Audit Practice Statement
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Audit Practice Statement.
The role of the Auditor-General
The Auditor-General is an independent
officer of the Victorian Parliament, appointed under the
Constitution Act 1975 to conduct and report on financial and
performance audits in the Victorian public sector. The Audit Act
1994 (the Act) governs the powers and functions of the
Auditor-General. The Act provides the legal basis for the
Auditor-General’s access to all government information and the
freedom to report findings arising from audits to Parliament.
The Auditor-General’s principal aim is
to provide assurance to Parliament on the accountability and
performance of the Victorian public sector.
Why we audit
In the Westminster system of
government, all authority for government activity ultimately stems
from Parliament. Public sector agencies are therefore accountable
to Parliament for their use of public resources and the powers
conferred on them by Parliament.
The public sector outlays tens of
billions of dollars each year in delivering an extensive range of
services for all Victorians. To assist it to oversee the public
sector, Parliament seeks independent assurance that agencies are
operating economically, efficiently and effectively and in
accordance with Parliament’s purpose—and that the financial reports
of public sector agencies are presented fairly to ensure
accountability. It is the Auditor-General’s role to provide this
The Auditor-General, through
independent and forthright reports on the results of audits,
assists Parliament and citizens to have a better understanding of
the performance of the public sector.
These reports, together with
recommendations provided to agencies, assist agency management to
improve their governance, control environments and the efficiency,
effectiveness and economy of their activities.
Who do we audit?
The Auditor-General is responsible for the audit of around 550
public sector organisations including government departments,
public bodies, government business enterprises, superannuation
funds, health services, universities, TAFE institutes, local
government and water corporations. The Act also assigns to the
Auditor-General responsibility for carrying out audits to establish
whether government grants provided to non-government organisations
or persons have been applied for the purposes for which the grant
was made, and whether the money has been applied economically,
efficiently and effectively.
How we audit
Although there are different types of audits undertaken by the
Auditor-General, they share general principles and elements.
The cornerstone of auditing is independence. Accordingly,
auditors must avoid situations where their objectivity could be
compromised or where bias could influence their judgement. In the
public sector, auditors must be independent from Executive
Government. This independence is enshrined in the Constitution
Act 1975, which gives the Auditor-General complete
discretion when deciding whether to conduct an audit, how to carry
it out and how to prioritise any particular matters, subject to
Audits rely on high-quality evidence to form conclusions. Audit
staff gather information and evidence from a wide range of sources,
including agency records, data analysis, interviews with relevant
staff members and stakeholder surveys. Auditors can also gather
information from sources outside the sector, such as universities
and similar organisations from other jurisdictions.
The Act requires that our audits are
conducted in accordance with Auditing and Assurance Standards
Board’s (AUASB) standards. They cover planning, communication,
conduct, evidence, quality assurance, delegations and reporting
aspects of an audit. The Act allows the Auditor-General to apply
additional auditing standards for the conduct of audits provided
these are disclosed in the Victorian Auditor-General’s Office’s
(VAGO) annual report.
Access to information
The Act provides the Auditor-General
and VAGO staff with wide-ranging powers to access information
needed during the course of an audit, irrespective of any
restrictions on disclosure imposed by other legislation. This
includes statutory secrecy provisions and Cabinet- or
commercial-in-confidence confidentiality. The Act allows for the
premises of a public sector entity to be searched, and individuals
can be compelled to provide documents in their possession, custody
or control. In these circumstances, the Auditor-General and staff
are required to maintain the confidentiality of any information
gathered. Balancing these broad powers, individuals involved in our
audits are protected by strict procedural fairness requirements in
the Act, including the right to complain to the Victorian
Inspectorate (VI) in certain circumstances.
With independence and wide-ranging
powers comes the responsibility to undertake audits efficiently,
effectively, in compliance with legislation and to high standards.
A number of internal and external quality and accountability
mechanisms are in place to help us better meet the needs of
Parliament and audited agencies. These include reviews of audits
and reports by peers and experts, and self-assessment of VAGO and
its audit processes against a framework sanctioned by the
Australasian Council of Auditors-General. In addition to the annual
financial statement audit, every three years an independent
performance audit of VAGO is coordinated by the Public Accounts and
Estimates Committee (PAEC) of Parliament.
Effective, regular and timely
communication with audited agencies is a vital part of the audit
process. For performance audits, entry interviews are held to
clarify audit scope and decide communication arrangements. Advance
notice of performance audits is usually first provided through our
annual plan and then, in all instances, through the issue of audit
specifications. As the Act requires, we consult with PAEC and
relevant agencies in the development of specifications for
performance audits and provide final copies of specifications
before we begin the conduct phase of our audits. Significant
findings and emerging issues are regularly shared with agencies
throughout the audit and heads of audited agencies are invited to
provide comments for inclusion in the final audit report. For
financial audits, the auditing standards and our audit policies
require us—or our appointed audit service provider— to:
- attend audit committee meetings and
meetings with management as part of our planning, conduct and
completion of the audit
- communicate in writing the key audit
deliverables, such as the audit strategy, interim and final
management letters, the audit report and a closing report.
Reporting, natural justice and procedural fairness
Results of audits in the private sector are reported principally
to the client, or audited body. Under the Act, the Auditor-General
reports to Parliament on results of audits. These reports highlight
issues of importance to Parliament and often generate considerable
Parliamentary and community debate. The reports may include any
information or recommendations related to the audit, but must set
out the reasons for all opinions expressed.
