fpsc senior auditor Job Description and

Syllabus

RESPONSIBILITIES/ JOB DESCRIPTION OF FPSC SENIOR

AUDITOR (BS-16)
(a) To maintain accounts of different departments

(b) Pre and Post Audit of Claims made by persons and departments

(c) Payment of Group Provident Fund (GPF) and Pension

SYLLABUS + PREPARATION MATERIAL FOR THE TEST

OF SENIOR AUDITOR

SYLLABUS (100 Marks)

PART-I ENGLISH (20 Marks)

English Portion consists of grammar usage, vocabulary, composition and sentence structuring. Test
of MCQs in FPSC SENIOR AUDITOR will contain synonyms, antonyms, analogies, prepositions, and
completing the sentences, Idioms and phrases, direct & indirect, active & passive voice and it will
contain 20 MCQs from English section and will carry 20 marks.

PART-II PROFESSIONAL (80 Marks)

 Accounting Principles & Procedures
 Scrutiny of Record for Audit Purpose
 Journal
 ledger & Cash Book
 Annual Budget
 Adjustment & Depreciation
 Financial Planning & Cost Accounting
 Head of Accounts
 Re-appropriation of Accounts and Supplementary Grant
 Settlement of Audit Objections
 Preparation of Pension Documents
 Public Procurement Rules, 2004
 DEPARTMENT OF
THE AUDITOR-GENERAL OF PAKISTAN

GUIDELINES FOR THE AUDIT OF

FEDERAL GOVERNMENT OPERATIONS

 TO BE USED BY

THE DIRECTORATE GENERAL OF AUDIT

(FEDERAL GOVERNMENT)
 VISION
A Model Supreme Audit Institution Adding Value to National
Resources

MISSION
Serving the Nation by Promoting Accountability, Transparency
and Good Governance in the Management and Use of Public
Resources

Integrity
Our way of life

Quality
Core Values Our way of doing
business

Partnership
Our way of
interaction
Table of Contents

PREFACE TO REVISED EDITION................................................................................................... I

PREFACE TO FIRST EDITION ....................................................................................................... II

1 I NTRODUCTION TO AUDIT GUIDELINES ............................................................................. 1

1.1. Purpose of the Guidelines.......................................................................................................................... 1
1.2. Guiding Principles ........................................................................................................................................ 1
1.3. Auditors’ Responsibility............................................................................................................................. 1
1.4. Practical Tools ................................................................................................................................................ 2
1.5. Continuous Improvement ......................................................................................................................... 2
1.6. Using the Standard Audit Working Papers ........................................................................................ 3
1.7. The Accountability Cycle ........................................................................................................................... 4

2 OVERVIEW OF THE DIRECTORATE GENERAL OF AUDIT (FEDERAL GOV) ............... 6

2.1 Overview of the Office................................................................................................................................. 6
2.2 Jurisdiction ...................................................................................................................................................... 7
2.3 Organogram of DG Audit (Federal Government).......................................................................... 10

3 SCOPE OF AUDIT......................................................................................................................... 12
3.1 Types of Audits ........................................................................................................................................... 12
3.2 Definition of Government Audit .......................................................................................................... 12
3.3 Certification Audit ..................................................................................................................................... 13
3.4 Compliance with Authority Audit ....................................................................................................... 14
3.5 Important Audit Components of Federal Audit............................................................................. 15
3.5.1. Audit of Revenues ...................................................................................................................................... 16
3.5.2. Audit of Expenditures .............................................................................................................................. 17
3.5.3. Audit of Federal Government Transfers .......................................................................................... 18
3.5.4. Audit of Government Debt ..................................................................................................................... 19
3.5.5. Audit of Assets............................................................................................................................................. 22
3.5.6. Audit of Grants ............................................................................................................................................ 23

4 PERMANENT FILE OF AUDITEE DEPARTMENTS ............................................................. 25

4.1 Introduction ................................................................................................................................................. 25
4.2 The Audit Team’s Responsibility......................................................................................................... 26
4.3 Documentation in Permanent File ...................................................................................................... 27
4.4 Update Control Sheet – PF...................................................................................................................... 27
4.5 Status of Entity – Form PF-I................................................................................................................... 27
4.6 Background Information – Form PF-II.............................................................................................. 27
4.7 List of Auditable Locations – Form PF-III ........................................................................................ 28
4.8 List of Bank Accounts – Form PF-IV ................................................................................................... 28
4.9 List of Authorized Signatories – Form PF-V.................................................................................... 29
4.10 External Factors – Form PF-VI ............................................................................................................. 29
4.11 Accounting Records and Accounting System – Form PF-VII ................................................... 29
4.12 Key Contacts – Form PF-VIII ................................................................................................................. 31
4.13 Significant Audit Areas – Form PF-IX ................................................................................................ 31
4.14 Significant Accounting Policies – Form PF-X .................................................................................. 33

5 AUDIT PLANNING PHASE ........................................................................................................ 35

5.1 Introduction ................................................................................................................................................. 35
 5.2 The Audit Team’s Responsibility in Planning Phase ................................................................... 36
5.3 Documentation in Planning Phase ...................................................................................................... 36
5.4 Audit Objectives and Scope ................................................................................................................... 37
5.5 Points for Attention at Next Audit (From Last Year) .................................................................. 38
5.6 Entity Communication Letter ............................................................................................................... 38
5.7 Audit Planning Memorandum .............................................................................................................. 38
5.8 Memorandum on Post-Planning Changes ....................................................................................... 39
5.9 Important Dates ......................................................................................................................................... 39
5.10 Tour Programme........................................................................................................................................ 39
5.11 Information Requested from Entity Officials ................................................................................. 39
5.12 Materiality Assessment Form ............................................................................................................... 40
5.13 Expected Aggregate Error and Planned Precision Form ........................................................... 40
5.14 Audit Risk Assessment Form ................................................................................................................ 40
5.15 Inherent Risk Assessment Form.......................................................................................................... 40
5.16 Internal Control Questionnaire – Controls for Overall Environment .................................. 41
5.17 Internal Control Questionnaire – General Computer Controls ............................................... 42
5.18 Internal Control Questionnaire – Application Controls ............................................................. 42
5.19 Control Risk Assessment Forms .......................................................................................................... 42
5.20 Analytical Procedures Assurance Form ........................................................................................... 43
5.21 Source of Audit Assurance Form ......................................................................................................... 43
5.22 List of Applicable Laws and Regulations.......................................................................................... 43
5.23 Sample Selection Checklist .................................................................................................................... 43
5.24 High Value Item Selection Form .......................................................................................................... 46
5.25 Key Item Selection Form ......................................................................................................................... 47
5.26 Sample Sizing for Tests of Internal Control .................................................................................... 47
5.27 Sample Sizing for Substantive Tests of Details .............................................................................. 47
5.28 Checklist of Accounting Estimates to be Reviewed ..................................................................... 48
5.29 Points for Attention at Next Audit ...................................................................................................... 48
5.30 Audit Planning Checklist ......................................................................................................................... 48
5.31 Centrally Led Audit ................................................................................................................................... 49

6 AUDIT EXECUTION PHASE ...................................................................................................... 50

6.1 Introduction ................................................................................................................................................. 50
6.2 The Audit Team’s Responsibility in Execution Phase ................................................................. 50
6.3 Forms and Schedules for Audit Execution Phase ......................................................................... 51
6.4 Summary of Analytical Review Procedures Performed............................................................. 52
6.5 Details of Analytical Review Procedures Performed .................................................................. 52
6.6 Completed Internal Control Questionnaires .................................................................................. 52
6.7 Internal Control Deviations Form ....................................................................................................... 53
6.8 Internal Control Deviations Summary .............................................................................................. 53
6.9 Compliance Summary .............................................................................................................................. 53
6.10 Substantive Tests of Accounting Estimates .................................................................................... 54
6.11 Errors in Accounting Estimates ........................................................................................................... 54
6.12 Substantive Test Sample Summary for each Audit Program ................................................... 54
6.13 Substantive Test of High Value/Key Items – Summary ............................................................. 55
6.14 Details of Errors in Samples, High Value Items and Key Items............................................... 55
6.15 Exit Interviews ............................................................................................................................................ 56
6.16 Audit Programmes .................................................................................................................................... 56
6.17 Audit Programme – Employee Related Expenses ........................................................................ 57
6.18 Audit Programme - Goods and Services ........................................................................................... 61
6.19 Audit Programme - Investments ......................................................................................................... 66
6.20 Audit Programme - Debt ......................................................................................................................... 68
6.21 Audit Programme - Project Audit........................................................................................................ 71
6.22 Audit Programme – Fixed Assets ........................................................................................................ 75
6.23 Audit Programme - Grants-in-Aid and Contributions ................................................................ 78
 6.24 Audit Programme - Accounts Compilation...................................................................................... 80

7 AUDIT EVALUATION AND REPORTING PHASE ................................................................ 84

7.1 Introduction ................................................................................................................................................. 84
7.2 The Audit Team’s Responsibility......................................................................................................... 85
7.3 Documentation in Evaluation and Reporting Phase ................................................................... 88
7.4 Internal Control Weaknesses – Impact Analysis .......................................................................... 89
7.5 Analytical Procedure Thresholds ........................................................................................................ 89
7.6 Evaluation of Analytical Procedures .................................................................................................. 90
7.7 Evaluation of Internal Control Deviations ....................................................................................... 90
7.8 Substantive Tests Evaluation – Projectable Errors From Sample ........................................ 90
7.9 Substantive Tests Evaluation – Non-Projectable Errors ........................................................... 91
7.10 Substantive Tests Evaluation – Summary ....................................................................................... 91
7.11 Achieved Level of Assurance Form .................................................................................................... 91
7.12 Error in Each Component ....................................................................................................................... 92
7.13 Overall Error in Financial Statements ............................................................................................... 92
7.14 Compliance With Authority Violations ............................................................................................. 92
7.15 Checklist of Management Representation Letter ......................................................................... 92
7.16 Sample Management Representation Letter .................................................................................. 93
7.17 Audit Completion Checklist ................................................................................................................... 93
7.18 Memorandum Supporting Signature ................................................................................................. 93
7.19 Auditor’s Opinion....................................................................................................................................... 93
7.20 Follow up Continuity Schedule ............................................................................................................ 94
7.21 Quality Assurance Checklist .................................................................................................................. 95
7.22 Centrally Led Audit ................................................................................................................................... 96

8 KEY TASKS AND RESPONSIBILITIES .................................................................................... 97

8.1 Introduction ................................................................................................................................................. 97
8.2 Assigning Roles and Responsibilities ................................................................................................ 97
8.3 Key Tasks and Responsibilities: Permanent File ........................................................................ 98
8.4 Key Tasks and Responsibilities: Audit Planning Phase............................................................. 99
8.5 Key Tasks and Responsibilities: Audit Execution Phase ........................................................ 102
8.6 Key Tasks and Responsibilities: Audit Evaluation & Reporting Phase............................ 103
8.7 Key Tasks and Responsibilities: Audit Quality Assurance ...................................................... 104
APPENDIX-A ................................................................................................................................. 107
 PREFACE TO REVISED EDITION

The Financial Audit Manual (FAM) was commissioned in June 2006 by the Auditor-General of
Pakistan for use in Field Audit Offices (FAOs) for conducting Certification and Compliance with
Authority audits. The Manual is based on the INTOSAI Auditing Standards and the international best
practices. It covers the entire Audit Cycle and provides guidance with regard to the methods and
approaches to audit that can be applied by auditors for conducting the audit of government entities
in Pakistan.

FAM has been implemented in the Department of the Auditor-General of Pakistan (DAG). However,
during the course of its implementation, it was found that the Sectoral Guidelines developed by the
consultants under the FAM project did not provide sufficiently detailed and specific guidance to the
FAOs for conducting audit. As a result, the FAOs continued to rely on their old and outdated codes
and manuals for conducting audit.

On the basis of lessons learnt from the implementation of FAM and its Sectoral Guidelines, it was
decided to revise and update these Guidelines. This has been done with the help of consultants
engaged by PIFRA for different FAOs, and in close coordination with the experienced auditors in the
field. The results of these efforts are contained in these Guidelines. Though the document, as a
whole has been revised, the section on the Audit Execution phase, in which detailed audit steps have
been added is a significant addition.

I hope that the Guideline will prove useful to the FAOs and will go a long way in ensuring quality
improvement in audit reports.

(Tanwir Ali Agha)

Dated: March, 2010 Auditor-General of Pakistan

 PREFACE TO FIRST EDITION

These Guidelines are being issued after the commissioning of the Financial Audit Manual and are to
be used for planning and conducting audits under the mandate of the Department of the Auditor-
General of Pakistan (DAGP).

The Guidelines and the other audit tools are an important foundation for bringing our work in the
line with international best practices. Our auditors will have to apply with dedication the guidelines
provided by the Financial Audit Manual while auditing in the field.

Implementation of the new audit methodology, and adoption of the Guidelines, will be carried out
according to a schedule to be determined by my office according to a gradual phasing across the
government entities that are covered in the audit mandate of the Auditor-General of Pakistan. Since
the implementation of the new audit methodology is contingent upon professional training, it shall
be the responsibility of the heads of the Field Audit Offices to get their personnel fully trained in the
Financial Audit Manual and these Guidelines, with the help of Audit and Accounts Training Institute.
Continued professional training of the officers and the staff of the Department shall remain the main
focus of our efforts towards modernization and professionalism.

Keeping in view the future changes in the international best practices and the changing demands of
the stakeholders, these Guidelines will be required to be updated and expanded. Field Auditors
using these Guidelines are therefore encouraged to make suggestions for improvements in these
Guidelines and other tools on an ongoing basis. Suggestions for improvements will be duly
considered and incorporated in these Guidelines where necessary, by the Research and
Development Wing of the Department of the Auditor General of Pakistan.
 (Muhammad Younis Khan)

Auditor General of Pakistan

Dated: March, 2006

 Chapter 1

INTRODUCTION TO AUDIT GUIDELINES

1.1. Purpose of the Guidelines

These Guidelines aim to provide specific and detailed guidance to auditors engaged in the audit of
Federal Government. They do not replace the Financial Audit Manual (FAM) that establishes a
general framework for conducting audit, but complement it. An auditor is expected to continuously
refer to FAM in developing a general understanding of audit concepts, standards and methodology.
The Guidelines assist in their practical implementation.

The guidance provided is primarily meant for Regularity Audit that includes Certification Audit and
Compliance with Authority Audit. Though these audit types have been discussed in detail in FAM
(Chapter 4), they have also been defined in these Guidelines under Scope of Audit (Chapter 3). They
provide specific and detailed set of instructions for an auditor for preparing a permanent file,
planning and conducting audit, which processes finally culminate in the Evaluation and Reporting
Phase of audit results.

1.2. Guiding Principles

FAM, which was issued in 2006 by the Department of the Auditor-General of Pakistan (DAGP) under
the Project to Improve Financial Reporting and Auditing (PIFRA), contains guiding principles that
should be observed at the time of conducting an audit under the authority of the Auditor-General’s
Ordinance, 2001.

1.3. Auditors’ Responsibility

Every auditor engaged in government audit is required to be familiar with audit theory, practice,
standards, and techniques described in FAM, which includes the Audit Working Papers Kit. Because
of the importance of ensuring a high standard of work by the DAGP, particular attention needs to be
paid to the quality assurance programme. DAGP’s quality assurance framework ensures that its work
is performed as efficiently and effectively as possible and complies with the INTOSAI Auditing
Standards. Quality is performing an audit effectively, following up all errors and deviations with a
rigorous evaluation, reporting clearly on the results, while at the same time respecting the resource
and time constraints established by the budget. Therefore, quality assurance occurs throughout all
the phases of audit, not at the end. (Ref: Financial Audit Manual Para 15.1.1)

It needs to be highlighted that the audit strategy and methodology, recommended under FAM,
provides for continued quality assurance through all the phases of audit. While reviewing the audit
plan, permanent file and other phases of audit, the functionaries, entrusted with the quality
assurance of audit, should ensure that various steps recommended in these Guidelines and
respective forms have been followed in all respects.

The Director General must ensure that the audit is carried out efficiently, effectively, and with a high
standard of professional competence. This requires auditors to be properly supervised during each
audit assignment. (Ref: Financial Audit Manual Para 9.11.4).

1.4. Practical Tools

FAM is supported by standard Audit Working Papers Kit that provides the auditor with practical tools
for conducting audit. These working papers are a generalised set of forms and schedules designed to
help each audit team perform audit in compliance with the principles set out in FAM. These
Guidelines have been prepared to assist the audit teams to apply the Audit Working Papers Kit to a
specific type of audit. These Guidelines also comply with the INTOSAI Auditing Standards. While
developing these Guidelines, the work done by the Professional Standards Committee of the
INTOSAI and its Sub-Committees on Financial and Compliance Audit has also been kept in view.

The software tools acquired under PIFRA as a part of the Computer Assisted Audit Techniques
(CAATs) and the Audit Management Software will be required to be used by the audit. For more
information about these software tools, the auditor should refer to the Manuals of the respective
software. In addition, Appendix C of FAM provides a discussion on the use of CAATs.

1.5. Continuous Improvement

It is the DAGP’s intention to use FAM and the Audit Working Papers Kit for continually improving its
methods to ensure that the highest quality audits are achieved with maximum efficiency. While
using these Guidelines in performing audit, the auditors are encouraged to identify ways of
improving either the Guidelines or the underlying tools, and submit a written suggestion to the Audit
Policy and Special Sectors (AP&SS) Wing in the DAGP.

1.6. Using the Standard Audit Working Papers

The audit process generally follows a standard Audit Cycle comprising the following phases:

 General audit planning

 Detailed activity and resource planning
 Fieldwork
 Evaluation
 Reporting
 Follow-up
These phases are common to all types of audit. An overview of the Audit Cycle as a whole is
provided in Chapter 6 of FAM. Additional detail is provided in Chapters 7 through 14.

The Audit Working Papers Kit has been designed to guide audit teams through these phases in a
structured manner, and are presented in the four sets of working papers. Once completed and
supplemented with additional information gathered during the course of audit, each of these sets of
working papers represents a “file” that documents audit activities and supports the conclusions
reached.

The files that represent the work done in each of the phases of audit are:

 Permanent file
 Planning file
 Working Paper file, documenting the execution phase, and the
 Evaluation and Reporting file

It is recommended that the electronic versions of forms given in the Audit Working Papers Kit are
used during the conduct of audit. The auditor is reminded of the importance of keeping back-ups of
filled-out forms (electronic and hard copy) to ensure that they are adequately protected.

Kindly note that each form or schedule included in the Audit Working Papers Kit incorporates notes
on how to use the form. These notes are printed in italics to differentiate them from other material
on the form. In some cases, the note may relate to a specific item on the form, in which case it will
follow the item it relates to. Notes that apply to the form as a whole are presented either at the
beginning or the end of the form.
These Guidelines do not repeat the instructions for each form. This purpose is to provide additional
guidance specific to the type of audit being planned or conducted. Forms and schedules given in the
Audit Working Papers Kit essentially meet the requirements of Certification Audit. However, some of
these forms, marked with an asterisk (*), can also be used for Compliance with Authority Audit. In
both the cases, the notes on the form are sufficient to guide the auditor and no additional
information is required in these Guidelines.

Ultimately, it is the audit team leader who will have to use his/her judgment in determining how
best to apply the Audit Working Papers Kit in conducting a specific audit.

1.7. The Accountability Cycle

The accountability cycle starts with the preparation of annual budget statement which is approved
by the Parliament. A detailed elaboration is as follows:

1. Each year, Ministry of Finance receives budget estimates from government agencies.
2. Based on the resources available and priorities of the government, the annual budget is
prepared.
3. The Parliament approves the budget.
4. Principal Accounting Officers (PAOs) sanction the expenditure.
5. Controller General of Accounts is responsible for the preparation of Annual Financial
Statements. This task is accomplished through the Accountant General Pakistan
Revenues (AGPR), who has the primary responsibility for disbursements, keeping a
record of transactions and the preparation of Annual Financial Statements of the Federal
Government for centralized accounting entities. In the case of self-accounting entities,
this task is accomplished by the PAOs.
6. Each year, the Auditor-General of Pakistan certifies the Financial Statements of
Federal, Provincial and District Governments.
7. Audited Financial Statements and audit reports are laid before the National
Assembly/Provincial Assembly. These reports are then discussed in the Public Accounts
Committee (PAC) who then reports back to the National Assembly/Provincial Assembly.
 Legislature

PAC Finance Prepares

Budget

Parliamen
Audit Reports Authorize Bu

Auditor General Dept. / Executives

Certifies Spends

CGA Prepares
Accounts

Chapter 2
OVERVIEW OF THE DIRECTORATE GENERAL OF AUDIT
(FEDERAL GOVERNMENT)

2.1 Overview of the Office

Article 169 of the Constitution of Pakistan, 1973 requires Auditor-General to perform such functions
and exercise such powers as determined by or under Act of Parliament in relation to the accounts of
the Federation, Provinces and any authority or body established by the Federation or Province.
Auditor-General's (Functions, Powers and Terms and Conditions of Service) Ordinance, 2001
elaborates the duties of Auditor-General of Pakistan and with respect to Federal Government
requires that Auditor-General of Pakistan should;

 Certify the accounts of the Federation.

