APPROVED by the Auditor General
Decree No. V-26 of 21 February 2002
(As latest amended on 1 February 2006 - No. V-15)

PUBLIC AUDITING REQUIREMENTS

I. GENERAL PROVISIONS

1. Public Auditing Requirements (hereinafter referred to as the Requirements) shall set out general public auditing principles, public audit (hereinafter referred to as the audit) conducted by the officials of the National Audit Office (hereinafter referred to as the auditors) and shall specify relations with the audited entities.
2. Public Auditing Requirements are designed following the Law on the State Control, Law on Local Self-Government, INTOSAI (International Organisation of Supreme Audit Institutions) Auditing Standards as well as National Auditing Standards established by Lithuanian Chamber of Auditors.
3. The National Audit Office of Lithuania shall, while supervising the lawfulness and effectiveness of the management and use of the State property and the implementation of the State budget, shall carry out the external audit.
4. Lithuanian National Audit Office under its mandate set forth in the Law on the State Control shall carry out audits of:
4.1. State budget implementation; use of State funds; management, use and disposal of the State property;
implementation of the budget of the State Social Insurance Fund; implementation of the budget of the Compulsory Health Insurance Fund; use by respective fund management institutions and beneficiaries of funds of the European Union allocated to the Republic of Lithuania and implementation of programmes in which Lithuania participates;
4.2. use of funds allocated from the State budget for municipal budgets; management, use and disposal of municipal property in accordance with the scope of public auditing as defined in the Law on State Control;
4.3 financial support received from the EU following international agreements concluded by the Republic of Lithuania, according to procedures set forth by the Lithuanian and EU legislation, and submits audit documentation to respective bodies;
5. When auditing the EU financial support, the present Public Auditing Requirements shall be applied so far as these audits shall be not regulated by international agreements concluded by the Republic of Lithuania and provisions of the Lithuanian and EU legislation regulating mandatory external audit of the EU financial support.
6. When carrying out joint audits with Supreme Audit Institutions of other countries the present Public Auditing Requirements shall be applied so far as the NAOL shall have no obligations to apply special provisions agreed between SAIs for a special audit.
7. The National Audit Office of Lithuania shall develop audit methodology for municipal controllers (control services) and following procedures set forth by the Auditor General Decree shall carry out external reviews of audits conducted by municipal control services.
8. Municipal controller (control service) while supervising the lawfulness, efficiency, economy, and effectiveness of the management and use of the municipal property and the implementation of the municipal budget, shall carry out the external audit.
9. Municipal controller (control service) while performing the Audit, shall follow the present Public Auditing Requirements and methodologies developed by the National Audit Office of Lithuania.

II. PUBLIC AUDITING REQUIREMENTS

Requirement No. 1. The Main Principles of Public Auditing

The following Requirement shall set forth the main principles of public auditing.

10. The National Audit Office of Lithuania shall carry out financial and performance audit.
11. The audit scope shall be set forth by the Law on State Control.
12. Methodologies developed by the National Audit Office of Lithuania shall explain the present Public Auditing Requirements and facilitate auditors to apply them during audit.
13. Audit shall be based on the following principles:
13.1. applicability of international as well as national auditing standards,
13.2. professional competence;
13.3. independence of auditor's opinion;
13.4. public accountability;
13.5. responsibility of audited entity;
13.6. consistent application of accounting standards;
13.7. internal control;
13.8. data accessibility;
13.9. development of auditing standards;
13.10. avoidance of conflict of public and private interest.
14. Rights of auditors and audited entities shall be set forth by the Law on State Control, the present Public Auditing Requirements, and other legal acts.
15. The responsibility of auditors to adhere to the principles set forth in the Requirements as well as in the Code of Ethics of the National Audit Office of Lithuania.

Requirement No. 2. Planning

The following Requirement shall regulate basic principles and provisions for audit planning.

16. The competence of the National Audit Office of Lithuania shall be implemented by planning.
17. Planning shall aim to ensure timely, economic, efficient, and effective discharge of each audit.
18. In order to implement audit strategy the National Audit Office of Lithuania shall set forth audit scope in Annual Public Audit Programmes.
19. Public Audit Programmes shall be approved and adjusted by the Auditor General.
20. Public Audit Programmes shall be designed in active co-operation between individual structural units of the National Audit Office of Lithuania.
21. Specific individual audit shall be carried out having issued an audit assignment in accordance with the procedure set forth by the Auditor General.
22. Financial and performance audit planning shall be regulated by Requirements No. 3 and 4 of the present Public Auditing Requirements.

