Fanancial Audit Manual

Audit Manual – Chapter 1 1-1

1. ORGANISATION AND PURPOSE OF THE

MANUAL

1.1 Purpose of the Audit Manual

1.1.1 The purpose of this Audit Manual is to provide DAGP auditors with a set of

modern auditing standards, concepts, techniques, and quality assurance

arrangements that are consistent with international standards, for auditing

entities in the Government of Pakistan. The Manual covers the entire audit

cycle from planning to follow up.

1.1.2 This Audit Manual lays out what is expected of the auditors of the

Department of the Auditor-General of Pakistan (DAGP). It provides the

standards by which the audits are to be conducted. It provides guidance

with regard to the methods and approaches to audit that can be applied by

the auditors in carrying out their duties.

1.2 Types of audits dealt with

1.2.1 This Manual focuses on regulatory audit, as defined by INTOSAI Auditing

Standards, which have been adopted by the Department of the Office of the

Auditor-General of Pakistan.

1.2.2 Regulatory audit embraces:

a) Attestation of financial accountability of accountable entities, involving

examination of financial records and expression of opinions on financial

statements;

b) Attestation of financial accountability of the government administration as

a whole;

c) Audit of financial systems and transactions, including an evaluation of

compliance with applicable statutes and regulations;

d) Audit of internal controls and internal audit functions;

e) Audit of the probity and propriety of administrative decisions taken within

the audited entity; and,

f) Reporting of any other matters arising from or relating to the audit that

DAGP considers should be disclosed.

1.3 Audit entities dealt with

1.3.1 DAGP’s mandate includes the audit of federal, provincial and district

government accounts which encompass government ministries, departments

and agencies, self-accounting entities and exempt entities. The types of

entities being audited include financial institutions, commercial entities,

public utilities, and tax-collecting entities.

Modern auditing

standards, concepts ,

techniques, and

quality assurance

arrangements are

consistent with

international

standards,

DAGP’s mandate

includes federal,

provincial and

district government

accounts.

Audit Manual – Chapter 1 1-2

1.4 Accounting Responsibility Structure of the

Government of Pakistan

1.4.1 The following is a brief summary of the accounting structure of the

Pakistan government.

a) Federal government. The Controller General of Accounts (CGA) has

primary responsibility for the completeness and accuracy of the

Federation’s financial statements. Reporting to the CGA, the Accountant

General Pakistan Revenues (AGPR) is responsible for the centralised

accounting and reporting of federal transactions. Additionally the AGPR is

responsible for the consolidation of summarised financial information

prepared by federal self-accounting entities.

b) The AGPR receives accounts and reports from the sub-offices of the AGPR,

district accounts officers, principal accounting officers of self accounting

entities, federal treasuries and the State Bank of Pakistan/National Bank of

Pakistan. The AGPR, in turn, provides annual accounts to the CGA.

c) There are AGPR sub-offices in each of the provinces that act as the district

accounts officers in respect of federal government transactions.

d) Provincial governments. The CGA also has primary responsibility for the

completeness and accuracy of the financial statements of the provincial

governments.

e) Reporting to the CGA, the accountant general of each province is

responsible for the centralised accounting and reporting functions within

his/her respective province.

f) District governments. Each province is divided into districts. The district

coordination officer of each district is the principal accounting officer of

that district. The district coordination officer is supported by executive

district officers who, in turn, supervise offices headed by drawing and

disbursing officers.

g) Principal Accounting Officers (PAOs). Each ministry and department has a

PAO. For the self accounting entities, the PAOs have been delegated

authority to maintain their own accounts. They provide monthly accounting

data to the AGPR and to the accountant generals.

h) District Accounts Officers (DAOs). The DAOs are responsible for the

accounting functions of the districts. They have authority to pre-audit bills,

issue payments, and record government transactions at the district level.

They receive reports from the drawing and disbursing officers and bank

scrolls from the State Bank of Pakistan/National Bank of Pakistan. They

report district and provincial transactions to the Accountant General

responsible for the province in which their districts are located. They also

report federal transactions to the AGPR.

i) Departmental treasuries. Departmental treasuries are established to record

specific accounting transactions such as income and sales taxes and

customs duties.