 Audit all expenditure from Consolidated Fund.
 Audit all transactions relating to Public Account.
 Audit all receipts of Consolidated Fund and Public Account.
 Undertake studies and analysis relating to Federal Government Accounts.

In the past Federal Government’s auditing and accounting functions were performed by the
Accountant General Pakistan Revenues (AGPR). Outside Audit Office of AGPR was responsible for
post audit. In 1988, pre and post audit functions of AGPR were separated and Outside Audit Office of
AGPR was institutionalized as a separate Directorate General Audit (Federal Government) “DGA
(FG)”.

The DGA (FG) is presently located at Islamabad with four sub-offices, one each at Lahore, Karachi,
Peshawar and Quetta. The office is headed by a Director General (BPS 20). The details can be seen at
Organogram at the end of the chapter.

DGA (FG) is a strategic audit unit of the Office of the Auditor-General of Pakistan (OAGP). This office
facilitates the Auditor-General of Pakistan to satisfy its constitutional and legislative responsibility of
conducting the audit of Federal Government. DGA (FG) has the primary responsibility to certify the
accounts of the federation. DGA (FG) also conducts audit of Federal Government Ministries/
Divisions. For the audit of Federal Government, consisting of centralized and self accounting entities,
various DG offices are involved. For instance revenue receipts are audited by DG Revenue Receipt
Audit and DG Defence Audit is responsible for the audit of receipts and payments of Defence
services.
Mandate of DGA (FG) includes;

 Financial Audit and Value for Money Audit

 Certification of Federal Government financial statements
 Certification of Appropriation Accounts of Federal Government
 Certification of financial statements of self accounting entities
 Certification of foreign aided projects

2.2 Jurisdiction

Following is a list of PAOs under the jurisdiction of DGA (FG). The audit entities are categorized
according to the Principal Accounting Officers, who are responsible for maintaining complete record
of transactions and reconciling ministry’s record with that of AGPR.

PAO HQ* SOK* SOL* SOP* SOQ* Total

Food and Agriculture Division 75 34 15 6 10 140
Pakistan Atomic Energy Commission 6 0 0 0 0 6
Board of Investment 2 1 1 1 1 6
Cabinet Division 32 2 5 3 0 42
Communications Division 24 1 2 0 1 28
Culture Division 22 13 11 3 2 51
Controller General of Accounts 5 3 4 3 3 18
Defence Division 12 22 10 3 6 53
Defence Production Division 1 0 0 0 0 1
Economic Affairs Division 13 0 0 0 0 13
Education Division 101 8 17 21 10 157
Election Commission of Pakistan 9 25 33 4 31 102
Environment Division 42 8 6 10 2 68
Establishment Division 19 14 14 12 13 72
Fata-Secretariat 99 0 0 0 0 99
Federal Judicial Academy 1 0 0 0 0 1
Federal Shariat Court 1 0 0 0 0 1
Federal Tax Ombudsman 1 1 1 1 1 5
Finance Division 35 12 19 3 3 72
Health Division 71 38 14 24 34 181
Higher Education Commission 29 7 5 4 2 47
Housing and Works Division 2 0 0 0 0 2
Industries and Production Division 6 6 6 1 1 20
Special Initiatives Division 1 - - - - 1
Information and Broadcasting Division 74 10 13 5 11 113
Information Technology and Telecom 6 0 0 0 0 6
Division
Interior Division 73 20 21 16 35 165
KANA 6 0 0 0 0 6
State and Frontiers Region 2 1 2 47 5 57
Labor Division 22 21 15 10 5 73
Law, Justice and Human Rights Division 32 60 65 20 11 188
 PAO HQ* SOK* SOL* SOP* SOQ* Total
Local Government 9 4 1 1 1 16
Minorities Affairs Division 2 1 2 2 1 8
Ministry of Commerce 10 0 2 0 0 12
Narcotics Control Division 16 1 1 6 2 26
NAB 2 1 1 1 1 6
National Assembly Secretariat 5 0 0 0 0 5
National Commission for Government 1 0 0 0 0 1
Reforms
NRB 1 1 1 1 1 5
National Security Council 1 0 0 0 0 1
Overseas Pakistanis Division 2 1 1 0 0 4
Pakistan Audit Department 10 4 14 2 3 33
PNRA 1 0 0 0 0 1
Parliamentary Affairs Division 2 0 0 0 0 2
Petroleum and Natural Resources 20 4 2 3 3 32
Planning Division 31 3 0 0 1 35
Population Welfare Division 42 18 17 10 6 93
Ports and Shipping Division 1 38 2 0 5 46
President Secretariat (Personal) 1 0 0 0 0 1
President Secretariat (Public) 1 0 0 0 0 1
Prime Minister Secretariat (Internal) 1 0 0 0 0 1
Prime Minister’s Secretariat (Public) 4 2 0 0 0 6
Privatization Commission 3 0 0 0 0 3
Provincial Co-ordination Division 1 0 0 0 0 1
Religious Affairs, Zakat and Usher Division 8 6 2 2 3 21
Northern Areas 130 0 0 0 0 130
Science & Technology Division 93 26 21 6 5 151
Senate Secretariat 5 0 0 0 0 5
Social Welfare and Special Education 36 15 23 9 3 86
Division
Statistics Division 15 13 23 11 9 71
Strategic Planning Division PAEC 5 7 1 2 0 15
Social Welfare 31 17 20 31 17 116
Sports Division 14 6 12 7 8 47
Supreme Court of Pakistan 3 0 0 0 0 3
Textile Industry 4 2 2 0 0 8
Tourism Division 5 2 2 2 2 13
Water and Power 8 0 1 0 0 9
Women Division 11 2 1 3 2 19
NCHD 1 0 0 0 0 1
Youth Affairs Division 3 2 0 0 2 7
Total 1363 483 431 296 262 2835

* Key:

HQ: Head Quarter

SOK: Sub-office Karachi

SOL: Sub-office Lahore

SOP: Sub-office Peshawar

SOQ: Sub-office Quetta

2.3 Organogram of DG Audit (Federal Government)
 Chapter 3

SCOPE OF AUDIT

3.1 Types of Audits1

Directorate General Audit, Federal Government conducts the following types of audit:

1. Certification Audit
2. Compliance with Authority Audit
3. Performance Audit

Additionally the Directorate General also carries out special audit, special studies and the audit of
foreign aided projects. Separate guidelines have been issued by the DAGP for the audit of foreign
aided projects.

The following section defines Certification audit, Compliance with Authority audit and
Performance audit.

3.2 Definition of Government Audit

According to the INTOSAI Auditing Standards, the full scope of government auditing includes
regularity and performance audit. Regularity audit comprises of the attest of Financial Statements
called Certification Audit and Compliance with Authority Audit. Regularity audit embraces:

1. Attestation of financial accountability of accountable entities, involving examination

and evaluation of financial records and expression of opinion on Financial Statements;
2. Attestation of financial accountability of the government administration as a whole;

1
These guidelines provides guidance on both the Certification and Compliance With Authority Audit.
 3. Audit of financial systems and transactions including an evaluation of compliance with
applicable statues and regulations;
4. Audit of internal control and internal audit functions;
5. Audit of the probity and propriety of administrative decisions taken within the audit
entity; and
6. Reporting of any other matters arising from or relating to the audit that the Supreme
Audit Institution considers should be disclosed.

Performance audit2 is concerned with the audit of economy, efficiency and effectiveness and
embraces:

1. Audit of the economy of administrative activities in accordance with sound

administrative principles and practices, and management policies;
2. Audit of the efficiency of utilizing of human, financial and other resources, including
the examination of information systems, performance measures, monitoring
arrangements, and procedures followed by audited entities for remedying identified
deficiencies; and
3. Audit of the effectiveness of performance in relation to the achievement of the
objectives of the audited entity, and audit of the actual impact of activities compared
with the intended impact.

The following sections provide detailed guidance on Regularity Audit which includes
Certification Audit and Compliance with Authority Audit.

3.3 Certification Audit

Objectives:

To express an opinion on the Financial Statements to the effect that:

1. The Financial Statements properly present, in all material respects, the government’s
financial position, the results of its operations, its cash flows and its expenditures and
receipts by appropriation;
2. Ensure that assessed revenue is promptly collected and deposited in government
treasury and properly classified in the Financial Statements; and

2
Detailed guidelines for Performance Audit have been issued by the DAGP which are being updated under a
special program initiated by PIFRA.
 3. The sums expended have been applied in all material respects, for the purposes
authorised by Parliament and have, in all material respects, been booked to the relevant
grants and appropriations.

Financial Statements have a large number of external users and it is necessary that the Financial
Statements properly present the financial position of the auditee. In order to express an opinion on
the Financial Statements, the auditor has to ensure the following:

 Financial Statements are evaluated for adequacy against “Presentation and

Disclosure” requirements;
 Significant line items of Financial Statements are tested for the following audit
assertions:
a. Existence and Occurrence
b. Completeness
c. Measurement
d. Regularity (compliance with applicable laws and regulations)

Methodology:

 Understanding the auditee;

 Conducting risk assessment;
 Defining detailed audit objectives;
 Developing audit programmes;
 Performing analytical procedures;
 Testing the internal controls;
 Determining sample size for substantive testing of detail;
 Conducting substantive tests;
 Evaluating results;
 Reporting; and
 Follow up.

3.4 Compliance with Authority Audit

Objective:

1. Audit against the provision of funds to ascertain whether the moneys shown as
expenditure in the accounts were authorized for the purpose for which they were
spent.
2. Audit against rules and regulation to see that the expenditure incurred was in
conformity with the laws, rules and regulations framed to regulate the procedure for
expending public money.
 3. Audit of sanctions of expenditure to see that every item of expenditure was done with
the approval of the competent authority in the Government for expending the public
money.
4. Propriety Audit which extends beyond scrutinizing the mere formality of expenditure
to its wisdom and economy and to bring to light cases of improper expenditure or
waste of public money.
5. While conducting the audit of receipts of the Government, the Auditor-General
satisfies himself that the rules and procedures have been properly adopted and ensures
that the assessment, collection and allocation of revenue are done in accordance with
the law and there is no leakage of revenue which legally should come to Government.
6. Review, analyze and comment on various Government policies relating to different
sectors.

Methodology:

 Updating the understanding of the business processes with respect to control

structure;
 Identification of key controls on the basis of prior years’ audit experience /special
directions from the head office etc.;
 Prioritising risk areas by determining significance and risks associated with identified
key controls;
 Design audit programmes including analytical procedures for testing identified risk
conditions;
 Selection of audit formations i.e. DDOs on the basis of:
o Materiality/significance
o Risk assessment
 Selecting samples as per sampling criteria;
 Execution of audit programmes;
 Identification of weaknesses in internal controls and development of audit
observations and recommendations relating to non compliance of laws, rules,
regulations and prescribed procedures;
 Integrating the work with financial attest audit , where possible;
 Evaluating results;
 Reporting; and
 Follow up.

3.5 Important Audit Components of Federal Audit

The major focus of the Directorate General Audit (Federal Government) is on:

 Revenues due to and received by the Federal Government

  Expenditures incurred by the diverse range of organizations within the Federal Government
 Transfers of money to lower levels of government
 Receipts of foreign aid
 Federal debt
 Fixed and current assets
 Grants

Some risks to be considered during an audit of a Federal Government include:

 Fluctuations in Consumer Price Index and exchange rates that can affect the prices of goods,
materials and services consumed by the Federal Government.
 Fluctuations in economic conditions that can influence the amount of taxes collected.
 Keeping track of assets, protecting their condition and maintaining physical custody of the
assets.
 Potential liability for environmental damage or damages due to legal action by persons
impacted by Federal Government activities.
 Natural disasters and other unforeseen occurrences that can place demands on the resources
of the Federal government.
 Prior year audits audit results that may have a bearing during the current year. Some of the
instances may be;

 Over expenditure against one grant and under expenditure against another
 Lack of reconciliation
 Lack of disclosure of the terms and conditions attached to loans
 Need for improved accuracy in reporting
 Generation of accounts not timely
 Confirmation of expenditure from Principal Accounting Officers and reconciliation by
the DDO not strictly enforced

The auditor should be observant for any possible risks that could affect the financial and operational
performance of federal government. The auditor should decide what aspects of these risks should
be taken into account when planning the audit.

3.5.1. Audit of Revenues

The main components of revenue are:

  Federal tax collection (direct and indirect)
 Foreign loans and grants; and
 Domestic debt

Receipts of money and in-kind contributions through loans and grants should be reviewed to ensure
they have been properly dealt with from a revenue perspective in accordance with Government of
Pakistan accounting standards. The auditor therefore needs to be aware of the current government
policies in this area. The auditor should also conduct an examination of the attached terms and
conditions to ensure compliance. The debt aspect of these loans is addressed below.

3.5.2. Audit of Expenditures

There is centralized pre-audit system prevalent in Pakistan, which requires the Ministries, and
Departments of the Federal, Provincial and District Government to get their payments processed
from the pre-audit offices that work under the supervision of the Controller General of Accounts
(CGA) and the control of the Ministry of Finance. Since the payments are processed in the pre-audit
offices, the accounts are also prepared by them and consolidated in the offices of the Accountant
General, which are the field offices of the CGA. In cases where certain departments of the Federal
and Provincial Governments are authorized to maintain accounts, they are required to prepare
detailed accounts of their payments and receipts, which are merged with the central accounts
prepared by the Accountant General.

The overall payment process of the federal government at Accountant General Pakistan Revenues is
illustrated below;
3.5.3. Audit of Federal Government Transfers
Federal Government transfers to other levels of government should be examined as part of the
certification of the financial statements. A specific audit program on this topic, the audit program on
transfers, is provided in the Working Papers Kit of FAM.

3.5.4. Audit of Government Debt

Federal Governments may, subject to their legal powers, finance their operations through
borrowings from various sources.

The following types of financial liabilities have been identified by INTOSAI3 as areas for audit
attention:

1. International Borrowing. Loans from foreign governments or other international bodies.

2. Domestic Borrowing. Proceeds of public savings schemes. These include amounts on deposit
in savings banks operated by the government and other similar programs.
3. Securities. These include traditional borrowings from creditors under formal agreements
which normally specify the amount borrowed, the interest rate charged or discount required,
the security to be given (if any), and the period over which repayment is to be made. For audit
purposes securities include those executed for the short, medium and long term.
4. Bank loans. Loans made pursuant to a formal agreement with a commercial or national bank
corporation.
5. Guarantees to third parties. These would include guarantees for borrowing and for other
purposes such as financing for exports and fixing exchange rates.

The auditor should review the Federal Government’s debt management policy, especially how it
addresses the following key debt management issues:

 Proper disclosure of all debt, commitments and contingencies;

 Tracking total debt value compared to total Federal revenues and the GNP;
 Tracking annual changes in debt balances (annual budget deficit/surplus and other
increases/decreases in previous balance);
 Tracking annual debt payments as a proportion of total government expenditures;
 Verifying that all obligations regarding the disbursement of debts are met and reviewing the
implications (financial and credit standing) of any failures to meet all obligations;
 Existence of risk management policies;


3
“Guidance on Definition and Disclosure of Public Debt” issued by INTOSAI
  Procedures for ensuring expenditures against loans are consistent with the purposes of the
loans; and
 Distinguishing whether expenditures against loans are for capital investment or for operating
purposes.

An analysis of risk relating to government debt should be made to consider:

 The timing of debt repayment obligations;

 The mix of short and long term debt;
 The impact of debt payments on the operating costs of the entity;
 The mix of currencies in which debts are denominated, assessing possible impact of changes in
rates of exchange between these currencies and the Pakistan rupee; and
 The potential impact of changes in interest rates and their timing (depending on whether
variable or fixed interest rates on the loans and when the fixed rate loans come up for re-
financing).

The detail process flow of foreign debt repayment and receipt is given below;
(a) Foreign Debt Repayment
(b) Receipt of Foreign Debt

In addition to the audit of debt management from a strategic perspective, the auditor needs to
examine the internal controls and individual debt transactions. The auditor is referred to the Audit
Program on Debt in Chapter 6 of this guideline.

3.5.5. Audit of Assets

The auditors should check that the auditee departments have maintained proper records of
purchase and sale of assets, and that all rules and regulations are being followed in this regards. The
auditors should also check that the auditee departments have maintained a Fixed Asset Register
which must reflect the current status of assets. Moreover, the auditors should observe that
necessary steps have been taken by the departments for the safety of assets.

The New Accounting Model (NAM) provides for the accounting of assets. The auditor needs to
understand the level of implementation of NAM and verify the fair and true presentation of those
assets in accordance with the policy given in NAM.

3.5.6. Audit of Grants

Government entities receive budgetary grants from the Federal Government annually. AGPR
maintains grant files for each grant in which all relevant record of the grant including reconciliation
statements of all DDOs, supplementary grants and re-appropriations etc. are maintained. The
auditor should review the following with respect to government grants;

a) Review availability of reconciliation statements of each DDO.

b) Check that appropriation account was approved by Accountant General.
c) Check authentication of appropriation accounts by the Principal Accounting Officers.
d) Review grant files to ensure that all relevant documents are available.
e) Check mathematical accuracy to ensure that there are no arithmetical errors.
f) Check that supplementary grant was approved by Deputy Financial Advisor.
g) Ensure that supplementary grant figure is disclosed in appropriation accounts properly.
h) Examine appropriation accounts and grant files to identify all expenditure not printed in the
schedule of authorized expenditure.
i) Check recoveries against grants.
 Chapter 4

PERMANENT FILE OF
AUDITEE DEPARTMENTS

4.1 Introduction
Audit objectives and plans are developed based on an understanding of the entity’s operations. The
auditor needs to have a detailed knowledge of those aspects of the entity that relate to audit; the
auditor should have cognizance about the other areas.

As its name implies, the Permanent File (PF) is used to collect information about the entity that will
be useful not just for the current audit, but also for future audits of the same type for the same
entity. For example: information about the entity’s size and business helps in assessing materiality;
understanding the entity’s operations can help to determine what components to audit; and,
knowing the types of transactions entered into by the entity helps to assess inherent risks to the
entity. This information will be fairly consistent and relevant for at least a few years’ audits.

Even though the information on the Permanent File is expected to be useful across more than one
audit periods, the audit team should validate the accuracy of that information at the time of next
audit and update the Permanent File where significant changes have occurred.

The Permanent File includes information that will be of continuing importance to audit. This may
include:

 Copies of relevant Government legislation, applicable financial rules, laws

regulations, guidelines and other rules affecting the operations of an entity.
 Organization charts, details of key contacts and locations of operation.
 Role of entity, Vision and Mission Statements and the most recent business plan or
charter of the entity.
 Copies of the estimates.
 Copies of long-term contracts.
  Loan agreements, mortgages and debt instruments, schedules of amortization for
debts and special assets.
 Previous years’ audited Financial Statements.
 Previous auditors’ reports to management and management’s responses.
 Extracts of the minutes of meetings.
 Chart of accounts.
 Summary of accounting policies used by the auditee departments.
 Special remuneration, if any, for senior officers.
 Environmental laws and regulations
 Others as appropriate
Policies and Procedures Manuals may be in the Permanent File, if they are brief or, alternatively, a
copy should be in the auditor’s bookcase or filing cabinet.

Note: Where the supporting documentation is voluminous, the auditor may decide to include only
a reference to the title of the documentation and its physical location rather than keeping the
whole document in the Permanent File.

4.2 The Audit Team’s Responsibility

The audit team is responsible for gathering the information required to be put in the set of working
papers associated with the Permanent File. These are listed in the next section. The preparation of
Permanent File for the first time will be a time-consuming exercise and sufficient audit resources
should be allocated to this task in the audit resource plan.

