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Public Auditing Requirements

 

APPROVED by the Auditor General
Decree No. V-26 of 21 February 2002
(As latest amended on 20 June 2017 - No. V-164)
 

 

PUBLIC AUDITING REQUIREMENTS

I. GENERAL PROVISIONS

  1. The Public Auditing Requirements (hereinafter referred to as the Requirements) set out general principles of public auditing (hereinafter referred to as the audit) conducted by the officials of the National Audit Office (hereinafter referred to as auditors).

  2. The Public Auditing Requirements have been drafted following the Law on National Audit Office, Law on Local Self-Government, International Standards on Auditing published by the International Auditing and Assurance Standards Board of the International Federation of Accountants (hereinafter referred to as the International Standards on Auditing), and Standards of the International Organisation of Supreme Audit Institutions INTOSAI.

  3. Audit shall be conducted in accordance with the present Requirements, International Standards on Auditing, Standards of the International Organisation of Supreme Audit Institutions INTOSAI, other internationally recognised standards, and methodological documents approved by the Auditor General which shall apply to the extent that the audit is not regulated by the Requirements.

  4. With a view to supervising the lawfulness and effectiveness of the management and use of the state property and the implementation of the state budget, the National Audit Office shall carry out external audit.

  5. Audit of the European Union financial assistance shall be subject to the Requirements to the extent that it is not regulated by the provisions of international agreements of the Republic of Lithuania and legislation of the Republic of Lithuania and the European Union governing mandatory external audit of the European Union financial assistance.

  6. In audits conducted together with the supreme audit institutions of other countries, these Requirements shall be applied to the extent that the National Audit Office is not bound to apply the provisions on a specific audit laid down in relevant agreements of the supreme audit institutions.

II. PUBLIC AUDITING REQUIREMENTS

Requirement No. 1. The basic provisions on public auditing

This Requirement lays down the basic provisions for public auditing.

  1. The National Audit Office shall carry out financial (regularity) and performance audits.

  2. The scope of audit is set forth in the Law on National Audit Office.

  3. Methodologies developed by the National Audit Office explain the present Requirements, International Standards on Auditing and Standards of the International Organisation of Supreme Audit Institutions INTOSAI and facilitate their application during audit.

  4. Rights, duties and responsibilities of auditors and audited entities are defined in the Law on National Audit Office, the present Requirements and other legislation.

  5. A specific audit shall be conducted upon issue of an audit assignment in the procedure laid down by the Auditor General.

Requirement No. 2. Planning the scope of audit

The Requirement lays down the basic provisions for planning the scope of audit.

  1. In order to establish the scope of audit, the National Audit Office shall carry out a strategic analysis in the procedure laid down by the Auditor General.

  2. The National Audit Office shall annually establish the scope of public auditing in a Public Audit Programme.

  3. Public Audit Programmes shall be approved and revised in the procedure laid down by the Auditor General.

  4. Every audit shall be planned in a manner to ensure its timely and effective performance.

Requirement No. 3. Financial (regularity) audit

This Requirement lays down the basic provisions concerning the purpose, scope, and performance of the financial audit.

  1. The purpose of the financial (regularity) audit is to assess annual sets of (consolidated) financial statements and budget implementation reports, the national set of statements and reports, and to express an independent opinion as to whether they give a true and fair view and whether they are prepared in accordance with the applicable procedure for drawing up financial statements, as well as to assess legality and regularity of the management, use and disposal of funds and property of the audited entity and the use thereof for purposes established by law and to express an independent opinion.

  2. The audit shall usually be started in the financial year.

  3. The audit shall provide a reasonable assurance about the identification of material errors, irregularities and illegal activity that may materially affect decisions of the audited entities or the authorities which govern them. The reasonable assurance is directly related to the reliability of the audit.

  4. The confidence level for financial audits shall be set at 95%. When expressing their opinion, auditors shall be 95% confident that sets of (consolidated) financial statements and budget implementation reports are free of material errors and inconsistencies and that funds and property are, in all material respects, managed, used and disposed of legally and for purposes established by law.

