What public Sector Bodies can expect from their Auditors - Essay Example

What public Sector Bodies can expect from their Auditors This paper will discuss the service that public sector bodies may expect to receive from auditors in Malaysia. The paper will investigate how value can be added by reporting in a fair and appropriate manner, how mutual understanding can be achieved in the planning process and observing professional ethics. As there is a need for proper understanding between public sector bodies and their auditors, including the various roles of public sector bodies and auditors, there should be cooperation between them in order to facilitate efficient arrangements for auditing. Auditors often provide added value by noting an opportunity for cost-efficient improvements which may arise from the auditors’ investigation and bring these issues to the attention of the management. Thus, it is expected that public auditors should endeavor to promote better decision making and management wherever possible, in order to effect a more efficient use of public resources. Introduction Proper auditing in the public sector is essential for maintaining the confidence of the general public during any tenure of managing public funds, and should be carried out to ensure accountability of those entrusted with public funds. On their own part, Malaysian public sector auditors should be accountable for their performance, and it is the duty of public sector auditors to undertake their auditing work in an objective, cost-effective and professional manner, with due regard to the needs of the public sector bodies that they audit. The primary audience of the public sector auditors includes the local electorates, the taxpayers and the parliament, as their statutory functions are executed on behalf of the taxpayers. It is essential for public sector auditors to thoroughly plan each audit with a good understanding of the operational environment. How auditors can add value by reporting in a fair and appropriate manner The major value of financial statement auditing comes from the assurance provided to taxpayers due to objective and rigorous auditing. The service provided by public sector auditors also provides value by causing an improvement of financial management. It is important for auditors to endeavor to promote better decision making and management whenever possible, so as to enable better and more effective use of public resources (Kamaruzaman Jusoff 2010). This can be achieved by the dissemination and highlighting of good practice and the provision of technical assistance which will help to promote efficiency in corporate governance arrangements in the public sector in Malaysia. As set down by the statement of auditing 100, “professional auditors are required to observe the ethical guidance of the particular professional bodies to which they belong” (The statement of auditing 100). “The uniform accounting system for Government organizations sets out reporting requirements” (Rohana Othman, Husein Zakaria, Norlaili Nordin, Zamzam Shahidan and Kamaruzaman Jusoff 2010) and there are also some specific ethical issues in public sector auditing. “Public sector bodies are required to maintain a high standard of probity in the execution and management of their affairs. These include the 7 principles of public life which are integrity, selflessness, openness, accountability, objectivity, honesty and leadership.” (Committee on standards in Public Leadership, 2003) Another service to be expected from public sector auditors is that public sector auditors must seek to ensure that the reports they produce for the public are clear, objective, reliable, persuasive, and balanced in content. The work of public sector auditors should also be provided to the audited public sector bodies through the auditing process, and “the auditors should furnish the public sector bodies with drafts of reports about them that are intended for publication, and give them opportunities and sufficient time to agree the facts contained within them and comment on the opinions reached.” (Warwick Funnell 2002) “The Public Accounts Committee (PAC) at the beginning of every Malaysian Parliament has played an important role by mandating that the accounts of the Federation and the States be examined by the Auditor-General which then has to be submitted to the King and, finally, to the House of Representatives. The PAC acts to ensure financial accountability on the part of government agencies and departments.” (Abdullah, N. R. W. 2008). Usually, public sector auditing (such as auditing of government departments) necessitates the drawing of evidence from other public sector bodies, and even from private sector and voluntary organizations that may have received public grants or are undertaking functions on behalf of the body that is being audited. It is not reasonable or cost effective to constantly subject every department in the spending chain to several audits that individually address their own reporting requirements. In situations like this, public auditors should aim to maximize their use of evidence from other public sector bodies, both in their value for money work and their financial statements audit. (Public Sector Conceptual Framework Project Brief, 2006) The public service sector includes the central and local government; public utilities accountable to parliament; other public bodies funded from taxation, etc. “Improving the efficiency and productivity of existing services is always important and the public sector should continue to do this. However, planning for two per cent efficiency savings each year will not be sufficient to bridge the gap between projected future spending and future funding.” (Improving public sector efficiency 2010) To this day however, what is regarded as public sector fluctuates widely according to political fashion and historical