For subsequent audits of the same type for the same entity, the audit team simply needs to confirm
that the information is still relevant, and to update the Permanent File at planning stage where
necessary. The dates on which updates occurred should be recorded on the Update Control Sheet
(Form PF) provided.

Members of the audit team should be familiar with the information in the Permanent File as it is
required to have an understanding of the entity’s business in order to check that an effective and
efficient audit is conducted.

It needs to be highlighted that the audit strategy and methodology recommended under FAM
provide for continued quality assurance through all the phases of audit. While reviewing the
permanent file, the functionaries entrusted with the quality assurance of audit should ensure that
the various steps recommended in these Guidelines and respective forms have been completely
followed in all respects.
4.3 Documentation in Permanent File

Titles of various forms specified in the Audit Working Papers Kit are listed below:

 Update Control Sheet (PF)

 Status of the Entity (PF-I)
 Background Information (PF-II)
 List of Auditable Locations (PF-III)
 List of Bank Accounts (PF-IV)
 List of Authorized Signatories (PF-V)
 External Factors (PF-VI)
 Accounting Records and Accounting System (PF-VII)
 Key Controls (PF-VIII)
 Significant Audit Areas (PF-IX)
 Significant Accounting Policies (PF-X)

The following paragraphs provide general guidance for using the above mentioned forms.
Instructions for filling in these forms are contained in the Audit Working Papers Kit which the
auditors are required to follow.

4.4 Update Control Sheet – PF

The Permanent File should be updated each year at the planning stage. This form should document
the name of the person responsible for updating it.

4.5 Status of Entity – Form PF-I

The auditor should document on this form the principal address, status (whether it is a Federal or a
Provincial Government, semi-government, self accounting, centralized or exempt accounting entity,
etc.) and its relationship with other government departments/ministries (attached department,
branch office, etc).

4.6 Background Information – Form PF-II

The auditor should gather financial and other background information about the operations whose
results are included in the Financial Statements of the entity. This includes information about total
assets, total liabilities, total revenue and total expenditure, corporate plans, and organization
structure, main functions, etc.
The main functions of auditee departments generally are:

 Social and community services

 Foreign affairs
 Taxation
 Construction and maintenance of infrastructure
 Economic incentives, services and regulation
 Relations with other levels of government
 Financial administration (revenue collection, debt management, transfers)
 General administration

Note: Accounting/Financial information pertaining to the last three years should be

documented along with the details of fund releases.

4.7 List of Auditable Locations – Form PF-III

The auditor should document the addresses of all locations including:

 The Principal Accounting Officer’s address;

 Attached departments
 Project sites or other operational locations that collect, record, process and report financial
information of auditee activities; and,
 Locations where assets are located and their existence can be checked by the auditor.
4.8 List of Bank Accounts – Form PF-IV

The auditor should list names, addresses and account numbers of all bank accounts maintained in
the name of the Federal Government, its Ministries, agencies and other related organizations.

State Bank of Pakistan (SBP) is the banker of the Federal Government. SBP has 16 branches and
National Bank of Pakistan (NBP) as an agent of SBP performs banking function for the Federal
Government across Pakistan.

Government of Pakistan operates following bank accounts with SBP;

 Non-food account
 Food account
 Fertilizer account
 Saudi Arabia special loan account
  Government deposit account No. XII

Non-food account is the main account of the Federal Government and government receipts are
deposited in this account and majority of payments are made from this account.

4.9 List of Authorized Signatories – Form PF-V

The auditor should list the names of personnel with authority to certify, approve and authorise the
collection, recording, processing and reporting of the financial information of the entity in
accordance with the delegation of powers of the relevant department.

4.10 External Factors – Form PF-VI

The auditor should list external factors that may have an impact on the performance of the
operational activities of an auditee. The auditor should use professional judgment to decide what
these factors are. They may include:

 Economic trends and conditions affecting input costs.

 Variation in budgets.
 Budget allocation
 Level of debt
 Timing of project completion and carry over into subsequent financial years.
 General financial indicators and trends.
 Pay rates and other terms and conditions of employment (affecting payroll)
 Physical targets and performance indicators
 Natural disasters or other unforeseeable events requiring relief expenditures
 Political conditions
 Environmental considerations
 Technological factors
 Social factors

4.11 Accounting Records and Accounting System – Form PF-VII

This form has two requirements:

a. List the accounting records maintained by the auditee departments for the collection,
recording, processing and reporting of financial information of all the formations at the
Federal, Provincial and District accounting levels.
b. Document a brief description of the accounting system (the means, including staff and
equipment, by which an organisation produces its accounting information).
The major accounting records maintained by the auditee departments include:

 Cash Book
 List of Bank Accounts
 Cheque Book
 Vouchers/Bills
 Expenditure Statement
 Monthly Return
 Funds Releases
 Budget Releases
 Transfer Register
 Advance Register
 Expenditure Register
 Stock Register
 Vehicles Record
 Accounting Ledgers

Note: The above list is not comprehensive; it may include other additional records to support the
nature of activities an auditee is involved in.

Accounting Manuals and Codes

 General Financial Rules

 Federal Treasury Rules
 Fundamental Rules and Supplementary Rules
 Leave Rules
 Revised System of Financial Control and Budgeting
 Delegation of Financial Powers
 Esta Code
 Accounts Code
 Chart of Accounts
 Financial Reporting Manual
 Public Procurement Rules, 2004
 Use of Staff Car Rules, 1980
 Compendium of Pension Rules
 GP Fund Rules
 Accounting Policies and Procedures Manual - APPM

In addition to the above mentioned list, the following is the list of manuals and codes which are
entity specific;

 Charter of the entity organization

 Rules of business
 Fiscal Responsibility and Debt Limitations Act, 2005
  All acts, ordinances and statutes applicable during Audit.

Where there are new administrative policies or procedures with which the auditee departments
should comply, the auditors must become familiar with them and check that the audit is conducted
against these benchmarks. In addition, the auditor should consider whether the policies and
procedures in force are effective at reinforcing good management practices. Where a rule or
procedure does not contribute to good management practices, it is the job of the auditor to
recommend changes to such rules and procedures.

The audit team should also document a process mapping for each process maintained for collecting
and recording transactions. This will help the auditor in understanding the complexity of control
structure and documentation. The process mapping will depend on the nature, flow of transaction
and significance of operations. For process mapping, the audit team may analyse an entity’s
manuals, applicable rules and regulations. There are two approaches to process mapping namely
Financial Statements approach (a top down approach) and transactions based approach (a bottom
up approach).

Note: It is most important that the auditor, in carrying out the audit work, does not reinforce
outdated or inappropriate procedures and practices. In particular, the auditor should
determine whether any changes have been introduced in government practices that will
apply to the auditee department(s).

4.12 Key Contacts – Form PF-VIII

The auditor should list the names and contact information of key personnel at the principal
accounting office and at the departmental levels of each of the Ministries, departments, agencies
and other related organizations of the Federal Government.

4.13 Significant Audit Areas – Form PF-IX

The auditor should obtain a current and up to date chart of accounts. He/she should ensure that it
follows the current accounts classifications and the regulations imposed by the Controller General of
Accounts (CGA).

The auditor should list critical audit areas/significant financial statement components (including
individually significant transactions and events), and their impact on the Financial Statements of the
Federal Government (in liaison with those auditors having responsibility for these audits). This will
help the auditor to plan his/her audit for specific Financial Audit and related Compliance with
Authority Audit objectives.

For certification audit, the most logical way of dividing up the Financial Statement is to consider each
line item in the Financial Statements to be a separate component. The line item would be each
amount reported in the Financial Statement, including the amount disclosed in the notes thereto.

The financial items to be audited may include the following, as applicable:

1. Income
a. Tax Receipts
b. Non-Tax Revenue and Other Receipts
i. General Administration Receipts
ii. Economic Services Receipts
iii. Defence Services Receipts
iv. Development Surcharge and Royalties
v. Citizenship, Nationalization, Passport and Copyright
vi. Interest on Loans and Advances
vii. Dividend and Profit Share
c. Development Grants
d. Borrowings
i. Foreign Debt
ii. Domestic Permanent Debt
iii. Domestic Floating Debt

e. Capital Receipts
i. Privatization Proceeds
ii. Recovery of Loans and Advances
iii. Investment Recovery
2. Expenditures/Costs
a. Salaries and Employee Benefits
b. Operating Expenses
c. Transfers
i. Grants, Subsidies and Write-off of Loans
ii. Other Transfer Payments
d. Expenditures on
i. Physical Assets
ii. Civil Works
iii. Debt and Interest Payments
iv. Principal Repayment of Debts
v. Servicing of Debts
e. Other Payments
i. Loans and Advances
ii. Investments
 3. Public Account
a. Receipt and Payment of
i. National Saving Schemes
ii. Deposits
iii. State Provident Fund
iv. Other Public Accounts

4.14 Significant Accounting Policies – Form PF-X

The auditor should list significant accounting policies that are consistently applied in the auditee
department and should verify that these are consistent with the current policies implemented by the
CGA. The auditor should specifically check on the extent of the application of NAM in the auditee
entity.

Significant policies may include:

a. Revenue recognition
b. Recognition of expenditure
i. Payments made through cheque
ii. Inter government transfers
iii. Payments directly in bank accounts
iv. Direct payments by State Bank of Pakistan (SBP)
v. Imprest payments
c. Foreign currency transactions
d. Employee benefits
i. General Provident Fund
ii. Pension
e. Investments
f. Public Debt
g. Payments by third parties

A number of entity-supplied documents are required to support the forms and schedules:

 Organization chart
 Accounting policies
 Chart of accounts
 Entity’s business plan or charter
 Applicable financial rules, laws and regulations, and service rules
 Environmental laws and regulations
 Long term contracts and leases
 Loan agreements, mortgages and debt instruments
 Amortization schedules for major assets
 Extracts of minutes of meetings
  Previous years’ audited financial statements
 Previous auditors’ reports to management and management’s responses
 Other as appropriate

Note: Where the supporting documentation is voluminous; the auditor may decide to include only
a reference to the title of the documentation and its physical location rather than keeping the
whole document in the Permanent File.

A sample of the permanent file prepared for the National Electric Power Regulatory Authority
(NEPRA) has been annexed as Appendix – A.
 Chapter 5

AUDIT PLANNING PHASE

5.1 Introduction

Under the existing guidance available to the Field Audit Offices (FAOs), all the FAOs are required to
prepare an Annual Corporate Audit Plan covering audit operations pertaining to Certification Audit,
Compliance with Authority Audit and other audits like Performance Audit, Special Audit, Special
Studies and Audit of Foreign Aided Projects. This chapter contains guidance that the auditor can use
to plan their Regularity Audit which includes Certification Audit and Compliance with Authority
Audit. These guidelines do not replace the use of professional judgment.

Individual audits must be planned to ensure that:

 appropriate and sufficient evidence is obtained to support the auditor’s opinion;

 the INTOSAI Auditing Standards are complied with; and
 only necessary work is performed.

The planning phase involves the following:

 Determining the overall objectives and scope of audit; *

 Understand the entity’s business; *
 Assessing materiality, planned precision and audit risk.
 Assessing the entity’s system of internal controls.
 Determining the components by which the audit will be conducted.*
 Determining Financial Audit and Compliance with Authority Audit objectives, and
error/irregularity conditions *
  Assessing Inherent Risks and Control Risks.
 Determining the appropriate mix of tests of internal control, analytical procedures and
substantive tests of details.

* These steps of Planning Phase are common for both the Certification and Compliance with
Authority Audits, whereas the unmarked steps relate to Certification Audit only.

5.2 The Audit Team’s Responsibility in Planning Phase

The activities performed during the preparation of the Planning File are complex and varied. Each
member of the audit team should check that they have a good understanding of the activities that
have been assigned to them. For details, please refer to Chapter 7 of the FAM.

Based on the information noted above, head of the office is responsible for planning the activities
and associated resource requirements in conducting audit. The Audit Management Software is a
valuable tool to apply to this task. See Chapter 8 of the FAM and the Audit Management Software
Manual for additional information.

It should also be noted that the INTOSAI Auditing Standards require that “Auditors should
adequately document the audit evidence in working papers, including the basis and extent of
planning, work performed and the findings of the audit”. Therefore, the audit team leader is
responsible to check that the Planning File is complete and provides evidence of the basis and extent
of planning work performed by the audit team.

It needs to be highlighted that the audit strategy and methodology recommended under FAM
provide for continued quality assurance through all the phases of audit. While reviewing the
planning phase, the functionaries entrusted with the quality assurance of audit should ensure that
the various steps recommended in these Guidelines and respective forms have been completely
followed in all respects.

The key to maintaining the quality of the planning process itself is a review of the plan, which the
concerned Deputy Auditor General (DAG) should supervise and approve (Ref: FAM-Para 15.3).

5.3 Documentation in Planning Phase

Titles of various forms specified in the Audit Working Papers Kit are listed below:

 Audit objectives and scope*

 Points for attention at next audit (from last year)*
 Entity communication letter*
 Audit planning memorandum*
 Memorandum on post-planning changes*
 Important dates*
 Tour programme *
 Information requested from entity officials*
 Materiality assessment form
 Expected aggregate error and planned precision form
 Audit risk assessment form
 Inherent risk assessment form
 Internal control questionnaire – control for overall environment
 Internal control questionnaire – general computer controls
 Internal control questionnaire – application controls
 Control risk assessment form
 Analytical procedures assurance form
 Source of audit assurance form
 List of applicable laws and regulations*
 Sample selection checklist
 High value item selection form*
 Key item selection form
 Sample sizing for tests of internal control
 Sample sizing for substantive tests of details
 Checklist of accounting estimates to be reviewed
 Points for attention at next audit*
 Audit planning checklist*

Note: These forms recommended under FAM and Audit Working Papers Kit essentially meet the
requirements of Certification Audit. However, some of these forms, marked with asterisks(*),
can also be used for Compliance with Authority Audit.

The following paragraphs provide general guidance for using the above mentioned forms.
Instructions for filling in these forms are contained in the Audit Working Papers Kit which the
auditors are required to follow.

5.4 Audit Objectives and Scope

The audit is conducted to address a particular objective. Each audit will be designed to address one
or more of the following objectives:
  Expressing an opinion on Financial Statements;
 Expressing an opinion regarding compliance with current rules and regulations;
 Testing compliance with authority or controls on selected transactions with no
opinion being expressed; and
 Evaluating operational performance.

Note: For a comprehensive discussion of audit objectives, please see Section 7.1 of FAM.

The nature and size of the audit entity determines the scope of the audit and is generally defined by
the audit mandate. For the audit of Financial Statements, that are required under Section 7 of the
Auditor-General Ordinance, 2001, the entity to be audited will be defined by the applicable
accounting policies of the government.

5.5 Points for Attention at Next Audit (From Last Year)

The purpose of this form is to highlight matters that should be taken into account when planning the
following year’s audit. The auditor should record expected developments in the entity’s activities
that may require changes in the audit planning. This form can also be used to document practical
suggestions for changes to the next year’s audit. All audit staff are encouraged to suggest
improvements in the audit plan and procedures.

5.6 Entity Communication Letter

The Audit Working Papers Kit includes the template of a letter which needs to be issued to the
management of the auditee. It sets out the terms of the audit and will include the issues that the
auditor wants to bring to the attention of entity’s management. This letter will clarify what is
expected from auditors during the course of audit and leads to cooperation between both the
parties.

5.7 Audit Planning Memorandum

The audit planning memorandum should comprise a concise and easy to understand summary of
important factors and decisions made during the planning phase. Emphasis should be placed on
changes that have been made to the previous year’s plan. The audit planning memorandum should
not duplicate all of the details set out elsewhere in the planning file, the permanent file or in the
audit programmes.
The actual contents of the audit planning memorandum will depend on specific circumstances of the
audit. It should include any changes in the nature of entity’s business, structure of business,
accounting policies or systems, internal controls or operational environment that will affect the
planned audit. It should also explain and establish an audit strategy, time tables and overall budget
together with any significant changes made from the previous year.

5.8 Memorandum on Post-Planning Changes

As the execution, evaluation and reporting phases of the audit proceed, it may be necessary to
amend the planned scope of the audit work. This may result from gaining a better understanding of
the entity’s activities, from unexpected external developments, or from determining a better means
of achieving the audit objectives as the audit progresses.

If the changes are significant, such as the one that calls for the development of new audit
programmes or a re-consideration of the sources of audit assurance, the auditor should discuss the
situation with his/her supervisor. The auditor should then prepare an addendum to the audit
planning memorandum. This addendum should follow the same review and approval process as is
used for the audit planning memorandum itself.

5.9 Important Dates

Each audit is scheduled around a number of important dates. This form lists dates that are likely to
be significant and provides the audit team leader with a tool to track when the work was planned
and when it was actually performed.

5.10 Tour Programme

Tour programme needs to be prepared and approved keeping in view the timelines, resource
constraints and audit strategy. The head of office should ensure that tour programmes are prepared,
and approved well in time; and appropriate record is being kept in this regard.

5.11 Information Requested from Entity Officials

The audit team leader should keep track of information requested from the auditee’s management,
including what information was requested, when it was required to be delivered and when it was
actually received. This form provides a suggested format, but the audit team leader may choose to
use his or her own format.

5.12 Materiality Assessment Form

Materiality can be defined as follows: “An error (or the sum of the errors) is material if the error (or
the sum of the errors) is big enough to influence the users of the Financial Statements”.

Assessing materiality is an important aspect of modern systems-based audits. This form provides
guidelines and suggestions for assessing an appropriate materiality amount for the audit at hand.

Note: For a comprehensive discussion on Materiality, see section 7.3.l and Appendix D of FAM.

5.13 Expected Aggregate Error and Planned Precision Form

Other values which are important in determining appropriate sample size and in evaluating the
results of the audit are expected aggregate error and planned precision. This form provides detailed
instructions for arriving at these values for the audit at hand.

5.14 Audit Risk Assessment Form

It is important that the audit team establish an appropriate level of risk for the audit. The concept of
risk is very important in planning system-based audits and is discussed in detail in sections 7.7 and
7.8 of FAM. This form is used to identify whether there are any particular factors that would cause
the auditor to reduce the level of risk he or she is willing to accept, therefore requiring additional
audit work to be planned so as to raise the level of audit assurance.

5.15 Inherent Risk Assessment Form

Inherent risk is the chance of material error occurring in the first place assuming that there are no
internal controls in place. “Material error” may be a single error or the sum of multiple smaller
errors.

This form indicates some factors which may influence the auditor’s assessment of inherent risk.
Inherent risk should be assessed for each Financial Audit and compliance with authority objective.
However, because the auditor’s assessment of inherent risk may be the same for multiple objectives
or components, this form can be used to capture risk for each group of objectives or components
that the auditor wishes to treat in the same manner.

5.16 Internal Control Questionnaire – Controls for Overall

Environment

This form is used to guide the auditor in considering the overall internal control environment in the
entity. The better the apparent system of internal control, the less detailed checking of individual
transactions will be necessary. Internal controls are discussed at length in section 7.4 of FAM.

The internal control questionnaire provides many questions for the auditor’s review. The auditor
should decide what questions are relevant to the present audit and is free to add further questions
wherever required.

Also, the auditor should be aware of the work carried out by the Internal and external auditors
where applicable. Reliance on their work can only be placed when the auditor assures him/herself
that their work has been carried out according to the relevant auditing standards. The auditor
should make efforts to obtain the copies of the audit reports, management letters and other
relevant observations made by the internal and external auditors. Wherever the auditor uses the
work of the internal and external auditors, it should be duly acknowledged in his record.

The auditor must be honest in the assessment of internal controls operating in overall environment,
general computer environment and specific computer based financial applications. If the controls
are weak or non-existent, the auditor should inform the entity management of the need to make
improvements and should also offer suggestions. In the first few years of transition to the new
auditing paradigm, it is to be expected that the control environment will be weak in most entities.
Identifying the weaknesses will be the starting point for developing stronger controls for the future.
5.17 Internal Control Questionnaire – General Computer Controls

This form is used to guide the auditor in considering the internal controls operating in the entity’s
computerised environment. Internal controls are discussed at length in section 7.4 of FAM.

The internal control questionnaire provides many questions for the auditor’s review. The auditor
should decide what questions are relevant to the present audit and is free to add further questions
wherever required.