Requirement No. 3. Financial Audit

The following Requirement shall set forth basic provisions concerning the aim, scope, and implementation of financial audit.

23. The aim of the financial audit shall be to assess the internal control of an audited body including finance management, the regularity of use, management, and disposal of the audited body (state or municipal) property; to issue an independent audit opinion on trueness and fairness of financial statements and other accounts.
24. Financial audit shall cover:
24.1. assessment of transactions that have taken place and have been disclosed in financial statements as well as issuing opinion on financial statements.
24.2. study of budgeting process, internal control, finance management, accounting system as well as assessment of regularity of contracts concluded by the audited body and solutions concerning the use, management, and disposal of assets.
Financial audits of a limited scope may take place to cover individual accounts or individual areas such as finance management, examination of internal control, etc.
25. Audit shall usually start at the beginning of a financial year.
26. When carrying out the financial audit auditor shall make sure that while managing and using state or municipal property as well as state or municipal funds the audited entity has not breached legislation or other legal acts. Auditor shall design audit procedures in a way that allow him/her to detect errors and violations of legal acts that could have direct and material impact on financial statements.
27. Planning shall comprise of collecting data on audited entity, study of accounting system and internal control.
28. Planning shall assure that the most significant audit areas shall be treated with a due care, audit strategy designed and audit work concluded within terms set forth.
29. When planning an audit the auditor shall take into consideration particularities of audited entity business, financial indicators, accounting policy, and internal control. Auditors shall assess inherent and control risks, determine materiality levels and main audit areas.
30. Auditor shall design an audit plan setting forth the audit scope and the course of implementation.
While developing the audit plan the auditor shall design and submit a detail audit programme indicating substantive audit procedures and their scope.
31. Repealed.
32. Audit plan and audit programme may be adjusted taking into consideration events revealed in the course of the audit and their assessments.
33. Audit evidence shall be collected in the course of audit by carrying out control tests and substantive audit procedures.
Control test shall mean audit procedure that provides audit evidence concerning the efficiency and consistency of accounting and internal control.
Substantive audit procedure shall mean audit procedure that provides audit evidence concerning material errors and misstatements in financial statements. The above procedure may be either a substantive audit procedure for transactions and account balance, or analytical procedure.
34. Control tests and substantial audit procedures shall be carried out with audit samples selected.
35. Auditor shall assess whether evidence obtained from control tests support the level of the estimated control risk, and evidence obtained from substantive audit procedures support the following assertions of financial statements: completeness, occurrence, measurement/evaluation, regularity, and disclosure.
36. Completeness shall mean that each and every transaction, event and account balance of the reporting period have been recorded.
37. Occurrence shall mean that transactions and business events that have been recorded in the balance sheet and other accounts have actually taken place and that all assets and liabilities recorded in the balance sheet are owned solely by the audited entity.
38. Measurement/evaluation shall mean that audited entity assets and liabilities have been recorded with a correct value.
39. Regularity shall mean that all transactions have been carried out in compliance with requirements of laws and other legal acts.
40. Disclosure shall mean that transactions and business events have been recorded in registers and financial statements according to accounting principles and rules.
41. Control test or substantive audit procedure may provide evidence for more than one assertion.
42. In case control tests provide sufficient evidence on accounting and internal control effectiveness the scale of substantive audit procedures may be reduced however the minimum of them shall be carried out.
43. Financial audit results shall be reported in audit report, opinion on financial statements shall be presented in audit opinion (certificate - transl.).
44. Audit opinion shall be issued and presented to the audited entity within 80 calendar days after the audited entity has submitted its annual financial statements to the Ministry of Finance however not later than by the 1st of June.
45. Auditors may issue unqualified, qualified, or adverse audit opinion or a disclaimer of opinion on financial statements.
46. Unqualified opinion shall be issued in cases when auditors have no material remarks concerning financial statements, accounting system or irregularities that could have impact on audit opinion.
47. Qualified opinion shall be issued in cases when auditors have detected irregularities and/or cannot issue unqualified opinion without certain remarks.
48. Adverse opinion shall be issued in cases when auditors have detected violations of legal acts and essential errors that make material impact on financial statements of the audited entity.
49. Auditors shall issue a disclaimer of opinion in cases when they cannot collect sufficient, relevant, and reliable audit evidence as well as in cases of significant limitations on auditors' work.
50. The audited body shall be responsible for the preparation and submission of the financial statements and auditors shall be responsible for designing and issuing audit opinion.

