ISSAI 1600The International Standards of Supreme Audit Institutions, ISSAI, are issued by the docx

Practice Note for ISA 700 The experts considered ISA 700 applicable for audits of financial statements in the public sector.. Practice Note for ISA 705 The FAS has considered ISA 705 a

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ISSAI 1600 The International Standards of Supreme Audit Institutions, ISSAI, are issued by the International

Organization of Supreme Audit Institutions, INTOSAI For more information visit www.issai.org

I N T O S A I Financial Audit Guideline –

Special Considerations―

Audits of Group Financial Statements (Including the Work of Component

Auditors)

This Financial Audit Guideline draws on a not final redrafted version of International Standard on Auditing (ISA) 600, ”Special Considerations― Audits of Group Financial Statements (Including the Work of Component Auditors)” developed by the International Auditing and Assurance Standards Board (IAASB) and published by the International Federation of Accountants (IFAC) The proposed ISA is included in this Guideline with the permission of IFAC.

Exposure Draft of INTOSAI Practice Note, pages 3-13

(ISA 600 enclosed for reference)

For Comments

2 February-1 May 2009

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Date: January 29, 2009 Ref no: 14-2008-0111

Request for comments:

Draft Practice Notes for International Standards on Auditing (ISA) 600, 610,

700, 705, 706,710 and 720

The enclosed Practice Notes have been developed by the Special Expert Teams no 4 and 5 and approved for exposure by the Financial Audit Guidelines Subcommittee at their meeting in January, 2009

With this letter the Practice Notes are exposed for comments from

the entire INTOSAI community The exposure period expires on

May 01, 2009

Format of Comments

Commenting on exposure drafts is open to all members of INTOSAI and other interested stakeholders All comments will be considered

by the experts and back-office experts involved in development of the guidance before issuing the final guidance for approval by Financial Audit Guidelines Subcommittee and thereafter the Governing Board

Request for general comments

Comments may be issued as desired, however it is preferable if the comments are structured to give an answer on the following basic questions:

Do you agree with the stated applicability for the ISAs in the public sector environment?

Do you agree with the stated additional guidance given in the Practice Notes? If not what additional areas/guidance do you think should be added?

In your opinion, will the drafted guidance together with the respective ISA provide relevant guidance for the public sector auditor?

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All comments provided will be exposed on the FAS website as well

as on www.issai.org after the commenting period is closed

FAS especially encourage and highly appreciate comments

from Courts of Accounts

Request for specific comments

Practice Note for ISA 600

Paragraphs P3 and P4 is drafted to clarify that if the group

auditor refers to a component auditor in the group auditor’s

report and therefore not take the sole responsibility, the audit is

not in compliance with the ISAs This is no difference related to

the public sector, and is already contained in the ISA Do you

consider it relevant to have the responsibility clarified as drafted?

The practice Note has some appendices (Appendix 2-4) providing

additional public sector related examples or matters related to

the appendices of the ISA Do you have additional suggestions to

be included in the appendices?

PN 600 does not provide additional guidance directed to the

Court of Accounts environment Representatives from Court of

Accounts system are highly welcome to suggest any such

guidance relevant for the PN 600

The FAS has considered that the issue of determining the

independence for internal auditors needs to be explained as

included in paragraph P4 Do you agree on the issues to consider

in order to determining the independence and objectivity in the

public sector in addition to those FAS out in ISA 610?

The FAS did not identify a need for any specific Court of

Accounts guidance Representatives from Court of Accounts

system are especially requested to suggest guidance if needed

The experts considered ISA 700 applicable for audits of financial

statements in the public sector The experts considered the

illustrative example reports in the ISA to be relevant to the

public sector as well and decided not to include any additional

examples Do you agree?

The Practice Note to ISA 700 provides guidance on how to make

reference to auditing standards that are applied in the public

sector (paragraph P12) Do you consider the reference relevant?

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The Practice Note addresses the issue on references to

compliance with ethical requirements in the auditor’s report in

P9 Do you agree with the guidance provided?

INTOSAI Fundamental Principles (paragraph 4.0.20.) deals with

inclusion of recommendations and responses from the audited

entity within the auditor’s report FAS considered such inclusion

not to be acceptable in the Auditor’s report Therefore the

guidance in P5 has been drafted Do you agree with the guidance

provided?