5.18 Internal Control Questionnaire – Application Controls

This form is used to guide the auditor in considering the internal controls operating in specific
computer-based financial applications. Internal controls are discussed at length in section 7.4 of
FAM.

The internal control questionnaire provides many questions for the auditor’s review. The auditor
should decide what questions are relevant to the present audit and is free to add further questions
wherever required.

5.19 Control Risk Assessment Forms

This form is used by the auditor to summarise the assessment of risk in the general control
environment, the overall computer environment and in specific computer applications (from the
previous three forms).

The risks identified through the assessment of controls may impact different components
differently, so the auditor should consider control risk separately for each component (or group of
similar components). The assessment of risk is very much a matter of professional judgment. In
general, during the first few years following the introduction of new auditing paradigm, it is
suggested that all control risks are assumed to be high unless there is sufficient evidence to support
lowering that assessment.
5.20 Analytical Procedures Assurance Form

The audit team leader uses this form to document the analytical procedure(s) that are planned for
each component. The type of procedure selected is important as different procedures (i.e.
comparative, predictive, statistical or overall verification procedures) provide a different level of
assurance when it comes to planning substantive tests of details.

Detailed instructions are provided with the form.

Note: A detailed discussion on analytical procedures is provided in the Financial Audit Manual,
section 7.8 and Appendix E.

5.21 Source of Audit Assurance Form

In conducting audit, the audit team is looking for sources of assurance that the Financial Statements
provide a true and fair view. One source of assurance is a detailed review of individual transactions
(substantive tests of detail). However, this is very time consuming, so the audit team looks for other
sources of assurance that might enable them to reduce the amount of substantive tests of detail.
The audit risk model provides an arithmetic method of using the assessments of inherent risk,
control risk, analytical procedures and overall audit risk to arrive at the level of assurance that is
required from substantive tests of detail.

This form leads the auditor through this arithmetic model. A detailed discussion of the risk
calculation is presented on the reverse of this form.

5.22 List of Applicable Laws and Regulations

A major component of a Regularity Audit is the verification that the entity has complied with
applicable laws and regulations. The audit team should enlist all applicable laws and regulations on
this form for checking the entity’s compliance with laws and regulations.

5.23 Sample Selection Checklist

In preparation for performing the substantive tests of detail, the audit team must select samples of
items to be tested. This form is used to record the identity of each sample and the date on which it
was collected. CAATs should be used (where applicable) to select and record samples taken during
audit.

The following section lists some of the sampling techniques which can be used both for the
Certification Audit and for the Compliance with Authority Audit. Use of Monetary Unit Sampling is
recommended for Certification Audit and when the auditors use alternative sampling techniques
during Certification Audit, they will be required to exercise professional judgment.

Sampling:

It is the selection of a sub-set of a population. The auditor takes a sample to reach a

conclusion about the population as a whole. As such, it is important that the sample be
representative of the population from which it was selected.

Sampling risk

Sampling risk is the chance that a sample is not representative of the population from which
it was selected.

Statistical sampling

Statistical sampling is the selection of a sub-set from a population in such a way that each
sampling unit has an equal and known chance of selection.

Non-statistical sampling

Non-statistical samples are samples selected by other means which are intended to
approximate the representative character of a statistical sample. However, they lack the
objectivity of a statistically selected sample.

Note that the only difference between statistical sampling and non-statistical sampling is the
method of selecting sample items. Planning requirements and the evaluation process remain
the same.

Monetary Unit Sampling (MUS) for substantive tests of details

The key feature of MUS is that the population is considered to be composed of individual
monetary units, as opposed to physical transaction vouchers like individual supplier voices,
cash disbursements, etc. The auditor selects an individual Rupee from the population and
uses it as a hook to catch the voucher in which it occurs, so it can be audited.

Under MUS, all sampling units (individual Rupees) will have the same chance of being
selected. This means that, the larger the supplier invoice, the greater the chance of it being
selected.

Methods of sample selection

There are several sample selection methods that are very good at ensuring that the sample
is representative of the population from which it is selected, as follows:

1. Random;

2. Fixed interval (systematic);

3. Cell (random selection); and

4. Stratified random.

1. Random selection

Random selection involves numbering all of the items in the population and then using a
random number table or software programme to select 200 random numbers. The auditor,
then, identifies the sampling unit that corresponds to each number. This method is difficult
to use unless the sampling units are already pre-numbered (pre-numbered sales invoices, for
example) or can easily be numbered

2. Fixed interval (systematic) selection

This method involves selecting a random start and then every nth item.

3. Cell (random interval) selection

 This method essentially combines the previous two methods. The auditor divides the
population into cells and then picks a random item from within each cell.

4. Stratified random selection

CAATs may offer a fourth method – stratified random sampling. Using this approach, the
population is first stratified based on monetary ranges, type of expenditure, etc., and then a
random sample is drawn from each range. This could be used, for example, to weight an
attribute sample to the larger dollar items or specific expenditure types, or to ensure that at
least one sample item is drawn from each expenditure type.

Selecting the sample – statistical sampling

The “standard” sample selection technique with MUS is fixed interval (systematic) selection.
Cell (random interval) selection can also be used if the population has been downloaded into
a computer and a CAATs is being used to do the selection. Random selection is also possible,
but contains all of the difficulties of cell selection. In addition, it has a further disadvantage –
should fixed interval or cell selection be used, the sample size will automatically be adjusted
for any over or under-estimations of the population value. With random selection, this will
not occur. Hence random selection is rarely used with MUS. For both fixed interval selection
and cell selection, the auditor needs to know the sampling interval.

Selecting the sample – non-statistical sampling

To select a non-statistical sample that approximates a monetary unit sample, the auditor
needs to find a way to bias the sample towards the larger monetary items. Some form of
value-oriented selection is therefore required.

For detailed guidance please refer to Appendix B of FAM.

5.24 High Value Item Selection Form

In addition to selecting a random sample for testing, the auditor should also make sure that the
items of particular high value are tested, as any errors in these items could have a material impact
on the accuracy of the Financial Statements as a whole. Therefore, the auditor will identify the high
value items which will receive individual attention (and will remove them from the population of
items from which the samples are selected).

The auditor will identify the high value items on this form and will cross-refer each item to the
working papers that record the audit tests performed on that item.

5.25 Key Item Selection Form

As with high value items, the auditor may also want to individually review items which are unusual
and which warrant special attention. Generally, these items will include transactions that cause an
account to show a negative balance (e.g. an asset account with a credit balance) or unusual non-
recurring items. The auditor will use judgment and experience to help identify these key items.

Therefore, the auditor will identify the key items which need individual attention and will remove
them from the population of items from which the samples are selected.

The auditor will identify the key items on this form and will cross-refer each item to the working
papers that records the audit tests performed on that item.

5.26 Sample Sizing for Tests of Internal Control

This form presents a manual arithmetic process for determining the appropriate size of a sample of
transactions which will be selected to test the controls in a specific audit component. The process is
the same for all audit entities, and is fully explained on the form.

The use of CAATs (see Financial Audit Manual, Appendix C) will avoid having to follow this manual
process.

5.27 Sample Sizing for Substantive Tests of Details

This form presents a manual arithmetic process for determining the appropriate size of a sample of
transactions which will be selected for a substantive test of details in a specific audit component.
The process is the same for all audit entities, and is fully explained on the form.

The use of CAATs (see Financial Audit Manual Appendix C) will avoid having to follow this manual
process.

5.28 Checklist of Accounting Estimates to be Reviewed

Financial Statements, especially those produced on accrual basis, will often contain accounting
estimates, such as allowance for bad and doubtful debts and contingent liabilities. The auditor
should discuss with entity’s management to identify these estimated amounts and record them on
this form for subsequent validation when the audit is performed.

5.29 Points for Attention at Next Audit

During the course of preparation of Planning and subsequent Working Paper files, the auditor may
come across items in the current year that should be followed up in the next year’s audit. These may
be accounting estimates that were contingent upon events that have not yet happened or items that
are expected to show up in the following year’s accounts or other matters specific to the audit at
hand.

Use this form to record these items so that they can be reviewed in next year’s audit planning phase.

5.30 Audit Planning Checklist

This form presents a checklist of the major activities that should have been completed by the audit
team leader to meet his responsibility for adequately planning audit and for documenting the basis
of the plans. Chapter 8 of FAM provides detail regarding the auditor’s planning responsibility.

This form is also a key component of the DAGP’s quality assurance process, since it provides a
vehicle for communicating the planning process to the DAGP management so they can review and
approve that adequate planning was completed in respect of the audit.
5.31 Centrally Led Audit

These are audits where a central team is responsible for the overall planning, performance,
evaluation, reporting and follow up. With a centrally led audit, there will be a division of
responsibilities between the central team and the field audit teams of the same Directorate or of
other Directorates contributing to the centrally led audit.

An example of such an audit is the annual audit of the Financial Statements of the Federation
Government. In total eight Directorate Generals Audits are involved in the audit of Federal
Government in one way or another. Directorate General Audit (Federal Government) has the prime
responsibility to form a consolidated opinion on the Financial Statements of the Federal
Government. Further four self accounting entities are also included in the scope of Federal Audit are;

 Pakistan Mint
 Central Directorate of National Saving
 Food Account
 Geological Survey of Pakistan

Paras from 6.4.5 to 6.4.10 of FAM give guidance about a centrally led audit. The central team is
responsible for:

 Setting the basic planning parameters (materiality, planned precision, audit risk, etc.);
 Setting inherent risk, control risk, other substantive procedures risk and substantive
test of details risk for each component and each specific Financial Audit objective,
Compliance with Authority Audit objective and error condition;
 Determining the optimum mix of tests of internal controls, analytical procedures and
substantive tests of detail for each component and for each specific Financial Audit
objective, related Compliance with Authority Audit objective and error condition;
 Performing the overall error evaluation; and
 Reporting the results of the audit.

The field audit teams of the same or other Directorates are, in turn, responsible for:

 Providing advice to assist the central team to plan the audit;

 Reviewing the material received from the central team to ensure audit programmes,
forms and checklists reflect the optimum mix of tests for that particular Directorate
and contain all the work required to obtain the required amount of overall assurance;
 Performing the audit work; and
 Reporting the results of the work, including individual errors and other significant
matters, to the central team.
 Chapter 6

AUDIT EXECUTION PHASE

6.1 Introduction

This chapter provides guidance for the auditors’ work at the execution stage. This stage includes
compliance testing (test of controls), substantive testing, collecting and reviewing evidence and
maintaining working papers files. It needs to be noted that the audit programmes given at the end of
this chapter provide guidance to the field auditors for Certification Audit and Compliance with
Authority Audit. However, there are very few audit programmes as ‘compilation of accounts’ which
relate specifically to certification audit.

Overall audit execution guidance is available in Chapter 9 of the FAM

The Audit Working Papers Kit provides:

 Evidence that the auditor has complied with the DAGP auditing standards;
 A basis to determine that the work delegated has been performed properly;
 A source of information for preparing reports and answering enquiries; and,
 Assistance in planning and executing future audits.

6.2 The Audit Team’s Responsibility in Execution Phase

The audit team has a major responsibility for documenting audit evidence in the working papers
including work performed and findings (the DAGP’s Auditing Standards, Para 3.5.5).

As noted in FAM, the content and arrangement of the working papers is a reflection of an auditor’s
proficiency, experience and knowledge.
Sections 9.9 to 9.11 of FAM provide details of the auditors’ responsibility for documenting the work
performed and standards for maintaining and keeping custody of the Working Papers file. Each
auditor should be familiar with these responsibilities.

The Audit Working Papers file should contain various financial documents provided by the auditee
management, including:

a. Financial Statements
b. Trial balance
c. Civil Account
d. Appropriation Account
e. Any inter-governmental accounts for elimination.
f. Supporting documents (important agreements, bills, vouchers other documents that
are important for the audit record)
g. In addition, the audit team should maintain detailed minutes of all the meetings with
the auditee representatives, which should be placed in the Audit Working Papers file.

It needs to be highlighted that the audit strategy and methodology recommended under FAM
provide for continued quality assurance through all the phases of audit. While reviewing the
execution phase, the functionaries entrusted with the quality assurance of audit should ensure
that the various steps recommended in these Guidelines and respective forms have been
completely followed in all respects.

6.3 Forms and Schedules for Audit Execution Phase

Titles of various forms specified in the Audit Working Papers Kit are listed below:

 Summary of Analytical Review Procedures Performed *

 Details of Analytical Review Procedures Performed *
 Completed Internal Control Questionnaires*
 Internal Control Deviations Form *
 Internal Control Deviations Summary *
 Compliance Summary
 Substantive Tests of Accounting Estimates
 Errors in Accounting Estimates
 Substantive Test Sample Summary for each Audit Programme
 Substantive Test of High Value/Key Items – Summary
 Details of Errors in Samples, High Value Items and Key Items
 Exit Interviews
Note: These forms recommended under FAM and Audit Working Papers Kit essentially meet the
requirements of Certification Audit. However, some of these forms, marked with asterisks (*),
can also be used for Compliance with Authority Audit.

The following paragraphs provide general guidance for using the above mentioned forms.
Instructions for filling in these forms are contained in the Audit Working Papers Kit which the
auditors are required to follow.

6.4 Summary of Analytical Review Procedures Performed

This form is used to summarize the analytical procedures that were performed. The auditor should
note the procedures that were performed and cross-refer each procedure to the working paper that
provides the details of the test (i.e. Details of Analytical Review Procedures Performed form)

6.5 Details of Analytical Review Procedures Performed

Details of each analytical review procedure conducted by the audit team, including type of test, data
used, calculations performed, results and auditor’s conclusion, are documented on this form.

6.6 Completed Internal Control Questionnaires

The auditor must test the control environment to determine whether the system of internal controls
on which the audit team intends to rely is actually working effectively. This is done by following the
detailed guidance provided in the Internal Control Questionnaires for different aspects of the audit.
The auditor will select the ICQs that are to be used in this audit and tick them off on the checklist
provided. The auditor does not have to apply all the possible ICQs in every audit.

The key ICQs to be considered for Federal audit are as follows:

 Employee related expenditure

 Goods and Services
 Receipts
 Investments
  Cash
 Major Assets
 Stores and Inventory
 Budgeting and Expenditure Controls
 Grant in Aid

Note: Detailed guidance for filling in the ICQ’s is provided in the Audit Working Papers Kit under the
section Execution file.

6.7 Internal Control Deviations Form

While working through the ICQs, the auditor should identify deviations from the prescribed internal
controls in the operations of the audited entity. The auditor will document each individual deviation
and its potential impact on the entity’s Financial Statements on this form. There should be one form
for each deviation encountered.

Where the operations of the auditee organisation are decentralized, it is important to assess which
weaknesses are due to scattered nature of department/policy weaknesses and which are due to the
inadequate application of these internal control systems and policies within the decentralized sites
being audited.

6.8 Internal Control Deviations Summary

For each significant type of deviation detected, the auditor should report it to the entity’s
management and make a recommendation for rectifying the control weakness. The purpose of this
form is to help the auditor track each weakness identified by applying the ICQ, the problem and their
recommendation which were reported to the entity. The year in which the entity took corrective
action should also be considered.

6.9 Compliance Summary

The auditor will use this form to identify the legal or regulatory provisions that the entity should
comply with, to document the control that is in place to check compliance, to document whether
the auditor considers the control to be satisfactory, and whether compliance was evident.
6.10 Substantive Tests of Accounting Estimates
This form summarises the errors identified during the performance of substantive tests on
accounting estimates. The auditor will use it to summarise errors that were identified in the Errors in
Accounting Estimates Form (see next form) for later use in aggregating the errors in the Evaluation
and Reporting phase.

6.11 Errors in Accounting Estimates

For the accounting estimates that were identified in the Planning file form called “Checklist of
accounting estimates to be reviewed”, the auditor will document his or her review of the estimate
and the nature and value of any errors that were identified. These errors will be summarised in the
Substantive Tests of Accounting Estimates form as described above.

6.12 Substantive Test Sample Summary for each Audit Program

The auditor must test the sampled transactions to identify the incidence of errors in the sample. This
is done by following the detailed guidance provided in the Audit Programmes for different aspects of
federal audit given at section 6.16 onwards of this chapter under the heading Audit Programmes.
The auditors are expected to select the relevant audit programmes for each audit as they do not
have to apply all the possible Audit Programmes in every audit.

Substantive testing examines a sample of individual transactions to determine whether the

transactions selected comply with all applicable laws, regulations and rules to find any errors or
anomalies that may exist. Each Audit Programme provides a basic set of steps for the auditor to
follow to perform substantive tests.

The substantive testing section of the Audit Programmes includes a basic set of audit objectives,
which are described below:

Audit Objectives:
To determine whether, on the basis of the transactions examined (selecting a representative sample
of transactions or other form of sample), the entity’s Financial Statements complies with the
following assertions4:

 Presentation and Disclosure: the transactions have been appropriately recorded,

classified and presented.
 Existence and Occurrence: all transactions relevant to the year of account have been
recorded and all recorded transactions have occurred.
 Completeness: all transactions relevant to the year of account have been recorded and
included – the test has also been extended to include the completeness of what should
have been included not just the recorded transactions: i.e. all taxes due, not just those
collected.
 Measurement: the recorded transactions have been correctly valued, accurately
calculated and appropriately measured.
 Regularity: all activities and financial transactions examined comply with relevant
laws and regulations (based on the selection of all significant activities/transactions
and a sample of the remainder); and on the basis of this audit work conclude whether
the relevant laws and regulations are being properly applied.

The key Audit Programmes for this purpose are given under section 6.16.

6.13 Substantive Test of High Value/Key Items – Summary

This form is used to summarise errors found by the Substantive Tests of High Value/Key Items that
were performed. The auditor should note what procedures were performed and the nature and
value of the errors, and cross-reference the procedure to the working paper that provides the details
of each test (Details of Errors in Samples, High Value Items and Key Items).

6.14 Details of Errors in Samples, High Value Items and Key Items
The auditor will complete one copy of this form for every single error discovered in any of the
substantive tests of details (from sampled transactions and High Value Items and Key Items). Details
of the voucher on which the error occurred, the nature and cause of the error and its value should
be documented on this form.

4
Another set of assertions commonly used are: Existence / Completeness / Valuation / Rights and Obligations
(or Ownership) / Presentation and Disclosure. The set used in these Guidelines is more appropriate for the audit
of transactions in the public sector.
6.15 Exit Interviews

Section 9.8 of FAM stresses the importance of keeping entity officials informed during the course of
audit. In addition to open communications during audit, it is a good practice to arrange a meeting
with senior entity management at the end of the fieldwork at each location.

The audit of decentralized sites, remote from the Audit Office (out of which the audit team
operates), is complicated by the fact that briefing of the management at the site cannot be done
after the senior audit management has reviewed the audit findings. This means that the team
should provide feedback to management at the decentralized site prior to conducting a full review of
findings. It is a good practice for the audit team leader to determine whether there are any sensitive
issues that need to be brought to the attention of senior audit management prior to discussing with
entity management at the site. Where potentially sensitive matters are involved, the audit team
leader should get instructions from senior audit management before the exit briefing.

6.16 Audit Programmes

The remaining part of this section contains the following detailed audit programmes for various
audit areas:

 Employee related expenses

 Goods and Services
 Investments
 Debt
 Project Audit
 Fixed Assets
 Grants-In-Aid and Contributions
 Accounts Compilation

The Audit Programmes given in this section cannot provide an exhaustive set of checks. Although in
certain cases specific references to the current rules and regulations have been given in the audit
programmes, it needs to be noted that the auditor should be familiar with the operations of the
audit entity and should have a sound knowledge of the relevant laws, regulations and rules with
which the transactions must comply. This will allow him/her to make appropriate adjustments to the
audit programme guides. Furthermore, if the audit programmes do not cover the auditor’s
requirements, he can add an audit work sheet on which he notes the details of transaction(s)
(revenue/expense /investment etc), his audit procedure(s) and findings. The audit programmes have
been developed by keeping in view the risks mentioned in 3.5.
6.17 Audit Programme – Employee Related Expenses

Audit Entity: Audit Period:

Date(s) Conducted:

WP
Audit Procedure Done By:
Ref.
Existence and Occurrence

1. From the sample of transactions check that: employee is identified

in Payroll Register; and that payment was made to correct payee.
2. Check attendance records to determine that employees in sample
earned the amount due in pay.
3. Check that proper personal files of all the officers with all necessary
particulars are being maintained.
4. Check Service Book maintained for Non Gazetted Officer and
certified by DDO.

