day management, the auditor must possess processes and facts of his independence and support it in any possible ways. Communication The auditor must be able to communicate with officials on complex matters, making the problems and questions understandable to them. Accountability The auditor must bring integrity into all the accounting process. Table 1. The three main features of the auditor in public sector. The auditor is to adapt to the challenges and the fast changing environment of the public sector. Audit must bring innovations into the management of public sector together with the support of the already existing effective programs in combination with control and governing of all financial and account information and activity of the state public sector. Works cited (1) Hollingsworth, Kathryn. (1999). Audit, accountability and government. Clarendon Press, 1-10. (2) Mayhew, Brian W. (2001). The effect of accounting uncertainty and auditor reputation on auditor objectivity. Auditing: A Journal of Practice and Theory, vol. 20, issue 2. (3) Terry, Neal L. (2002). Disclosures in audit committee charters and reports. Accounting Horizons, vol. 16, issue 4, 291. Read More