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Centre for Financial and Management Studies (CeFiMS)

Public Financial Management: Audit and Compliance

Course Code:
C372
Unit value:

Introduction

Audit is an evolving function in the public sector. It has evolved from simply checking that money has been spent in the ways that governments intended and ensuring that none was stolen or misappropriated. Now it is also concerned with evaluating whether the application of funds represents good value for the taxpayer and, more recently, to evaluating whether government policies have been effective. The early functions of audit (ie the detection of fraud and technical errors in accounting) still remain but have now been overlain with new, more evaluative, functions.

The institutions carrying out audit have also evolved. All governments have some form of national auditing body or Supreme Audit Institution. These institutions are often very old, but some, such as China’s Audit Administration, established in 1983, are more recent. As with the evolution of the audit function, these national audit bodies have also expanded their role over time, and many, as you will see in this module, now include policy evaluation in their remit. At the same time, there is internal audit, offering an independent assessment of an organisation’s risk management, control and governance processes.

The purpose of this module is to give you an understanding of the different roles and purposes of audit and to enable you plan and commission audits. In addition, it will enable you to carry out some of the functions of the auditor. This is an ambitious aim, and the module ranges over the spectrum of audit activities, drawing examples from detecting fraud to evaluating the success of policies.

Resources

Study Guide

You will receive a looseleaf binder containing eight units and this is your core learning resource as it directs your study. Each unit has recommended reading either from the core text books or from supplementary readings which are included in the Course Reader. The study guide also directs you through the case studies which form an important part of this module.

Textbooks

Marlene Davies and John Aston (2011) Auditing Fundamentals, Prentice Hall (Pearson), 1st Edition.

Alan Millichamp and John Taylor (2012) Auditing, Cengage Learning, 10th Edition.

Readings

You are provided with a range of academic journal articles, extracts from supplementary text books and other reports or material. You will also consider a number of Case Studies. All these comprise the Course Reader which forms an essential part of this course.

Virtual Learning Environment

You will have access to the VLE, which is a web-accessed learning environment. Via the VLE, you can communicate with your assigned academic tutor, administrators and other students on the module using discussion forums. The VLE also provides access to the module Study Guide and assignments, as well as a selection of electronic journals available on the University of London Online Library.

Objectives and learning outcomes of the course

When you have completed the study of this module and its readings you will be able to:

  • describe the role of a supreme audit institution (SAI)
  • discuss the process of public sector audit
  • explain the differences between audit in the private sector and audit in the public sector
  • explain the fundamental requirements and standards which are relevant when undertaking audit of the public sector
  • discuss the role of INTOSAI, and the role of the International Auditing and Assurance Standards Board (IAASB), and the key standards developed by the IAASB
  • distinguish different models of SAI and explain how they are represented in various countries
  • explain the need for audit sampling, and how this is done
  • outline and discuss guidance and standards on audit reporting
  • assess the importance of value for money (performance) audit
  • present guidance on value for money audit
  • explain the principles of IT and information system audit
  • understand Risk Assessment and a Systems Based Approach.

Scope and syllabus

Unit 1 Public Sector Auditing
  • 1.1 Introduction to Auditing
  • 1.2 Accountability in the Public Sector
  • 1.3 External Audit in the Public Sector
  • 1.4 Internal Audit in the Public Sector
  • 1.5 Corporate Governance
  • 1.6 The UK Corporate Governance Code
  • 1.7 Executive Pay – Guidance to Government Reforms
  • 1.8 Conclusion and Summary
Unit 2 External Audit and Reporting
  • 2.1 The Role of External Audit
  • 2.2 Reporting on Financial Statements
  • 2.3 Probity Audit
  • 2.4 Verification Audit
  • 2.5 Supreme Audit Institutions
  • 2.6 Conclusion and Summary
Unit 3 Internal Audit and Control
  • 3.1 What is Internal Audit?
  • 3.2 Internal Audit and Internal Control
  • 3.3 Ethical Issues and the Internal Auditor
  • 3.4 Public Sector Internal Audit Standards
  • 3.5 Internal Control
  • 3.6 Cybernetic Control Theory
  • 3.7 Conclusion and Summary
Unit 4 Risk Assessment and a Systems-Based Approach
  • 4.1 Introduction to Risk
  • 4.2 Policy and Risk
  • 4.3 Risk Management
  • 4.4 Systems-Based Auditing
  • 4.5 System Documentation
  • 4.6 Sampling
  • 4.7 An IT Approach to Sampling
  • 4.8 Conclusion and Summary
Unit 5 Forensic Accounting
  • 5.1 What if Forensic Accounting?
  • 5.2 The COSO Framework
  • 5.3 Fraud and Irregularity
  • 5.4 Crime and Theft
  • 5.5 Modern Fraud
  • 5.6 Classic Fraud
  • 5.7 Conclusion and Summary
Unit 6 Value-for-Money and Performance Reviews
  • 6.1 Value-for-Money Measurement
  • 6.2 Performance Indicators
  • 6.3 Example 1: The Best Value Regime in the United Kingdom
  • 6.4 Performance Audit
  • 6.5 Example 2: European Union Spending on Climate Change
  • 6.6 Example 3: Education for Māori
  • 6.7 Conclusion and Summary
Unit 7 Contract Audit
  • 7.1 Corruption Risk in Public Procurement
  • 7.2 A Systems-Based Approach to Capital Construction Con-tracts
  • 7.3 Tender Evaluation
  • 7.4 Service Contracts
  • 7.5 Conclusion and Summary

Method of assessment

Students are individually assigned an academic tutor for the duration of the module, with whom you can discuss academic queries at regular intervals during the study session.

You are required to complete two Assignments for this module, which will be marked by your tutor. Assignments are each worth 15% of your total mark. You will be expected to submit your first assignment by the Tuesday of Week 5, and the second assignment at the end of the module, on the Tuesday after Week 8. Assignments are submitted and feedback given online. In addition, queries and problems can be answered through the Virtual Learning Environment.

You will also sit a three-hour examination on a specified date in October, worth 70% of your total mark. An up-to-date timetable of examinations is published on the website in April each year.