Completeness

1. Compare list of employees paid against Establishment Register.

2. Check that proper particulars are entered in Audit Register for
Gazetted Officer and in Scale Audit Register (AR) for Non Gazetted
Officer.
3. Check that Office order or Establishment order for new
appointment is issued by concerned head of department and
amount is paid according to said order and entitlement in AR.
4. Select a sample of employees who recently retired / transferred out
/ otherwise left the office and check whether they received any
payments after date of leaving (adjusting for timing of last
payment).
5. Select a sample of employees recently joining the office and
confirm that they were not paid before they commenced.
6. Conduct a reconciliation (and/or check a batch of transactions)
between {Direct Credit Advice / Payroll Advice / DDO monthly
statement} and Monthly Schedule of Employees’ Salaries and
General Ledger.
7. Take a sample of employees (from establishment listing / telephone
list / or other source) and check that they have received payment
out of the payroll system.
Measurement

1. Check that acknowledgement of payment to employees is received

from employees / Drawing and disbursement officer (DDO).
 WP
Audit Procedure Done By:
Ref.
2. Check that DDO certified the payment to Non Gazetted Officer
3. Check that Payroll Officer prepares Monthly Schedule of Employees
latest by 26 of each month and Approved by Supervising Payroll
Officer.
4. Check that Delegated Officer (other than Payroll/ Supervising
Payroll Officer) prepares Payroll Credit Invoice or Cheque and sign
by at least 2 officers.
5. Check that relevant officer enters all the cheques payments in to
Register and prepares Payroll Advice Note (PAN) for bank in case of
Cheque payment and Payroll Credit Advice (PCA) for direct bank
transfer.
6. Check for the selected sample of employees recently joining the
office that the amount of the first payment was correct according to
the start date and according to their Payroll Register.
7. For employees recently joining the office, the amount of the first
payment was correct according to the start date and according to
their Payroll Register.
8. For employees who recently left the office, the amount of the last
payment was correct according to the date of last day of
employment in section and according to their Payroll Register –
compare pay slips with Last Pay slip Certificate issued.
9. Check that payroll payments are correctly identified in the
Compilation Sheet under Payroll Object and correctly coded
according to the Chart of Accounts by checking for the sample of
transactions that the net pay and deductions have been correctly
coded according to the Chart of Accounts codes.
10. For a sample of months, check that the total pay (gross, net and
deductions) are correctly presented in the Compilation Sheet by
making the necessary calculations.
Regularity

Joiners:
1. Check that the job was properly requisitioned by the relevant
department and all process including advertisement was
completed in a transparent manner in accordance with relevant
rules and regulations.
2. Check that the salary and grade for the employee has been
fixed according to the relevant HR rules and regulations.
3. Check that a Medical Certificate acknowledging the fitness of
the employee has been issued by the Medical Officer {FR-10}
4. Check that the appointment letter of the employee has been
signed by the relevant authority.
5. Check that the personal file of the employee contains the
following;
o Application and CV of the employee
o ID Card
o Experience Certificate (if any)
o Appointment letter
o Joining report
 WP
Audit Procedure Done By:
Ref.
o Medical certificate
o Leave applications (if any)
6. In case the age of appointee is more than 60 years check that
the appointment has been made in accordance to finance rules
for appointment after superannuation age.

Promotions & Increments:

1. Check that an Annual Performance Report is maintained by the

Administration Department for the employee.
2. Check that the promotion of the employee has been approved
by the relevant authority.
3. Check that the employee has received the annual increment as
per the increment order, and his salary does not exceed the
maximum basic scale limit.
4. Check that the first annual increment of existing employees in
basic pay scales, in which their pay is fixed on 01-07-2007
shall accrue on 1st December of every year.
{Finance Division O.M. No. [Link]-2-1/2007, dated 23rd
July, 2007}

Contract Renewal & Regularization:

1. Check that the contract of the employee is renewed after the

approval from the relevant authority.
2. Check that the contract employee has been made regular after
the approval of the relevant authority.

Resignations& Terminations:

1. Check that all resignations/terminations have been

approved by the relevant authority after complying with all the
rules and regulations applicable.
2. Check that the employee after the date of
termination/resignation doesn’t appear in the monthly salary
sheet.

Adhoc Relief (Wage Type: 1831)

1. Employees whose date of joining was 30-6-2005 should be paid

adhoc relief allowance as per revised pay scale 2005. {Para-6 of
Finance Division Letter No. [Link].2-1/2005}
2. Adhoc relief allowance shall continue to be admissible at frozen
level on existing conditions. {Finance Division O.M No. [Link]-2-
1/2007, dated July 23, 2007}
3. Check that this allowance is also admissible to the appointment of
Govt. servants from one post to another taking effect after 01-07-
2005 provided they were previously in receipt of such benefits
 WP
Audit Procedure Done By:
Ref.
immediately before their appointment and such an allowance
would also be made admissible to Govt. servants on extra ordinary
leaves as soon as they resume duties, at the frozen level which
would have been admissible to them had they not proceeded on
EOL. {Finance Division O.M. [Link]-2-2/99, dated July, 21, 2007}

Special Additional Allowance

1. Special additional allowance after its discontinuation w.e.f 01-12-

2001 was made admissible at frozen level in case of appointments
by promotion/transfer / absorption taking place after its
discontinuation. It was not allowed on or after 01-12-2001. This
category of government employees included those who were
appointed from one post to another during the said period despite
the fact that they were in the receipt of benefit in their previous
appointments.

2. Check that this allowance is also admissible to those Govt. servants

who were entitled to and were in receipt of the benefits
immediately before their appointment on or after 01-12-2001.
However it is inadmissible to those fresh appointees who have not
been entitled recipients immediately before such appointments.
{Finance Division O.M. No. [Link]-2-2/99, dated July, 21, 2007}

Special Allowance (Wage Type: 1550)

1. Check that this allowance has been discontinued by finance division

with effect from December 04, 2001.
2. An increase @ 15 % on initial of the pay shall be allowed to the
contractual appointees as special allowance who are in receipt of
pay package slightly higher than the standard pay package
prescribed under the contract appointment policy dated: 29-12-
2004. {Finance Division O.M [Link]-2-1/2007, dated 23rd July,
2007}

Special Relief Allowance

1. Employees whose date of joining was 30-6-2005 should be paid

special relief allowance (@ 15 % of basic pay per month to a civil
servant in BPS-1 to 22 vide letter # No. [Link]-2-1/2003) as per
revised pay scale 2005. {Para-6 of Finance Division O.M # [Link].2-
1/2005}
2. Special relief allowance shall continue to be admissible at frozen
level on existing conditions. {Finance Division O.M No. [Link]-2-
1/2007, dated July 23, 2007}
3. Check that this allowance is also admissible to the appointment of
Govt. servants from one post to another taking effect after 01-07-
2005 provided they were previously in receipt of such benefits
immediately before their appointment and such an allowance
 WP
Audit Procedure Done By:
Ref.
would also be made admissible to Govt. servants on extra ordinary
leaves as soon as they resume duties, at the frozen level which
would have been admissible to them had they not proceeded on
EOL. {Finance Division O.M. No. [Link]-2-2/99, dated July, 21,
2007}

Superannuation Age

1. Superannuation pension is granted to a Government servant on

completion of age. Check those Government officials who have
attained the age of superannuation but are still in government job.

Dearness Allowance (Wage type: 1864)

1. Check that the dearness allowance @ 15 % sanctioned w.e.f.

1.07.2006 shall stand frozen at the level of its admissibility as on
30.06.2007 and the amount shall continue to be admissible to the
entitled recipients until further orders but it will not be admissible
to new entrants joining Govt. service on or after 01.07.2007.
{Finance Division O.M. No. [Link]-2-1/2007, dated 23rd July, 2007}

Entertainment Orderly and Senior Post Allowances (Wage type 1518)

1. Check that these allowances have been paid to entitled officers

only.

Presentation and Disclosure

1. Check that payroll payments are correctly identified in the General

Ledger under Payroll Object and correctly coded according to the
Chart of Accounts by checking for the sample of transactions that
the net pay and deductions have been correctly coded according to
the Chart of Accounts codes.
2. Check whether the payroll section receives timely reports from the
General Ledger under the relevant Object Codes and that the
information is presented in a way that it can be used by the payroll
section.
3. For a sample of months, check that the total pay (gross, net and
deductions) are correctly presented in the General Ledger by
making the necessary calculations.

6.18 Audit Programme - Goods and Services

Audit Entity: Audit Period:

Date(s) Conducted:
 Done WP
Audit Procedure
By: Ref.
Existence and Occurrence

1. Select a sample of transactions (as required for certification

requirements / for purposes of testing controls / for additional
substantive compliance testing) – if possible, this sample should focus
on large transactions and a representative sample of the rest; and
include a sample of transactions close to year end.
2. For this sample of transactions, collect all related documentation
(purchase order / purchase authorization / invoice / delivery receipt /
any receiving documentation / payment) and check entry in
Inventory Register and in general ledger. {Para 148 of GFR- Vol-1}
3. Check payments for product/service entered into ledger for the
financial year. {Para 66 of GFR- Vol-1}
4. Confirm that the payment was made to the correct payee by
comparing information on cheque register with invoice and delivery
information. {Rule 205 of FTR Vol-1}
5. Check also whether any “identical” transactions resulted from a
practice of “order splitting”, i.e. purchase orders split to avoid need
for sanction from a higher authority. {Rule 9 of PPR 2004}
6. At least for large transactions and transactions close to year end,
conduct physical check on existence of goods and services (if these
are distant from site where conducting audit, may seek confirmation
in writing from DDO or independent party). {Para 159 of GFR Vol-I}
7. Review suspense account for un-cleared/unclaimed payments or for
inappropriate clearances. {Rule 635 of FTR Vol-1}
Completeness

1. Reconcile total expenditures on goods and services with the amount

recorded on the general ledger. {Para 89 (viii) of GFR Vol-1}
2. Check that all goods and services recorded as acquired in the year are
charged against that year. {Para 66 of GFR- Vol-1}
3. Check for recently delivered goods and current service contracts that
payments are recorded and/or monies allocated for payment
(particularly important if the audit is conducted close to year end).
Measurement

1. For the sample of transactions, check that the documentation

(purchase order / purchase authorization / invoice / delivery receipt /
any receiving documentation / payment) is consistent in quantity,
pricing, product description (particularly checking for substitution of
lower quality/grade product).
2. Check whether the individual items add up to the total given on the
voucher / purchase order and the appropriate amounts of tax have
been supplied.
3. Follow up on any short-fall / substitution / missing items / multiple
deliveries to ensure that only what was received was paid for.
4. Check that the invoice and payment have applied proper prices /
 Done WP
Audit Procedure
By: Ref.
include any negotiated prices or other arrangements / reflect correct
freight charges if applicable.
5. Check also that any payment advances have been properly reflected
in the invoice and correspondingly deducted from payment.
6. Check arithmetical accuracy. {Rule 183 FTR Vol-1}
7. Check inclusion of applicable guarantees, service support.
8. If any products / services to provide maintenance or spare parts for a
product (i.e. an expenditure to service a product previously acquired)
are included in the sample of transactions, check that no payments
were made for maintenance / replacement parts that should have
been covered by warranties.
9. Check in case of late delivery, whether any penalties apply under
contract and if so, whether payment was adjusted accordingly.
Regularity

1. For procurements over Rs. 2,000,000, Advertised on the Public

Procurement Authority’s (PPRA) website as well as in other print
media or newspapers having wide circulation has been made. {Rule
12(1) of PPR 2004}
2. For procurements between Rs. 100,000 up to Rs. 2,000,000,
Advertised on the PPRA’s website in the manner and format specified
by regulation by the Authority from time to time and may also be
advertised in print media, if deemed necessary by the procuring
agency. {Rule 12(1) of PPR 2004}
3. For procurements between Rs. 25,000 up to Rs. 100,000, check
whether requests for quotations are available. {42 (b)(i) PPR 2004}
4. Procurements up to Rs. 25,000 The procurement process should be
conducted in a fair and transparent manner. {42 (a) PPR 2004}
5. Check that under no circumstances the response time shall be less
than fifteen days for national competitive bidding and thirty days for
international competitive bidding from the date of publication of
advertisement or notice. {Rule 13(1) of PPR 2004}
6. Also ensure that NTN and Sales Tax Reg. No. are present on
quotations.
7. Ensure that the supplier is amongst the List of Approved Contractors/
Registered Suppliers. {Rule 15 of PPR 2004}
8. Ensure that approval of rates of the lowest bidder on Comparative
Statement by the Board has been obtained. If purchase is not made
from the lowest bidder, ensure reasons are specified. {Rule 38 of PPR
2004}
9. Acceptance letter issued to Contractor/ Approval on Quotation for
other than contract supplies.
10. Check that the Contract is in the prescribed format and is duly
endorsed by both parties.
11. Ensure that LPO (Local Purchase Order) is raised in the name of the
selected supplier based on Comparative Statement.
12. Supplier's bill/ invoice in the prescribed format duly signed by the
Contractor/ Supplier. Supplier's Bill details matches with the LPO, the
Bill is stamped at the receiving unit.
 Done WP
Audit Procedure
By: Ref.
13. Where purchase is not made by the central store/ procuring unit,
ensure that “Not Available Certificate” is obtained.
14. Convoy note (in case of Hiring of Mechanical Transport) is
acknowledged by the receiving authority.
15. Supply order is in conformity with the Approved Quotation/ Contract.
Further ensure that the details of supply order match with the LPO.
16. Ensure that the supply has been made within the delivery date
mentioned on the LPO, so that no Liquidation Damages (LD) charges
are applicable.
17. Contingent bill duly raised by the respective C.O. and is in line with
the supplier's bill.
18. Contract number should be mentioned on the contingent bill, where
applicable.
19. Compare rates specified in the bill with Contract/ Approved
Quotation/ Comparative Statement, the LPO and the supplier's
invoice.
20. Check rates of Income Tax and Sales Tax and ensure proper
withholding & deposit in Government treasury. {Income tax
Ordinance, 2001 & Sales Tax Act, 1990}
21. Cheques issued as per instructions from the suppliers, the particulars
mentioned in the Contract and ensured that the budget limit was
available.
22. Check that bill submitted for payment is for the current period and is
not paid before.
23. Ensure that cheque is signed by designated officer.
Transparency in tendering and engagement of consultancy services

Engagement of consultants
Check that:
1. Consultants were selected after advertisement in the press.
2. Criteria for pre-qualification were clearly defined.
3. Both technical and financial proposal were evaluated.
4. Selection was made on merit.
5. Consultants were appointed as per approved policy and guideline
issued by the Govt. {Rules 8, 12 & 15 of PPR 2004}

Engagement of contractor
Check that:

1. Enlistment/renewal of contractors with the department.

2. Notification for pre-qualification of contractors advertised in the
press.
3. Criteria for selection of contractors were followed.
4. Sufficient time was given to contractors for submission of documents
for pre-qualification.
{Code of the relevant department}

Tendering
Check that:
 Done WP
Audit Procedure
By: Ref.

1. Tender was advertised in accordance with the policy of the

government.
2. Bids were invited/received from pre-qualified bidders.
3. Bids were evaluated and accepted within validity period.
4. Bid security was obtained.
5. Tenders were opened in the presence of bidders.
6. Tender sale and tender open register maintenance.
7. Compare the content of tender with the estimates.
8. Tender documents were prepared clear, accurate and without any
ambiguity.
9. Cost of administratively and technically sanctioned was recorded in
the tender register.
10. Criteria of pre-bid meetings/amendments.
11. Compare bidding applications and tender register to ensure the
accuracy of particulars (e.g rates, quantity etc) quoted by the
applicant and rates quoted by the contractor were provided in figure
and words.
12. There were no interpolations and corrections were made to the
tender and all the changes should be approved by the competent
authority.
13. Comparative statement of all the bidders was prepared in the tender
register.
14. The basis on which bidding applications were accepted or rejected.
15. The arithmetic accuracy of the calculations made in the tender and
estimates.
16. Acceptance letters were issued to the successful bidders within bid
validity period.
17. Award of work without open tendering or on the basis of single
tender as per codal rules.
{Rule 20 to 27 of PPR-2004}
{Relevant contract agreements}
Presentation and Disclosure

1. Check that purchase payments are correctly identified in the General

Ledger under the correct Object and correctly coded according to the
Chart of Accounts by checking for the sample of transactions that the
payments have been correctly coded according to the Chart of
Accounts codes.
2. Check whether the manager(s) responsible for the purchasing
function(s) receive(s) timely reports from the General Ledger under
the relevant Object Codes and that the information is presented in a
way that it can be used by the responsible managers section.
3. Check whether the manager(s) reconcile the information in the
accounting report with the purchases for the period reported.
6.19 Audit Programme - Investments

Audit Entity: Audit Period:

Date(s) Conducted:

Done WP
Audit procedure
by Ref.
Approval of investment decision

1. Acquire the investment agreement and minutes of meetings of

investment committee (investment targets are fixed).
2. Check that risk factors are kept in view while making investment (assess
through professional judgment).
3. Check that investments are made according to the terms and conditions
of the agreement and under the approval of investment committee or
board of directors where applicable.
Implementation of government instructions

1. Check that the bank/financial institution where money is deposited is

holding a minimum ranking of “A” according to the rating awarded by
the standard rating agencies on the panel of State Bank of Pakistan
(Pakistan Credit Rating Agency, JCR-VIS credit rating company,
Moody’s Fitch’s and standard and Poor’s rating).
2. Prior to placing deposits with bank and in case of working balance
exceeding 10 million, check that the bank selection has been made on
the basis of competitive bids from at least three independent banks.
3. In case of working balance exceeding 10 million, check that not more
than 50 % of such balance has been deposited with one bank.
4. In case, bank rating drops below “A” check that the new deposits and
old deposits have been shifted to a bank with at least “A” rating with in
one month and two month respectively.
5. Check that the working balance limit of each organization has been
determined with the approval of the administrative ministry in
consultation with finance division.
6. For Investment in Non Government securities, check that the investment
of surplus funds in the non government securities/TFCs/Shares does not
exceed 20% of the total funds under management.
7. Check the non-government investment instruments meet the eligibility
criteria* as annexed.
Finance Division, Budget Wing O.M No. F.4(1)/[Link], dated
2-07-2003.

Finance Division, Budget Wing O.M No. F.4(1)/[Link], dated

6-09-2005.

Finance Division, Budget Wing O.M No. F.4(1)/[Link]-460, dated

 Done WP
Audit procedure
by Ref.
22-07-2005

Physical verification of investment instruments

1. Check that the physical verification of investment instruments is carried

out.
2. Check that all investment instruments are serially numbered.

Recording investments in the accounting record

1. Check that all investments have been properly recorded in the books of
accounts. Compare the investment schedule with the ledger and bank
records.
2. Explain movements and investigate any unexpected or unusual
relationship between current period and prior period accounts.
3. Compare investment held at year end with prior year and budgeted
amounts and enquire the variances.
4. Check that income from investment has been accounted for correctly.
Perform recalculation of income on investment.
5. Check that the investment has been properly classified.

Approval of disinvestment decision

1. Check that the encashment of investment instruments is made on

favourable rates under the approval of proper authority and in
accordance with the withdrawal policy. See the minutes of meeting in
which disinvestment decision was taken.
2. Verify receipt of principal and interest income on the investments
matured during the period.

*Eligibility criteria of non-government investment instruments will be as follows:

1. Non government debt instruments should have a major rating category of “A” and above.
2. Public listed shares/units should have a total return comprising the dividend paid and
appreciation in value, which exceeds the average six months treasury bill rate for the last
three years, the formula for the calculation of the total return would be provided by the
Securities and Exchange Commission of Pakistan from time to time.
3. Initial public offering (IPO) of shares of existing companies should have a track record of
three year profitability at least equal to the average of twenty best performing companies
on Karachi Stock Exchange.
4. Total investment in debt instrument of a company not to exceed 10% of size of the issue or
10% of the total size of funds managed by the public sector entity, whichever is lower.
5. Total investment in the shares of a company not to exceed 5% of the paid up capital of that
company or 5% of the total funds managed by the public sector entity, whichever is lower;
and
 6. Investment in shares of Greenfield projects/companies will not be eligible.

