Part A: The audit framework
Introduction to public sector audit and assurance
Key takeaways
- An audit is an independent examination of financial or operational information to express an opinion on it, and it is the highest level of assurance a practitioner can give.
- Materiality is the threshold at which a misstatement or omission could reasonably influence users' decisions; audit risk is the risk of expressing an inappropriate opinion when the information is materially misstated.
- Audits are classified as financial (statutory), internal, performance, compliance and forensic, and each answers a different question.
- Public sector auditors give independent assurance that public resources were raised and used lawfully, effectively and for their intended purpose.
- That assurance supports an accountability chain running from accounting officers, through internal audit and audit committees, to the Auditor-General and Parliament.
Standards for this chapter
The INTOSAI Framework of Professional Pronouncements: ISSAI 100 (founding principles of public sector auditing), ISSAI 200 (financial audit, which applies the ISAs), ISSAI 300 (performance audit) and ISSAI 400 (compliance audit); the Public Audit Act, 2015 for the terms Kenya uses; the Public Finance Management Act, 2012 for the entities audited.
Definitions and key audit terminologies
Classification of audits and assurance
Role of auditors in public sector entities
Public sector auditors provide independent assurance that public resources were raised and used lawfully, effectively and in line with their intended purpose, supporting the accountability chain from accounting officers, through internal audit and audit committees, to the Auditor-General and Parliament.
Exam tip
The audit classifications above map directly onto later chapters of this paper, internal audit, forensic audit, the Auditor-General's work and the performance and special audits, keep each classification and its later chapter connected in your revision.
Self-check
(a) An audit examines whether a county government's road-building programme achieved value for money, beyond simply checking the figures. Identify the type of audit this represents. (2 marks)
(b) Distinguish audit risk from materiality. (3 marks)
(c) State the audit type that investigates suspected fraud specifically. (1 mark)
(d) Explain the accountability chain public sector audit supports. (3 marks)
Show worked answer
(a) Performance audit (2 marks).
(b) Audit risk is the risk that an auditor expresses an inappropriate opinion when the information is materially misstated; materiality is the threshold at which a misstatement or omission could reasonably influence users' decisions, materiality defines what counts as significant, audit risk is the risk of getting the conclusion wrong given that threshold (3 marks).
(c) Forensic audit (1 mark).
(d) Accounting officers manage resources and are responsible for internal controls; internal audit and audit committees provide ongoing internal assurance; the Auditor-General provides independent external assurance; Parliament, through the accountability chain, ultimately holds government accountable for how public resources were raised and used (3 marks).