1.1 The purpose of the Australian National Audit Office (ANAO) is to support accountability and transparency in the Australian Government sector through independent reporting to the Parliament, and thereby contribute to improved public sector performance.

1.2 The ANAO quality framework is a core business investment. A sound quality framework supports delivery of high-quality audit work and enables the Auditor-General to have confidence in the opinions and conclusions in the reports prepared for the Parliament. This facilitates confidence of the Parliament that the ANAO operates with independence and that the audit approach meets the auditing standards set by the Auditor-General.

1.3 The ANAO defines audit quality as the provision of timely, accurate and relevant audits, performed independently in accordance with the Auditor-General Act, ANAO Auditing Standards and methodologies, which are valued by the Parliament. Delivering quality audits results in improved public sector performance through accountability and transparency.

1.4 The Quality Assurance Framework and Plan (QA Plan) describes the ANAO’s Quality Assurance Framework and sets out the key quality assurance activities planned for the financial year, as part of this investment.

Framework for quality

1.5 The ANAO is established under the Auditor-General Act 1997 (the Act). Section 24 of the Act requires the Auditor-General to set auditing standards that are to be complied with by persons performing functions under the Act. The ANAO Auditing Standards set under this provision incorporate standards issued by the Auditing and Assurance Standards Board (AUASB) and relevant auditing and assurance standards issued by standard-setting bodies other than the AUASB as appropriate. Specific to quality assurance, this includes ASQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Reports and other Financial Information, other Assurance Engagements and Related Services Engagements (ASQC 1).

Purpose of the Quality Assurance Framework and Plan

1.6 Under ASQC 1 the ANAO is required to establish and maintain a system of quality control designed to provide it with reasonable assurance that the ANAO complies with the ANAO standards and applicable legal and regulatory requirements and reports issued by the ANAO are appropriate in the circumstances. This system of quality control underpins the ANAO quality framework.

1.7 The ANAO quality framework is required to include policies and procedures that address each of the following elements:

1. Leadership responsibilities for quality
2. Relevant ethical requirements
3. Acceptance and continuance of audits ¹
4. Human resources
5. Audit performance, and
6. Monitoring.

1.8 This QA plan is informed through the priorities identified in the ANAO Corporate Plan, the prior period’s results of the ANAO Quality Assurance Program (the QA Program) and better practice insights from engagement with peers and the wider auditing profession. The plan:

• Identifies and highlights the key activities to be performed and monitored to provide assurance that key aspects of the quality framework are addressed.
• Includes a timetable for deliverables to provide accountability by ensuring that quality assurance work is completed and reported on as planned.
• Facilitates coordination of all monitoring activities, including internal audit, internal and external quality assurance reviews and external audit.
• Identifies the resource requirements required to perform monitoring functions.

1.9 The ANAO Corporate Plan contains the following performance measure in respect of quality:

The ANAO Quality Assurance Program indicates that audit opinions and conclusions are appropriate.

1.10 The QA program is a key activity that addresses the monitoring element of the quality framework. The objective of the QA program is to form an opinion as to whether each audit report complies with ANAO Auditing Standards, policies and procedures and other legal and regulatory requirements and evidences sufficient appropriate audit procedures to support conclusions reached. It also provides assurance on the implementation and operating effectiveness of other elements of the ANAO Quality Framework. The scope of the QA program is discussed in the monitoring section of this document.

1.11 The strategy and activities described in the Quality assurance strategy and deliverables for 2021–22 focus on those that address the audit performance and monitoring elements of the Quality Assurance Framework.

Overview

2.1 A sound quality framework enables the Parliament to have confidence in the opinions and conclusions made by the Auditor-General by supporting high-quality evidence- and standards-based audit work.

2.2 The ANAO quality framework is in accordance with the requirements of Auditing Standard ASQC 1. The framework and its activities are developed and implemented by the Professional Services and Relationships Group (PSRG) that reports to the Auditor-General on technical quality and standards issues.