accident. Accounting for 40% of the GDP (mostly from tax) in Malaysia with some of the most important functions of the modern society, it is only logical that there is an audit system in place to make sure that the interests of different parties on the public sector are being met. Openness and transparency Openness and transparency are major factors in the relationship between public sector auditors and the bodies that they audit. Public sector auditors are also expected to carry out their duties in a prompt and timely manner. For public sector auditing to have a positive impact on the use of public funds, it is important that the public sector auditors report the results of their audits and examinations promptly. The auditors are also expected to check the validity of factual content with public sector bodies before reaching conclusions in order to avoid waste of effort and time on both sides. It has been noted that reports to audited bodies including presentations and less formal interactions provide further avenues for auditors to add value. This also enables the improvement of management in the pubic sector. In the public sector, a more transparent monetary policy lessens the chances that policy makers will manipulate policy for political purposes. “Open, transparent and well known policy goals and procedures would allow private analysts and financial markets to constantly monitor Federal Reserve actions and readily detect any manipulation of monetary policy for political purposes.” (Joint economic committee study 1997). Audits are conducted in the public sector to add yet another source of accountability. An independent external auditor will come in on random occasions and audit all financial statements and activities of the sector. Generally accepted accounting standards should be enforced, the information gathered should be publicly disclosed. Public sector auditors must always keep in mind the goals and procedures of public sector bodies that they audit, and stress the importance of transparency in monetary policy. As Keleher noted, “Financial markets work better when inflation objectives are clarified and more detailed information is readily available.” (Keleher, Robert. 1997) Public sector bodies and auditors should work together to set realistic timetables at the start of the work discussing and finalizing reports (Ali, A. 2009). It is also important to monitor the adherence of the public sector bodies and the auditor to the set out work timetable. Transparency and openness are important factors for effective relationship between public sector bodies and their auditors. Pubic sector auditors are not and should not be financially or personally involved with the public sector bodies they audit, and accept no gifts whatsoever from tem. They should not be politically affiliated to them in anyway; the duties off management should not be stepped upon by the auditors in safeguarding assets, maintaining account records and preventing corruption and fraud, they are to provide advice to management and not act as consultants, use appropriate expertise and professionalism in their job. (Ali Ashraf Khan 2003) The Auditing Practice Board has laid down rule that such statement should cover auditors in areas of auditing financial statement work with thoroughness and clarity. (Tharmaseelan, S. 2010) There should be a laid down process for handling complaints and not disclose more than is required in the course of their duty to report in the public interest, moreover individuals and or third party should have the chance to comment facts and presentation before finalizing everything. Some services that public sector bodies can expect from their auditors are listed below. Such expectations are set in the context of these responsibilities. The public sector remains accountable to the public for the public fund in their care, parliament, and local electorates: they remain responsible: To prepare financial statement as agreed with their auditors To maintain proper and accurate accounting records To ensure absolute compliance of transactions with statutory and other authorities To safeguard assets committed to their care Prevention of fraudulent activities (Malaysian Business Audit Report 2005) To form an objective and independent view on the financial statement prepared by audited bodies, Public sector auditors comply with the Auditing Standards in the audit of the financial statements of a public sector body, and are established by Auditing Practices Board, and they are clearly set out in statements of Auditing Standards (PSC Financial Audit Guidelines Subcommittee 2010). The areas include planning of audit considerably and planning audits which are cost effective and can add value. An effective relationship is established if auditors are open with the public sector bodies. They are to provide a high level plan to management, any audit committee and internal audit. (Mohamed Iskandar Thurrun Bhakir 2010) For clear understanding of the remit of the work, high level plan should include terms of reference for all work in non-technical language. Good communication is vital in all stages of the audit, is a thing evenly shared by both parties, the planning should be done in such a way that public sector bodies understand the purpose for the audit and process, moreover, public sector should be allowed by the auditors to identify matters of concern which they will want their auditors to consider in their audits, opportunities should be provided for auditors to explain and discuss their assessment of audit risk with bodies and how the audit will take of these factors. “Public sector auditors are also expected to Learn about risks and their role in government auditing, and discover how to identify, evaluate and document government internal controls” (JW MARRIOTT, 2007) During such a process, the auditors can as well consider suggestions from