Requirement No. 4. Performance Audit

The following Requirement shall set forth basic provisions concerning the aim, scope, and implementation of performance audit.

51. The aim of the performance audit shall be to evaluate audited entity's public and internal management in terms of economy, efficiency and effectiveness and to reveal opportunities for performance improvement.
52. Economy shall mean minimising the cost of resources used for an activity, having regard to the appropriate quality of the results.
53. Efficiency shall mean relationship between the output and/or resources used to produce it.
54. Effectiveness shall mean the extent to which objectives are achieved as well as the relationship between outcomes and resources used to achieve them.
55. Task for an individual audit may be set forth as assessing one or more aspects of audited entity performance.
56. Performance of audited entity as well as compliance with legal acts shall be assessed up to the level as appropriate for achieving performance audit objectives and evaluating audited entity performance.
57. Performance audit shall cover:
57.1. assessment of performance economy against principles and good practice of public administration;
57.2. efficiency audit of use of financial, human, and other resources including information systems; study on performance indicators and monitoring system; follow-up study on audited entity activities while eliminating detected shortcomings, as well as any other study considered by auditor as significant and appropriate for improving the performance of the audited entity;
57.3. effectiveness audit related to performance evaluation of audit entities; assessment of achieving objectives of programmes implemented. Effectiveness audit usually should aimed at assessing the effect achieved by the audited entity i.e. the impact of its performance on society, taxpayers, and other stakeholders. Such audit can also examine how the audited entity monitors, analyses, and assesses the impact (on external environment) of its performance.
58. The audit subject shall be the performance of the audited entity (entities) or its individual parts such as strategic objectives, plans, programmes implemented, etc.
59. The planning shall consist of strategic study and audit planning.
60. Strategic study shall cover the permanent monitoring of areas assigned to auditors, collection of data as well as determination and analysis of potential performance problems.
61. Results of strategic study shall be presented in a working paper designed by the auditor.
62. Preliminary study report shall be developed at the audit planning stage.
63. Preliminary study report shall contain reasons for the strategic study, its methods, areas examined, and performance problems detected. Auditor should provide motives either for further investigation of the audit problem (audit plan shall be attached), or for abandoning the main study.
64. The Audit Plan shall cover audit objectives, audit subject, main audit hypothesis and/or questions, which should be answered in order to achieve audit objectives, audit scope, audit methods and procedures, audit management, time schedule, means of audit quality control. The Audit Plan may also indicate the need to use specialists (experts) in certain areas, reliance on other audit work, assessment criteria and expected impact of the audit.
65. In order to assess collected data the auditor shall choose performance indicators taking into consideration audit objectives and audited entity; objectives set forth for the audited entity as well as other criteria, which in auditor's opinion shall be applied and are relevant to the specific case. Assessment criteria shall be discussed with the audited entity.
66. Repealed.
67. Audit results shall be presented in the audit report.
68. After audit recommendations have been issued auditor shall follow-up changes in audited entity performance, monitor the implementation of audit recommendations and elimination of detected shortcomings.
69. The audited entity and (or) the institution which have received audit recommendations following audit results within the term set forth by the National Audit Office of Lithuania, but no shorter than 30 calendar days shall inform the National Audit Office of Lithuania about implementation of recommendations given in the audit report. Information on the follow-up shall be presented by the auditor in a respective working paper.

Requirement No. 5. Internal Control and Risk Assessment

The following Requirement shall set forth basic provisions concerning internal control assessment, types of risks, risk assessment and its relation to audit assurance.

