CARIBBEAN ORGANIZATION OF SUPREME AUDIT INSTITUTIONS (CAROSAI) AUDIT OF CAPITAL PROJECTS Table of Contents Foreword ................................................................................................................................... iv Acronyms ................................................................................................................................... v Chapter 1: Introduction ............................................................................................................... 1 Purpose and Scope of Manual ............................................................................................... 1 Outline of Manual ................................................................................................................... 1 Limitations of the Manual ........................................................................................................ 3 Chapter 2: Public Accountability and Legislative Oversight ........................................................ 5 Introduction ............................................................................................................................ 5 Public Accountability ............................................................................................................... 5 Entities and Entity Officials ..................................................................................................... 5 Supreme Audit Institutions (SAIs) ........................................................................................... 6 Parliaments and Public Accounts Committees (PACs) ........................................................... 6 Chapter 3: Types of Audits and the Related Auditing Standards ................................................ 7 Introduction ............................................................................................................................ 7 Types of Audits ....................................................................................................................... 7 International Standards of Supreme Audit Institutions (ISSAIs) ............................................ 13 Chapter 4: Capital Projects and Procurement ...........................................................................17 Introduction .......................................................................................................................... 17 Definition and Nature of Capital Projects .............................................................................. 17 Definition and Nature of Procurement ................................................................................... 18 The Procurement Cycle for Capital Projects ......................................................................... 18 Audit of Capital Projects ....................................................................................................... 26 Chapter 5: Strategic Planning – Selecting Capital Projects to Audit ..........................................27 Introduction .......................................................................................................................... 27 The Level of Required Knowledge ........................................................................................ 27 Determining Universe of Potential Capital Projects to Audit .................................................. 28 Establishing Criteria to Make the Selection ........................................................................... 29 Making the Selection ............................................................................................................ 30 Liaison with Entity Officials ................................................................................................... 31 Quality Assurance ................................................................................................................ 31 Chapter 6: General Audit Planning ............................................................................................33 Introduction .......................................................................................................................... 33 One Step or Two (and the Stop or Go Decision) ................................................................... 34 Defining the Audit Objective(s) and the Scope of the Audit ................................................... 35 Obtaining an Understanding of the Entity and the Specific Capital Project ........................... 35 Obtaining an Understanding of the Internal Controls ............................................................ 38 i Assessing Materiality (and Aggregate Expected Error and Performance Materiality) ............ 39 Setting the Overall Level of Assurance ................................................................................. 41 Determining Criteria .............................................................................................................. 41 Assessing Risks, Including the Risk of Fraud ....................................................................... 45 Determining Sources of Audit Assurance for Each Criterion ................................................. 47 Developing an Audit Design Matrix ....................................................................................... 51 Documenting the Planning Process ...................................................................................... 52 Using Outside Experts as Advisers ....................................................................................... 52 Liaison with Entity Officials ................................................................................................... 53 Quality Assurance ................................................................................................................ 53 Chapter 7: Detailed Audit Planning ...........................................................................................55 Introduction .......................................................................................................................... 55 Developing/Tailoring the Audit Programme .......................................................................... 55 Budgeting the Audit .............................................................................................................. 59 Staffing the Audit .................................................................................................................. 60 Scheduling the Work ............................................................................................................ 61 Liaison with Entity Officials ................................................................................................... 63 Quality Assurance ................................................................................................................ 63 Chapter 8: Fieldwork .................................................................................................................65 Introduction .......................................................................................................................... 65 Purpose ................................................................................................................................ 65 General Approach ................................................................................................................ 65 Changes to Audit Approach and Audit Programme............................................................... 66 Dealing with Conflicting Audit Evidence and Different Points of View ................................... 67 Supervising the Audit; Monitoring Progress .......................................................................... 68 Liaison with Entity Officials ................................................................................................... 69 Documentation ..................................................................................................................... 69 Completion of Audit and Subsequent Events ........................................................................ 70 Quality Assurance ................................................................................................................ 71 Chapter 9: Evaluating Results – Findings, Conclusions and Recommendations .......................73 Introduction .......................................................................................................................... 73 “Findings” Contained in Audit Reports .................................................................................. 73 Summarising Individual Errors and Deviations ...................................................................... 74 Performing an Overall Evaluation ......................................................................................... 76 Reaching Audit Conclusions ................................................................................................. 80 Making Recommendations ................................................................................................... 81 Assessing the Level of Overall Assurance Achieved ............................................................ 81 ii Quality Assurance ................................................................................................................ 82 Chapter 10: Reporting ...............................................................................................................83