What to expect from your audit This brochure explains the purpose of public sector annual audits, how they differ from private sector audits, what we do when we carry out your audit, and how you and we can work together to make the audit as effective and efficient as possible.
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Audit New Zealand has been appointed by the Controller and Auditor-General to carry out the annual audit of your organisation. This brochure explains the purpose of public sector annual audits, how they differ from private sector audits, what we do when we carry our your audit, and how you and we can work together to make the audit as effective and efficient as possible. This information will help you and your organisation to: derive maximum benefit from your audit; work effectively and efficiently with your audit team; and be well prepared for your annual audit. You can find out more about Audit New Zealand, our people, and ways we can help you on our website – www.auditnz.govt.nz.
What is a public sector audit? Public entities are accountable to Parliament and the public for their use of the public resources and powers that Parliament gives them. The Controller and Auditor-General (the Auditor-General) provides independent assurance that public entities are operating, and accounting for their performance, in keeping with Parliament’s intentions. Under the Public Audit Act 2001, the Auditor-General appoints audit service providers to carry out annual audits of all public entities on her behalf. In conducting and reporting on the annual audits of public entities, the Auditor-General seeks to improve the performance of, and the public’s trust in, the public sector. This is done by reporting whether a public entity: is delivering what it has been tasked to; has operated lawfully and honestly, and has not been wasteful; and has fairly reported its performance. This level of scrutiny is important because public entities provide services to all New Zealanders and are funded by taxpayers and/or ratepayers.
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level of “ This scrutiny is
important because public entities provide services to all New Zealanders ...
How are public sector audits different from private sector audits? A private sector audit examines financial performance so that shareholders in a company can see how well it did. A public sector audit also looks at how public entities perform – and that includes more than just financial information. A public sector audit must comply with standards set by the Auditor-General. These are based on international auditing standards, but are broader than the standards that apply to a private sector audit. A public sector audit examines whether: a public entity fairly reflects the results of its activities in its financial statements and, as required, statement of service performance; a public entity complies with its statutory obligations; a public entity carries out its activities effectively and efficiently; waste is occurring or likely to occur as a result of any act or failure to act by a public entity; there is any sign or appearance of a lack of probity as a result of any act or omission by a public entity or by one or more of its members, office holders, or employees; and there is any sign or appearance of a lack of financial prudence as a result of any act or omission by a public entity of by one of more of its members, office holders, or employees.
What’s our role as auditor? Our role as auditor is to give an independent opinion on your entity’s financial statements and other information (such as non-financial performance information) that public entities are required to have audited. Auditors also add value by recommending improvements to a public entity’s internal controls.
role as auditor is “ Our to give an independent
opinion on ... information ... that public entities are required to have audited.
What do we do when we carry out audits? The audit team will carry out much of your entity’s annual audit on-site. We do this so we can readily access your entity’s systems and information, and talk to you to ensure that we understand the information we’re looking at. Our work generally includes: determining whether significant financial and management controls are in place, are working, and can be relied on to produce complete and accurate data; verifying samples of transactions and account balances;
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performing analyses to identify anomalies in reported data; reviewing significant estimates and judgements made by your entity’s governing body/senior management; confirming year-end balances; drawing on our in-house specialists as needed to audit your entity’s procurement, contract management, asset management, project management, and risk management systems; considering any conflicts of interest and transactions with related parties; determining whether accounting policies are appropriate and consistently applied; and determining whether all financial statement and service performance disclosures are adequate.
In sectors where we audit non-financial performance information, our audit work may also include: assessing appropriateness of the non-financial performance framework, including the performance measures that will be reported externally; reviewing and testing controls over performance reporting; and verifying reported performance for important performance measures.
Working together We know you’re committed to improving your entity’s performance, and we’re keen to work with you to do this. Great engagement between finance teams and their auditors, between senior management and auditors, and between governors and auditors can be extremely beneficial. At Audit New Zealand, we’re committed to improving the performance of, and the public’s trust in, the public sector. One of the ways that you can help us help you to improve your entity’s performance is to engage strongly with your auditor.
Engaging with us and sharing information When we plan our audit, we need to know about any changes to your entity’s operating environment, business systems and processes, and any other matters that you think may be relevant to your audit. It means we get to understand your business, your context, and the environment that you, specifically, are dealing with. We identify business and audit risks and our proposed response to them. We document these risks in your annual Audit Arrangements Letter. You can make your audit process as effective as possible by discussing with us issues and questions about your entity that concern you, and how we can address them together.
