How does the ECA assess Member States’ internal control systems? Workshop on Audit/Evaluation of...
23
How does the ECA assess Member States’ internal control systems? Workshop on Audit/Evaluation of Public Internal Financial Control Systems (PIFC) Ankara, 8-9 July 2008 Alan Findlay (CEAD Directorate B - Audit and Audit Supervision) European Court of Auditors
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Transcript of How does the ECA assess Member States’ internal control systems? Workshop on Audit/Evaluation of...
How does the ECA assess Member States’ internal
control systems?
Workshop on Audit/Evaluation of Public Internal Financial Control Systems
(PIFC)
Ankara, 8-9 July 2008
Alan Findlay (CEAD Directorate B - Audit and Audit Supervision)
European Court of Auditors
2European Court of Auditors
Agenda
The Court’s “Assurance Model”
The DAS audit process
Understanding the environment
Planning audit procedures
Performing the audit & evaluating results
Forming audit opinion
Questions / Discussion
3European Court of Auditors
The Assurance Model (1)
4European Court of Auditors
Assurance Model
as a tool to manage audit risk:
Preliminary assessment of inherent and control risk (combined risk assessment) to determine:Reasonable expectations concerning level of
confidence (controls assurance) that can be drawn from supervisory and control systems
Resulting extent and scope of substantive testing to be carried out, aiming to reach required overall level of confidence (95%)
Revision and / or final confirmation of preliminary assessment on the basis of audit results achieved
The Assurance Model (2)
5European Court of Auditors
Agenda
The Court’s “Assurance Model”
The DAS audit process
Understanding the environment
Planning audit procedures
Performing the audit & evaluating results
Forming audit opinion
Questions / Discussion
6European Court of Auditors
UNDERSTAND
THE AUDIT
ENVIRONMENT
AuditEnvironment
AuditEvidence
Legal Basis
InternationalAudit
Standards
THE DASArt. 248 of the Treaty
• Reliability• Legality &
regularity(Art. 129(4) of Financial
Regulation)• published with
financial statements
FORM AUDIT
CONCLUSIONS AND
AUDIT OPINION
PLAN AUDIT
PROCEDURES
PERFORM AUDIT AND EVALUATE
RESULTS
• International Standards of Auditing (ISA) published by IFAC
• INTOSAI auditing standards
• COSO Framework
DAS audit process
7European Court of Auditors
Agenda
The Court’s “Assurance Model”
The DAS audit process
Understanding the environment
Planning audit procedures
Performing the audit & evaluating results
Forming audit opinion
Questions / Discussion
8European Court of Auditors
Audit environment
Gain understanding
of the audit environment
Collect /update and analyse information about the audit environment:
Legal frameworkDesign and functioning of the supervisory and control systems
Nature of paymentsAudit standards to be applied, etc.
9European Court of Auditors
Agenda
The Court’s “Assurance Model”
The DAS audit process
Understanding the environment
Planning audit procedures
Performing the audit & evaluating results
Forming audit opinion
Questions / Discussion
10European Court of Auditors
Audit procedures
Plan audit
procedures
Plan audit procedures allowing to obtain reasonable assurance
Preliminary assessment of:
Inherent risk Quality of supervisory and control systems
Determine materiality
11European Court of Auditors
Audit procedures (2)
Determine materiality Errors are material if, individually or aggregated with other errors, they would reasonably affect decisions of addressees of opinion General practice: between 0,5% and 2% Possibility to set different level(s) taking into account addressees
requirements (“tolerable or residual risk”) Issues material by context/nature to be disclosed
Materiality rules not (always) directly applicable to systems weaknesses (often only risk) Qualitative aspects (seriousness of deficiency or frequency) Quantitative aspects (possible financial impact)
12European Court of Auditors
Preliminary assessment of inherent risk
Economic and technical environmentType and operating of activities, programmes, etc.Characteristics of beneficiariesComplexity of rulesManagement policies and practicesOther information to be taken into account: Previous work and knowledge / experience Annual activity reports and declarations of Commission’s
Directors-general and their Synthesis Other obligatory reports of different services of Commission
and Member States Relevant other information (National declarations, national
certificates, ...) Reports of other auditors
Audit procedures (3)
13European Court of Auditors
Audit procedures (4)
Preliminary assessment of quality of supervisory and control systems
Central question: Are supervisory and control systems adequate to manage the risk insofar as compliance with relevant laws, regulations, contracts, etc. is concerned?
Strong link between inherent risk and control risk
Different implementation levels to be considered
14European Court of Auditors
Agenda
The Court’s “Assurance Model”
The DAS audit process
Understanding the environment
Planning audit procedures
Performing the audit & evaluating results
Forming audit opinion
Questions / Discussion
15European Court of Auditors
Performing the audit
Perform audit
procedures and
evaluate resultsEvaluate audit results:(Re-)examine / (Re-)assess preliminary expectations
Modify initial planning on the basis of preliminary audit results, if needed
Perform supplementary audit work, if necessary
Perform audit procedures:Examination of supervisory and control systems
Substantive testing of paymentsAnalysis of management representation (National Declarations Summaries, Annual Activity Reports, etc.)
Possibly work on other sources of audit evidence (e.g. other auditors)
16European Court of Auditors
Audit objectives for supervisory
and control systems
Assessment of their capacity to
Supply management with information needed to ensure that legal, regulatory and contractual provisions have been complied with and, where applicable, corrective action is taken
Give reasonable assurance concerning compliance of revenue and expenditure with laws, regulations, contracts, etc.
17European Court of Auditors
Auditors should first identify the management departments, national/regional/local authorities or other third parties having a role of supervision or control
Preparation of a programme of tests to check systems’ compliance with three key control objectives Design according to regulation or other provisions Transposition by parties concerned Continuous and effective functioning
Main steps of evaluatingsupervisory and control Systems
18European Court of Auditors
Substantive testing samples may also be used for tests of control to limit number of on-the-spot checks Examination of payments affected by errors Identification of systems which should have prevented or
identified and corrected them Analysis of control deficiencies at their origin
Overall analysis of the resultsAssessment of level of assurance obtained
The role of substantive testing in evaluating systems
19European Court of Auditors
Agenda
The Court’s “Assurance Model”
The DAS audit process
Understanding the environment
Planning audit procedures
Performing the audit & evaluating results
Forming audit opinion
Questions / Discussion
20European Court of Auditors
Forming audit conclusions & opinions
Form audit
conclusions and
audit opinion
Form audit conclusions at the level of specific assessments for different areas
Form audit opinion
21European Court of Auditors
Straightforward forming of audit conclusions requires thatActual audit results confirm reasonable expectations
formed on the basis of preliminary combined risk assessment
Findings for different sources are compatible with each other
Forming audit conclusions & opinions
22European Court of Auditors
Evaluation ofsupervisory and control systems
Professional judgement and materiality•Qualitative evaluation of results on work on systems•Quantitative evaluation of results of substantive testing•Analysis of coherence of audit results
Audit conclusions
Audit opinion – the DAS
Analysis of annual activityreports and declarations
Substantive testing
Examination of work of other auditors
Form audit opinion
Audit conclusionsAudit conclusions
23European Court of Auditors
Agenda
The Court’s “Assurance Model”
The DAS audit process
Understanding the environment
Planning audit procedures
Performing the audit & evaluating results
Forming audit opinion
Questions / Discussion
