Annual Audit Policy

Introduction

Rigsrevisionen's primary task is to audit the state's revenue and expenditure. The audit performed by Rigsrevisionen discloses whether the accounts of government, departments and agencies are correct and free from material misstatements and omissions, whether government funds are managed efficiently, effectively and economically and applied for the intended purposes. Rigsrevisionen's reports are submitted to the Public Accounts Committee and published to provide the Folketing and taxpayers with an opportunity to gain insight into government's management of public funds.

Rigsrevisionen's activities are governed by the Auditor General's Act. Within the framework of this act, we have worked out a guideline for Generally Accepted Public Auditing Standards (GOR), describing the professional standards which we follow. Auditing in compliance with this guideline requires the auditor to test not only that the accounts are correct, i.e. without material misstatements and omissions, but also whether the administration of public funds is in compliance with appropriations, legislation and contracts entered (compliance audit). The auditor is also required to test whether sound financial considerations have been taken into account when administering public funds. These tasks are emphasized in the guideline because the special characteristics of the public sector call for special audit procedures. First and foremost, the public sector is not entirely governed by the market forces, secondly the results achieved by public enterprises are not always measurable. These factors indicate the general public's special need to gain insight into the manner in which administration is organised, and public auditing helps provide this insight.

The ethical foundation of Rigsrevisionen is formulated in a number of values, serving as guidelines for the individual staff members and the organisation as such.

Rigsrevisionen is the Folketing's independent control body. Independence is a key element in Rigsrevisionen's basic values. We are financially and economically independent of the ministries and institutions which we audit. As an independent body we select and plan audits in a co-operation with the Public Accounts Committee which is the sole body entitled to request us to carry out examinations of specific issues. Central government is not entitled to neither request nor refuse an audit. Rigsrevisionen's independence also allows us to choose our own examination methodology and we have unrestricted access to information. Finally, Rigsrevisionen is free to publish the results of examinations. The progress of ongoing audits is reported on a current basis to the audited institution and the Folketing to ensure that they are provided with the best possible basis for decision.

Integrity is another significant concept contained in Rigsrevisionen's basic values. We uphold our integrity by selecting reliable and relevant data and methodology and conducting audits on the basis of a number of standard audit products, defining the objective of the individual audit steps and determining the scope of audit. The audit products ensure that audits conducted are sound and uniform across all enterprises. They are all based on the provisions of the Auditor General's Act and the above-mentioned guideline (GOR) and incorporate generally accepted auditing standards (GAAS), including "Auditing Standards" published by the International Organisation of Supreme Audit Institutions (INTOSAI), and International Standards on Auditing, worked out by the International Auditing Practices Committee under the International Federation of Accountants (IFAC). Finally, integrity is upheld through the ongoing development of our organisation and work processes to ensure that we remain objective, professional and responsible when auditing.

Being an attractive workplace, offering personal and professional development opportunities, naturally helps to develop the organisation. Being an attractive workplace also means that the individual staff members continuously perfect their skills and develop personally, that we give each other positive feedback and that there is a healthy balance between family and work.

Being targeted is another of the values which Rigsrevisionen builds on. Our planning of activities is based on materiality, risk and topicality and we keep up to date with new developments in central government. Our efforts to be targeted in our work are also supported by an audit policy aimed to ensure that the audit work, which is performed using qualified audit methods and rational audit processes, is of uniform high standard.

Rigsrevisionen's basic values also include co-operation and knowledge-sharing internally and externally with central government and other cooperative partners. We appreciate the conditions under which our partners are working and we share a need to learn from each other and our surroundings.

Rigsrevisionen's 6th and last value is flexibility. Being flexible contributes to create a safe and trusting working environment characterised by mutual respect and commitment.

Audit products

Annual audit consists of a number of audit products developed for the review of the various types of public sector revenue and expenditure. Some products are aimed at enterprises included in the state accounts and others at enterprises in which government has a vested interest, e.g. as a shareholder. Audit areas and products will appear from figure 1.