the audited bodies most definitely value will be added, a position of objectivity and independence should be preserved by the auditor. “Public sector auditors can also make extensive use of the investigations of internal auditors in situations where a mutual agreement can be reached between internal auditors and public sector auditors, and there is a good understanding of the roles of internal auditors, including the manner in which the work of the internal auditors can be used by external auditors.” (Halimah Nasibah 2010). Here, there should also be willingness to make any necessary adjustments to work programs. Public sector auditing and management has a vital role to perform in the promotion of this type of cooperation in an effective way. Public departments also have a duty to encourage inspectors and regulators in the coordination of their activities with the work of public sector auditors. Like audit elsewhere, a key objective of the public external auditor is to express an opinion on the accuracy of annual accounts and financial based on sufficient, relevant and reliable evidence. Audit risk and the coverage of the examination are carefully planned and the work carried out accurately and thoroughly. However, the use of public funds and resources imposes further special demands. “Accountability to Parliament and the public needs to be to the highest standards, with full public reporting of the results and conclusions of public sector audits” (LooSee Beh, 2010) Special importance should be attached to the requirements of legality, regularity, propriety and the proper conduct of public sector activities. The auditor’s responsibilities extend beyond the accounts into wide-ranging examinations of the economic, efficient and effective use of public funds. In carry out the work as listed, a traditional audit may identify and report on instances of wasteful expenditures, or instances of high risk due to poor financial controls or non-compliance with key requirements, typically through a management letter to the board of directors. Conclusion There is a general consensus about a broad meaning of performance audit: it is understood as being a form of audit that is focused on the efficiency and effectiveness, or value-for-money aspects of public activities. Public sector auditors are expected to have a good understanding of the roles of the public sector bodies which they audit. To this end, the public sector bodies and their auditors must work together to facilitate better audit arrangements and the auditors should plan the audits with proper consideration of the audited organizations. The public sector bodies being audited should also ensure full compliance with public accountability requirements and endeavor to show openness in their dealings with their auditors. It is expected of the public sector auditors to apply these considerations to all types of audits, including the examination and reporting of financial system risks, the audit of financial statements, value for money and propriety risks. Aside from addressing the audiences and taxpayers on whose behalf they execute their statutory functions, it is in everybody’s interest for public sector auditors to work in line with the aims and objectives of the public sector bodies, and with a view to adding value. References Abdullah, N. R. W. (2008). Eradicating corruption: The Malaysian experience, JOAAG, Vol. 3. No. 1 Ali Ashraf Khan (2003) Accountability of Accountants and Auditors Committee on standards in Public Leadership Ali, A. (2009). Internal audit in the federal organizations of Malaysia Auditor-Generals Report to Parliament (2009) Financial Audits Volume 2 Halimah Nasibah (2010). The effectiveness of internal audit in Malaysian public sector Improving public sector efficiency (2010). Prepared for the Auditor General for Scotland and the Accounts Commission Joint economic committee study (1997) Transparency and Federal Reserve Monetary Policy (Retrieved from http://www.house.gov/jec/fed/fed/transpar.htm) JW MARRIOTT, (2007) Promoting Accountability and Integrity in the Public Sector. The Star Kamaruzaman Jusoff (2010) Government Budgeting and Accounting American Journal of Economics and Business Administration. Science Publications Keleher, Robert (1997). Transparency and Federal Reserve Monetary Policy. Joint Economic Committee Study LooSee Beh (2010) Human Capital and Governance of Public Administration in Malaysia: A HRM strategy Maniam Kaliannan, Halimah Awang, Murali Raman and Magiswary Dorasamy (2010) e- Procurement for the Public Sector: Determinants of attitude towards Adoption Malaysian Business Audit Report 2005. Does Anyone Care? Mohamed Iskandar Thurrun Bhakir (2010) Applying IAS 41 in Malaysia NOR ALIAH MOHD ZAHRI (2009) e-GOVERNMENT MALAYSIA: WAY FORWARD PSC Financial Audit Guidelines Subcommittee (2010) Performance measurement & kpis for government and statutory boards (2009) Public Sector Conceptual Framework Project Brief (2006) International Public Sector Accounting Standards Board RADIN UMAR, R.S. (2010) THE MALAYSIAN GOVERNMENT’S ROAD ACCIDENT DEATH REDUCTION TARGET FOR YEAR 2010 Raj Kumar M (2010) IPv6 Adoption, the Current Scenario in Malaysia. APRICOT Rohana Othman, Husein Zakaria, Norlaili Nordin, Zamzam Shahidan and Kamaruzaman Jusoff (2010) The Malaysian Public Procurement’s Prevalent System and its Weaknesses. American Journal of Economics and Business Administration Rohana Othman, Husein Zakaria, Norlaili Nordin, Zamzam Shahidan and Kamaruzaman (2010) Towards a Knowledge-Based Society through Evaluation SECURITIES COMMISSION KUALA LUMPUR (2010) THE Audit Oversight Board and Ethical dimensions–credibility of accountants Tharmaseelan, S. (2010) Corporate Taxation in Malaysia The statement of auditing 100 Warwick Funnell (2002) Enduring fundamentals: constitutional accountability and Auditors-general in the reluctant state Read More