Entities and officials are afforded natural justice and
procedural fairness as reports are finalised, with particular
protections provided to any named individuals. Legislation
prohibits the Auditor-General from including in a report any
information that would prejudice criminal proceedings and
investigations by some integrity bodies.
Coordinating with Victoria’s integrity system
Sometimes VAGO will share information with other Victorian
integrity bodies, to fulfil our obligations under legislation and
respond appropriately to problems that we become aware of. VAGO has
obligations under the Act to notify the Independent Broad-based
Anti-corruption Commission or the VI of corrupt conduct or conduct
relevant to the functions of the VI. We can also share certain
other kinds of information with Victorian integrity bodies and the
police, although secrecy restrictions may still apply.
Scope and limitations
Audit findings and recommendations
- the effectiveness, efficiency and/or
economy of government agencies, programs or services
the quality of management and use of resources
- improvements in management practices
- the fair presentation of annual
financial statements or performance statements (where
- compliance with legislative and other
- wastage or lack of probity or
financial prudence in the management of public resources.
Audits reports cannot:
- question the merits of policy
objectives of the government
- provide an absolute assurance of the
truth of agency information, or the effectiveness of internal
- enforce recommendations
- resolve individual matters of
Primary responsibility for the
detection and prevention of irregularities, fraud, illegal acts and
errors remains with the agency. It is the responsibility of the
agency to keep proper accounts, maintain adequate internal
controls, safeguard assets and prepare reports.
Financial audits provide independent
assurance to Parliament and the public that the information
contained in the financial reports of public sector entities is
presented fairly, in accordance with Australian Accounting
Standards and applicable legislation, and is reliable and
Our financial audits give rise to:
- the issuing of audit opinions as to
whether the financial statements of individual public sector
agencies and the Annual Financial Report of the State of Victoria
present fairly the financial position, cash flows and results of
operations for the year under audit in accordance with the relevant
financial reporting framework
- management letters to audited
agencies on matters arising from the audits, including observations
about the quality of internal controls in place, accounting issues
and compliance with applicable laws and standards
- reports to Parliament on significant
issues arising out of audits, either for individual agencies, for
the public sector as a whole or for a particular sector such as
local government, public hospitals or water entities.
We also conduct a review of the
state’s Estimated Financial Statements and our review opinion is
included in the State’s Budget Papers.
Performance statement audits
For some sectors, such as local
government, water entities and some TAFE institutes, financial
audits also provide assurance on agency performance statements.
Unlike performance audits, audits of performance statements express
an audit opinion on whether the performance indicators are relevant
to the agency’s objectives and appropriate for assessing the
agency’s performance, and whether reported performance fairly
represents actual performance.
Resourcing financial audits
Financial audits are undertaken for
around 550 public sector entities each year. Around a third of
these audits are undertaken by VAGO staff.
The remainder are undertaken by
private sector firms—audit service providers—contracted by the
Auditor-General. Audits performed by audit service providers are
undertaken in accordance with auditing standards and the Act and
are also covered by VAGO’s quality and accountability mechanisms.
While audit service providers may conduct the audits, the audit
opinions for all 550 public sector entities are signed by, or under
delegation of the Auditor-General.
Financial audits are conducted in
accordance with professional auditing standards using a risk-based
audit methodology. An audit strategy is developed for each agency,
based on an assessment of existing management controls and
organisational and environmental risks. The methodology guides
auditors through the financial audit process.
A performance audit is an audit which
evaluates whether an organisation or government program is
achieving its objectives effectively, economically and efficiently,
and in compliance with all relevant legislation. Performance audits
extend beyond the examination of the financial affairs and
transactions of a government agency to encompass wider management
issues of significance to the community.
Each year, we undertake a range of
performance audits, involving selected agencies in the Victorian
public sector. All performance audits are primarily conducted by
VAGO staff, with limited involvement by external specialists.
All audits are conducted using VAGO’s
own performance audit methodology which complies with the Act and
relevant professional auditing standards.
Selecting topics for performance
The Auditor-General considers many
potential performance audit topics annually, with a focus on
quality and the effective use of resources. A selection of these
topics is included in the annual plan, outlining the proposed
forward work program of VAGO. VAGO uses a series of steps and
principles to help the Auditor-General determine which performance
audits to undertake, including consultation with PAEC and agencies
as required by the Act.
Identify and analyse public sector risks and issues
We undertake broad research and
consultation to identify key risks and issues within public sector
portfolios as well as analyse public sector performance. The
analysis focuses on emerging trends, inherent risks and challenges
that may influence the achievement of government objectives.
Identify potential areas of audit
Potential areas of audit interest
include programs or initiatives that are identified as having
significant inherent risks, underperformance issues, or strong
public interest. To prevent overlap, we consider whether a topic is
receiving suitable scrutiny through another review process.
Assess risk and materiality
Assessing the risk and materiality of
a potential audit topic means measuring its possible economic,
social and environmental impact, including its financial value, the
number of people that may be affected, and the social or
Suggestions and concerns from the
Members of the public sometimes raise
concerns with the Auditor-General about the activities of public
sector agencies. Although this helps the Auditor-General decide on
future audit priorities, it is rare that community suggestions
result in an audit report solely on that topic as our legislation
limits what and who we can audit. However, community concerns do
often help our audit teams choose which systems and organisations
to focus on as part of their broader audit program.
As we cannot resolve individual
complaints, we try to help members of the community find the right
way to address their concerns. Specific complaints about public
sector agencies are directed initially to the agency concerned, and
then towards other accountability authorities such as Ombudsman
Victoria or the Independent Broad-based Anti-corruption Commission,
the appropriate government minister or local Member of