Definition of Audit:

Audit includes an examination of the books of accounts, other

documents, stores, assets etc. relating to the receipts and expenditure of
government, statutory public authorities and public enterprises with a
view to ensuring that rules and orders framed by the competent authority
in regard to financial matters have been followed; that sums due have
been properly assessed, realized and brought to account; that
expenditure has been incurred with due regularity and propriety; that
assets have been properly utilized and safeguarded, that public resources
have been used economically, efficiently and effectively and that the
accounts truly represent facts.

Types of Audit:

(a) Financial Statement Audits: A financial statement audit is the

examination of the financial statements of an audited entity with the
primary objective of expressing an opinion on whether the financial
statements truly present the expenditures and receipts in the case of
accounts prepared on cash basis (Government Accounts). In the case of
accrual accounts the opinion shall be whether financial statements
present a fair and true picture of the financial position, results of
operations, and cash flows.

(b) Regularity or Compliance Audits: A regularity or compliance

audit is an examination of the management of expenditures and receipts,
and financial statements and transactions of the audited entity to
determine whether the entity has complied with specific applicable laws,
rules, regulations, procedures, etc. that apply to it.

(c) Performance Audits: A performance audit or value-for-money

audit is an objective and systematic examination of a public sector
organizations programme, activity, function, or management systems
and procedures to provide an assessment of whether the entity in the
pursuit of predetermined goals has achieved economy, efficiency and
effectiveness in the utilization of its resources (the 3 Es).

Management of Audit:

Audit Planning
Audit Execution
Audit Reporting
Audit Follow-up

Constitutional and Legislative Authority:

Articles 127-132 of the Constitution: Constitutional Provisions of

authority
Comptroller & Auditor General (Additional Functions) Act-1974
Comptroller & Auditor General (Additional Functions)
(Amendment) Act-1975
Comptroller & Auditor General (Additional Functions)
(Amendment) Ordinance 1983

Audit Observations:
 1. Ordinary Audit Observations
2. Serious Financial Irregularities

Advance Para and Draft Para :

Advance Para: Serious financial irregularities (SFIs) which are

sent to the Ministry for reply are called Advance Paras.
Draft Para: When no reply is sent or the reply is not helpful to
resolve the observations then the Advance Para is developed into
draft Para for incorporation in the report of the Auditor General.

Different Process of settlement of audit observations:

1. a) Spot disposal during audit:

Audit observations can be settled during audit when query is issued

and when necessary rectification is done by the auditee.
Audit observations can be settled during seen and discussion
meeting on the last day of the audit by providing necessary reply
along with required information covering, recovery, adjustment
rectification of errors or irregularities.
b) Disposal in headquarter:
Audit observations can be settled through broadsheet reply.
Broadsheet reply can be sent to audit directorate in respect of both
ordinary audit observations and serious financial irregularity.
c) Disposal in the Meeting:
Audit observations can be settled through the holding of bi- lateral
and tri-partite meeting. Bi- lateral meeting takes place between the
 audit directorate and the auditee. Tri-partite meeting is attended by
representative from the Ministry, Audit directorate and the auditee.

1. d) Disposal by the Public Accounts Committee (PAC):

Public Accounts Committee scrutinizes the appropriation accounts

and the annual finance accounts of the government.
Public accounts committee scrutinizes CAGs Audit reports.

Audit experience in the field audit :

The actual experience of audit while undertaking field audit are as

follows:

Audit is not looked upon as an aid to management

Auditee is generally uninterested in the work of the auditor
Financial statement is not prepared on time by the auditee
Financial statement is not prepared correctly
Cash book is not maintained properly
Delay in producing required vouchers, accounts, and relevant
documents by the auditee affects the progress of audit work
Record keeping is not audit friendly

Response to audit query is not immediate, detailed, and well

documented. Sometimes reply is not given at all.
Discussion on Local Audit Report (LAR) takes place on the last
day of audit program. Experience shows that in many cases auditee
does not want to discuss the report in detail.
 Instead of substantial answer to the Local Audit Report (LAR), the
auditee responds by saying that reply would be given in due course
Recurrence of similar type of irregularities
Correct information is not furnished to the audit party regarding
the number of outstanding paras in respect of the Organization.
Sometimes accounts personnel are not well conversant with
necessary rules and regulations
Physical verification is not encouraged

Problems regarding settlement of audit observations:

Audited:

Broadsheet reply is not given on time and is not given properly.

Sometimes it is not supported by necessary documents.
Similar reply is repeated over and over
Actions are not taken against those responsible for irregularities
Administrative and post facto sanction is not given
Write off method is not resorted to
Verified treasury chalan is not provided
Corrective measures are not taken
In case of DPA expenditure, statement of expenditure is not
obtained from the development partner
Delay in sending minutes of bilateral and tri-partite meeting
Lack of initiative on the part of Project Director to arrange bi-
lateral meeting
 For serious Financial irregularities (SFIs) broad sheet reply is not
given from the ministry in time
Department sends reply on SFIs directly, not through the Ministry
Minutes of the tri-partite meeting is sent by the Department not by
the Ministry which is the acceptable system
Audit Directorate
Delay in taking action on the minutes of bilateral and tri-partite
meeting
Delay in the disposal of broadsheet reply received from the
Ministry and the Department
Delay in conducting physical verification following
recommendations of bi-lateral and tri-partite meeting

Streamlining the process of settlement of audit observations:

Broadsheet reply received form Department and Ministry should

be reviewed by the audit Directorate without delay
The list of audit observations should be updated project wise and
year wise
List of audit observations should be reconciled
Bi-lateral and tri-partite meeting should be organized on a regular
basis
Minutes of bi-lateral and tri-partite meeting should be sent to audit
Directorate within three days
Audit Directorate should respond to minutes of the meeting within
three days
 Project Director should arrange bi-lateral meeting when the audit
team is conducting audit
Crash program should be taken with proper explanation and
supported by appropriate evidence
Broadsheet reply should be given with proper explanation and
supported by appropriate evidence
For SFIs, broadsheet reply should be given by the Ministry on
every occasion.