70. Internal control shall mean the entire set of controls established by the management of a public legal entity in order to provide reasonable assurance that the operations of the public legal entity are legal, economic, efficient, effective and transparent, that the strategic and other plans are implemented, that assets are safeguarded, that financial information and reporting are reliable and exhaustive, that contractual liabilities to third persons are satisfied and that all identified risks are managed.
71. Audit risk shall mean the risk of expressing wrong audit opinion on material errors and misstatements of financial statements.
72. Inherent risk shall mean the risk of material errors and misstatements resulting from the nature or character of transaction, economic event or other internal and external factors.
73. Control risk shall mean the risk that the accounting system and/or internal control will not detect and correct errors and misstatements within account balances or transaction series that may be material by themselves or material alongside with errors and misstatements within other account balances or transaction series.
74. Financial audit shall operate at the 95 per cent assurance level. Auditors while issuing audit opinion must be at least 95 per cent confident that financial statements are free from material errors and misstatements.
75. Audit assurance shall be built up from three sources: inherent, controls, and substantive assurance.
76. Auditor shall examine audited entity business, accounting system, and internal control, determine levels of inherent and control risks in order to plan properly substantive procedures that will allow to reduce the audit risk up to an acceptable 5 per cent level.
77. Auditor shall assess internal control in two stages: by examining internal control environment and controls and assessing whether controls are effective and were permanently in place during the whole audited period. While assessing internal control in individual account areas auditor shall collect information supporting the following assurances of financial statements: completeness, occurrence, measurement, regularity, and disclosure. On the basis of results of tests carried out the auditor shall assess the level of internal control reliability.
78. In the course of performance audit, internal control shall be examined and assessed as it supports the economic, efficient, and effective performance of the audited entity.
79. The auditor may use results of Internal Audit in order to reduce the amount of audit work. Internal audit work shall be used when the auditor has concluded that internal audit work may be useful (relevant) for achieving audit objectives and ascertained that methods used by Internal Audit are sound and its conclusions have been based on sufficient, relevant, and reliable evidence.

Requirement No. 6. Audit Evidence

The following Requirement shall regulate audit evidence, requirements set for evidence, sources of evidence, and evidence collecting procedures.

80. Audit evidence shall mean documented information that is used by auditor to support his/her findings, assessments, conclusions, and recommendations.
81. Audit evidence shall be sufficient, reliable, relevant, and reasonable.
82. Sufficient audit evidence shall mean the quantitatively sufficient information for achieving audit objectives.
83. Reliable audit evidence shall mean objective information obtained by using reliable sources and methods.
84. Relevant audit evidence shall mean information that is relevant for achieving audit objectives.
85. Reasonable audit evidence shall mean information obtained in the most efficient way. Costs for obtaining information shall not exceed its value.
86. A source of audit evidence may be information obtained from the audited entity and/or a third party.
87. Audit evidence may be obtained by applying the following audit procedures: computation (reperform calculations), confirmation (confirmation or denial of certain information), inspection (verification of documents and assets), observation (of processes, procedures, etc.), enquiry (asking questions and obtaining answers), analytical, and other procedures.

Requirement No. 7. Sampling

The following Requirement shall regulate the use of sampling in audit work, types and stages of sampling.

88. Audit sampling shall mean the selection of items that represent the population or application of audit procedures to less than 100 per cent of population examined allowing the auditor to assess the whole population and draw conclusions regarding the whole population.
89. Population shall mean the whole of items picked out on the basis of one common feature; the totality of elements from which auditor selects samples to support his/her conclusions.
90. Audit sampling may be carried out in each audit area.
91. Auditor may choose statistical or non-statistical sampling methods.
92. Audit sampling shall be carried out through the following stages: sampling planning, selection of samples, testing, and evaluation of results.

Requirement No. 8. Materiality

The following Requirement shall regulate materiality and its determination.

93. Materiality shall mean quantitative and/or qualitative expression of certain issues that may be important to financial statements and/or performance.
94. Information shall be considered as material if awareness of it may influence the opinion of the users of information contained in the financial statements of the audited entity.
95. While planning the audit auditor shall consider the materiality of various data and facts and focus on the most significant audit areas.
96. The quantitative materiality shall be determined by the value of the item. Auditor shall determine the materiality level on the basis of the value indicator that gives the most adequate view of the scale of financial activities of the audited entity.
97. The qualitative materiality shall be determined on the basis of the origin, type and contents of the item.
98. In financial audit the materiality may be determined for the whole financial statements as well as for individual accounts balances, classes of transactions, etc.

Requirement No. 9. Analytical procedures

The following Requirement shall regulate analytical procedures and motives for their application.