2.3 The framework encompasses a number of key elements as presented in Figure 1.

2.4 The ANAO is subject to external review, both through peer review arrangements with international colleagues and external audits. Section 41 of the Auditor-General Act 1997 (the Act) establishes the position of the Independent Auditor, appointed by the Governor-General. Under Division 2 of the Act, the Independent Auditor is required to audit the ANAO annual financial statements and may at any time conduct a performance audit of the ANAO (having regard to the audit priorities of the Parliament determined by the Joint Committee for Public Accounts and Audit (JCPAA)). The Independent Auditor also audits the ANAO’s annual performance statements at the request of the Auditor-General.

2.5 A key risk in auditing that goes to the heart of quality is the need to maintain independence. The ANAO quality framework ensures that threats to independence are appropriately managed in the conduct of the ANAO’s audit and assurance work and other activities through the application of the ANAO Independence Policy.

Figure 1: Elements of the ANAO quality framework
 

Leadership responsibilities for quality in the ANAO

2.6 The Auditor-General is ultimately responsible for the system of quality control in place for all assurance and related activities undertaken by the ANAO. From an operational perspective, the Deputy Auditor-General is responsible for ensuring that the system of quality control satisfies the requirements of the ANAO Auditing Standards and is assisted by the Group Executive Directors (GEDs) and Senior Executive Directors (SEDs) with this role.

2.7 The PSRG GED is responsible for the design, execution and maintenance of the Quality Assurance Framework and for monitoring compliance with the framework. PSRG reports to the ANAO Executive, Quality Committee and Audit Committee on the results of these monitoring activities. The PSRG GED is also responsible for the ANAO audit methodology which supports compliance with the ANAO Auditing Standards. This includes the development of policies and procedures to support that audit methodology.

2.8 The Assurance Audit Services Group (AASG) GED, Performance Audit Services Group (PASG) GEDs and Systems Assurance and Data Analytics (SADA) SED are responsible for the delivery of quality audit services within their respective business units.

2.9 The AASG and PASG engagement executives and SADA executives are responsible for quality within their portfolio of audits and supporting the GEDs and SEDs in the delivery and management of quality audit services.

2.10 The CMG SED is responsible for the design, execution and maintenance of policies supporting the Quality Framework in respect of human resources, IT security and support, external communications and learning and development.

The ANAO Quality Committee

2.11 The ANAO Quality Committee is responsible for monitoring the implementation of the ANAO quality framework and reporting to the Executive Board of Management (EBOM) on this implementation.

2.12 The Committee is comprised of members representing all ANAO Groups and is chaired by the GED PSRG.

2.13 The Committee meets on a quarterly basis and has a Terms of Reference which includes the following responsibilities:

• reviewing the findings of external and internal reviews in relation to quality as reported to EBOM;
• monitoring the ANAO's progress in addressing the findings and recommendations made in external or internal reviews;
• monitoring the operating effectiveness and efficiency of the Quality Framework against the audit quality indicators;
• monitoring the strategic and operational risks associated with quality;
• reporting to EBOM on the implementation of the Quality Framework; and
• considering proposed amendments to the ANAO Audit Manual that substantially impact the conduct of an audit, and making a recommendation to the Auditor-General for approval.

Relevant ethical requirements

2.14 Under the ANAO Auditing Standards, the Auditor-General and ANAO staff are required to comply with relevant ethical requirements, as set out in APES 110 Code of ethics for professional accountants (including independence standards) (APES 110) which describes the fundamental principles of professional ethics, being: integrity; objectivity; professional competence and due care; confidentiality; and professional behaviour.

Independence

2.15 The ANAO Independence policy applies to all staff and contractors of the ANAO and is based on the requirements of APES 110, to the extent there is not a conflict with the ANAO's legislated mandate and responsibilities. Compliance with the ANAO Independence policy is tested as part of the ANAO's monitoring processes.

