The ANAO maintains a strong focus on the quality framework as a core business investment, following an investment to enhance this capability in 2016. 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.

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

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).

ANAO definition of quality

Audit quality is 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.

Purpose of the quality assurance framework and plan

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 comprises the ANAO quality framework.

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 audits¹

4. Human resources

5. Audit performance, and

6. Monitoring.

This QA plan:

• Identifies and highlights the key activities to be performed and monitored to provide comfort that key aspects of the quality framework are addressed
• Provides accountability by ensuring that quality assurance work is completed and reported on as planned
• Facilitates coordination of all monitoring activities, including internal audit, external quality assurance reviews and external audit; and
• Ensures appropriate resources are available to perform monitoring functions.

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

Performance against this measure is assessed through the ANAO Quality Assurance Program (QA program) which 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.

The strategy and activities described in this plan focus on those that address the audit performance and monitoring elements of the quality assurance framework.

Overview

The ANAO maintains a strong focus on the quality framework as a core business investment, following an investment to enhance this capability in 2016. 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.

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

The framework encompasses a number of key elements including learning and development requirements, delegations framework, methodology development and review, an escalation framework for accounting policy and qualifications risk, both supervisory and arms’ length internal review, and external review.

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 establishes the position of the Independent Auditor, appointed by the Governor-General. Under section 45(1) of the Act, the Independent Auditor may at any time conduct a performance audit of the ANAO (having regard to the audit priorities of the Parliament determined by the JCPAA) and audits the ANAO financial statements annually.

In our quality framework, the ANAO maintains a continued focus on independence through the application of the ANAO Independence Policy that manages threats to independence in the conduct of the ANAO’s audit and assurance work and other activities —this is a key risk in auditing work that goes to the heart of quality.

Elements of the quality framework

Leadership responsibilities for quality in the ANAO

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) with this role.

The GED, PSRG is responsible for the design, execution and maintenance of the Quality Assurance Framework and for monitoring compliance with that Framework and reporting to the Executive and Audit Committee on the results of such monitoring activities.

The AASG and PASG GEDs are responsible for the delivery of services to the required level of quality within their respective business units.

The AASG and PASG Engagement Executives are responsible for quality within their portfolio of audits and supporting the GED and the Senior Executive Directors (SEDs) in the delivery and management of quality audit services.

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

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.

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

The Committee meets on a quarterly basis and has a Terms of Reference which include 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

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 (APES 110) which describes the fundamental principles of professional ethics, being: integrity; objectivity; professional competence and due care; confidentiality; and professional behaviour.

Independence

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.

Audit mandate and selection

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 Joint Committee of Public Accounts and Audit (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.

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.

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

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.

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 is developing a strategic workforce plan to ensure the future competencies required for the ANAO into the future are met.

Assignment of Engagement Teams

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

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.

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, response to findings from quality monitoring processes and audit staff consultation.

The ANAO audit methodology incorporates policies regarding 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.

Supervision and review

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 so that all work performed is reviewed in full. 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.

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

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

• Audit work plan (AWP) – the audit team, Executive Director(ED) and Group Executive Director (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 here the audit topic is relevant to their work.
• 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 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 (s19 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 signed-off by the ED and GED, and approved for tabling in Parliament by the Auditor-General.

Financial statements audits

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.

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.

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.

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 under 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.

In 2018–19, 90 audits, representing 60% of financial statement audit fees were performed in-house and 196 audits were contracted out to the private sector.

In the case of audits conducted by contract firms, the ANAO Signing Officer remains responsible for the audit. This means that they need 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 release 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 Signing Officer’s involvement is extended with a greater involvement in audit planning and execution, regular meetings with firm and auditee, and review of significant matters arising during the audit.

Consultation

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 executive (EQCR), the relevant Group Executive Director or with specialists in the Professional Services and Relationships Group.

Qualifications and Technical Accounting Committee

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; 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

The Auditor-General also initiates reviews of in-process or completed audits on an ad-hoc basis. These reviews are conducted by the Group Executive Director 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

An EQCR 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.

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.

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

Engagement Documentation

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 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

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 audit and other assurance engagements. The system is designed to provide the Auditor-General with assurance that engagements comply with the ANAO Auditing Standards, relevant regulatory and legal requirements and ANAO policies, and that reports issued are appropriate in the circumstances. Monitoring activity is the responsibility of PSRG reporting to EBOM 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.

Monitoring processes include:

• annual quality assurance reviews of completed audits covering all of the functions of the ANAO;
• real time quality reviews of in-process financial statement audits;
• 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.

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

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.

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. The most significant individual findings and a selection of thematic findings from the quality assurance program are subject to a root cause.

Findings from monitoring processes are communicated to ANAO audit staff and contract firms.

As set out in the ANAO Corporate Plan, in support of an ongoing focus on quality over the next four years, the ANAO will focus on the following enhancements to our quality processes:

• implement a revised quality framework increasing the use of independent quality reviews
• continue to develop methodologies to support the implementation of new accounting and audit standards, performance statements audits and data assurance activities
• transition to the use of a single workflow system for all audit types
• enhance audit quality reporting, including publishing this Quality Assurance Plan as well as an Audit Quality Report
• conducting root cause analysis of quality inspection results.

The key deliverables for 2019-20 are as follows:

Table 3.1: Key deliverables for 2019

Corporate plan performance measure

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

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

Audit quality indicators

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.

Measuring AQIs 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.

The ANAO measures the following AQIs against the nominated benchmarks:

Table 4.1: AQIs against nominated benchmarks

The Australasian Council of Auditors-General (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.

Audit quality reporting

The ANAO will produce an audit quality report at the end of the financial year, as part of its annual report. This report will provide 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.