The Practice Note for ISA 700 does not provide additional

guidance directed to the Court of Accounts environment Experts

representing the Court of Accounts system are highly welcome to

suggest any such guidance relevant for the Practice Note for ISA

700

The FAS has considered ISA 705 applicable for audits of financial

statements in the public sector as explained in paragraph P2

The FAS did not consider it necessary to include any additional

examples of modified opinions in addition to the illustrative

examples included in the ISA The differences in the public sector

would mainly relate to the addressee and the subject for

modification Do you agree, or would you prefer that examples

were included in the Practice Note?

Accounts guidance Experts representing the Court of Accounts

The FAS considered ISA 706 applicable for audits of financial

statements in the public sector, and have concentrated on

providing additional guidance relevant to the public sector P3

provides examples relevant to the public sector on circumstances

when an Emphasis of Matter(s) paragraph may be issued, in

addition to the examples of circumstances in paragraph A1 of the

ISA If you have examples of other relevant circumstances that

can render an Emphasis of Matter(s) paragraph, please provide

such examples

The FAS considered ISA 710 applicable for audits of financial

statements in the public sector both related to comparative

financial statements and corresponding figures However, the

experts were a bit concerned with not being aware of the extent

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of the existence of comparative financial statements in the public

sector It would therefore be helpful if you could include in your

response information regarding whether you are auditing

comparative financial statements and if so, if the guidance

provide is relevant

system are especially requested to provide and suggest specific

guidance if needed

Paragraph A1 of the ISA addresses other reporting

responsibilities The FAS considered that there was no additional

need for guidance in this respect Do you agree?

system are especially requested to provide and suggest specific

guidance if needed

Thank you very much for taking the time to consider these Practice

Notes

Jonas Hällström

FAS Director

Please send your comments by January, 31 2009 to:

projectsecretariat@riksrevisionen.se

or by mail to:

Riksrevisionen

The FAS Project Secretariat

114 90 Stockholm

Sweden

or by fax to: +46-8-5171 4111

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T able of Contents

B ACKGROUND 3

SCOPE OF THE ISA 3

C ONTENT OF THE P RACTICE N OTE 3

A PPLICABILITY OF THE ISA IN P UBLIC S ECTOR A UDITING 4

A DDITIONAL G UIDANCE ON P UBLIC S ECTOR I SSUES 4

DEFINITIONS 4

ACCEPTANCE AND CONTINUANCE 5

UNDERSTANDING THE GROUP,ITS COMPONENTS AND THEIR

ENVIRONMENTS 5

UNDERSTANDING THE COMPONENT AUDITORS 6

MATERIALITY 6

RESPONDING TO ASSESSED RISKS 7

CONSOLIDATION PROCESS 7

COMMUNICATION WITH THE COMPONENT AUDITOR 8

COMMUNICATION WITH GROUP MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE OF THE GROUP 8

A PPENDIX 1 9

EXAMPLE OF BASIS FOR QUALIFIED OPINION AND REPORT ON

OTHER LEGAL AND REGULATORY REQUIREMENT FOR USE

IN THE PUBLIC SECTOR 9

A PPENDIX 2 11

EXAMPLES OF MATTERS ABOUT WHICH THE GROUP ENGAGEMENT

TEAM OBTAINS AN UNDERSTANDING 11

A PPENDIX 3 12

EXAMPLES OF CONDITIONS OR EVENTS THAT MAY INDICATE RISKS

OF MATERIAL MISSTATEMENT OF THE

GROUP FINANCIAL STATEMENTS 12

A PPENDIX 4 13

REQUIRED AND ADDITIONAL MATTERS INCLUDED IN

THE GROUP ENGAGEMENT TEAM’S LETTER OF INSTRUCTION 13

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ISSAI 1600

Practice Note1 to International Standard on

Auditing 600 (Revised and Redrafted) – Special

Considerations― Audits of Group Financial

Statements (Including the Work of Component

Auditors)

Background

This Practice Note provides supplementary guidance on ISA 600 (Revised and

Redrafted) – Special Considerations― Audits of Group Financial Statements

(Including the Work of Component Auditors) It is read together with the ISA The

Practice Note is effective the same date as the ISA

Scope of the ISA

The International Standards on Auditing (ISAs) apply to group audits The ISA 600

deals with special considerations that apply to group audits, in particular those that

involve component auditors

This ISA is effective for audits of group financial statements for periods beginning

on or after December 15, 2009

Content of the Practice Note

P1 The Practice Note provides additional guidance for public sector auditors related to:

a Objectives

b Definitions

c Acceptance and Continuance

d Understanding the Group, Its Components and Their Environments

e Understanding the Component Auditors

f Materiality

g Responding to Assessed Risks

h Consolidation Process

i Communication with the Component Auditor

j Communication with Group Management and Those Charged with Governance of the Group

