Our auditing work

What is an audit?

People and organisations that are accountable to others can be required (or can choose) to have an auditor. The auditor provides an independent perspective on the person's or organisation's representations or actions.

The auditor provides this independent perspective by:

  • examining the representation or action and comparing it with a recognised framework or set of pre-determined criteria;
  • gathering evidence to support the examination and comparison;
  • forming a conclusion based on that evidence; and
  • reporting that conclusion and any other relevant comment.

For example, the managers of most public organisations must publish an annual financial report. The auditor examines the financial report, compares its representations with the recognised framework (normally generally accepted accounting practice), gathers appropriate evidence, and forms and expresses an opinion on whether the report:

  • complies with generally accepted accounting practice; and
  • fairly reflects the organisations' financial performance and financial position.

The organisation publishes the auditor’s opinion with the financial report, so that readers of the financial report have the benefit of knowing the auditor’s independent perspective.

Transcript of this video

Auditors will carry out much of the annual audit on-site, to readily access systems and information and talk to staff. This helps to ensure that they understand the information they’re looking at.

Auditors' work generally includes:

  • determining whether significant financial and management controls are in place, working, and can be relied on to produce complete and accurate data;
  • verifying samples of transactions and account balances;
  • performing analyses to identify anomalies in reported data;
  • reviewing significant estimates and judgements made by the governing body/senior management;
  • confirming year-end balances;
  • considering any conflicts of interest and transactions with related parties;
  • determining whether accounting policies are appropriate and consistently applied; and
  • determining whether all financial statement and service performance disclosures are adequate.

Auditors' work can also include:

  • assessing appropriateness of the service performance framework, including the performance measures that will be reported externally;
  • reviewing and testing controls over performance reporting; and
  • verifying reported performance for important performance measures.

Other key features of an audit

The other key features of all audits are that the auditor:

  • plans the audit to enable the auditor to form and report their conclusion;
  • maintains an attitude of professional scepticism;
  • in addition to gathering evidence, makes a record of other considerations that need to be taken into account when forming the audit conclusion;
  • forms the audit conclusion based on the  assessments drawn from the evidence, taking account of the other considerations; and
  • expresses the conclusion clearly and comprehensively.

What's the value in being audited?

We commissioned some research to answer this question. In summary:

  • auditing is valuable because it reduces monitoring costs and helps to ensure that public resources are used properly;
  • auditing is a way for government to show that it is a reliable manager of resources, and a credible independent audit helps with this;
  • auditing supports good governance by providing assurance over the reliability of the financial statements and bringing issues to the attention of governing bodies;
  • auditing can help managers to control large and complex organisations;
  • auditing in the public sector can provide “political insurance” where government can deflect attention on to auditors when there are failings by public sector managers (insurance over financial statements or decisions by managers is not the intended purpose of auditing, but it can be valued for that reason); and
  • public sector announcements can be accepted by the public at face value but will eventually need to be audited to confirm that the information was reliable. 

What assurance does an audit aim to provide?

An audit aims to provide a high, but not absolute, level of assurance.

In a financial report audit, evidence is gathered on a “test” basis because of the large volume of transactions and other events being reported on. The auditor uses professional judgement to assess the impact of the evidence gathered on the audit opinion they provide.

The concept of materiality is important in a financial report audit. Auditors only report “material” errors or omissions – that is, those errors or omissions that are of a size or nature that would affect a third party’s conclusion about the matter.

The auditor does not:

  • examine every transaction – this would be too expensive and time-consuming; or
  • guarantee the absolute accuracy of a financial report – although the audit opinion does imply no material errors; or
  • discover or prevent all fraud (the organisations’ management is responsible for ensuring that internal control is adequate to minimise risks from fraud).

In other types of audit (such as a performance audit), the auditor can provide assurance that, for example, the systems and procedures are effective and efficient, or that the organisation has acted in a particular matter with due probity. However, the auditor might also find that only qualified (or even no) assurance can be given. In any event, the findings from the audit will be reported by the auditor.

What is auditor independence?

The independence rules

The auditor must be independent – both in fact and appearance. This means that the auditor must avoid situations that would:

  • impair the auditor’s objectivity; or
  • create personal bias that could influence (or could be perceived by a third party as likely to influence) the auditor’s judgement.

Relationships that could have an effect on the auditor’s independence include:

  • personal relationships (such as between family members);
  • financial involvement with the organisation (such as by way of investment);
  • provision of other services to the organisation (such as carrying out valuations); and
  • dependence on fees from one source.

The roles of auditor and management

Another aspect of auditor independence is the separation of the role of the auditor from that of the organisations'  management. Again, the context of a financial report audit provides a useful illustration.

Management is responsible for:

  • maintaining adequate accounting records;
  • maintaining internal control to prevent or detect errors or irregularities, including fraud; and
  • preparing the financial report in keeping with statutory requirements (normally generally accepted accounting practice) so that the report fairly reflects the organisations' financial performance and financial position.

The auditor is responsible for providing an opinion on whether (or the extent to which) the financial report fairly reflects the financial performance and financial position of the organisation.

Page last updated: 2 September 2021