2.16 The ethical requirements of APES 110 apply in addition to the ethical requirements that apply to ANAO staff as members of the office and as Commonwealth public servants. ANAO staff are bound by the ANAO Values and Behaviours and the Australian Public Service (APS) Values and Code of Conduct made under the Public Service Act 1999. ANAO staff are also bound by the General Duties of Officials under Division 3 of the Public Governance, Performance and Accountability Act 2013.

Audit mandate and selection

2.17 Financial statement and performance audits must be carried out consistent with the Auditor General's mandate under the Auditor-General Act 1997 (the Act). The Auditor-General is responsible for financial and performance audits of all Commonwealth entities, companies and subsidiaries, with the exception that performance audits and an audit of performance measures of Government Business Entities (GBE) can only be undertaken if they are requested by the JCPAA. In addition, a performance audit of a Commonwealth partner that is part of, or controlled by, a state or territory government cannot be undertaken unless it is requested by the responsible minister or the JCPAA.

2.18 The Auditor-General may also conduct audits by arrangement under section 20 of the Act. The ANAO audit methodology contains requirements for acceptance of a section 20 engagement.

2.19 The Auditor-General chooses to publish an annual audit work program (AAWP) in July each year, which outlines the proposed audit activities to be undertaken in the financial year. The AAWP includes potential performance audit and assurance review topics as well as the annual program of mandated financial statements audits. Throughout the year, the Auditor-General determines which audits will commence, based on a risk assessment, identified Parliamentary priorities, and achieving sufficient breadth and depth across the government sector. The Auditor-General also considers any recent developments in the public sector and areas of public concern, opportunities to demonstrate good practice in public administration and accountability, requests for audit, and resourcing. Approaches by parliamentarians, parliamentary committees and others with suggestions for audits are also considered by the Auditor-General for potential audit activity.

Human resources

2.20 The ANAO's human resources policies and procedures aid in the selection of employees who have the necessary integrity, capability and competence to perform the work required.

2.21 The ANAO is committed to the continuing competence of its staff through its performance and career development program. To further support continuing competence, the ANAO provides comprehensive learning and development and talent management programs. In addition the ANAO has developed a strategic workforce plan to ensure the future competencies required for the ANAO are met.

Assignment of engagement teams

2.22 ANAO polices for the allocation of engagement executives and staff to audits ensures the engagement team has the appropriate level of expertise and time to perform their role. Under these policies the workload and availability of engagement executives is monitored to ensure they have sufficient time to adequately discharge their responsibilities.

Audit performance

ANAO audit methodology

2.23 ANAO auditors apply a robust methodology, as set out in the ANAO Audit Manual and supported by standardised documentation tools and templates. Application of this methodology ensures ANAO audits are of a consistent quality and are performed in accordance with the ANAO Auditing Standards.

2.24 The ANAO Audit Manual and supporting tools and templates are reviewed on an annual basis to incorporate any improvements or amendments arising from changes in the ANAO Auditing Standards, responses to findings from quality monitoring processes and audit staff consultation.

2.25 The ANAO audit methodology incorporates policies regarding direction, supervision and review of team-members by more senior staff, consultation on significant technical and ethical issues, engagement quality control review of high risk audits and documentation of audit evidence and work performed.

Direction, supervision and review

2.26 Auditors are provided with levels of direction, supervision and on the job training appropriate to their skills and experience. Engagement executives are responsible for ensuring that adequate direction and supervision is provided to all auditors working on an engagement.

2.27 Review responsibilities are allocated on the basis that the more experienced auditors, including engagement executives, review work performed by the less experienced members of the audit team. The engagement executive on each audit is required to review a sufficient quantity of the work performed to provide assurance that the audit has been properly performed and appropriate evidence-based conclusions reached. Reviews are conducted in a timely fashion at appropriate stages during the audit.

2.28 Review processes differ in timing and extent of executive involvement for performance audits and financial statement audits. This reflects the differences in lengths of the audits, as well as the nature of the audits.

