The Content of Information in the Audit Reports
2.1.1 The Content of Information in the Audit Reports
The quality of information in the audit reports can be examined from the content of information; including the scope, objectives, objectivity and credibility of information in audit reports.
Scope and Objectives of Auditing
Wilkins (1995: 423-425) argued that there are differencesin the auditing scope for financial and performance auditing. He argued that the scope in financial auditing can be measured from the number of agencies audited and the proportion of opinions qualified, while the scope in performance auditing can be evaluated from the number and value of audit recommendations for improvement in the public sector. He also emphasised that the purpose of an audit office is to fulfill the mandate for the audit office to improve the performance of public sector agencies.
The recent growth of the auditing scope in the public sector has changed from financial auditing to performance auditing to examine the achievements and outputs of public sector agencies as demanded by the public. Guthrie (1992: 27) also underlined that auditing for only financial statements may reduce the scope of audits. Moreover, Mikesell (2003: 216) underlined that audits can no longer just focus on financial detail concerned with how money was spent, but must go further andgive attention on performance audits. Glynn et.al (1992: 66) argued that effective auditing occurs when it is done through evaluation of the purpose, impact and accountability of programs undertaken by the government, which also commonly called ‗value for money‘ auditing.
According to Brown and Pethtel (quoted by Wheat 1991: 386), the scope of performance audits includes examining and analysing the auditees‘ structure, planning, decision making, personnel, compliance with statutes, quality of goods and services, efficiency, output and purposes of programs and projects, performance standards, and policy alternatives and strategies. This is much broader than that of a traditional financial audit. Furthermore, Funnell (2003: 115) believed that performance audits havemore strategic consequences of the public accountability of government that protect the right of citizens to get better public goods and services. This means that the scope of performance auditing is broader than for financial audits in terms of assessing the results, outputs, benefits and impacts of public sector organisations in the short, medium and long term.
In Sri Lanka since 1971, the Auditor General has been allowed to conduct more than financial audits and has the authority to conduct performance audits of public sector operations(Hemaratne 2005:23-25). In Australia, under various public sector reforms to improve the accountability of government, the auditing scope of the Australian National
Audit Office (ANAO) has moved from financial auditing to performance and environmental audits (Barrett 1999:48). Guthrie (1990: 280-282) indicated a positive relationship and impact of various scopes of auditing to levels of accountability, which are called the ‗ladder of accountability‘. This is illustrated in Figure 2.1.
Figure 2.1 Different Levels of Accountability and Scope of Auditing
Source: A dapted from Guthrie, J., 1990, ’The contested nature of performance auditing in Australia’ in J., Guthrie, L., Parker and D., Shand, D. (ed.), The Public Sector: contemporary readings in accounting and auditing, HBJ Publisher, Sydney, pp. 273-284.
Figure 2.1 shows five levels of accountabilityeach with a different scope of auditing. The lowest level of accountability is related to the ‗accountability for probity and legality ‘ within the scope of financial auditing, which is applied to avoid misuse and to ensure that public funds and other resources are used properly. The second level is ‗process accountability,where internal and external auditors apply the scope beyond
financial auditing to ensure the internal system and procedures are recorded and acted on adequately. In this second level, auditors provide performance indicators and standards to measure the achievements of organisations or individuals. For example, to check methods for assets safeguarding and the accuracy of information systems, to promote operational financial auditing to ensure the internal system and procedures are recorded and acted on adequately. In this second level, auditors provide performance indicators and standards to measure the achievements of organisations or individuals. For example, to check methods for assets safeguarding and the accuracy of information systems, to promote operational
on the standard of performance against a set of criteria. In this level, auditors focus on the efficiency, effectiveness and economy of public resources. The fourth level is ‗program accountability, ‘ within the scope of performance auditing, to determine whether the objective of each program in the public sector is found to promote effectiveness in public administration. This scope of auditing is also called ‗effectiveness‘, ‗results‘ or ‗program‘ auditing. The highest level impact of auditing is ‗policy accountability‘, which focuses on performance auditing that is concerned with outcomes and opinions on economy and effectiveness. In policy accountability, public sector auditing focuseson examining and evaluating public sector policies. In this level, auditing has an important role and function to evaluate and assess public policies so that they are relevant and based on public needs and interest.