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“ Great engagement ... can be extremely beneficial.
Being prepared for your audit increases quality The better prepared for your audit you are, the smoother the audit will go for everyone and you’ll get better value for your audit fee. We have resources available to help you prepare: On our website, you’ll find model financial statements for many of the sectors we audit. The models provide an example of how we expect your financial statements to be set out. We also have a Client Substantiation File. This is a file for public entities to use as they prepare material to be audited, and it shows how you need to substantiate the financial information you provide us with. If you don’t already have one, talk to your Audit Director or Manager today.
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Consult with us about accounting or auditing issues and problems in advance, to avoid surprises and resolve issues early. We’ll be as helpful as we can without compromising our independence.
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Improved public sector performance
Better reporting Our audit provides assurance that you are fairly reflecting your financial performance and the results of your activities in your reporting. We recommend that you respond promptly to any significant findings we raise as a result of the audit, and make plans to report on improvements. The cycle of strong engagement, the right information, and a smooth audit adds value to your own reporting as well as ours. It’s our public sector – yours and ours – and it’s in all of our interests to make the public sector as effective, and as efficient, as we can.
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Some frequently asked questions What are the outputs of the annual audit? The Audit Report details our findings on your entity’s published financial statements and, as required, statement of service performance. Our audit opinion is part of the Audit Report. We express an opinion on whether the financial statements (and, as required, the statement of service performance) comply with generally accepted accounting practice and fairly reflect your entity’s performance and position. The audit opinion is designed to give readers reasonable assurance about the reliability of the information presented. The Audit Report accompanies your entity’s financial statements and, as required, statement of service performance in your entity’s annual report. Our Management Report is issued to those charged with governance and details our key findings and recommendations about significant matters arising from the audit. We may also provide a more detailed report to the management of your entity, and we also meet face-to-face to discuss these matters. For some of our clients, our Management Report also provides the basis for a letter to their Minister on significant matters arising from the audit.
Are there limits to what the audit will identify? Yes. An external annual audit is not designed to identify all significant weaknesses in your entity’s accounting and internal control systems, nor whether fraud has occurred. However, the audit will help you to understand how well your policies and controls are working, and these are your best safeguard against fraud and error. We don’t examine every transaction and can’t guarantee complete accuracy of the financial statements or the statement of service performance. Rather, an audit provides reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error, but an audit is not intended to detect all fraud or errors that may exist. The governing body and management have primary responsibility for detecting and preventing fraud and errors.
audit provides “ An reasonable
assurance that the financial statements are free from material misstatement ... but an audit is not intended to detect all fraud or errors that may exist.
Can my entity broaden the audit scope? If your entity requires additional independent assurance, we can be engaged separately, or we can extend the scope of the annual audit (by agreement). We have specialist expertise in procurement and tendering processes, probity, contract management, project management, risk management, asset management, governance, information systems, public-private partnerships, performance management, sensitive expenditure, discretionary expenditure, and other issues. Ask your Audit Director or Manager for more information about these services.
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How does the audit process work? Your organisation is audited every year, and so your audit follows an annual cycle. Each year, we plan our audit work, carry it out, and report on our findings. Those findings may then form part of the AuditorGeneral’s reporting to Parliament. The audit findings are also taken into account when the Auditor-General’s staff provide advice and assistance to Parliamentary select committees on their financial reviews of public entities, and Estimates examinations. You can read about the annual process in more detail on our website. (Note: not all audits require interim audits and district/site visits as well as final audits.)
How are audit fees set? We charge a fee for the annual audit. The fee is agreed (usually by direct negotiation between your entity and us) at the beginning of the audit contract. This agreement is recorded in an Audit Proposal Letter, which usually covers a three-year period. The fee is confirmed each year in the Audit Arrangements Letter. In determining the fee, we take into account the amount of work we need to do, and the knowledge and skills needed by our audit team. This is based on: the nature and complexity of your business, its size, and geographical location(s); your entity’s management control environment and systems of internal control, including financial controls and risk management; your entity’s track record in preparing annual financial statements for audit and responding to our information requests; the extent to which we can rely on the work of your entity’s internal audit team; effects of changes to your entity’s legislation, changes within your organisation, and any changes to mandatory accounting and/or auditing standards on the work we need to complete; the Auditor-General’s expectations about other areas of audit focus. If audit fees can’t be agreed, they can be set by the Auditor-General under the Public Audit Act 2001. See Appointing public sector auditors and setting audit fees, Office of the Auditor-General, 2011, www.oag.govt.nz, for further information.
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