Audit Manual – Chapter 1 1-3

j) Drawing and Disbursing Officers (DDOs). The DDOs are responsible for

the accounting, cash and personnel functions of specific entities. They

submit bills for pre-audit to the district accounts officers, and report to the

district coordination officer of each district. They also report to the

principal accounting officer of his/her entity.

1.4.2 DAGP’s mandate includes the audit of the entire process described above.

1.5 Stages of audit work dealt with

1.5.1 The manual covers the entire audit cycle for both the financial attestation

and compliance with controls aspects of regulatory audits, including

planning, fieldwork, evaluation of findings, reporting and follow up. While

many of the same procedures apply to both attestation and compliance audit

activities, sometimes different approaches are required to meet specific

audit objectives. Where this is the case, the different approaches are

described. This Manual also deals with such quality assurance techniques

as supervision and review.

1.6 Organisation of the manual

1.6.1 The Manual begins with several Chapters that provide background material

on audits in general, DAGP’s mandate, and the auditing standards adopted

by DAGP.

1.6.2 This is followed by a discussion of DAGP’s management structure and the

annual planning process by which DAGP establishes its departmental goals

and resource needs.

1.6.3 The auditors’ responsibilities through the complete audit cycle - the

planning, fieldwork, evaluation, reporting and follow-up of individual

audits – are presented using a framework adopted, in one form or another,

by many SAIs and private sector audit firms around the world. This

framework integrates the auditing concepts for all phases of the audit.

1.6.4 Throughout the manual, various quality assurance procedures are

introduced. The Manual concludes with a summary of these procedures.

1.6.5 The Manual also contains a number of annexes that provide additional

details and guidance material on specific matters, as well as a glossary of

the terms used.

1.7 Links to other guidance material

1.7.1 This manual is supported by a standard audit working paper kit and a set of

tailored audit programme guides. This Manual also makes reference to

other DAGP documentation in existence at the time that this manual was

produced.

The manual covers

the entire Audit

Cycle.

1.8 Standard audit working paper kit

1.8.1 The kit includes standard audit programme guides, checklists and forms,

and a table of contents that follows a suggested standard working paper

indexing scheme.

1.8.2 The kit also includes samples of the various supervision instruments used in

DAGP.

1.8.3 Audit guidelines for specialised areas

1.8.4 This Manual and the standard audit working paper kit are applicable to the

regulatory audits of all audit areas. These documents are complemented by

tailored audit programme guides that show how the concepts in the manual,

and the programmes, checklists, forms and supervision instruments in the

working paper kit, are applied to perform financial audits in certain specific

audit areas.

1.9 Need for professional judgment

1.9.1 Despite the detailed guidance presented in this manual, professional

judgment is always required. It is not possible to present guidance material

in sufficient detail to eliminate the need for professional judgment and

general knowledge of auditing theory. Nor is it possible to select one audit

approach and mandate its use in all circumstances.

1.9.2 There are many possible approaches to obtaining the required level of audit

assurance, each appropriate in certain circumstances. The auditor must be

prepared to consider the circumstances of each audit and determine the best

approach.

1.10 Updating the Audit Manual

1.10.1 DAGP’s work, like the work of any SAI, continues to evolve.

Consequently, this Manual should be periodically up-dated to ensure that it

reflects the current policies and procedures of the office and to provide the

most appropriate assistance to the auditors. Each auditor is therefore

encouraged to identify areas in which the Manual requires updating or

enhancement.

1.10.2 With appropriate up-dating, this Manual will continue to provide a clear

statement of the authorities, responsibilities and policies of DAGP and a

practical guide to auditors as they carry out their responsibilities in a

professional and conscientious manner.

Despite the guidance

presented in this

manual, professional

judgement is always

required.

This manual should

be periodically updated

to ensure tha

tit reflects the

current policies and

procedures.