6.20 Audit Programme - Debt

Audit Entity: Audit Period:

Date(s) Conducted:

WP
Audit Procedure Done By:
Ref.
Existence and Occurrence

1. From the debt register of foreign debt (obtained from EAD), select
large debt obligations.
2. Similarly, from the schedule of domestic borrowing (obtained from
Finance Division, Internal Finance Wing) select large debt
obligations.
3. Obtain the corresponding documents (original agreements and all
amendments) for these debt obligations.
4. Alternatively, or additionally, select loan payments from ledger and
trace back to debt obligations.
5. Inspect supporting documents for subsequent realization or
settlement after the end of the reporting time period.

Completeness

1. On the basis of a sample, or complete examination, check items for

receipts and payments in a sample of Monthly Debt Reports and
confirm items in Liabilities Ledger.
2. Send balance confirmations to public debt lenders.
3. Review accounting records before and after the year end for unusual
transactions.
4. Perform calculation for recognition of public debt expenditure.
5. Check that reconciliation statements are being prepared for debt
outstanding balance in Debt Management and Financial Analysis
System (DMFAS) record (for foreign debt) and that these are also
reconciled with AGPR.
6. Obtain loan wise reconciliation as per loan register of DMFAS and
ensure that it is reconciled with AGPR.

Measurement

1. Determine the outstanding balances against each at close of financial

year – obtain previous year’s balances and check that change in
figures correspond to aggregated contribution to principal over the
 WP
Audit Procedure Done By:
Ref.
year (checking against amortization tables showing principal and
interest components of payments).
2. Also check opening balance this year with closing balance last year.
3. Seek confirmation of balances from lending institutions and match
replies with the amounts shown in the schedules.
4. Check that loan payments are consistent with the agreements
(and/or amendments to the agreements).
5. Where there are variable interest rates, check that the interest rates
are consistent with the agreement and that the payments are
correct.
6. Check and verify basis of currency conversions and confirm correctly
applied to calculations of payments, receipts and closing balances of
foreign loans.
7. Ascertain commitment charges if any and their proper recording.
8. Ensure that the commitment charges are bifurcated with respect to
normal undisbursed loan balances and project delays.
9. Identify any payments of penalties (for late payment or other
reason) and determine if consistent with agreement clauses
(applicable and/or correctly calculated).

Regularity

1. Examine if debt conforms to Article 166 of Constitution and within

limits prescribed by Legislation.
2. Check that debt limitations are being complied with Section 3(b) of
Fiscal Responsibility and Debt Limitation Act, 2005. Where the total
public debt for the year does not exceed 60% of GDP from the year
upto June 2013 and be maintained below 60% of GDP for any given
year in the future.
3. Check that in every financial year, beginning from first July 2003 and
ending 30 June 2013, the total public debt is reduced by not less
than 2.5% of the estimated GDP for any given year. Section 3(c) of
Fiscal Responsibility and Debt Limitation Act, 2005

Presentation and Disclosure

1. Check that debt has been properly entered into General Ledger
according to correct classification under Chart of Accounts.
2. Examine reporting and check against data in General Ledger and
Liabilities Ledger.
3. Review the classification of public debt instruments to ensure it is in
agreement with the legislation, regulations and practices.
4. Verify that accounting principles applied are in conformity with
legislation, regulations and applicable accounting standards.

Payment of Penalties

1. Check for any penalty payments (such as, for example:

a) Late payment of instalment payments; and
 WP
Audit Procedure Done By:
Ref.
b) Early re-payment of debts
2. Examine whether these were:
a) Valid payments according to the terms of the agreement;
b) Correctly calculated;
c) Properly authorized; and
d) Where appropriate, fully reported to senior management with
applicable explanation.
3. Determine reasons for penalty payments and whether any of these
could have been avoided
4. Conclude whether there were any inappropriate conditions in the
agreements that caused unnecessary or excessive penalties.
6.21 Audit Programme - Project Audit

Audit Entity: Audit Period:

Date(s) Conducted:

Done WP
Audit Procedure
By: Ref.
Existence and Occurrence

1. For a sample of projects expenditure transactions, check whether

payments of bills/invoices are promptly and correctly entered into
accounting records.
2. Trace each payment / deposit to relevant bank account and check
that recipient of payment was the party who carried out the work
and billed against the project.
3. For a sample of expenditure records in the General Ledger and/or
project accounts, check that these were correctly charged to the
project.
Completeness

1. For a sample of projects, reconcile the total payments, during the

year of audit, (as determined by inspection of vouchers or from
project accounts) with the amount recorded in the General Ledger.
2. Take a sample of vouchers, close to the beginning or end of the year,
and check that the work was conducted (or goods delivered) in the
year against which the cost was allocated.
Measurement

1. Where project bills/invoices are based on volume of materials used

(and/or contract hours consumed) check for a sample of vouchers
that the total cost is correctly calculated on the basis of volume
times unit price (and/or number of hours times hourly rate), taking
into consideration any discounts / overtime rates.
2. Where payment is based on progress, check a sample of payments to
verify that the amount paid does not exceed the technical officer’s,
or project manager’s, estimate of progress achieved - and, where
feasible, confirm by observation or reading of project progress
reports that the stated progress has actually been achieved.

Regularity

1. Confirm that for the sample of projects examined, a project manager

was appointed for each project, and given delegated financial
powers as laid down in the “Delegation of Financial Powers” issued
by Ministry of Finance”.
 Done WP
Audit Procedure
By: Ref.
2. Check that project payments have been properly authorised, and
there is evidence on file that the work for which the payment is
claimed was completed satisfactorily (suitable progress according to
contract agreement, satisfactory quality and according to terms and
conditions / specifications as laid out in the contract) and approved
by technical officer / project manager.
3. Determine whether commitments were recorded, for the sample of
projects examined, in accordance with the accounting policies laid
down in Section 4.3 of the Accounting Policies and Procedures
Manual.
4. Check that no expenditures were made against the project for any
indirect costs, such as interest, depreciation, or administrative
overheads unless specifically provided for under the project budget
(as directed under Para [Link] of the Accounting Policies and
Procedures Manual.
5. Check the compliance of Govt. Instructions regarding appointment of
consultants and consultancy firms have been observed or not.
Presentation and Disclosure

1. For a sample of projects, and (where there are a large number of

payments per project) on a sample of payments, check that all
payments are correctly recorded in the General Ledger against the
project and no payments are made against the project that are not a
valid expense against the project.
2. Review project reports and check on a sample basis that items in the
report correspond to the records in the General Ledger (this is more
critical if the report is not a computer generated report).
Appropriate approvals and project controls in place before any
commitments, or actions, can be taken on a project

1. Check whether the appropriate project approvals and project

controls were in place before any commitments were made to
proceed.
2. In particular, ensure that the funds had been allocated to the project
before any contractual arrangements were entered into
3. Check that there have been no payments prior to date contract
signed.
Design Assessment (PC-I Review)

1. Is the proposed method the best one for the intended objective?
2. Are key assumptions of project design valid?
3. Is the question of sustainability addressed in the PC-1?
Progress Assessment

1. Is it likely to be completed on scheduled time? Compare

sequence of ongoing activities with the sequence and timing of
such activities given in the PC-1 and assess the extent, causes
and impact on project outcome of such deviations. Also
 Done WP
Audit Procedure
By: Ref.
examine opportunity cost of delay in terms of benefits lost.
2. Is it likely to be completed within budget? Examine timing and
amounts of releases vis-à-vis budgetary allocation, project
management capacity in utilization of releases (% of releases
made use of in any given year), and impact of pattern of
releases/utilization capacity on project outcome.
Assessment against the principles of Economy Efficiency and
Effectiveness (3Es)

Economy: Procurement of inputs at minimum cost.

1. Has project management avoided waste in procuring inputs?
Focus on timing, volume, and requirement of inputs vis-à-vis
project implementation requirement.

Efficiency: Conversion of project inputs into outputs.

1. Is conversion of inputs into outputs optimal? Has duplication

been avoided? Have potential synergies been exploited in
converting inputs into outputs?

Effectiveness: How project outputs contribute toward project outcome

and subsequently planned impact in the long run.

1. Assess effectiveness from the angles of adequacy, accessibility,

timeliness, and coverage vis-à-vis project design.
Where required, an appropriate environmental assessment relating to
the proposed project

1. For those projects in the sample selected, check whether an

environmental assessment is/was required Section 12 of
Environmental Protection Act, 1997.
2. Where an environmental assessment is required, check whether one
was done (or is being done).
3. Conclude whether the environmental assessment was timely (i.e.
completed before any significant effort or commitments made on
the project) and did not contribute to any serious delays.
4. Note whether actions on the project complied with the conclusions
and recommendations of the environmental assessment issued by
Pakistan Environmental Protection Agency.
Decisions to proceed based on appropriate and adequate information

1. For those projects in the sample selected, check whether decisions

relating to the project were made with supporting analysis and
information available i.e reliable estimates of cost, requirements
specified and risks identified and assessed.
2. Where possible, conclude on the adequacy of the analysis {to do this
may require expert opinion to guide the auditor}
3. The auditor should note where the decision on the project is
 Done WP
Audit Procedure
By: Ref.
inconsistent with the available analysis.
Contingency plans developed for major risk situations, wherever
feasible

1. The auditor should enquire whether there are any policies or

directives regarding contingency planning for specific high risk
situations (possible labour disputes, availability/cost of particular
technologies, environmental constraints, local support for the
project).
2. For those projects in the sample selected, check whether there are
situations where a contingency plan would be appropriate (or
required under policy).
3. Where in the opinion of the auditor, a contingency plan would be
appropriate, determine whether one was produced and assess its
appropriateness for the risks / requirements identified.
All prerequisites met before commitments made / or contracts entered
into

1. For a sample of projects, check whether the appropriate activities

have been successfully completed before entering the next stage of
the project.
2. In particular, ensure that commitments to proceed have not been
made until all substantial requirements have been completed at the
previous stage.
3. Specifically, no contracts or other written or verbal undertakings
have been made before the monies have been allocated to the next
stage of the project and all prerequisites have been met.
Payments not made until all agreed-upon quality and quantity of
materials, construction, etc. are met

1. For those projects in the sample, check whether there is

documentation on file to demonstrate that all requirements were
met, and approvals obtained, before payments were made.
2. In particular, look for evidence relating to (where appropriate):
proper inspection carried out, checking that the full amount of
materials supplied, existence of quality control over products and
services received; proper sign-off procedures followed; etc.
3. Where the terms and conditions of the contract were not met, check
whether the necessary approvals, and corresponding contract
amendments, were obtained to either:
a) waive one or more of these specifications / requirements,
and/or
b) change the amount of payment prior to payment
Appropriate monitoring and reporting of progress

1. The auditor should enquire what policies, directives and procedures

exist with regard to the monitoring and reporting of projects
(particularly large and/or complex projects)
2. Determine whether there are regular project reports (quarter and
 Done WP
Audit Procedure
By: Ref.
annual) containing information on the following;
a) the progress of the project;
b) expenditures against budget;
c) forecast of total completion cost and completion date;
d) project difficulties and/or delays;
e) proposed corrective actions;
f) Contingency plans.
{PC-III & PC-V}
3. Assess the quality of information contained in these reports and
conclude whether the entity conducts appropriate monitoring and
reporting of progress.

Corrective actions taken in a timely and effective manner

1. If any of the projects in the sample encountered problems or

setbacks, examine what issues had to be resolved.
2. Conduct an analysis of what corrective actions had been identified as
necessary.
3. Document what actions were taken and conclude whether:
a) these were taken in a timely manner
b) at a reasonable additional cost (compared to action plan if
available), and
c) impacted on the success of the project

Testing conducted to ensure all components are in operational

condition

1. For those projects in the sample that have been completed,

check what actions were taken to assure that the facility /
equipment / computer system / or other output met the original
(or amended) requirements.
2. Was a commissioning report (or report on satisfactory completion of
the project) produced {PC-IV}.
3. Did this report, or other communications indicate examples of
deficiencies (or unsatisfactory performance).

6.22 Audit Programme – Fixed Assets

Audit Entity: Audit Period:

Date(s) Conducted:
 Done
Audit Procedure WP Ref.
By:
Existence

1. Check that the department has maintained fixed asset register in

accordance with the provision of APPM {Form 13A}.
2. For a sample selected out of the Fixed Assets Register that the assets
physically exist and that they comply with the information in the
Register regarding location, asset identification number, description,
classification, and other relevant information.
3. For the sample of assets, check that they are correctly identified in the
Fixed Assets Register under the correct Object and correctly coded
according to the Chart of Accounts by checking for the sample of
transactions that the payments have been correctly coded according to
the Chart of Accounts.
4. Check that all the additions (purchase / transfer in) and deletions (sale
of fixed assets have been properly incorporated in Fixed Asset
Register.
{Para 154 to 163 of GFR Vol-1}

Completeness

1. Check for a sample selected out of the Fixed Assets Register that the
assets physically exist and that they comply with the information in the
Register regarding location, asset identification number, description,
classification, and other relevant information.{Rule 159 of GFR Vol-1}
2. Check from physical inspection of a sample of assets on site that they
are entered into the Register and that the information about them is
accurate. {Rule 160 of GFR Vol-1}
3. Check for a sample of expenditures that they have been recorded
correctly in the Fixed Assets Register and that they are on site,
according to location and that they are operational and being used.
{Rule 148 of GFR Vol-1}
4. For any items still in storage, or non-commissioned, determine their
reasons for non-functional state. {Rule 162 of GFR Vol-1}
5. For any assets not delivered, determine why payment was made
before delivery. {Rule 11 & 12 of GFR Vol-1}
Measurement

Purchases
Check for a sample of additions that:
1. Budget was approved for the particular purchase. {Rule 11 & 12 of GFR
Vol-1}
2. Purchase Indent is approved by the competent authority.
3. Tendering process was done in accordance with {Rule 20 to 27 of PPR
2004}.
4. Purchase Order generated in favor of selected/approved supplier.
5. For the sample of purchased items during period audited, check that
the cost listed in the Fixed Assets Register is the same as the purchase
price (including cost of installation & commissioning) and check against
supporting documentation.
 Done
Audit Procedure WP Ref.
By:

Transfer in
1. For items transferred in, check whether any transfer payments were
made and if so whether for an appropriate amount.
2. Ensue that any donation/gift of fixed asset received, met the
requirements of the {Accounting Policies and Procedures Manual-
APPM [13.4.3 - Donations/gifts of fixed assets]}.

Subsequent Capitalization
1. Review any expenditure on improvements to assets and check that
these have been identified as capital expenditures.

Disposal
Check for a sample of fixed assets disposal that:
1. Whether proper authority was obtained to dispose of the asset.
2. That an appropriate price was obtained (either by a competitive bid
process or by benchmarking the value of the asset before determining
the price).
3. Where possible, compare prices obtained for similar assets and
investigate any assets apparently sold below value.
4. For any revenue, check that this was properly recorded in the General
Ledger, or other account.
{Para 166-168 of GFR Vol-1}

Transfer out
1. For items transferred out, check whether any transfer receipts were
obtained and if so whether for an appropriate amount.
2. Check the accumulated depreciation of the assets transferred out has
been excluded from the accounts.
3. Check that any income earned on the transfer out of fixed assets was
correctly recorded.
4. Confirm that assets were received by the organizations to which they
were transferred.
{Para 150 & 166-168 of GFR Vol-1}
Land Acquisition

1. Check that acquisition of land was made after proper evaluation and
award under the rules.
2. Land acquired was in public interest within the ROW of road / building.
3. Land award announced within one year in ordinary case and within six
month in emergency case (U/S 17.4(6) and responsibility fixed for extra
cost caused due to delay regarding revised land rate or interest beyond
six month as per Clause 7 of Land Acquisition Rules 1982.
4. Check that name of land owner, actual acquired area, rates applied for
land or other item in land award.
5. Check that mutation of land acquired in the name of Govt. done.
6. Check that proper account of PLA (Assignment Account) is available for
advance obtained in each case for land acquisition. Reconciliation
made. Vouched account issue to concern besides refund of unspent
 Done
Audit Procedure WP Ref.
By:
balance.
7. Check that PLA pass book and voucher slips for each account was
available.
{Land Acquisition Act 1894 Chapter-Section-4, 5, 6, 10, 11, 16, 17 &
23}
Ownership of Fixed Assets

1. For assets examined, check, where appropriate, that the government

has clear ownership and title to the asset. {This check is more likely to
be important for any used items acquired (equipment, buildings, etc.)
or for any construction on lands where the government may not have
clear ownership of the land – particularly in the case of new road
construction. {Para 148 of GFR Vol-1}
Presentation and Disclosure

1. Through analytical procedures, and by examining changes from

previous years audited statements, check that the financial statements
are consistent with the information on the Fixed Assets Register and
entries in the General Ledger.
2. Check that fixed assets are correctly identified in the Fixed Assets
Register under the correct Object and correctly coded according to the
Chart of Accounts.
3. Check whether reconciliation is being prepared that reconciles the
changes in the Fixed Assets Register with the acquisitions and disposals
of assets for the period reported within the General Ledger and that
these are correctly presented and disclosed in the Financial
Statements.

6.23 Audit Programme - Grants-in-Aid and Contributions

Audit Entity: Audit Period:

Date(s) Conducted:

WP
Audit Procedure Done By:
Ref.
Existence and Occurrence
1. Select a sample of transactions and check that the sanction
necessary of grant in-aid exists. {Para 206 of GFR Vol-1}
2. Check that every order sanctioning a grant specifies clearly the
object for which it is given and the conditions, if any, attached to the
grant. {Para 207(1) of GFR Vol-1}
3. In the case of non-recurring grants or specified objects, the order
 WP
Audit Procedure Done By:
Ref.
should also specify the time limit within which the grant or each
instalment of it is to be spent. {Para 207(1) of GFR Vol-1}
4. Check payments of grant / contribution entered into ledger for
correct year.
5. Confirm that the payment was made to correct payee by comparing
information on cheque register with details on grant / contribution
information.
6. At least for large transactions and transactions close to year end,
may decide to contact recipient of grant / contribution to obtain
confirmation that the monies were spent on what was agreed to (if
these are distant from site where conducting audit, may seek
confirmation in writing from DDO or independent party).
Completeness

1. Ensure that in cases in which conditions are attached to the

utilisation of a giant in the form of specification of particular objects
of expenditure or he time within which the money must be spent, or
otherwise, the departmental officer on whose signature or counter
signature the grant-in-aid bill was drawn should be primarily
responsible for certifying to the Accountant-General, where
necessary, the fulfilment of the conditions attaching to the grant,
unless there is any special rule or order to the contrary. {Para 208 of
GFR Vol-1}
2. Reconcile total expenditures on grants / contributions with the
amount recorded in the Appropriation Account for that year.{Para
89(viii) of GFR Vol-1}
Measurement

1. Check that before a grant is paid to any public body or institution,

the sanctioning authority should as far as possible insist on obtaining
an audited statement of the account of the body or institution
concerned in order to see that the grant-in-aid is justified by the
financial position of the grantee and to ensure that any previous
grant was spent for the purpose for which it was intended. {Rule
207(3) of GFR Vol-1}
2. For a sample of contributions, check those payments under the
agreement were fully supported by proper documentation.
3. Check that the calculations supporting payments under a
contributions program were accurate and included only allowable
expenses under the agreement.
4. Check that any portion of the amount which is not ultimately
required for expenditure upon that object should be duly
surrendered to Government. {Para 209(ii) of GFR Vol-1}
5. Check for any duplicate payments.
Regularity

1. Ensure that there has been proper authority to enter into the
process of supplying the grants / contributions and that size of the
grants / contributions is within the authority limit of the authorizing
 WP
Audit Procedure Done By:
Ref.
officer.
2. Check that the expenditure is consistent with the nature of the
appropriation to which it was charged - check for each in the sample,
whether the particular grant / contribution is a correct expenditure
against the budget.

Grants-in-aid and contributions are administered properly

1. Review the procedures used for administering the program,

including:
a) Information about the program
b) Application forms
c) Criteria for qualifying / selecting
d) Review committee (or other decision making body)
e) Authorization of awarding grant / contribution
f) Documentation of rejection / letter of rejection
g) Documents for making offer: conditions of funding (agreement /
letter of offer)
h) Acceptance by recipient of conditions of funding
i) Basis of providing funds
j) Authorization of payments
k) Reporting requirement (by recipient)
2. Assessment of procedures as to whether they provide adequate
controls over the program.
Presentation and Disclosure

1. Check that the grants / contribution payments are correctly

identified in the General Ledger under the correct Object and
correctly coded according to the Chart of Accounts.
2. Check whether reconciliation is being prepared that reconciles the
information in the accounting report with the grants / contributions
payments made for the period reported and that these are correctly
presented and disclosed in the Financial Statements.

