Part 4: About our work

Annual audits

Each public entity is required to prepare and report its annual financial statements and, in many instances, to report on its service performance. The Auditor-General has a statutory duty to audit the information that the public entity must report, as set out in the legislation applying to each public entity. These independent annual audits play an essential role in the stewardship of public resources and corporate governance of public services.

Annual audits account for more than 87% of our annual expenditure. In 2012/13, we expect to provide audit opinions on more than 3900 financial statements, and about 400 performance statements. The audit opinion sums up the auditor's view on the reliability of the audited information.

An annual audit aims to provide assurance to the public about whether a public entity's financial statements (and any other information, such as performance statements, that is required to be audited):

• complies with a recognised framework, usually generally accepted accounting practice; and
• fairly reflects the public entity's performance and position.

Alongside this public assurance, annual audits also provide assurance to managers and governors of public entities about significant matters arising from the audit. We do this by preparing management reports for each public entity to detail our key findings and recommendations, and to give managers and governors an insight into how well their organisation's management systems and controls are working. For example, a management report can include our views on how a public entity is managing its resources and performance, including its policies, practices, and risk management.

As well as auditing the information that is required to be audited, we also assess the public entity's compliance with its main statutory obligations.

Forming an audit opinion on financial and performance statements and their accompanying notes requires the auditor to examine the underlying accounts and records, including the systems and processes used to generate this information. In Figure 7, we give examples of auditing standards that set out what our auditors are expected to do and consider during an annual audit.

Figure 7
Examples of what auditors are required to do and consider during an annual audit

We adopt a risk-based approach to gathering and assessing audit evidence, as required by auditing standards. This includes considering both the risk that a balance or disclosure is inherently likely to be wrong and the risk that each public entity's own systems of internal control will fail to pick up significant errors. To address these risks, we look for evidence that balances, results, and disclosures are not materially misstated.

The results of our auditing work, including our understanding of the public entity and its internal control systems, are collated once the audits of the public entities in each significant sector of activity (such as local government) are complete. Comparing the audit results between public entities within each sector then lets us identify and report on any systemic issues.

Performance audits, inquiries, and other studies

The Public Audit Act 2001 provides the Auditor-General with discretion to carry out performance audits and to inquire into a public entity's use of its resources.

Performance audits look at:

• the extent to which activities are carried out effectively and efficiently;
• compliance with statutory obligations;
• any acts or omissions to determine whether waste has resulted or may result; and/or
• any act or omission showing or appearing to show a lack of probity or financial prudence by a public entity or its members, office holders, or employees.

Our inquiries work largely reacts to issues of public concern. If there is general public interest in an inquiry, we may publicly report the results.

Our performance audits, inquiries, and other studies (such as those that lead to us publishing good practice guidance) have benefits for the audited entities and for the wider public sector. For example, our work can help to:

• develop methods to evaluate aspects of public sector management;
• encourage beneficial changes and best practice in the performance of public entities; and
• increase understanding of an audited entity, the wider environment in which public entities operate, and/or public sector management.

Our performance audit and inquiries work allows the Auditor-General to consider and provide advice about the above matters in greater depth than is appropriate within the statutory scope of an annual audit.

As well as the proposed new performance audits described earlier, we show in Figure 8 the performance audits that we started in 2011/12 and expect to finish in 2012/13.

Figure 8
Performance audits started in 2011/12 and due to be finished in 2012/13

Contributing to the international auditing community, and developing accounting and auditing standards

We make a significant ongoing contribution to the international auditing community. For example, we provide input to the development of accounting and auditing standards and to improving the quality of public sector auditing in the Pacific and beyond.

We take part in a range of national and international organisations, forums, and working groups, which develop guidance and standards for the auditing and accounting professions, and provide advice to public sector practitioners. These groups include:

• the External Report Board's two sub-boards – the New Zealand Accounting Standards Board and the New Zealand Auditing and Assurance Standards Board;
• the Financial Management Working Party of the Society of Local Government Managers; and
• the International Organisation of Supreme Audit Institutions.