1 All Practice Notes are considered together with General Considerations in the Financial Audit

Guidelines

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Applicability of the ISA in Public Sector Auditing

P2 ISA 600 (Revised and Redrafted) is applicable to auditors of public sector

entities in their role as auditors of the group financial statements

P3 In some public sector environments it may be required by law or regulation

or common practice to make reference to a component auditor in the group

auditor’s report on the group financial statements In these situations, if the

group auditors’ report does not clearly indicate that the reference does not

diminish the group auditors’ responsibility for the group audit opinion, the

audit is not in compliance with paragraph 11 of ISA 600 (Revised and

Redrafted)

P4 Public sector group auditors who refer to a component auditor in the group

auditors’ report, without making such indication of responsibility as

described in paragraph 11 of ISA 600 (Revised and Redrafted), are advised

to seek guidance from other sources, such as national auditing standards

and other generally accepted sources These other sources may direct the

public sector group auditor to inquire about the professional reputation and

independence of the component auditor and to develop appropriate

measures to assure the coordination of activities with those of the

component auditor in order to achieve a proper review of matters affecting

the consolidation process for the group financial statements

Additional Guidance on Public Sector Issues

Objectives

P5 The objectives of a financial audit in the public sector are often broader

than just reporting on financial statements The objectives may include

additional auditing and reporting objectives related to, for example,

compliance with authorities including budget, accountability and/or

effectiveness of internal control The audit mandate, or obligations arising

from legislation, regulation, ministerial directives, government policy

requirements, or resolutions of the legislature, may result in additional

reporting requirements However, even where there are no such additional

reporting requirements, there may be public expectations in regard to

compliance with authorities or to the effectiveness of internal controls, and

the auditor's attention to such matters Therefore, public sector group

auditors keep such expectations in mind, are alert throughout the audit to

areas that may give rise to such non-compliance and communicate with

component auditors regarding such expectations

Definitions

P6 When considering the definitions in paragraph 9 of ISA 600, in addition to

referring to the guidance in A2 to A4 of ISA 600, additional characteristics

may apply in the public sector as follows;

a Component- In a government environment, components may also

include agencies, departments, bureaus, corporations, funds,

component units, districts, joint ventures and non-governmental

organizations

b Significant Component- In a public sector environment the

determination of significant components may also involve matters that

have heightened public sensitivity, such as national security issues,

donor funded projects or the reporting on tax revenue

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Acceptance and Continuance

P7 Paragraphs 12 to 14 of ISA 600 establish requirements for acceptance and

continuance as group auditor The inability to be involved in the work of a

component auditor as discussed in paragraph 12 and the inability to obtain

sufficient appropriate audit evidence is less likely to occur in a public

sector environment, because laws or regulations may prohibit restrictions

of access to information

P8 When complying with the requirements of paragraph 13 of ISA 600, in

addition to referring to the guidance in paragraph A18 of ISA 600, public

sector group auditors may communicate with the legislature or other

regulatory bodies as appropriate, about removing restrictions on access to

audit evidence imposed by group management or laws or regulations

Appendix 1 of this Practice Note provides an example of a modified

opinion due to restriction of access to evidence and an example report to

the legislature

P9 The significant changes that affect the group engagement team’s ability to

obtain sufficient appropriate audit evidence as mentioned in paragraph

A12 of ISA 600 may in the public sector be affected by additional

changes, such as;

Changes in laws and regulations affecting the financial management information system, and

Changes in the nature, sources or amounts of funding, including changes in the structure of public debt

Understanding the Group, Its Components and Their Environments

P10 Paragraphs 17 to 18 of ISA 600 establish requirements for the

group auditor to understand the group and its components and guidance is

provided in paragraph A23 to A26 of ISA 600 In certain cases in the

public sector, the Government may have relationships with independent

entities through transfers or through its role as a regulator for certain

industries In these cases it can be difficult to determine whether the

Government’s relationship with an entity justifies their inclusion in the

group For example;

The application of the financial reporting framework may result in the exclusion of a specific type of agency, department, bureau, corporation, fund, district, joint venture or non-governmental organization from the group financial statements In such cases, if the public sector group auditor believes that this outcome would result in misleading group financial statement presentation, the public sector group auditor may, in addition to considering the impact on the auditor’s report, also consider the need to communicate the matter to the legislature or other appropriate regulatory bodies

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