Financial Audit and Accounting Sub-Committee
By Mr. Arabinda Das, Principal Director of Audit, Ordinance Factories, Kolkata

1. About Financial Audit Sub-Committee

Financial Auditing focuses on determining whether financial information is presented in accordance with the applicable financial reporting and regulatory framework. The procedure for obtaining sufficient appropriate audit evidence will enable the auditor to express an opinion on whether the financial information is free from material misstatement due to either fraud or error. Auditors require relevant and professional guidelines; the Financial Audit and Accounting Sub-Committee (FAAS) cater to this need by developing globally accepted auditing guidelines for the public sector. FAAS is a sub-committee of Professional Standard Committee (PSC) of INTOSAI.

Ever since the INTOSAI Congress in 1995, many Supreme Audit Institutions (SAIs) felt a need for more detailed guidance than what was provided by the former INTOSAI Auditing Standards Committee (ASC). This need was reiterated during the Congress in 1998, where the Committee was given the task to decide how best to respond to the need for Guidelines for Financial Audit. The committee was advised to consider the varying auditing mandates and systems prevalent among INTOSAI members. Furthermore, the Committee was instructed to closely follow the developments of IFAC’s International Public Sector Auditing Standards in order to keep the INTOSAI community updated and informed. Following a number of informal talks and meetings between the ASC and IFAC (International Federation of Accountants), the ASC in 2001 came to the conclusion that cooperating with IFAC, and its International Auditing and Assurance standards Board (IAASB), and drawing upon their work with internationally accepted standards would be the only way forward for the purpose of the development of financial audit guidelines for public sector. In March 2002, the ASC held a Committee meeting where one important issue on the agenda was the proposal to initiate cooperation with IFAC to develop Financial Audit Guidelines. A Working Group with a special responsibility for the development of financial audit guidelines was created within the Committee. In September 2005, the responsibilities of the Working Group were taken over by the Financial Audit Subcommittee (FAS) created in the new INTOSAI committee structure. FAS was merged with the Accounting and Reporting Subcommittee of INTOSAI in 2016 and are now the Financial Audit and Accounting Subcommittee (FAAS).

2. Standard Setting Activities of FAAS

FAAS is primarily focused on the achievement of INTOSAI’s Strategic Goal 1 to develop high quality and widely recognized international professional standards for public sector auditing. FAAS also supports the achievement of INTOSAI’s Strategic Goal 2 related to capacity development by helping to ensure the technical integrity of capacity building products related to financial auditing and accounting. FAAS also has a role to play in achievement of INTOSAI’s Strategic Goal 3 related to knowledge sharing by monitoring public sector accounting developments on behalf of INTOSAI and sharing information with the INTOSAI community as required.

The FAAS Chair is established on a volunteer basis and the chairmanship is for a maximum duration of 9 years. The FAAS Chair is responsible for maintaining the FAAS Secretariat. The FAAS Secretariat provides administrative support to FAAS. The State Audit Institution of the United Arab Emirates assumed the Chairmanship of FAS at the INCOSAI in Beijing in October 2013.  The FAAS membership is composed of technical experts on auditing standards and public sector accounting standards from environments that reflect the membership of INTOSAI. A maximum of 15 members compose the FAAS membership. A FAAS member may be a

• Supreme Audit Institution (SAI);
• Public sector auditing body that is not a SAI but is a member of INTOSAI;

An organization that does not meet the above criteria for membership but that is interested in public sector financial auditing or accounting may observe a FAAS annual meeting. But observers do not participate in FAAS project and are not allocated a vote. At present, the SAIs of South Africa, Austria, Germany, India, France, European Union, U.K, Namibia, Canada, Norway, Kuwait, Cameroon, Sweden and U.S.A are members while organizations like AFROSAI-E, IPSASB and IDI are acting as observers. The IAASB is a partner in the standards setting work and also attends FAS annual meetings. Cooperation with the IAASB is defined in a Memorandum of Understanding (MOU) between INTOSAI and IFAC. Active participation by all FAAS members is required to allow FAAS to meet its objectives. Members should be able to actively participate in at least one project per year, if required. Members should therefore have adequate support from their office to meet this requirement. FAAS working groups are formed to facilitate the completion of FAAS projects. Each working group is responsible for establishing a working group leader who is responsible for organizing the activities of the working group. The FAAS membership meets annually. FAAS working groups meet as required to complete their projects. FAAS members are expected to attend each annual meeting.