  5. The auditor shall carry out a risk assessment, risk related audit procedures, and gather sufficient appropriate audit evidence to reduce audit risk to an acceptable level of 5%.

  6. Audit risk is the risk that the auditor may express an inappropriate audit opinion concerning material misstatements in sets of (consolidated) financial statements and budget implementation reports or concerning legality and regularity of the management, use and disposal of funds and property. Audit risk is a function of the risk of material misstatement and the risk that the auditor will not detect such misstatement.

  7. Detection risk is the risk that the auditor, when performing the procedures designed to reduce the audit risk to an acceptable level of 5%, will not detect misstatements or irregularities which have occurred and which may be material individually or in aggregate.

  8. Risk of material misstatement is the risk that sets of (consolidated) financial statements and budget implementation reports are materially misstated or that funds and property are, in all material respects, managed, used and disposed of illegally. Risk of material misstatement at the assertion level consists of inherent risk and control risk.

  9. Inherent risk is the risk of material misstatement resulting from the nature or character of a transaction, economic event or other internal and external factors prior to the assessment of any related control arrangements.

  10. 25. Control risk is the risk that the internal control arrangements will fail to detect or correct misstatements of information which may occur in account balances or in classes of transactions and may be material individually or in combination with misstatements in balances of other accounts or classes of transactions.

  11. The financial (regularity) audit process shall consist of the following phases: audit planning, audit performance, assessment of results, drafting of an audit report and audit conclusion, and follow-up.

  12. The auditor shall plan the audit in order to perform it in an appropriate manner and to reduce the audit risk to an acceptable low level.

  13. Audit planning shall be a continuous process throughout the audit, which shall ensure payment of appropriate attention to the most important areas, development of an appropriate audit strategy, and timely completion of work.

  14. In the audit planning phase, the auditor shall identify and assess the risk of material misstatement at the reporting and assertions level due to fraud or error, through understanding the audited entity and its environment, including internal control.

  15. The audit planning phase shall also include assessment of the findings from previous audits and the work of internal auditors as well as identification of materiality.

  16. The assessment of the risk of material misstatement shall be followed by planning appropriate responses, i.e. further audit procedures – tests of control and/or substantive audit procedures.

  17. Tests of control are audit procedures designed for assessing the efficiency of the entity’s control arrangements which are applied to prevent or detect and correct material misstatements. These procedures shall be designed where the auditor expects that the internal control system of the audited entity is functioning effectively and thus wishes to obtain audit evidence, or that substantive procedures alone cannot provide sufficient appropriate audit evidence.

  18. Substantive audit procedures are procedures applied for the detection of material misstatements. Substantive audit procedures shall include tests of details (of classes of transactions, account balances and disclosure) and substantive analytical procedures.

  19. A decision on the engagement of specialists (experts) and external auditors shall be taken in the audit planning phase.

  20. The auditor may use the work of an internal auditor thus reducing the scope of work to be done. The work of the internal auditor shall be used having decided that the internal auditor’s work may be useful (relevant) for achieving the objectives of the audit and having made sure that the methods used by that auditor are appropriate and that the conclusions made are based on sufficient appropriate evidence.

  21. The planning of the audit is completed when the auditor establishes an audit strategy, which shall include the scope, methods and process of the performance of the audit.

  22. When developing the audit strategy, the auditor shall draw up audit programmes, which shall specify the planned nature, timing and scope of the audit procedures.

  23. The audit strategy and the audit programme may be adjusted in the light of the audit findings and their assessment.

  24. When performing tests of controls and tests of details, there are the following methods available to the auditor: selecting all items (100% examination), selecting specific items, and audit sampling.

  25. When tests of control provide evidence of the effectiveness of internal control, the auditor will need to plan the minimum number of substantive audit procedures. When tests of control do not provide evidence of the effectiveness of internal control or when the environment of internal control and control procedures assessed in the planning phase do not meet the requirements set for internal control, sufficient reliability of the audit will have to be obtained by carrying out more substantive audit procedures.