Performance audits

2.29 The key stages of review and approval for performance audits are:

• Audit work plan (AWP) – the audit team, Executive Director (ED) and GED meet with the Auditor-General and Deputy Auditor-General to discuss the proposed AWP prior to an audit commencing. The Auditor-General approves the audit scope, audit objective and criteria, proposed audit methods and audit resourcing. Audit team members from financial statements audit and systems assurance and data analytics attend the workshop where the audit topic is relevant to their portfolio.
• Progress review 1 – occurs when approximately 20% of the allocated audit hours have been consumed. The audit team meets with the ED for low and medium risk audits and the ED and GED for high risk audits. The focus of this meeting is on assessing the plan agreed at the AWP approval stage and how achievable it is given new information as well as considering the test program and risk assessment and how the audit is tracking against timeframes.
• Progress review 2 - occurs when approximately 50% of the allocated audit hours have been consumed. The audit team meets with the ED, GED, Deputy Auditor-General and Auditor-General to consider key findings, recommendations, the preliminary audit conclusion and the evidence base for these.
• Progress review 3 – this may be required in rare circumstances for audits with major complexities. If a meeting is held it will occur before or after the exit interview and can be requested by the ED, GED or Auditor-General.
• Section 19 – a meeting is held to discuss the draft audit report (s 19 report) prior to it being issued to the auditee for comment. The report is reviewed by the ED, GED, Deputy Auditor-General and the Auditor-General for discussion at the s 19 meeting. Following the incorporation of any comments, the ED and, as necessary, the GED, reviews the s 19 report for final approval and formal signoff by the Auditor-General.
• Final audit report - all final audit reports are formally signed-off by the responsible ED and GED, and approved for tabling in Parliament by the Auditor-General.

Financial statements audits

2.30 The engagement executive reviews a sufficient quantity of the work to ensure that the audit has been properly performed and appropriate conclusions reached, given the evidence obtained. In particular this includes a review of critical areas of judgment, especially those relating to difficult or contentious matters; significant risks and any other areas the engagement executive considers important. This review is conducted at the planning, interim and final stages of the audit and is completed on or before the date of the auditor's report.

2.31 The signing officer, where different to the engagement executive, approves key aspects of the audit approach; the engagement executive's assessment of overall and performance materiality; the schedule of unadjusted differences; the audited financial statements; and the audit report.

2.32 The AASG GED, in consultation with the Auditor-General, may appoint a second reviewer to an audit. This is separate to the engagement quality control review executive described below and is usually applied where a new signing officer is assigned to an audit or an audit is conducted in-house after being contracted out for a period.

2.33 The ANAO contracts firms to undertake some audits on behalf of the Auditor-General. The determination of which audits are contracted out and which are performed in-house by the ANAO is performed using a risk-based model which takes the need for specific expertise into account. Under this model, audits are classified as follows:

• audits requiring public sector specialist skills – this includes; Departments of State, National securities agencies, regulatory authorities and bodies key to the functioning of the APS. These audits are performed in-house by ANAO staff;
• audits requiring specific industry expertise or in a location where it is not cost-efficient for the ANAO to perform the audit. These audits are contracted out to private sector firms ; and
• all other audits – performed either in-house or contracted out to balance workloads and to rotate audits that are contacted out.

2.34 A large proportion of the ANAO's mandated financial statements audits (just over 65 per cent of the total number of audits, and just under 40 per cent of the total audit fees charged by the ANAO for mandated financial statements audits) are contracted-out to private sector auditing firms in order to deliver the total coverage of entities in a timely and cost effective way. Responsibility for signing audit reports remains with the ANAO.

2.35 In the case of audits conducted by contract firms, the ANAO engagement executive remains responsible for the audit. The engagement executive is required to be satisfied that the contract engagement partner has completed their work consistent with the ANAO Auditing Standards and that the contractor's work provides sufficient appropriate audit evidence to support the issue of the auditor's report. This is achieved through briefings by the contract engagement partner at appropriate times during the audit. The signing officer also approves key aspects of the audit approach, including audit responses to significant risks; the contract engagement partner's assessment of overall and performance materiality; the schedule of uncorrected misstatements; the signing officer review memorandum; the audited financial statements; and the auditor's report. For larger or higher risk audits, the engagement executive's involvement is extended with a greater involvement in audit planning and execution, regular meetings with the contract firm and auditee, and review of significant matters arising during the audit.

