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Chapter 1 Introduction to Quality Assurance Review Quality Assurance Review Handbook, 2012 Office of the Auditor General, Nepal Chapter 1 Introduction to Quality Assurance Review Purpose and Overview The purpose of this chapter is to emphasise the objective and importance of quality assurance (QA) in audit as it relates to the Office of the Auditor General, Nepal. The main purpose of this handbook is to provide a step-by-step approach for performing internal Quality Assurance Reviews. The chapter describes the basic concepts relating to quality, quality control and quality assurance. Distinctions of these concepts are achieved through the sections that explain the characteristics of quality and the differences between quality assurance and quality control. Quality Control (QC) and Quality Assurance (QA) are two different aspects of a robust quality control mechanism, and both are critical to the effectiveness of an SAI’s performance. Quality control is a term that encompasses the policies and procedures that are put in place in an OAGN to ensure that its audit work is of consistently high quality. Since the quality of OAGN products and services is of utmost importance in creating the desired impact on the external stakeholders, a Quality Assurance function needs to be established (or strengthened) in OAGN. The study of quality assurance is anchored on the related and appropriate quality standards and guidelines taken from the INTOSAI and ASOSAI which highlight the requirements for quality services and outputs of an SAI. This chapter concludes with a brief discussion on the types of QA reviews which can either be performed internally or by external persons, or may pertain to pre-issuance or post-audit reviews. Such reviews may also be undertaken on the OAGN as a whole, and/or for a specific audit. 1. Quality, Quality Control and Quality Assurance 1.1 Quality Quality has been defined as the totality of the features and characteristics of a product or service that bears on its ability to satisfy stated or implied needs. In public audit, quality management involves a system composed of an organisation, the Office of the Auditor General (OAGN) - its people – the auditors – and the audit process - all working together to produce the outputs that fulfil the requirements of its stakeholders and the general public. For the OAGN to be able to do this, it needs to define what these requirements are and how it will be able to satisfy them. Provision of the highest degree of satisfaction of its stakeholders’ or clients’ needs requires setting up quality measures which should drive the OAGN’s processes and outputs. 1 Quality Assurance Review Handbook, 2012 Office of the Auditor General, Nepal It should seek to carry out its audit work at a consistently high level of quality in order to increase the OAGN’s productivity and effectiveness. 1.2 Characteristics of Quality There are certain characteristics or attributes by which the quality of an audit is measured. The general characteristics of the quality of an audit may include: Significance How important is the subject matter that was examined in the audit? This, in turn, can be assessed in several dimensions, such as the financial size of the audited entity and the effects the audited entity has on the public at large, or on major national policy issues. Scope Did the audit task plan properly address all elements needed for a successful audit? Did the execution of the audit satisfactorily complete all the needed elements of the task plan? Reliability Are the audit findings and conclusions an accurate reflection of actual conditions with respect to the matter being examined? Are all assertions in the audit report or other product fully supported by the data gathered in the audit? Is all material evidence that was gathered in the audit properly reflected in the opinion or findings and conclusions? Objectivity Was the audit carried out in an objective and fair manner, without favour or prejudice? The auditors should base their assessment and opinion purely on the facts and sound analysis of the available information. Timeliness Were the audit results delivered at an appropriate time? This may involve meeting a legal or statutory deadline, or delivering audit results when they are needed for a policy decision, or when they will be most useful in correcting management weaknesses Clarity Was the audit report clear and concise in presenting the results of the audit? This typically involves being sure that the scope, findings and any recommendations can be readily understood by busy executives and parliamentarians who may not be experts in the matters that are addressed, but may need to act in response to the report. Efficiency Were the resources assigned to the audit reasonable in light of the significance and complexity of the audit? Effectiveness Did the findings, conclusions and recommendations get an appropriate response from the audited entity, the government and/or parliament? 2 Quality Assurance Review Handbook, 2012 Office of the Auditor General, Nepal 1.3 Quality Control Quality control within an OAGN consists of policies and procedures that are put in place to assure that its audit work is of a consistently high quality. An OAGN establishes and maintains a system of quality control to provide it with reasonable assurance that: • The OAGN and its personnel comply with professional standards and applicable legal and regulatory requirements; and • Audit reports issued by the OAGN are appropriate in the circumstances. Quality Control is implemented with respect to the OAGN’s activities that support the audit process and for all aspects of the audit process including: ¾ Selecting matters for audit; ¾ Deciding the timing of the audit; ¾ Planning the audit; ¾ Executing the audit; ¾ Evaluating audit findings; ¾ Reporting audit results, including conclusions and recommendations; and ¾ Following up audit reports to ensure that appropriate action is taken. 1.4 Quality Assurance Review Quality Assurance is the process that provides independent assurance to the Auditor General that the quality control systems and practices in the organisation are working effectively and that the OAGN is issuing appropriate reports. Thus, Quality Assurance is the process of comparing what is required of a product and what is actually being provided to the users of that product. Quality Assurance is the process established by an OAGN to ensure that: a) The OAGN and its personnel have adhered to professional standards and applicable legal and statutory requirements; b) Necessary quality controls are in place; c) Quality controls are being properly implemented; and d) Potential ways of strengthening or otherwise improving quality controls are identified. 3 Quality Assurance Review Handbook, 2012 Office of the Auditor General, Nepal As such, Quality Assurance is an assessment process focusing on the design, operation, outputs (reports) and outcomes of the quality control system by persons independent of the system/audit under review. The purpose of Quality Assurance is not to criticise specific systems/audits but to help ensure that the audit products and services meet the required international best practices and the needs of the OAGN’s stakeholders. 1.5 Quality Assurance Review versus Quality Control Although at times QA and QC are used interchangeably, there is a clear difference in scope and meaning of the two terms. As already stated above, QC involves the policies and procedures through which an OAGN ensures that all phases of an audit process (planning, execution, reporting and follow-up) are carried out in compliance with OAGN auditing standards, rules, procedures and practices in line with the best international practices. Basically it is a responsibility of each line function in an OAGN. QA is also a responsibility of management. On the other hand, Quality Assurance is a process through which an OAGN assesses and monitors the system of quality control, to provide reasonable assurance to its top management that its process and product meet quality standards. This assessment is designed to ensure that the OAGN’s system of quality control is working effectively and that individual audits are carried out in compliance with OAGN standards, rules, practices and procedures. These should be in line with best international practices as reflected in INTOSAI Standards of Supreme Audit Institutions (ISSAIs) and ASOSAI Guidelines or pronouncements on auditing standards and the code of ethics, appropriately adapted to suit the needs of national regulations and standards. 1.6 Benefits of the QAR The benefits that can be derived from an effective quality assurance function include the following: 9 Ensure a high standard of audit work by improving audit performance and results; 9 Ensure that the audit is conducted in the most efficient and cost effective way; which can lead to savings in audit time and cost; 9 Improve the capability of the OAGN; 9 Maintain a high degree of integrity, accountability and competence; 9 Enhance the credibility and reputation of the OAGN; 9 Improve training and identification of additional training needs; 4 Quality Assurance Review Handbook, 2012 Office of the Auditor General, Nepal 9 Motivate the personnel of the OAGN; 9 Facilitate self-assessment of audit work performed; 9 Provide a management tool for measuring the performance of the OAGN; and 9 Avoid possible litigation by ensuring the OAGN’s work is of high standard and quality. 1.7 Quality Standards and Guidelines 1.7.1 Quality Standards and Guidelines of OAGN The following guidelines
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