  26. The auditor shall design and perform audit procedures so as to obtain sufficient appropriate audit evidence and to be able to draw reasonable conclusions.

  27. Audit results shall be presented in an audit report, the opinion shall be presented in an audit conclusion.

  28. The audit conclusion shall be prepared and presented to the audited entity within 80 calendar days after the audited entity has submitted the annual sets of its (consolidated) financial statements and budget implementation reports to the Ministry of Finance.

  29. In the audit conclusion, auditors shall express an unqualified opinion, qualified opinion, adverse opinion, or issue a disclaimer of opinion.

  30. An unqualified opinion shall be expressed when auditors have no material comments that would modify the auditors’ opinion.

  31. A qualified opinion shall be expressed when auditors identify violations of legislation and/or cannot express an unqualified opinion without giving certain comments.

  32. An adverse opinion shall be expressed when auditors identify violations of legislation and material errors which have a significant impact on the financial statements of the audited entity or the legality/regularity of the management, use and disposal of property.

  33. Auditors shall issue a disclaimer of opinion when they cannot obtain sufficient reliable and appropriate evidence during the audit, including the case where there are significant limitations on auditors’ work.

  34. The audited entity shall be responsible for the preparation and presentation of the sets of (consolidated) financial statements and budget implementation reports and legality/ regularity of the management, use and disposal of state funds and property and the use thereof for purposes established by law, and the auditors shall responsible for the formulation and expression of an opinion on the sets of (consolidated) financial statements and budget implementation reports and legality/regularity of the management, use and disposal of state funds and property and the use thereof for purposes established by law.

Requirement No. 4. Performance audit

This Requirement lays down the basic provisions concerning the purpose, scope, and implementation of the performance audit.

  1. The purpose of the performance audit is to assess public and internal management of the audited entity in terms of economy, efficiency and effectiveness.

  2. Economy means minimising the costs of resources while maintaining the appropriate quality of goods and/or services.

  3. Efficiency means the best relationship between the used resources and delivered goods and/or services (in terms of quantity, quality and time).

  4. Effectiveness means the extent to which objectives are achieved.

  5. A task may be set for an individual audit to assess one or more aspects of the entity’s performance.

  6. Assessment of compliance of the entity’s performance with legislative provisions shall be carried out to the extent required for achieving the performance audit objectives and assessing the entity’s performance.

  7. The performance audit shall examine and assess internal control which helps the audited entity operate economically, efficiently and effectively.

  8. The audit subject (subjects) is the performance of the audited entity (entities) or individual parts of the performance (programme, services, etc), management of a certain public sector (system), etc.

  9. The process of the performance audit consists of the following phases: planning, main study, drafting of the audit report and follow-up.

  10. The planning process is comprised of a strategic study and a preliminary study.

  11. The strategic study involves continuous monitoring of areas assigned to auditors, collection of data, determination and analysis of the existing and potential performance problems, and selection of topics for the public audit programme. The strategic study shall be carried out in the procedure laid down by the Auditor General.

  12. The preliminary study involves collection and assessment of information about the audited area of performance and identification of problems in that area.

  13. The preliminary study shall be completed by developing a preliminary study report and an audit plan, having decided not to conduct the strategic study.

  14. The audit plan shall be designed having decided that it is appropriate to carry out the main study. The audit plan shall cover performance problems (risks), audit objectives, audit subject, audit entity, main audit hypotheses and/or questions to be answered in order to achieve the audit objectives, as well as assessment criteria and their sources, auditing methods and procedures, audit risk and its management measures, expected audit impact, audit quality control arrangements. The audit plan may also provide for the engagement of professionals (experts) in relevant areas and the use of other auditors’ work.

  15. The preliminary study report shall be performed having decided not to conduct the strategic study. The preliminary study shall indicate the preliminary examination scope and methods, the preliminary examination outcomes.