Figure 1. Rigsrevisionen's products broken down on audit areas
 

Rigsrevisionen's product portfolio has been developed with the objective of achieving a high degree of specialisation, audit coverage and uniformity across ministerial remits. The different audit products are combined in the audit planning phase to ensure that the audit will provide reasonable assurance that audit conclusions concerning the individual ministerial remits and thereby also the state accounts are correct. We assess, for each ministerial area, how adequate coverage may be achieved through a combination of products and enterprises.

The products are designed to meet the requirements of systems based audit and substantive audit. E.g. the systems based audit includes a review of business processes and internal controls, whereas substantive audit e.g. includes analyses of accounts and random sampling of vouchers. This combination of audit methods makes it possible for us to make a statement concerning the quality of accounting and the correctness of accounts.

Audit Planning

Rigsrevisionen's audit planning determines the purpose and scope of the audit. Planning and coordination take place partly at an overall level between the audit areas which constitute the state accounts and partly on enterprise level. Planning and prioritization of audit areas are based on analyses of materiality and risk. Allocation of resources takes place on the basis of the audit planning.

The purpose of audit planning is to secure adequate and relevant audit evidence to validate the auditors' conclusions concerning the quality of the accounts submitted by the individual enterprises, the accounts for individual ministerial areas and the state accounts in their entirety.

The overall audit plan for annual audit has its point of departure in the overall strategy and targets set by management every year. Audit planning for a ministerial area should take place in dialogue with the respective department. The final prioritization may also include practical considerations with regard to subjects of significance to the materiality and risk assessment, e.g. subjects of interest to the Public Accounts Committee and media coverage of a particular enterprise.

The detailed planning of the individual audit requires knowledge of the audited enterprises and their business areas. Audit planning should take into consideration the financial position of the enterprise, its working conditions, judicial foundation and management philosophy. Particular insight into the enterprise's budget and accounting system and internal controls is required. Finally, comments made during past audits are also taken into consideration. Materiality and risk will be assessed on the basis of the knowledge of the enterprise, and the outcome of the assessment will determine the prioritization of the subsequent audit and reporting activities.

In general, a case or piece of information is considered material, if it is expected to influence the decisions taken by the reader of the accounts. Materiality may either be related to the size of an amount, a case or the character or context of information. The importance assigned to a case by the Public Accounts Committee and the Folketing has great impact on the perceived materiality of a case.

All of these considerations concerning planning of the audit in the individual enterprise, are documented in an audit plan. The plan includes a time schedule, indicating when the particular activities are to be carried out. Allocation of resources to the audit will also appear from this plan.

Carrying out the Audit

The audit should be carried out in a manner which by the audited enterprise is perceived as contributing to the development of the enterprise. It is therefore important to carry out the audit procedures necessary to produce adequate audit evidence and to do so in a manner which creates additional value for the enterprise without jeopardising Rigsrevisionen's integrity.

The audit is carried out in dialogue with the enterprise from start to finish. The review of audit material is carried out partly on pre-agreed visits to the enterprise and partly in Rigsrevisionen.

The audit should provide adequate, relevant and reliable audit evidence in support of the assessments and conclusions made concerning the audited accounts.

Audit procedure and audit findings are described in the audit documentation to enable unambiguous verification. Material problems are documented by external information to the extent possible. Depending on purpose, statistical test checks may be performed on enterprise level, headquarter level, on an entire ministerial area or on state accounts level.

The audit work carried out by Rigsrevisionen is documented in an IT system (audit support system), which also describes the procedures applying to the individual audit products. The audit procedure applied and related documentation form part of the audit support system in accordance with current guidelines.

Reporting and Communication

Rigsrevisionen's communication with the audited enterprises is organised in a reporting chain where the first stage is communication concerning planning and execution of the audit products. This is followed by oral and written reporting which follows completion of each single audit product.

Next stage is the annual senior management meetings between the management of the ministries and Rigsrevisionen. With each new stage of the reporting chain, observations and conclusions made during the annual audit of the enterprises are condensed even further. The final stage is Rigsrevisionen's general Report on the Audit of the State Accounts.

