Analysis of Audit ReportsOBJECTIVES AND TECHNIQUES

2 DECEMBER 2014 - SOUTHERN SUN, OR TAMBO AIRPORT

Public Sector OverviewPAC and governance – PAC as the ultimate audit committee for the public sector

Central government (public sector accounting - IPSASs) vs. parastatals (International Financial Reporting Standards (IFRS))

Methods of analysis, therefore, differ

Financial statements vs. appropriation accounts vs. value for money

Report to management – controls

Controls and impact on financial reports – modification of an audit opinion

The public sector is a significant part of the economy.

Therefore, any improvement in public sector performance would have an effect on economic growth and reduce stress on fiscal policy.

Roles and responsibilities From your understanding and your jurisdiction, define the roles of the following in the audit process:

Role of the ministry, parastatal finance function

Role of the auditor general

Role of the PAC

Role of the “Accounting Officer” To prepare financial statements in accordance with the set accounting standards.

Role of the Auditor To express an opinion on the financial statements.

Raise control weaknesses, risks and implications and make remedial recommendations.

Role of the PAC To analyse the audit reports and make recommendations for monitoring and implementation.

Prepare reports for tabling in the House.

Enforce public participation in the accountability process.

How does the PAC discharge the analytical role?

Performance can be evaluated from three perspectives:

compared internally over time (prior periods to current period),

compared to similar processes in other organisations or jurisdictions (benchmarking),

and compared to external sources of information (standard empirical data).

And using various financial analysis methods:

Ratio analysis

Cash flow analysis

Comparative financial statements

Trend analysis

Variance analysis

Ratio Analysis Definition

- analysis of the interrelationship between two financial figures.

Examples

- liquidity ratios

- solvency ratios

- profitability ratios

- etc

Cash flow analysisComparative financial statementsTrend analysis

Cash flow analysis

- analysis of the change in the cash position during a period.

Comparative financial statements

- analysis of financial statements of the entity for two years or of the two entities of similar type.

Trend analysis

- analysis of the trend of the financial ratios of the company over a number of years greater than two.

Trends to analyse-Expenditure trends-Vote trend analysis-Project development rate-Resource utilisation rate-Etc

Variance Analysis Comparison of the actual expenditure incurred or income raised to budgeted income or expenditure.

Can be a positive (favourable) or negative (unfavourable) variances depending on the objectives

Analysis Toolkit Overview1. Overview of the Analysis Toolkit

1. Separate worksheet for appropriation accounts and SE&P2. Drop down menus3. Recommended generic follow up questions on findings4. Category analysis per key AG findings5. Category score and final score6. Fail or pass result (sub-classified for action points)7. Summary of results8. Action points

2. Analysis Rules1. Complete each question – answer and rating2. 2 or 3 score requires follow up question3. Only drop down cells should be completed4. Overall summary and action plans

Analysis Toolkit Focal Areas Corporate Governance

Management of Assets

- Property, plant and equipment

- Receivables and revenue

- Inventories

- Cash and bank, investments, investment property

Policies and procedures

Procurement procedures

Supporting documentation and fraud

Regulatory compliance

Audit opinion

Financial analysis

Value for Money

Citizen Feedback Model

Presenter Details

Clive M. Munemo CA(Z), RPA(Z)

Managing Consultant

Clive and Associates (Zimbabwe)

+263 773 022 673

clive@cliveandassociates.com

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