6.24 Audit Programme - Accounts Compilation

Audit Entity: Audit Period:

Date(s) Conducted:

Done WP
Audit procedure
by Ref.
 Done WP
Audit procedure
by Ref.
Preparation of Budget and its approval

1. Check the budget preparation is in accordance with codal provision

and approved by the competent authority.
2. Check the actual budget allocation towards the expenditures /
revenues.
3. Check the budget appropriations and re-appropriations towards the
actual expenditures.
{Para 66 to 82 of GFR Vol-1}
Preparation of Financial Statements

1. Check that the components of Financial Statements were prepared in

accordance with the applicable laws and accounting standards.
2. Check the existence of assets/liabilities in the accounts.
3. Check the aging of accounts receivable and identify any major
outstanding balances.
4. Check appropriate action has been taken to recover long outstanding
balances.
5. Check that bad debts have been recorded for long outstanding
balances.
6. Check the financial statements were audited by the commercial
auditors.

Operation of bank accounts

1. Check the Govt. policies towards operation of bank accounts.

2. Calculate the financial impact of non-compliance with the Govt.
polices and check that appropriate action has been taken against the
responsible persons.
3. Check that, monthly bank reconciliation statement was prepared and
differences were identified.

Accounting for foreign currency transactions and interest payments

1. Check that the payments of foreign currency are in accordance with

the provisions of loan agreement.
2. Check that the foreign currency transactions are recorded in
accordance with the applicable accounting policies.
3. Check that the interest calculation and payment are according to the
terms and conditions of loan agreement.
Accounts prepared on prescribed Performa

1. Check that the monthly accounts were prepared on the prescribed

format and Performa’s.
2. Check the Financial Statements are prepared according to FRM of
NAM and in accordance with IPSAS Cash Basis.
3. Check that expenditure was properly classified and booked to its
relevant head of account.
4. Check that all transfer entries were incorporated in the Financial
 Done WP
Audit procedure
by Ref.
Statements.
5. Ensure that the disclosure requirements of FRM and IPSAS Cash Basis
are complied with.
{Article 282-288 of Account Code Volume-III}
{Financial Reporting Manual}
{IPSAS Cash Basis of Accounting}

Cash Book

1. Check that no page was missing.

2. Check that page count certificate properly recorded by the Accounts
Officer.
3. Check that all cheques were entered in the cash book.
4. Check that all receipts entered in the cash book.
5. No fluid / eraser were used.
6. Check that no page of cash book was left blank.
7. Check that cash book was closed at the end of month.
8. Check that calculations/totals were correct
9. Check that closing balance was correctly brought forward.
{Article 80-85 of Account Code Volume-III}

Cheque Books

1. Check that no cheque was missing.

2. Check that all cheques were serial numbered.
3. Check that counterfoils were intact.
4. Check that amount of counterfoils tallies with the amount entered in
the cash book.
5. Check that all cancelled cheques were available.
6. Check that entries for cancelled/lost/expired cheque made on
counterfoil.

Sub-Cash Book

1. Check all bills drawn on DDO like pay and allowances, TA/DA,
contingencies, GPF Advances / Final payment, Motor Car/Cycle
Advance, Cycle Advance etc. entered on receipt side of cash book.
2. Against the bills drawn payment to official concerned properly
entered on payment side.
3. Unpaid amount deposited into treasury / short drawn.
4. Entries in cash book was correct according to monthly payment
schedule issued by DDO.
5. Cash Book closed monthly and signed by DDO.
{Article 80-85 of Account Code Volume-III}
 Chapter 7

AUDIT EVALUATION AND REPORTING

PHASE

7.1 Introduction

There are two audit phases covered in this section namely, Evaluation of Audit Findings/Results and
Reporting of audit conclusions.

Evaluation of Audit Findings/Results

By the end of the fieldwork stage, the auditors will have completed their audit programmes and
documented the results of their work. Part of this work would have involved the identification of
monetary errors, compliance with authority violations, internal control deviations, etc. These errors
and deviations need to be dealt with during the evaluation phase.

Error evaluation is done in stages. First, the auditor reaches a conclusion on the results of each test.
Next, the auditor reaches a conclusion on each component. Finally, the auditor reaches a conclusion
on the Financial Statements as a whole.

The optimum mix of tests of internal controls, analytical procedures and substantive tests of detail
for one specific Financial Audit or Compliance with Authority objective for one component may be
totally different from another objective or component. Appendix D of FAM provides a non-technical
discussion on the theory behind the overall error evaluation process – how the auditor can combine
different sources of assurance to reach an overall conclusion on the Financial Statements.
Reporting of Audit Conclusion

The auditor normally issues:

 A formal opinion or a disclaimer on Financial Statements and

 Long form reports containing auditors’ observations resulting from Compliance with
Authority Audit and Performance Audit.
The audit report is issued by the external auditor as a result of an external audit or evaluation
performed on a legal entity or subdivision thereof (called an “auditee”). The report is subsequently
provided to the auditee organisation in order to enable the users to make decisions based on the
results of the audit.

Whatever the audit type, the same considerations apply:

 Audit reports should be easy for entity management to read (brief and clear);
 The Audit reports will be read by Parliamentarians, the media and the public and
should be written with a minimal technical terminology and not assuming a prior
understanding of the detailed business of the entity;
 The contents of the audit report should focus only on material and significant matters;
 Any conclusions and recommendations should be useful; and
 All audit observations should be fully supported by reliable and sufficient evidence.

7.2 The Audit Team’s Responsibility

It is the duty of the auditor to complete audit in the light of audit objectives and arrive at reliable
conclusions for the purpose of audit. In addition, the auditor needs to identify any weaknesses in
internal controls, any errors and/or irregularities, and potential risks or exposures of the
organisation and issue recommendations accordingly.

It is critical that the audit team works diligently through forms and schedules in the Evaluation and
Reporting section of the Audit Working Papers Kit since it provides the documentation that supports
the Auditor-General’s opinion on the entity’s Financial Statements and compliance with government
rules and regulations.
The audit team leader will ensure that each form is signed off, reviewed and approved by an
appropriate official before it is considered complete.

It needs to be highlighted that the audit strategy and methodology recommended under FAM
provide for continued quality assurance through all the phases of audit. While reviewing the
reporting phase, the functionaries entrusted with the quality assurance of audit should ensure that
the various steps recommended in these Guidelines and respective forms given in the Audit Working
Papers Kit have been followed in all respects.

The following tools are provided to ensure the quality of the auditors’ opinion on the Financial
Statements and their audit report:

a) Management representation letter;

b) Audit completion checklist;

c) Memoranda recommending signature; and

d) Quality assurance checklist.

These documents and the diligent performance of quality assurance procedures given in section 15
of FAM help ensure that the DAGP has the audit evidence that it requires, and that the Auditor-
General is signing the most appropriate opinion and approving the Compliance with Authority report
based on valid audit findings.

A formal process, governing how audit observations are developed, cleared and reported in the
most appropriate reporting style, ensures quality. This process helps to ensure that the contents of
the report are correct, and that the findings, conclusions and recommendations contained in the
report are easily understood and appreciated by the readers of the reports.

Detailed guidance is provided in the following sections of the Financial Audit Manual:

Chapter 10 Evaluating Audit Results

Chapter 11 The Reporting process

Chapter 12 The Audit Report

To facilitate the auditors’ understanding of the reporting process, the Reporting Cycle of the DG
Audit (Federal Government) is given below.

Reporting Cycle of Compliance with Authority Audit

1. Development of Draft Audit Report (DAR)

2. Departmental Accounts Committee (DAC) meeting
3. Quality assurance review at DAGP
4. Audit report issued to President
5. Pre-PAC meeting with the AGP or Additional Auditor-General
6. Public Accounts Committee (PAC) Meeting

The following paragraph explains the various steps of the Reporting Cycle.

Development of Draft Audit Report (DAR)

i) The reporting cycle begins by issuing Observations Statements (OS) during field
work.
ii) Audit and Inspection Report (AIR) is issued to the PAO based on initial management
response on the OS.
iii) Management response is obtained on the AIR.
iv) Draft Audit Report (DAR) is prepared by incorporating management response on the
AIRs.
v) Internal Quality Control Checks are performed by supervisors to ensure that the
information given in the DAR is complete, relevant and supported with audit
evidence.
vi) The DAR is issued to the PAOs for Departmental Accounts Committee (DAC)
meeting.
vii) The paras finalized for Audit Report are retained in the AR section, while those which
cannot find a place in the Audit Report are sent back to the concerned IR sections.
These Paras are compiled and issued as MFDAC by the IR sections for further
pursuance. The MFDAC is compiled and issued on a yearly basis to respective PAOs.

Departmental Accounts Committee (DAC) meeting

i) Paras and their replies are discussed with the respective PAO.
ii) Minutes are prepared and signed.
iii) DAR is updated based on the DAC minutes.
 iv) Further Audit comments are incorporated in the end as a final recommendation of the
Audit Para.
v) Final Audit Report is prepared PAO wise and is sent to the AGP office for Quality
Assurance Review.

Quality assurance review at DAGP

i) Quality assurance is carried out using DAGP’s quality assurance framework.

ii) The framework ensures that the work is performed as efficiently and effectively as
possible and complies with INTOSAI Auditing Standards.

Audit report issued to President

Under Article 171 of the Constitution, reports of the Auditor General of Pakistan shall be submitted
to the President, who shall cause them to be laid before the National Assembly.

Pre-PAC meeting with the AGP or Additional Auditor-General

i) Pre-PAC meeting is held with the Auditor- General of Pakistan or the Additional
Auditor-General .The audit paras are discussed thoroughly before being presented at
the Public Accounts Committee (PAC) meeting.
ii) During the Pre-PAC meetings, the audit observations are categorised according to
their significance. Cases, where remedial measures have been taken by the audited
departments, are also marked for the consideration of the PAC.

Public Accounts Committee (PAC) Meeting

i) The Director General Audit –Federal Government, on behalf of the AGP supports the
PAC for appropriate action against the paras included in the Audit Report.
ii) The PAC accordingly disposes of the audit paras by giving necessary directives to the
executives/PAOs.

7.3 Documentation in Evaluation and Reporting Phase

Titles of various forms specified in the Audit Working Papers Kit are listed below:
  Internal Control Weaknesses – Impact Analysis *
 Analytical Procedure Thresholds
 Evaluation of Analytical Procedures *
 Evaluation of Internal Control Deviations *
 Substantive Tests Evaluation – Projectable Errors from Sample
 Substantive Tests Evaluation – Non-Projectable Errors
 Substantive Tests Evaluation – Summary
 Achieved Level of Assurance Form
 Error in Each Component
 Overall Error in Financial Statements
 Compliance-With-Authority Violations *
 Checklist of Management Representation Letter
 Sample Management Representation Letter
 Audit Completion Checklist *
 Memorandum Supporting Signature
 Auditor’s Opinion
 Follow-up Continuity Schedule *
 Quality Assurance Checklist *

Note: These forms recommended under FAM and Audit Working Papers Kit essentially meet the
requirements of Certification Audit. However, some of these forms, marked with asterisks (*),
can also be used for Compliance with Authority Audit.

The following paragraphs provide general guidance for using the above mentioned forms.
Instructions for filling in these forms are contained in the Audit Working Papers Kit which the
auditors are required to follow.

7.4 Internal Control Weaknesses – Impact Analysis

This form tracks the disposal of internal control weaknesses identified at the time of applying ICQs
during the performance of audit. Each control weakness should be noted. Each weakness indicates
whether the entity management agrees with the auditor’s assessment of the weakness, and
whether the weakness is so significant that it affects the audit plan and will require additional
unplanned audit work to be performed.

7.5 Analytical Procedure Thresholds

Analytical procedures work by comparing an actual value from the Financial Statements with a
baseline value (normally the comparative figures of previous audit year is used as baseline value). If
the difference between the actual value and the baseline value exceeds a certain threshold, then the
analytical procedure has not provided the required assurance, and additional audit work may be
required.

This form is used to calculate the thresholds that the auditor should apply to each analytical review
procedure used in audit. Complete instructions are provided on the form.

7.6 Evaluation of Analytical Procedures

The auditor will complete this form to determine whether each analytical procedure has provided
the required assurance. The auditor will describe the data used, its observed value and the baseline
value, and a comparison of the difference with the threshold calculated on the Analytical Procedure
Thresholds form.

If the difference exceeds the threshold value, the auditor will obtain an explanation from entity
management which will be recorded on the form together with the auditor’s comments. The auditor
will decide whether the explanation of the difference is acceptable. If the difference warrants a re-
assessment of audit risk, reduced reliance on analytical procedures or an increase in substantive
tests of details, the auditor’s decision is recorded on this form.

Note: See Appendix E of FAM for a full discussion of Analytical Procedures.

7.7 Evaluation of Internal Control Deviations

Using the data from the number of control deviations found in the Internal Control Deviations forms,
the auditor follows the steps in this form to determine whether the control deviations lead to a
conclusion that these may be relied upon or whether the deviations warrant a re-assessment of
control risk, reduced reliance on controls or an increase in substantive tests of details. The auditor’s
decision is recorded on this form.

7.8 Substantive Tests Evaluation – Projectable Errors From

Sample
The auditor enters each projectable error from the Substantive Test Sample Summary form,
separating overstatements and understatements, following the step-by-step instructions provided
on the reverse of the form.

7.9 Substantive Tests Evaluation – Non-Projectable Errors

The auditor enters each non-projectable error from the

Substantive Test Sample Summary form, plus errors from the
Substantive Tests of High Value and Key Items and Errors in
Accounting Estimates separating overstatements and
understatements. These are summed at the bottom of the form.

7.10 Substantive Tests Evaluation – Summary

The auditor uses this form to calculate the figures of most likely error (MLE) and upper error limit
(UEL) for over- and under-statements based on the evaluation of sample results for Projectable and
Non-projectable errors from the preceding two forms. This is done by carefully following the step-
by-step procedures included in the form.

The MLE and UEL are then compared with the previously calculated materiality amount to
determine whether the results of the audit are satisfactory or not, to provide the auditor with
the basis for his/her conclusion.

7.11 Achieved Level of Assurance Form

The Audit Plan was based on the audit team’s estimation of the audit assurance that could be
achieved with respect to Inherent Risk, Control Risk, Analytical Review and Substantive Test of Detail
(see Source of Assurance Form) in arriving at the desired level of acceptable risk for this audit.

While the assessments should be made for each Financial Audit objective and Compliance with
Authority Audit objective for each component, the form permits the auditor to list more than one
such specific objectives and/or component on each form. This is because the auditor will likely have
planned to use the same sources of assurance assessments for several different objectives and
components, and will, therefore, have listed more than one component, specific Financial Audit
objective and related Compliance with Authority Audit objective on his/her Source of Assurance
form.
This form is designed to assist the auditor to determine whether he/she has achieved the desired
level of overall audit assurance (i.e. reduced audit risk to the desired level). Detailed instructions are
provided on the reverse of the form.

7.12 Error in Each Component

Before evaluating error in the Financial Statements as a whole, the auditor uses this form to evaluate
the error in each component. The auditor, following the directions on the form, completes one form
for each component being audited.

The information on this form is consolidated in the Overall Error in Financial Statements form.

7.13 Overall Error in Financial Statements

This form is designed to summarise errors in the Financial Statements – first the errors in
receipts/revenues, expenditures and net income, and then the errors in assets, liabilities, equity and
opening residual equity. The last table of this form then shows the overall most likely errors in
assets, liabilities, receipts/revenues, expenditures, equity and opening residual equity, culminating
with a Summary of Most Likely Errors.

7.14 Compliance With Authority Violations

This form is used to capture information on each violation of compliance requirement. For example,
an entity may have reported under-spending a particular grant, whereas the auditor has concluded
that expenditures have not all been properly charged to that grant. This type of error, and other
compliance violations, would be evaluated using this form.

7.15 Checklist of Management Representation Letter

During the course of the audit, entity management will have provided the auditors with financial and
many other pieces of information, both verbally and in writing, which the auditors will have relied on
during the audit. The audit team should draft a Management Representation Letter that the entity
management will sign to acknowledge in writing their responsibility for the completeness and
accuracy of the Financial Statements and for all other representations made to the auditors.
This checklist will help the audit team ascertain whether all necessary matters are properly referred
to in the Management Representation Letter.

7.16 Sample Management Representation Letter

This form provides the audit team with a sample letter to use as a starting point in obtaining a
Management Representation Letter for their particular audit. This letter is a very important
component of the audit as it clearly establishes that management is responsible for the Financial
Statements presented to the auditors and for all additional information provided by them. It will
help focus management’s attention on the importance of the audit, and their participation in it.

7.17 Audit Completion Checklist

Before the Auditor-General or other delegated DAGP official signs the final audit report for
presentation to the Parliament, they must be satisfied that the audit team has diligently carried out
a proper audit. This checklist will be completed and signed by the Director General of the particular
audit to confirm that the audit has been conducted in accordance with the DAGP audit standards.

7.18 Memorandum Supporting Signature

The Audit Completion Checklist provides the official signing the audit with assurance about the audit
procedure but not about the Financial Statements or audit findings. This Memorandum provides the
signing official with this additional information and will provide the basis for a briefing on the
conduct and conclusions of the audit.

7.19 Auditor’s Opinion

Based on the work of the audit team, the Auditor-General prepares audit reports, which also contain
the Auditor’s Opinion. The audit team will recommend the opinion which it believes is appropriate in
the circumstances.
Chapter 12 of FAM provides extensive discussion on the Audit Report. All auditors should be familiar
with the concepts presented in this chapter since all the audit work they perform culminates in the
Audit Report.

The Audit Working Papers provide examples of the different standard audit opinions: Unqualified
Audit Opinion; Qualified Audit Opinion – Scope Limitation; Qualified Audit Opinion – Departure from
Government’s Accounting Policies; Qualified Audit Opinion – Uncertainty; Qualified Audit Opinion –
Inappropriate Accounting Policies; Adverse Audit Opinion; Disclaimer of an Opinion.

Audit teams should be prepared to recommend Qualified, Adverse or Disclaimer of opinion where
circumstances warrant. The purpose of these opinions is to highlight situations where government
policies are not being followed so that corrective action can be taken and improvements can be
made. It is likely that many audits will result in Qualified, Adverse or Disclaimer of opinion during the
first years of applying the new audit paradigm, as it will take the audit entities some time to bring
their accounting practices fully up to the new standards.

7.20 Follow up Continuity Schedule

Follow up is an integral part of the audit function. The auditor’s objective is not fulfilled unless any
errors or deficiencies identified during the audit have been correctly addressed. Both the DAGP and
the Public Accounts Committee (PAC) should check that the entity officials take action to correct all
errors found, and deal with all the recommendations made.

The entity officials themselves are responsible for ensuring that their Financial Statements and that
their internal control structures are operating as efficiently and effectively as possible. They should
be encouraged to view the auditor as an ally in this endeavour and should actively work with the
auditor to address any concerns.

To achieve these objectives, there should be a formal follow up of every Regularity Audit. All
observations, conclusions and recommendations should be pursued and reported until they are
satisfactorily dealt with, or until circumstances have rendered them no longer relevant.

The follow-up phase involves checking the relevant record pertaining to observations raised at a
later date to determine if entity officials have:

 Corrected errors identified during the audit; and

  Implemented recommendations made by the auditors.
The errors identified during the financial audit could include:

 Monetary errors or related compliance with authority violations that led to a

reservation in the auditor’s opinion (a qualified, adverse or disclaimer of opinion);
and
 Other monetary errors and compliance with authority violations.
Recommendations made by the auditor can relate to:

 Reservations being expressed in the audit report;

 Comments on the form and content of the Financial Statements;
 Comments on the accounting policies used to prepare the Financial Statements;
 Compliance with authority violations;
 Internal control weaknesses; and
 Performance (value-for-money) matters.

Audits frequently identify situations that require follow-up in the following years. For example,
control failures in one year should result in recommendations for future improvements, so future
audits should see if the recommendations have been followed.

This form summarises issues that previous audits have identified and tracks how they were handled
in the current year’s audit and whether any additional follow up in future years is required.

Note: Please refer to Chapter 14 “Audit Follow up” of FAM for details on the subject.