As all public funds need to be audited by the Auditor General as an external auditing institution, Mulgan (1997: 113-114) argued that private companies that provide public services using state finances also need to be audited by the Auditor General. However, he believedthat as private firms, they have a right to have their own private sensitive data and information. In this case, he suggested that if the public thinks that private firms could not provide accountability in providing their services, the government should not allow the service to be contracted out.
Access for Reliable Audit Evidence
According to Tandon et al. (2007: 77-78), audit reporting can be effective if the report is supported by sufficient, appropriate, accurate and reliable evidence. He defines sufficient evidence as the quantum of audit evidence that is obtained (quantity of evidence), and appropriate evidence as relevant and reliable evidence (the quality of the evidence). Moreover, he defined accurate evidence as the capability of providing correct information that conforms exactly to fact and is performed with care and precision, while
reliable evidence is the degree of the auditors‘ confidence in checking the originality of audit evidence. Wilkins (1995: 424) argued that the reliability of documents provided by auditees is considered for reporting on the performance and quality of agencies‘ services.
In addition, valid and reliable data can be defined as information and methods that are well grounded, based on truth, acceptable and assured for effective government auditing (Larson 1983).
Effectiveness of audit can be measured by ability and power to access the data and information as evidence in auditing. ―Full access to all records and documents containing information ‖ relating to the accounts and operation of government is essential for government auditing (Barrett 1996:137-146). Sufficient, competent and relevant evidence can provide a reasonable basis for auditors to make effective judgments, conclusions and recommendations in auditing; in contrast, inadequate evidence and information can lead to ineffective auditing (Larson 1983: 280; Thai 1992: 349).
Objectivity and Credibility of Information
Objectivity of information is a fundamental criterion for the quality of audit report information. Objective information refers to reporting information by auditors thatis constructed by ―using appropriate auditing techniques and having a good set of working papers to demonstrate professional judgment ‖ (Sikka 2009: 145). As a result, the audit report users can be confident in the facts, analysis and findings presented. Without such objectivity, auditors will not provide objective criticism and will not be able to produce objective recommendations (Al-Nofaie 2003:22-24; Seno 2004b:4-7). Thus, objectivity of information can be defined as information reported by auditors using appropriate audit techniques and professional judgment to produce objective audit opinions and recommendations.
By providing unbiased and objective information in audit reports about whether state finances and other state resources are responsibly and effectively managed to achieve certain results, auditors help government agencies to achieve accountability and integrity to improve their programs, and to encourage trust from their stakeholders. It has been argued by some scholars (Russell and Regel 2000: 211; Tandon et. al 2007) that objectivity of information will be achieved if auditors are free from any bias and influences. These influences can be from internal pressures such as personal beliefs or interest, or external pressures such as pressure from auditees (Ferguson and Rafuse 2004:10-15; Mukhamediyeva 2004:7). In addition, presenting objective audit reports can reduce the possibility of misusing the reports for political purposes (Yoedono 2002b:6-7). However, Palmer (2008: 281-283) found the possibility of bias in audit reports can be caused by audit manuals that are not based on the research and literature to control the By providing unbiased and objective information in audit reports about whether state finances and other state resources are responsibly and effectively managed to achieve certain results, auditors help government agencies to achieve accountability and integrity to improve their programs, and to encourage trust from their stakeholders. It has been argued by some scholars (Russell and Regel 2000: 211; Tandon et. al 2007) that objectivity of information will be achieved if auditors are free from any bias and influences. These influences can be from internal pressures such as personal beliefs or interest, or external pressures such as pressure from auditees (Ferguson and Rafuse 2004:10-15; Mukhamediyeva 2004:7). In addition, presenting objective audit reports can reduce the possibility of misusing the reports for political purposes (Yoedono 2002b:6-7). However, Palmer (2008: 281-283) found the possibility of bias in audit reports can be caused by audit manuals that are not based on the research and literature to control the
Credibility is significant in presenting unbiased evidence in audit reports to convince stakeholders. According to Power (1994: 47) objectivity of information in auditing is a very important as one of measurement to see the quality of audit reports. In addition, Schwartz and Mayne (2005: 175) and Santiso (2008:67-84) argued that the performance of audit reports and effectiveness of audits depends on the credibility of audit findings, which are crucial for holding up the reputation of the Supreme Audit Institutions (SAIs).
Therefore, objectivity of information can be defined as information presented in audit reports based on honesty, high integrity and fair professional views and examination without any personal and external influences intruding on judgment. Credible information is related to the quality of information in audit reports that can be trusted by stakeholders, auditees or users of the reports.