  16. The auditor shall assess the collected audit evidence using the selected assessment criteria, having regard to the objectives of the audit and the audit subject, the goals set for the audited entity, and other criteria which, in the auditor’s opinion, may be applicable in case of the audit in question. The assessment criteria shall be discussed with the audited entity.

  17. The auditor may use the work of the internal auditor thus reducing the scope of work to be done. The work of the internal auditor shall be used having decided that the internal auditor’s work may be useful (relevant) for achieving the objectives of the audit and having made sure that the methods used by that auditor are appropriate and that the conclusions made are based on sufficient appropriate evidence.

  18. During the main study the auditor shall gather sufficient appropriate audit evidence to be able to conclude on the audit questions and to support the auditor’s conclusions and recommendations.

  19. The audit results shall be presented in an audit report.

Requirement No. 5. Audit evidence

This Requirement addresses audit evidence, requirements set for audit evidence, sources of evidence and procedure for obtaining audit evidence.

  1. Audit evidence is documented information used by the auditor to support his/her findings, conclusions and recommendations.

  2. Sufficiency is a measure of quantity of audit evidence. Sufficient audit evidence is information which is quantitatively sufficient for achieving audit objectives. The required audit evidence depends on the auditor’s assessment of risk and/or quality of such evidence.

  3. Appropriateness is a measure of quality of audit evidence. Appropriate audit evidence is evidence which is relevant and reliable for achieving audit objectives.

  4. Sources of evidence include information obtained from the audited entity and/or a third party.

  5. Audit evidence shall be obtained by applying the following audit procedures: computation (verification of mathematical accuracy), external confirmation (confirmation or denial of certain information), inspection (of documents, property, etc.), observation (of processes, procedures, etc.), enquiry (asking questions and obtaining answers), repeat performance (of processes, procedures, etc.), and analytical procedures.

Requirement No. 6. Audit sampling

This Requirement addresses the use of audit sampling in auditor’s work, sampling methods and phases of sampling.

  1. Audit sampling is the application of audit procedures to less than 100% of the population where all sampling units have a chance of being selected in order to provide the auditor with a reasonable basis to draw conclusions about the entire population.

  2. The population subject to examination is the entire set of units picked out on the basis of one common feature from which the auditor draws the sample to support his/her conclusions.

  3. The auditor shall design and select the sample in a manner enabling to obtain a reasonable basis for conclusions about the entire population.

  4.  Audit sampling may be performed in each audit area.

  5. The auditor may choose statistical sampling or non-statistical sampling; in any case, however, seeking to obtain reliable conclusions about the population, the auditor shall assess limitations of the chosen sampling method.

Requirement No. 7. Materiality

This Requirement addresses materiality and determination of materiality.

  1. The auditor shall apply the concept of materiality appropriately in planning and performing audit procedures and assessing audit results.

  2. Materiality is a quantitative and/or qualitative expression of the significance or importance of a particular matter in the context of financial statements and/or performance.

  3. 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.

  4. When planning an audit, the auditor shall consider the materiality of various data and facts and focus on the most significant audit areas.

  5. Quantitative materiality shall be determined by the value of the item. The auditor shall determine the level of materiality independently, on the basis of the value which reasonably reflects the performance of the audited entity.

  6. Qualitative materiality shall be determined on the basis of the origin, nature and contents of the item.

Requirement No. 8. Analytical procedures

This Requirement addresses analytical procedures and reasons for their application.

  1. Analytical procedures mean an analysis of material indicators and trends.

  2. Analytical procedures may be used throughout the audit: understanding the performance, accounting systems of the audited entity, identifying risks, determining the scope and method of the audit, supporting the auditor’s conclusions or opinion, etc.

  3. The type and method of the analytical procedure shall be determined independently by the auditor, taking into consideration the available information and his/her knowledge and experience.

Requirement No. 9. Working Papers

This Requirement addresses preparation, execution, handling, and retention of working papers

  1. The auditor’s work, observations and conclusions shall be documented in working papers.

  2. Working papers facilitate planning and conducting the audit and ensuring audit quality.

  3. Information provided in working papers shall be sufficient, reliable and appropriate for supporting the auditor’s conclusions.