Consultation

2.36 The ANAO audit methodology includes policies requiring appropriate consultation on difficult or contentious matters. Depending on the nature of the matter, consultation is with either the engagement quality control review (EQCR) executive, the relevant GED or with specialists in the Professional Services and Relationships Group (PSRG).

Qualifications and Technical Accounting Committee

2.37 The ANAO has a Qualifications and Technical Accounting Committee, which provides a forum for engagement executives to consult on difficult or contentious matters and, where necessary, resolve differences of opinion on audit related matters. ANAO policy identifies the matters that must be referred to the committee, and the committee meets as required to provide advice to the Auditor-General. These matters include: issuing a modified audit opinion or conclusion; differences of opinion; accounting or audit matters which are likely to attract significant parliamentary or public attention; consideration of the adequacy of the underlying audit evidence; accounting or related matters that are material to the Commonwealth's Consolidated Financial Statements where there is, or there is significant potential for, differing professional opinions; and proposal to not comply with an ANAO Auditing Standards or the ANAO Audit Manual policies.

Ad-hoc reviews initiated by the Auditor-General

2.38 The Auditor-General may initiate reviews of in-process or completed audits on an ad-hoc basis. These reviews are conducted by the GED or other relevant specialists in the Professional Services and Relationships Group, who are independent of the performance of the audit. Circumstances that may result in an ad-hoc quality review include parties external to the ANAO raising concerns or questions about the quality of work performed by the ANAO or the evidence supporting a conclusion or finding in an audit.

Engagement quality control review

2.39 An EQCR executive is appointed to:

• all high risk performance audits;
• all high risk mandated financial statements audits of entities that are material to the Commonwealth's Consolidated Financial Statements;
• all audits of entities determined to be Public Interest Entities; and
• any other audit at the discretion of the relevant GED, the Deputy Auditor-General or the Auditor-General.

2.40 In the case of financial statements audits of non-material entities that are assessed as high risk, the engagement executive considers the appropriate response to that risk assessment, which may result in the appointment of an EQCR executive.

2.41 The EQCR executive provides an objective evaluation of the significant judgements made by the audit team and conclusions reached in formulating the audit report.

Engagement documentation

2.42 The ANAO's policies and procedures are designed to maintain the confidentiality, safe custody, integrity, accessibility and retrievability of audit documentation. All ANAO documentation is retained in accordance with the ANAO record keeping policy. At the completion of the audit the audit file is finalised and locked to prevent any changes after the finalisation of the audit. Backups of all ANAO computerised files are made regularly and a disaster recovery plan is in place. Policy and guidelines in this area are based on the Commonwealth's Protective Security Manual.

Monitoring

2.43 A key element of the ANAO Quality Assurance Framework is monitoring of compliance with policies and procedures that comprise the system of quality control. The monitoring system comprises internal and external quality assurance reviews of the ANAO's audits and other assurance engagements. The system is designed to provide the Auditor-General with assurance that engagements comply with the ANAO Auditing Standards, the Quality Assurance Framework, relevant regulatory and legal requirements and ANAO policies, and that reports issued are appropriate in the circumstances. Monitoring activities are the responsibility of PSRG and results of these activities are reported to EBOM, the Quality Committee and the ANAO Audit Committee. The ANAO Quality Committee is responsible for monitoring the ANAO's progress in addressing the findings and recommendations arising from the monitoring programs.

2.44 Monitoring processes include:

• annual quality assurance reviews of completed audits covering all of the functions of the ANAO;
• real time quality assurance reviews of in-process financial statement audits;
• an annual internal audit of compliance with components of the ANAO Audit Manual;
• biennial external peer reviews of completed performance audits performed by the Office of the Auditor General New Zealand; and
• external reviews of the quality framework and completed audits, as considered appropriate.

