Risk Based Approach to Financial Audit

Template 1- Preliminary Engagement Activities

Purpose: To determine whether pre-conditions exist to facilitate the conduct of the audit by the Supreme Audit Institution (SAI) Issues to Consider Working paper referenc e Describe the factors and events that were observed and noted Evaluate the Impact on the overall audit strategy Reference d to overall audit strategy

1. Relevant Ethical Requirements 1.1 Integrity (a) Document whether auditors have complied with the SAIs procedures designed to ensure a high level of integrity. e.g. SAI has adopted a Code of Ethics 1.2 Objectivity (a) Document the steps that the audit team has taken to ensure that objectivity is maintained throughout the audit e.g. - Declaration of relationships with audited entity or its management - Other independence/ ethical requirements of the SAIs Code of Ethics

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Issues to Consider Working paper referenc e Describe the factors and events that were observed and noted Evaluate the Impact on the overall audit strategy Reference d to overall audit strategy

1.3 Independence (a) SAI: Document the authority/ mandate of the SAI to carry out this audit. (b) Staff State whether all team members have signed their independence declarations/statements (if applicable) Record any subsequent changes to the information submitted in the signed declarations. Matters that would affect their independence in performing audit have been discussed among team members . Document results of discussion. Following factors could affect the independence of team members: i. Conflict of Interest Are any family members employed at the entity to be audited (e.g. spouse, children, siblings, and any close relatives?) ii Financial/Self Interest Does any team member or the above mentioned parties have financial or other interests (supplier or customer) in the entity to be audited iii Intimidation Indicate whether the

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Issues to Consider Working paper referenc e Describe the factors and events that were observed and noted Evaluate the Impact on the overall audit strategy Reference d to overall audit strategy

2. Acceptance and Continuance 2.1 Assess whether there is a requirement for specialized skill or knowledge that the SAI may not possess and the availability of resources by considering the following: Nature of the audited entitys business or operations Experience, skills, qualifications of the audit staff Staff availability Experts required Timing 2.2 Evaluate the reputation and integrity of management and those charged with governance by considering the following: Management Letters Public Accounts Committee minutes Media Reports Letters/Memoranda to the SAI 2.3 Are there any significant matters arising from the previous years audit that could impact the current years audit? 3. Terms of Engagement 3.1 Determine if the statements are prepared in accordance with the accepted financial reporting framework by assessing the following: (a) Nature of the entity (e.g.

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Government company, Central Government, non-profit organizations, Statutory Authorities, Internationallyfunded Projects) (b) Purpose of the Financial Statements (e.g. General Purpose, Specific User e.g. Funding Agency, Parliament) (c) Nature of the Financial Statements e.g. A complete set of financial statements, (e.g. statement of financial position, income statement, statement of cash flow, statement of changes in equity, notes to the accounts). Single financial statementAppropriation account. (d) Financial Accounting Framework (e.g. IFRS, IPSAS, Government directives etc.) 3.2 Consider and document whether management acknowledges and understands its responsibilities in relation to the financial statements. E.g. a signed engagement letter including the following: The preparation of financial statements in keeping with the applicable framework Implementing internal

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Issues to Consider Working paper referenc e Describe the factors and events that were observed and noted Evaluate the Impact on the overall audit strategy Reference d to overall audit strategy

controls relative to the financial statement that are adequate to ensure that they are free from material misstatement, whether due to fraud or error. To provide the auditor with access to information such as: (a) records, documentation, other matter relevant to the financial statements (b) Additional information that the auditor may request (c) Unrestricted access to persons within the entity from whom the auditor may need to obtain audit evidence. The responsibilities of management to make available to the auditor draft financial statements and any other accompanying information in time to allow the auditor to complete the audit in accordance with the proposed timetable. 3.3 Consider whether management acknowledges and understands the role and responsibilities of the auditor. 3.4 Scope of the audit engagement (a) Is the scope of the engagement clearly

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understood by management as detailed in the Terms of Engagement? (b) Are there any scope limitations identified? (c) Are there any changes to the scope? 3.5 Recurring audits (a) Consider the need to revise the engagement letter or remind the entity of existing terms if: There are indications that the entity misunderstood the objective and scope of the audit There is a recent change of senior management A significant change in ownership, nature or size of the entitys business Change in legal or regularity requirements Change in the financial reporting framework Change in other reporting requirements 3.6 Acceptance of a change in the terms of the Audit Engagement where such discretion in deciding terms of appointment is possible: Consider a request to change the terms of the audit engagement.

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Issues to Consider Working paper referenc e Describe the factors and events that were observed and noted Evaluate the Impact on the overall audit strategy Reference d to overall audit strategy

(Review the justification given for the request) CONCLUSION:

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