  4. Working papers shall be executed, handled and retained in the procedure laid down by the Auditor General.

Requirement No. 10. Audit report and audit conclusion

This Requirement lays down requirements for the audit report and audit conclusion.

  1. Results of the performance audit shall be presented in an audit report and those of the financial (regularity) audit – in an audit report and audit conclusion.

  2. The audit report shall contain the following data: name of the report, date, number, audit objective (objectives) and audit subject (audited areas), general information on the audited entity, audit scope and methods, audit findings, observations, conclusions, and recommendations. The performance audit report shall also indicate assessment criteria. The audit report may contain other information to be provided in the auditor’s view.

  3. The audit report shall be clear, objective and concise.

  4. A draft audit report (in the case of performance audit also the draft preliminary study report having decided not to conduct the strategic study) shall be cleared with the audited entity (providing comments and suggestions in writing and/or arranging joint meetings).

  5. The audit conclusion shall contain the following data: name, date, addressee, a paragraph stating the auditor’s opinion, a paragraph providing the basis for issuing opinion, a paragraph clarifying the responsibilities of the management of the audited entity and the responsibilities of the auditor. In case of a modified opinion, the audit conclusion shall also contain a paragraph disclosing the reasons for the modification.

  6. The audit conclusion shall be signed by the persons who have signed the audit report.

  7. Audit conclusions and audit reports shall be executed in the procedure laid down by the Auditor General.

Requirement No. 11. Engaging specialists in relevant areas (experts) and external auditors and using their work

This Requirement addresses the engagement of specialists in relevant areas (experts) and external auditors and the use of their work

  1. The auditor may engage specialists in relevant areas (experts) when the audit requires knowledge and expertise in areas other than accounting or audit.

  2. Specialists (experts) shall be engaged after assessing their knowledge and expertise, independence from the audited entity, objectivity of the work performed, and suitability of their working methods. Specialists (experts) shall be engaged in the procedure laid down by the Auditor General.

  3. The need of the engagement of an external auditor shall be determined by the auditors who have been assigned to conduct the audit. External auditors shall be engaged in the procedure laid down by the Auditor General.

  4. The work of an external auditor shall be used having decided that the work of the external auditor may be useful (relevant) for achieving the objectives of the audit and having made sure that the methods used by that auditor are suitable and that the conclusions made are based on sufficient appropriate evidence.

  5. Auditors who have used the work of specialists (experts) and/or external auditors shall retain full responsibility for the conclusions.

Requirement No. 12. Follow-up activities

This Requirement lays down the basic principles of the follow-up process.

  1. After the provision of recommendations, the auditor shall follow changes in the performance of the audited entity related to remedying the identified deficiencies and monitor the implementation of the recommendations provided in the audit report and elimination of the performance deficiencies.

  2. Responsibility for the monitoring of the implementation of audit recommendations and for the reporting of the implementation results shall lie with the audit team leader or other official of the National Audit Office appointed by the audit department.

  3. The monitoring of the implementation of audit recommendations and reporting of the implementation results shall be carried out in the procedure laid down by the Auditor General.

Requirement No. 13. Quality control

This Requirement lays down the basic principles of audit quality control.

  1. Quality control arrangements shall ensure that the audit is carried out in accordance with the Public Auditing Requirements.

  2. Quality control shall be performed by way of supervision and review.

  3. Supervision shall be part of audit management. The audit work shall be subject to consistent monitoring with a view to ensuring that the audit is conducted following the approved audit plan/strategy, time schedule and/or other planning documents.

  4. All public audit papers shall be reviewed by a person other than the one who has drafted the papers.

  5. A review may be internal and external.

  6. Repealed.

  7. Repealed.

  8. Repealed.

  9. External review shall cover audit review during the audit and upon the completion of the audit and shall be performed by persons who have not taken part in the audit being reviewed.

  10. Audit supervision and review shall be performed in the procedure laid down by the Auditor General.

 

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Last updated on 30 June 2017

National Audit Office of Lithuania

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