7.21 Quality Assurance Checklist

Just as the auditors are concerned with the quality of the audit entities’ Financial Statements, they
must check the highest quality of their own work, if they are to earn and keep their professional
credibility. Consequently, quality assurance procedures are implemented through comprehensive
working papers and sign-offs throughout the audit. At the conclusion of audit, an appropriate
official should review the audit files to check whether the audit team has fulfilled all the
requirements of a quality audit.

It is emphasised that the primary purpose of this post-audit review is to encourage continuous
improvement in the quality of the DAGP’s work. The reviews are not intended to praise or criticize
the work of the audit team or individual auditors. In this spirit, those being reviewed should be
comfortable in offering their own suggestions as to how the audit could have been performed more
effectively or efficiently.

7.22 Centrally Led Audit

As discussed in the Planning Chapter at 5.31, in case of centrally led audit, there will be a division of
responsibilities between the central team and field audit teams of the same directorate or other
directorates.
 Chapter 8

KEY TASKS AND RESPONSIBILITIES

8.1 Introduction

With the up gradation of the sectoral Guidelines it was felt that key tasks, revised roles and
responsibilities need to be assigned for effective and structured implementation of these Guidelines.
This section of the Guidelines specifies key Tasks and Responsibilities of various functionaries in a
Field Audit Office (FAO) involved in performing audit related tasks during the course of the audit
cycle. Main areas for which Key Tasks and Responsibilities have been defined are given below;

 Permanent File
 Audit Planning Phase
 Audit Execution Phase
 Audit Evaluation and Reporting Phase
 Quality Assurance

The purpose of the key Responsibility Matrices given at the end of this section is to provide the
functionaries with an overview of their roles and responsibilities in the Audit Cycle. Moreover this
will also serve as a monitoring tool and will facilitate in measuring the performance of the personnel
involved in various phases of audit.

8.2 Assigning Roles and Responsibilities

These Key Tasks and Responsibilities have been developed for the four standard tiers of
functionaries in an FAO. They are Audit Officer/Assistant Director, Deputy Director, Director and
Director General. It is recommended that functionaries below this level may not be involved in the
auditing processes. However, in cases where the DG of an FAO considers appropriate, he may assign
the responsibilities of an Audit Officer to an Assistant Audit Officer.
In all cases where key tasks have been assigned to a functionary and that functionary is temporarily
or structurally not available in the office, the head of the office will be required to assign the key
tasks and responsibilities appropriately.

The Director General will be required to assign specific responsibilities to all the officers in the FAOs
for each audit and the performance of officers can then be monitored accordingly.

For High Profile Audits and studies of public significance, the DG may like to raise the level of the
audit team by substituting Audit Officers/Assistant Director with Deputy Directors and Directors. The
roles and responsibilities which are specified in this section pertain only to the Audit Cycle. For other
functions like clerical record keeping, administration, budgeting etc, the existing job descriptions
available in the FAO should be used for defining the key tasks in each area.

8.3 Key Tasks and Responsibilities: Permanent File

RESPONSIBILITIES
Guideline
TASKS AO/Assistant Deputy Director
Reference Director
Director Director General

4.4 Developing and Updating P S R

the control sheet-PF

4.5 Updating Status of Entity P R

Form/information.

4.6 Gathering and updating P S R

financial & Operational
background Information.

Documenting the P S-R

Background Information.

4.7 Listing all the possible P R

Auditable Locations.

4.8 Listings of names address P R

and account no of all Bank
Accounts in the name of
Entity.
4.9 Documentation and Listing P R
Authorized Signatories.

4.10 Listing External Factors P R

related to performance of
the operational activities of
an auditee.

4.11 Listing the accounting P R

records maintained by the
auditee.

Development of a brief P R
description of the
accounting system used by
the auditee.

4.12 Listing Key Contacts. P S-R

4.13 Listing Significant Audit P S-R A

Areas.

Updating determination of P R
components.

4.14 Listing Significant P R

Accounting Policies.

Update and review of P R

Significant Accounting
policies.

Review and Sign Off of all R A

the forms within the
Permanent File.

A= Approve, R= Review, S=Supervise, P=Perform

8.4 Key Tasks and Responsibilities: Audit Planning Phase

 RESPONSIBILITIES
Guideline
TASKS AO/Assistant Deputy Director
Reference Director
Director Director General

5.4 Determining Audit objectives and P

scope.

5.5 Listing/ Updating Points for attention P S R

at next audit.

5.6 Preparing/Issuing Entity P R A

communication letter.

5.7 Preparing Audit planning P R

memorandum.

5.8 Revising Memorandum on post- P R

planning changes.

5.9 Scheduling Important dates. P R

5.10 Preparing Tour Program.. P S R A

5.11 Pursuing Information requested from P S

entity officials.

5.12 Preparing Materiality assessment P R A

form

5.13 Computing Expected aggregate error P R

and planned precision form.

5.14 Preparing Audit risk assessment P R

form.

5.15 Preparing Inherent risk assessment P R

form.

5.16 Developing Internal control P R

questionnaire - controls for overall
environment.

5.17 Documentation of the internal P R

control questionnaire – general
computer controls.

5.18 Documenting Internal control P R

 RESPONSIBILITIES
Guideline
TASKS AO/Assistant Deputy Director
Reference Director
Director Director General

questionnaire – application controls.

5.19 Developing Control risk assessment P R

form.

5.20 Documenting Analytical procedures P R

assurance form.

Updating optimum combination of P R

procedures.

5.21 Documenting Source of audit P R

assurance form.

5.22 Listing all applicable laws and P S R

regulations.

5.23 Documenting and Updating Sample P S R

selection checklist.

5.24 Preparing High value item selection P R

form.

5.25 Preparing Key item selection form. P R

5.26 Computing Sample sizing for tests of P R

internal control.

5.27 Calculating Sample size for P R

substantive tests of details.

5.28 Documenting Checklist of accounting P R

estimates to be reviewed.

5.29 Recording Points for attention at next P S R

audit.

5.30 Documenting Audit planning P R A

checklist.

A= Approve, R= Review, S=Supervise, P=Perform

8.5 Key Tasks and Responsibilities: Audit Execution Phase

RESPONSIBILITIES
Guideline
TASKS AO/Assistant Deputy Director
Reference Director
Director Director General

6.4 Documenting Summary of Analytical P R

Review Procedures Performed.

6.5 Documenting Details of Analytical P S R

Review Procedures Performed.

6.6 Documenting Internal Control P R

Questionnaires.

6.7 Documenting Internal Control P R

Deviations Form.

6.8 Preparing Internal Control Deviations P R

Summary.

6.9 Preparing Compliance Summary. P R

6.10 Documenting Substantive Tests of P R

Accounting Estimates.

6.11 Identifying and listing Errors in P R

Accounting Estimates.

6.12 Documenting Substantive Test P S R

Sample Summary for each Audit
Program.

6.13 Preparing Substantive Test of High P R

Value/Key Items – Summary.

6.14 Documenting Details of Errors in P R

Samples, High Value Items and Key
Items.

6.15 Conducting Exit Interviews. P S

6.16 Updation of Audit Steps given in the P R S

Audit Programmes, if needed.
6.16 Execution of Audit Steps as per the P P-S S-R
Audit Program

Ascertaining Execution of relevant P P-S S

Audit Programs

A= Approve, R= Review, S=Supervise, P=Perform

8.6 Key Tasks and Responsibilities: Audit Evaluation &

Reporting Phase

RESPONSIBILITIES
Guideline
TASKS AO/Assistant Deputy Director
Reference Director
Director Director General

7.4 Documenting Internal Control P R

Weaknesses – Impact Analysis.

7.5 Calculating Analytical Procedure P R S

Thresholds.

7.6 Documenting Evaluation of Analytical P R

Procedures.

7.7 Evaluating Internal Control P R

Deviations.

7.8 Conducting Substantive Tests P S R

Evaluation – Projectable Errors from
Sample.

7.9 Documenting Substantive Tests P S-R

Evaluation – Non-Projectable Errors.

7.10 Calculating Substantive Tests P S-R

Evaluation –
 RESPONSIBILITIES
Guideline
TASKS AO/Assistant Deputy Director
Reference Director
Director Director General

Summary.

7.11 Documenting Achieved Level of P R

Assurance Form.

7.12 Evaluating Error in Each Component. P R S

7.13 Summarizing and preparing Overall P R S

Error in Financial Statements.

7.14 Documenting Compliance-With- P P-S R

Authority Violations.

7.15 Drafting Checklist of Management P S R

Representation Letter.

7.16 Obtaining Management P R

Representation Letter.

7.17 Documenting Audit Completion P R-S A

Checklist.

7.18 Memorandum Supporting Signature. P R A

7.19 Recommending Auditor’s Opinion P R-A

7.20 Following up the Continuity P R-S

Schedule

7.21 Reviewing the Quality Assurance P R

Checklist

A= Approve, R= Review, S=Supervise, P=Perform

8.7 Key Tasks and Responsibilities: Audit Quality Assurance

RESPONSIBILITIES
Guideline
TASKS AO/Assistant Deputy Director
Reference Director
Director Director General
 RESPONSIBILITIES
Guideline
TASKS AO/Assistant Deputy Director
Reference Director
Director Director General
Planning
5.3 Review that Planning has been R S
carried out as per the recommended
planning process.
FAM Assigning Appropriate staff, P R
15.3.6 required strength and skill set of the
audit team.
FAM Preparation, revision and approval P R A
15.3.7 of the Audit Budget.
5.30 Ensuring that audit programs are in P R
place as required in Audit Policy
Checklist.
Execution
5.8 Ensuring revision of the planning P R A
decisions, if required.
Supervision of all phases of P R-S
execution as per the tasks assigned
in “key tasks related to execution
phase” list.
To ensure review of audit working P R S
paper files.
6.16 To ensure executing audit steps as P R S
per the Audit Programs.
Ensuring reporting and monitoring P R-S
of audit activities with reference to
“execution task list.”
Evaluation & Reporting
7.3 To ensure detailed review and P R-S A
approval of monetary errors,
compliance with authority
Violations and internal control
deviations found.
7.15,7.16, Ensuring tools for the auditor’s P S R
7.18 opinions and statements are used.
7.17 Ensuring Documentation of Audit P R-S A
Completion Checklist.
7.21 Reviewing the Quality Assurance P R A
Checklist. *

A= Approve, R= Review, S=Supervise, P=Perform

* The Comprehensive Quality Assurance Checklist present in the Audit Working Papers Kit covers all
the phases of audit. This checklist is the master guide for assuring the quality of audit processes
throughout the audit cycle.
 APPENDIX-A

AUDITOR-GENERAL OF PAKISTAN Appendix-A

PERMANENT FILE

Permanent File Index/Checklist

 Main Supporting
Done by: Date:
Reference Schedules
PF Update Control Sheet

PF-I
Status of the Entity
PF-II
Background Information
PF-III
List of Auditable Locations
PF-IV
List of Bank Accounts
PF-V
List of Authorised Signatories
PF-VI
External Factors
PF-VII
Accounting Records and Accounting System
PF-VIII
Key Contacts
PF-IX
Significant Audit Areas
PF-X
Significant Accounting Policies

Supporting Documents List

Corporate Plan (Mission, Vision, Objectives)

Financial Rules/Laws & Regulations/Service

Rules

Organization Chart

Accounting Policies

Chart Of Accounts

Environmental laws and regulations

Long-term contracts/and leases

Loan agreements, mortgages, debt instruments

Amortization schedules of major assets

AUDITOR-GENERAL OF PAKISTAN Form - PF
PERMANENT FILE

UPDATE CONTROL SHEET

Name of Entity/Organization: National Electric Power Regulatory Authority (NEPRA)

Original file prepared by: Mr. Ghulam Mehdi , Audit Officer

Date: 18-06-2009

File updated by: ___________________________ Date:

File updated by: ___________________________ Date:

File updated by: ___________________________ Date:

File updated by: ___________________________ Date:

File updated by: ___________________________ Date:

File updated by: ___________________________ Date:

File updated by: ___________________________ Date:

File updated by: ___________________________ Date:

File updated by: ___________________________ Date:

AUDITOR-GENERAL OF PAKISTAN
PERMANENT FILE

Form PF- I

Understanding of Entity’s Business – Status of Entity

Name of Entity/Organization: National Electric Power Regulatory Authority (NEPRA)

Principal Address:
The main Office of the National Electric Power Regulatory Authority (NEPRA) is situated at
2nd Floor, OPF Building, G-5/1, Islamabad

Status of the Entity:

National Electric Power Regulatory Authority (NEPRA) is an autonomous body established under
NEPRA Act 1997.

Inter-Governmental Relationship:
National Electric Power Regulatory Authority (NEPRA) is under the administrative control of Cabinet
Division.
AUDITOR-GENERAL OF PAKISTAN

PERMANENT FILE
Form PF- II

Understanding of Entity’s Business – Background Information

Name of Entity/Organization:National Electric Power Regulatory Authority (NEPRA)

Size of Entity
 Total Assets Rs. 1,240.384 million
 Total Liabilities Rs. 158.554 million
 Total Revenue Rs. 344.795 million
 Total Grant and Surplus Rs. 1,080.829 million
 Total Expenditure Rs. 177.406 million

Core Operational Activity/Corporate Plan

1. Issue Licences for generation, transmission and distribution of electric power;
2. Establish and enforce Standards to ensure quality and safety of operation and supply
of electric power to consumers;
3. Approve investment and power acquisition programs of the utility companies; and
4. Determine Tariffs for generation, transmission and distribution of electric power.

Business Processes
(1) The Authority is exclusively responsible for regulating the provision of electric power services.

(2) In particular and without prejudice to the generality of the foregoing power, only the
Authority, subject to the provisions shall:

(a) Grant licences for generation, transmission and distribution of electric power;

(b) Prescribe procedures and standards for investment programmes by generation,

transmission and distribution companies;

(c) Prescribe and enforce performance standards for generation, transmission and
distribution companies;

(d) Establish a uniform system of accounts by generation, transmission and distribution

companies;

(e) Prescribe fees including fees for grant of licences and renewal thereof;

(f) Prescribe fines for contravention of the provisions of NEPRA Act 1997; and
 (g) Perform any other function which is incidental or consequential to any of the aforesaid
functions.

(3) Notwithstanding the provisions and without prejudice to the generality of the power
conferred to the, Authority shall-

(a) Determine tariff, rates, charges and other terms and conditions for the supply of electric
power services by generation, transmission and distribution companies and recommend
to the Federal Government for notification;

(b) Review organizational affairs of generation, transmission and distribution companies to

avoid any adverse effect on the operation of electric power services and for continuous
and efficient supply of such services;

(c) Encourage uniform industry standards and code of conduct for generation, transmission
and distribution companies;

(d) Tender advice to public sector Projects;

(e) Submit reports to the Federal Government in respect of activities of generation,

transmission and distribution companies; and

(f) Perform any other function which is incidental or consequential to any of the aforesaid
functions.

(4) Notwithstanding anything contained in NEPRA Act 1997. The Government of a Province may
construct power houses and grid% stations and lay in NEPRA Act 1997 transmission lines for
use within the Province and determine the tariff for distribution of electricity within the
Province.

(5) Before approving the tariff for the supply of electric power by generation companies using
hydro-electric plants, the Authority shall consider the recommendations of the Government of
the Province in which such generation facility is located.
(6) In performing its functions under this Act, the Authority shall, as far as practicable, protect the
interests of consumers and companies providing electric power services in accordance with
guidelines, not inconsistent with the provisions of this Act, laid down by the Federal
Government.

Major Beneficiaries
 Public.
 Generation, transmission and distribution company.

Major Cost Centres

 Employee related expenses.
 Repair and maintenance.
 Machinery and equipment.

Reporting Authority
 Federal Government
AUDITOR-GENERAL OF PAKISTAN
PERMANENT FILE
Form PF- III

Understanding of Entity’s Business – List of Auditable Locations

Name of Entity/Organization: National Electric Power Regulatory Authority (NEPRA)

Principal Accounting Office

Secretary Cabinet Division

District Accounting Offices (DAO) / Drawing and

Disbursing Offices (DDO)
Mr. Muhammad Qamar–uz-Zaman, Deputy Director Finance held charge of Drawing and Disbursing
Officer (DDO) during the period under audit.

Location(s) of computer-based accounting systems

database(s)
Computerized accounting record is maintained by NEPRA in ORACLE. Transactions are entered in to
the system at centralized level.
AUDITOR-GENERAL OF PAKISTAN

PERMANENT FILE
Form PF - IV

Understanding of Entity’s Business – List of Bank Accounts

Name of Entity/Organization:National Electric Power Regulatory Authority (NEPRA)

The following are the details of bank accounts:

Sr. No.

Account No. Bank Branch Nature

1 750116500465 Askari Bank Ltd Aabpara Current Account

2 750116500496 Askari Bank Ltd Aabpara Employees Provident Fund

3 750116500502 Askari Bank Ltd Aabpara Employees Gratuity Fund

AUDITOR-GENERAL OF PAKISTAN
PERMANENT FILE
Form PF- V

Understanding of Entity’s Business – List of Authorized Signatories

Name of Entity/Organization: National Electric Power Regulatory Authority (NEPRA)

The signatories of the cheque were the following during the audit period:

Sr. No. Name Designation

1. Qamar-uz-Zaman Deputy Director Finance
2. Hussnain Zaigam Alvi D.G Technical
AUDITOR-GENERAL OF PAKISTAN
PERMANENT FILE
Form PF- VI

Understanding of Entity’s Business – External Factors

Name of Entity/Organization: National Electric Power Regulatory Authority (NEPRA)

External Factors:

 Government Policies.
 General Public.
 Law and Order.
 Industrial Sectors.
.
AUDITOR-GENERAL OF PAKISTAN

PERMANENT FILE
Form PF- VII

Understanding of Entity’s Business – Accounting Records and Accounting System

Name of Entity/Organization: National Electric Power Regulatory Authority (NEPRA)

Following auditable record is available:-

 General Ledger
 Vouchers
 Monthly payroll
 Investment Ledger.
 Employee GP Fund record
 Employee pension record
 Employee advances record
 Personnel file of employees
AUDITOR-GENERAL OF PAKISTAN

PERMANENT FILE
Form PF- VIII

Understanding of Entity’s Business – Key Contacts

Name of Entity/Organization: National Electric Power Regulatory Authority (NEPRA)

SR. No. TITLE PHONE #.

1. Chairman 051-9220902

2. Member Licensing 051-9210209

3.
Member Tariff 051-9206887

4.
Member (Std &Priv) 051-9207300

5.
Member (S) 051-9259261

6.
Registrar 051-9206500

7.
Deputy Director Finance 051-9206798
AUDITOR-GENERAL OF PAKISTAN

PERMANENT FILE
Form PF- IX

Understanding of Entity’s Business – Significant Audit Areas

Name of Entity/Organization: National Electric Power Regulatory Authority (NEPRA)

Critical Audit Area

Significant Financial Statement Components
Y/N

N
 Physical Assets
N
 Repair and Maintenance
Y
 Employee related expenses/ payments
Y
 Operating expenses/payments
Y
 Revenue
Y
 Investments
AUDITOR-GENERAL OF PAKISTAN
AUDIT PLANNING-PERMANENT FILE
Form PF- X

Understanding of Entity’s Business – Significant Accounting Policies

Name of Entity/Organization: National Electric Power Regulatory Authority (NEPRA)

Recognition of Expenditure

 Where payment is made by cheque, expenditure will be recognized and recorded in

accounts of the NEPRA on the date the cheque is issued.
 In the case of inter-government transfers, expenditure will be recognized on the date the
transfer is made by the transferor.
 For a direct payment in to a government employee’s with accounts, expenditure will be
recognized on the date the payment advice is issued by the DAO/AGPR office to the bank.
 In the case of payments made from imprest monies, the expenditure will be recognized
when the required claim vouchers are submitted and the imprest account reimbursed.
 The financial year to which a payment should be charged is determined by the date on
which a cheque or payment advice is issued.

Commitment Accounting

 Following criteria should be applied when determining and recognizing a commitment:

o A valid purchase order is raised and where applicable a purchase contract has been
entered with the supplier. The amount involved should be clearly mentioned in the
purchase order/ contract.
o The officer in accordance with delegation of financial powers has authorized the
commitment.
o The amount involved is above Rs.10,000 or 10% of total budget head, whichever is
higher.
o Exclude employee related expenses.

 Once a commitment is entered and approved it must be recorded by the DDO.