Value of Audit: Perspectives for Governments
Public trust is a vital part of effective governance. However, recent studies by the Organisation for Economic Co-operation and Development (OECD) have shown a dramatic decline in public trust in national governments worldwide. This decline could have serious implications for governments around the world. One way to rebuild trust with the public is to open up a government’s financial records to audit and engage in honest and open discussions about how the government has allocated its resources.
A recent report developed by KPMG made some observations that demonstrate a number of challenges and concepts that are critical to the value of audit in government today and in the future, including:
- The lack of consistent accounting standards across the globe, which limits the usefulness of government financial statements as a means of comparison. One of the biggest factors influencing the differences with government financial reporting is the fact that many countries around the world are not using full, accrual-based accounting, but are still operating on a cash-based accounting system. If countries are using a broad range of accounting standards to prepare financial statements, there can be no comparison between the financial health of one country to the next. This is the greatest global issue facing financial reporting, and ultimately, determines the usefulness of government financial statement audits today.
- The differing approaches to conducting government audits around the world that impacts the reliance on government financial reports. One of the challenges in producing a report on such a multi-faceted topic is the significant difference of government audits from jurisdiction to jurisdiction. No two countries are the same. In some countries, government audits are made public to taxpayers, while in others they are not. In some countries, the law mandates that audits provide commentary beyond a pass or fail audit opinion, while in others that is not the case. To help provide a foundation for readers, we have provided an appendix that summarizes the government audit landscape for each of the nine countries.
- Challenges in demonstrating the trust and independence of government audits around the world. The structure of the government audit organizations within each country impacts the perceptions of trust and independence among their citizens. While our interviewees’ opinions vary depending on the country, you will find similar themes throughout – the importance of independence and trust is a common sentiment across the board.
- Looking for ways that government audits can provide more value to government and its citizens. Often, the structure of government financial reporting, as well as the fundamental comments on long-standing weaknesses and gaps in controls in the associated audit reports, remain unchanged over several years. As a result, the observations we share through government audits become lost in the competing priorities of the government. But audits can potentially provide great value to governments and the public by bringing accountability, which can enhance the government’s controls and instigate decision-making.
- Technology integration is the key to the future of audits in Government. Around the world, governments have invested in modernizing information technology (IT) systems and service delivery models to take advantage of significant IT advances. However, we need to address two questions; 1) have auditing techniques modernized in a similar fashion, and 2) is there a better way to take greater advantage of modern financial and business systems with a government audit?
It should also be recognized that there is a global initiative by the International Federation of Accountants to encourage all governments to adopt accrual-based accounting standards, such as the International Public Sector Accounting Standards Board (IPSASB) standards; this initiative aims to achieve enhancements in various ways.
- A more accurate and comprehensive view of a government’s financial
- Added transparency and accountability, which demonstrates stewardship of taxpayer
- Reduced risk of reporting
- An increased ability to plan for future services, programs and funding
The IPSASB provides an accrual- based accounting framework for countries to potentially adopt or tailor to their use. While the framework exists, the current challenge is having policy makers understand the value of accrual-based accounting and adopting it in their own country.