2.45 The mix of audits selected for review comprises audits conducted utilising in-house resources and those undertaken by contracted firms.

2.46 All deficiencies noted as a result of the monitoring process are evaluated and classified according to an agreed rating scale. Audits are given an overall rating of satisfactory or unsatisfactory.

2.47 The ANAO has introduced root-cause analysis to understand more deeply any areas in our work where we have identified scope for improvement in order to identify how we can continue to improve our audit practice. This helps us to identify needs for training and support on thematic issues, including targeted training. Audit files determined to be unsatisfactory under the quality assurance program and a selection of thematic findings from the quality assurance program are subject to a root cause analysis.

2.48 Findings from monitoring processes are communicated to ANAO audit staff and contract firms and supported with tailored training programs as required.

3.1 The ANAO’s focus in 2021–22 will include the implementation of the quality assurance plan and enhancements to the quality framework with particular emphasis on:

• expanding its root cause analysis program. This program was successfully piloted during 2019–20 and expanded on in 2020–21 to take into account better practice recommendations arising from a review by ASIC. The ANAO will continue to build the program to ensure the quality framework continues to support the delivery of high-quality audit work;
• refining the performance statements audit methodology and continuing to pilot various approaches to completing the performance statements audits;
• including good practice recommendations from external reviews and changes in auditing standards; and
• preparing for the implementation of ASQM 1 Quality Management from Firms that Perform Audits or Reviews of Financial Reports and Other Financial Information, or Other Assurance or Related Services Engagements by December 2022.

Corporate plan performance measure

4.1 The ANAO Corporate Plan includes one performance measure in respect of quality:

The ANAO Quality Assurance Program indicates that audit opinions and conclusions are appropriate.

4.2 Performance against this measure is assessed through the ANAO Quality Assurance Program (QA program) and the results reported in the ANAO annual performance statements.

Audit quality indicators

4.3 Audit quality indicators (AQIs) are reliable quantitative measures regarding individual audits, and organisations that perform audits, which provide insights about key matters that may contribute to the quality of an audit. Taken together with qualitative context, the indicators may inform discussions among those concerned with the financial reporting and auditing process which, in turn, may strengthen audit planning, execution, and communication.

4.4 The ANAO 2021–22 Quality Report will measure 11 quantitative AQIs. Four AQIs are measures from the Australasian Council of Auditors-General (ACAG) macro benchmarking survey in which most Australian audit offices, including the ANAO, participates.² The ACAG macro benchmarking survey project is an annual exercise that has been conducted since 1994. The overall purpose of the project is to provide, to the extent practicable, comparable information to audit offices across Australasia on quantitative and qualitative benchmarks of the operations of audit offices and specific characteristics of each jurisdiction. The remaining seven AQIs are derived from ANAO performance measures, audit manual policy requirements and expectations regarding independence and audit quality.

4.5 Measuring AQIs against specific benchmarks can inform and enhance reporting about audit quality and assist in understanding the root causes of quality inspection findings. This in turn enhances audit quality by ensuring that remediation activities address the issues that potentially impact audit quality.

4.6 The ANAO has identified benchmarks for each of these AQIs against which ANAO results are assessed and interpreted in the Audit Quality Report. ANAO benchmarks for the AQIs derived from the ACAG macro benchmarking survey are developed using past results of comparable audit offices³ taken from this survey, to calculate a three-year rolling average.

4.7 The ANAO measures the following AQIs against the nominated benchmarks:

Note a: The 2020-21 plan benchmark for this AQI was 27%.

Note b: The 2020-21 plan benchmark for this AQI was 44%.

Note c: The 2020-21 plan benchmark for this AQI was 1,050.

Audit quality reporting

4.8 The ANAO will produce an Audit Quality Report at the end of the financial year and publish it on the ANAO website. This Audit Quality Report provides transparency in respect of the processes, policies, and procedures that are used to address or support each element of audit quality. Performance in respect of the AQIs will also be measured and reported against the indicated benchmarks. The achievement of the quality assurance strategy and deliverables will also be reported on to enhance accountability.