99. Analytical procedures shall mean the analysis of material indicators and trends.
100. Analytical procedures may be used at each stage of the audit: examining the business, accounting systems of the audited entity, identifying risks, determining audit scope, audit method, supporting the auditor's conclusions or audit opinion, etc.
101. Analytical procedures may be applied using different types of procedures and methods. The choice of analytical procedures shall depend on audit type, scope, aims, preliminary information on audited entity and its particularity.
102. The type of analytical procedure and method shall be determined by the auditor himself/herself taking into consideration information available, his/her knowledge and experience.

Requirement No. 10. Working Papers

The following Requirement shall regulate preparation, registration, handling, and storing of working papers.

103. Auditor's work shall be documented in working papers.
104. Auditor shall develop working papers on the basis of information collected and obtained.
105. Working papers facilitate to plan and perform the audit.
106. Working papers shall contain information that is sufficient, reliable, and relevant to audit objectives.
107. Repealed.
108. Working papers shall be arranged, handled and stored following the National Audit Office of Lithuania Rules on Documentation.

Requirement No. 11. Audit Report and Opinion

The following Requirement shall set forth requirements for audit report and opinion.

109. Results of performance audit shall be presented in audit report, while those of financial audit - in audit report and audit opinion.
110. The audit report shall contain the following data: name of the report, date, number, data of audit assignment, audit objectives and subject (audited areas), general information on the audited entity, audit methods, findings, conclusions, and recommendations. Performance audit report shall indicate evaluation criteria as well. The audit report may contain additional information which is supportive in auditor's view.
111. Audit report contents shall be clear, user friendly and useful. Findings, conclusions, and recommendations presented in the report shall be based on sufficient, reliable, relevant, and reasonable evidence.
112. Draft report shall be cleared with the audited entity (by means of correspondence, meetings, analysis of answers, comments, etc.)
113. Repealed.
114. Repealed.
115. Repealed.
116. Audit opinion shall include name, date, address, Introduction and Audi Scope paragraphs, provision on audited entity management and auditor's responsibilities, as well as the section of the matter emphasis and audit opinion statement.
117. Audit opinion shall be signed by the same persons who have signed the respective audit report.
118. Audit reports and opinions shall be arranged, handled and stored following the National Audit Office of Lithuania Rules on Documentation.

Requirement No. 12. Use of External Experts, Reliance on Work Done by External Auditors

The following Requirement shall regulate the use of external experts, reliance on work done by external auditors

119. The auditor may use specialists (experts) in respective fields if audit work requires special knowledge and competence.
120. The specialists (experts) shall be employed after the assessment of their knowledge and competencies as well as their independence from the audited entity, objectivity of the work performed, and suitability of their working methods. Specialists (experts) shall be engaged in accordance with the rules of procedure established by the Auditor General.
121. The need for using the work of external auditors shall be determined by auditors that have been assigned to carry out the audit.
122. Work of external auditors shall be used after deciding that external auditor's work may be useful (relevant) for achieving audit objectives and has ascertained that methods used by the external auditor are sound and his/her conclusions have been based on sufficient, relevant, and reliable evidence.
123. Auditors who have used the work of specialists (experts) and/or external auditors shall bear responsibility for the correctness of their own conclusions.

Requirement No. 13. Audit Quality

The following Requirement shall set forth requirements for audit quality.

124. Audit quality management shall ensure that the audit will be carried out in accordance with the present Public Auditing Requirements.
125. Audit quality shall be assessed at the level of the whole institution and individual audits.
126. At the institution level the audit quality shall be assessed from the point of view of audit quality assurance policy implementation as well as audit compliance with the present Public Auditing Requirements.
127. The quality of individual audits shall be assessed by applying supervision and review procedures.
128. Supervision shall be a part of audit management.
129. The principle of the review shall be as follows: working papers of public audit shall be reviewed by the other person, not the auditor who has developed the documents.
130. Review shall be internal and external.
131. In financial audit internal review shall be detail and overall.
132. Detail review shall be carried out by a person who is managing the audit.
133. Overall review shall be carried out by a person who has issued the audit assignment.
134. Repealed.
135. External review shall be carried out after the audit has been concluded and it shall be carried out by persons who have not participated in the respective audit.

III. Repealed