Figure 2. Timeline of the implementation and reporting of selected audit products

It appears from the above figure that audit concerning 2007 is carried out in 2007 and during the first half of 2008. The results of the audit are reported on a current basis to the individual institutions and enterprises, etc., but the first complete reporting of the audit broken down on ministerial areas takes place at the annual senior management meetings in the spring of 2008. Subsequently, the Report on the Audit of the 2007 State Accounts is published. It is submitted to the Public Accounts Committee in November 2007. The final report on the results of the audit of the 2007 state accounts is submitted to the Public Accounts Committee in March 2009. On the basis of this report, the Public Accounts Committee decides whether to recommend to the Folketing approval of the 2007 state accounts.

Rigsrevisionen's reporting to the audited enterprise should be balanced and meet best practise standards for annual audit. Reporting should distinguish between material and immaterial issues and include a summarized evaluation of whether the enterprise has met with the required standards. Ratings span from very satisfactory, satisfactory, not entirely satisfactory to not satisfactory. The rating very satisfactory is given when the enterprise has met all important standards. The rating not satisfactory is given when the enterprise has failed to meet the majority of the important standards, and management is encouraged to implement improvements in the area as soon as possible.

The most important observations and conclusions made in connection with the annual audit are reviewed at the annual senior management meetings between the management of the ministries and Rigsrevisionen. The purpose of the meetings is to promote a dialogue-based constructive and forward-looking co-operation.

Rigsrevisionen's reporting on the results of the audit should be reliable, up-to-date, comprehensible and provide management of the audited enterprise in the respective ministry with a useful platform for action.

The Report on the Audit of the State Accounts includes an overall and condensed report on the outcome of the annual audit. The report also presents a number of examinations of selected subjects and a report on the annual audit performed in each individual ministerial area. In the report, Rigsrevisionen presents its overall opinion of the administration performed by the individual ministerial area and a general assessment of the state accounts of the year is also included.

The last stage of the reporting chain is the "Final Report" which forms the basis of the Public Accounts Committee's recommendation to the Folketing regarding approval of the complete state accounts. The Final Report contains statements provided by the individual ministers concerning matters arising from the Report on the Audit of the State Accounts.

Quality Assurance of Audit Procedures

It is important for Rigsrevisionen to test the quality of the audit work performed to ensure that audits performed are uniform and adequate. Rigsrevisionen's quality assurance activities are implemented during the audit and after completion of the audit product.

The purpose of the current and subsequent quality assurance activities is to ensure that Rigsrevisionen complies with internal standards set for quality. Quality assurance also contributes to the development of products, as inappropriate routines in the planning and execution phase are eliminated.

Quality assurance includes test of product planning, whether the product has been executed and reported appropriately, and the audit adequately documented. Current quality assurance activities form part of the usual work procedure, and staff and directors are responsible for their implementation. Current quality assurance is carried out by an administrative officer and a director in a close cooperation, partly after completion of the planning phase and partly before the final reporting to the enterprise.

The heads of departments are responsible for the subsequent quality assurance, consisting of an annual review of selected audit cases. Cases are discussed with the directors and staff responsible. The heads of department prepare a memo to the Auditor General on the results of the quality assurance efforts.

Development of Annual Audit

It appears from Vision 2010 that Rigsrevisionen aims to carry out holistic annual audits of enterprises by 2010. To be able to fulfil this vision and the concepts behind annual audit, Rigsrevisionen is in the process of adapting the current audit standards to the change in audit approach. The concept for annual audit should be ready on 1 January 2008, i.e. to be applied in connection with the accounts for 2008. At this point of time, 2 reports on opinions on enterprise and ministry level and 1 report on a new planning concept have been worked out.

A new audit standard for holistic annual audit of enterprises comprised by the state accounts and enterprises outside the state accounts (RRS on annual audit) should be available no later than 15 June 2007. The new standard should be based on the audit standard on audit of independent institutions and is expected to cover 3 main areas: Audit in the course of the year, focus areas for public audit and closing annual accounts audit (closing audit and appropriation control). The products IT audit, payroll audit, pension audit and refunds to municipalities will be continued as separate products and be executed as in the past by specialised units and offices in Rigsrevisionen (IT audit, C4 and the Municipal Team).

With the new concept for annual audit, Rigsrevisionen will be required to issue an annual opinion on the audit to selected enterprises within the state accounts. This opinion will include an evaluation of the correctness of the accounts, the legality of transactions made, the annual report and the financial administration.