3. Current ISSAIs based Projects of FAAS

The task of the subcommittee (FAS) in 2005 was to produce globally accepted auditing guidelines for the public sector. Instead of creating a new set of guidelines, this was done by leveraging the expertise and resources of the International Auditing and Assurance Standards Board (IAASB). Thus, the International Standards on Auditing (ISAs) developed by IAASB are incorporated without modification into the International Standards of Supreme Audit Institutions Framework (ISSAIs). However, the objectives of a financial audit of public sector entities, apart from the objectives of an audit of financial statements in accordance with the ISAs (i.e. to express an opinion whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework), may include additional audit and reporting responsibilities. For example, public sector auditors may be required to report on public sector entity‘s compliance or non-compliance with authorities, including budget and accountability; the effectiveness of internal control over financial reporting; or on the economy, efficiency and effectiveness of programs, projects and activities. This is because the audit mandate for a Supreme Audit Institution, or the obligations for public sector entities emanates from legislation, regulation, ministerial directives, government policy requirements, or resolutions of the legislature and that eventually may also result in additional audit and reporting responsibilities for public sector auditors. This special requirement of public sector auditing was met by the committee by developing the Practice Notes and got them added to the ISAs. The Practice Notes (PN), which are included in the INTOSAI Financial Audit Guidelines, explain how to apply each ISA in a financial audit in the public sector. They also contain guidance relevant to financial audits in the public sector in addition to what provided in the corresponding ISA. The Practice Notes are added to ISAs in a separate section consisting of background, applicability of ISAs in public sector auditing and additional guidance on public sector issues. The Practice Note together with the related ISA constitutes a guideline within the ISSAI structure of standards. The additional guidance normally covers the following issues:

1. Matters related to specific legislation applicable in the public sector,
2. Matters related to overarching public sector concerns, for example stewardship, accountability and transparency
3. Matters related to different models of Supreme Audit Institutions (Auditor General and Court of Accounts models), and Supreme Audit Institutions that contract out work to external audit firms
4. Matters related to accounting principles and practices particular to public sector entities
5. Matters related to particular government entities (ministries, agencies, quasi-governmental), and sectors (finance, defence, justice, health, environment, etc), if any
6. Other matters related directly to the application of the ISA in financial audits of public sector entities

However, to achieve the objectives of the current INTOSAI Strategic Development Plan (SDP) for professional pronouncements, the Financial Audit and Accounting Subcommittee (FAAS) is completing a project to consolidate and improve the quality of the Practice Notes to ISSAIs from 1200 to 1810 (the Practice Notes). FAAS has now completed phase 1 of this project which consolidated the Practice Notes into a single document and resolved identified editorial issues.

FAAS concluded during its 2017 annual meeting that a phased approach is required to address the practice note quality issues identified by the technical reviews that were performed as well as the SDP priorities for which a contribution from FAAS is expected. The first phase will address the non-technical issues identified and the second phase will address the technical. The phase 1 is over, while the phase 2 concentrates on the following:

• Define “application guidance” and analyze the existing practice note content to identify the application guidance. Provide recommendations for the content that does not meet the definition. This will contribute to the achievement of SDP priority 1.3.
• Revise ISSAI 200 to make it more principles-based to stabilize the document so it doesn’t have to be revised as frequently when ISSAI 1200-1810 change. This will address SDP priority 1.2.
• Develop guidance on the requirement at ISSAI 1210.6a directing towards evaluating the acceptability of the accounting framework. This will contribute to the achievement of SDP priorities 2.1 and 2.3

FAAS’ continuous monitoring of International Auditing and Assurance Standards Board (IAASB) development activities on ISSAI 1200 to 1810 and of significant accounting and reporting developments will give rise to new priorities. As per new policy, FAAS will continue to monitor International Standards on Auditing (ISA) developments and will engage when necessary to inform IAASB of significant public sector considerations that FAAS believes should be addressed in the ISAs. Practice note development activities will be initiated when such public sector considerations are not addressed in the ISAs. FAAS will also continue to monitor accounting and reporting developments and will initiate projects when necessary to share information on key developments with the broader INTOSAI community.

4. Due Process

ISSAIs on Financial Audit are also developed in accordance with the ‘Due Process’ for INTOSAI’s Professional Pronouncements. The purpose of the due process is to maintain the integrity and rigour of the ISSAIs and all other professional pronouncements in the framework. There are four main stages in developing and issuing a pronouncement- the project proposal, the exposure draft, the endorsement version and the final endorsement. The ‘due process’ supports the continued professionalization of the work within INTOSAI on ISSAIs and ensures that all professional pronouncements in the framework follow a quality control process where consistency with other pronouncements is achieved. In addition, it ensures that all professional pronouncements in the framework are subject to a suitable and adequate consultative process and level of scrutiny leading to their approval.

5. Challenges in Standard setting

(I) The primary challenge before FAAS is to maintain coordination and cooperation with other standard-setters; here it is IAASB as FAAS has to keep pace with the dynamic eco-system of private sector accounting and auditing standards.

(II) Preserving continuity and institutional memory in an environment based on principles of voluntary participation and rotation (chairs and other key committee members) is a challenge.

(III) The gap between the processes established by the Due Process and the reality concerning decision-making, approval of standards and who determines the contents of standards is a real challenge for setting standards

(IV) In areas, where there are many different viewpoints and considerations to reconcile, the sub-committee is often using substantial time and resources to arrive at solutions that are acceptable to all members in that particular group. Thereby, the form often gets precedence over the substance and timeline suffers.

(V) Being on the cutting edge of developments within public-sector auditing, establishing mechanisms that can provide feedback from public-sector auditors, external experts and users of SAI audit reports is a great challenge for all standard setting sub-committees including FAAS.