THE AUDIT PROCESS

AN OVERVIEW
OF
THE AUDIT
June 2021
The Supreme Audit Institution of Uganda
PROCESS
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AN OVERVIEW OF THE AUDIT PROCESS UNDER THE

OFFICE OF THE AUDITOR GENERAL OF UGANDA

Mandate of the Auditor General

The Office of the Auditor General is headed by the Auditor General
who draws his mandate from Article 163 of the Constitution of the
Republic of Uganda, 1995 (as amended) and Sections 13 and 19 of
the National Audit Act, 2008.

Audits are conducted in accordance with International Standards

on Auditing and the International Standards for Supreme Audit
Institutions (ISSAIs). Those standards require that the auditor
complies with the ethical requirements, plan and perform the audit
to obtain reasonable assurance whether the financial statements are
free from material misstatement.

Vision
A model Supreme Audit Institution that adds value to society.

Mission
To provide our stakeholders with independent audit results that
promote good governance for better service delivery.

Core Values
The OAG is committed to upholding the following as its core values:
Integrity and Ethical conduct: Being honest and morally upright.
Professional competence: To act with diligence, proficiency, and
team spirit.
Objectivity: Being impartial.
Service – delivery oriented: Value addition centered.

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Types of audits
There are several types of audits performed by the Office of the Auditor
General on behalf of government, and these include;

(i) Financial / Regularity audits

These are undertaken to express an independent opinion on the
financial statements prepared in accordance with the applicable
financial reporting framework and legislation.

(ii) Performance audits

These are undertaken to assess the economy, efficiency and
effectiveness in all government activities.
(iii) compliance audits
These involve an independent evaluation as to whether the activities of
the public sector entities are in accordance with the relevant laws and
regulations and authorities that govern such entities.

(iv) Forensic investigations

To provide evidence that is admissible and used in courts of law for
prosecution.

(v) Environmental
These involve an assessment of the extent to which an organization is
observing practices that seek to minimize harm to the environment and
evaluate compliance to environmental laws.

(vi) IT audit
It is a review and evaluation of the organizations information systems
availability, confidentiality and integrity.

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Audit of Classified expenditure

(viii) Audit of the Procurement process.

The Audit Process Flow

The OAG has a Regularity Audit Manual which was approved by the
Auditor General in April 2013, to guide the audit process. This manual
was developed on the fact that the OAG Audit Methodology is based
on the risk based approach to audit.

This approach requires an auditor to focus on the entity’s business

risk i.e. the risk that the entity will fail to achieve its objectives.
Business risks may in government terms be interpreted to mean
the risks of the entity failing to achieve the public policy objectives
established by law, regulation or other directives.

This manual provides an audit approach in accordance with the ISSAIs

(1000-2999); which means full compliance with the International
Standards on Auditing (ISA) and the additional guidance as set out in
the INTOSAI Practice Notes.

The Office of the Auditor General follows five key audit processes as
summarized below;

Pre-engagement activities
Strategic Planning
Detailed Planning and Fieldwork
Audit Summary
Audit Conclusion and Reporting

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1. Pre- Engagement Activities (ISSAI 30, 1220, 1210).

This stage involves understanding the activities undertaken at the
beginning of an audit, determining and communicating the terms of
the engagement, assessing and evaluating ethical and resource
requirements.

The key activities undertaken therefore, include signing the code of

ethics declaration, assessing the resource requirements in terms of
time, finances, appropriate staff competence and capability and
discussing with management of the audited entity the terms of
engagement through an engagement letter.

2. Strategic Planning
This stage involves determining the planning materiality (ISSAI 1320),
understanding the entity and its environment including the internal
controls (ISSAI 1315), identifying and assessing the risk of material
misstatements (RMM), Linking of the identified risks to their respective
audit components in the financial statements, designing and
implementing the overall responses to address the assessed risks of
material misstatements at the financial statement level; determining
the use of the work of others; and selecting high and key value items.

The final output for this stage of audit involves developing an Overall
Audit Strategy (ISSAI 1300.7) which sets out the scope, timing and
direction of the audit; guides the development of a more detailed audit
plan and involves the summary of audit work completed during
pre-engagement & strategic planning phase of audit.
3. Detailed Planning and Field Work (ISSAI 1330, 1530, 1500)
This stage requires that for each financial statement audit component
identified in the audit lead schedule, the auditor documents the system
description by identification and assessment of more risks, controls and
assertions;

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documents the preliminary reliance on key controls; designs an

audit program; determines the appropriate sample size for test
of controls; performs the test of controls and documents final
reliance on key controls; determines the sample size for substantive
testing and performs the appropriate substantive procedures
(Test of details and substantive analytical procedures).
4. Audit Summary
The key activities involved under this stage include;

Performing of the overall audit programs (presentation and

disclosure- ISSAI 1330.24, 1700.13 - 15, 1710.7, subsequent events
review-ISSAI 1560, final analytical review and obtaining
management representations).
Aggregate and conclude on audit results (ISSAI 1450).
Assessing final compliance with the code of ethics

5. Audit Conclusions and Reporting (ISSAI 1700)

This stage involves two key steps;

Audit reporting procedures

Compilation of the management letter (written communication
prepared by the auditor and addressed to the management of
the audited entity bringing out the weaknesses identified during
the audit process) ISSAI 1265.
Obtaining Audit management representation for all the
changes which are made to the auditor’s report as it progresses up
the line and provides for statements by senior/top SAI management
relating to the audit work.
Forming an audit opinion and preparation of the final audit
freport or signing by the Auditor General (ISSAIs 1700, 1705, 1706, 1710).

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Types of Audit Opinions

Auditor’s opinions generally are of four types; the first type is an
unqualified opinion, and the other three types are modified opinions.
The decision regarding which type of modified opinion is appropriate
will depend upon;
I. The nature of the matter giving rise to the modification
II. The pervasiness of the effects or possible effects of the matter
on the financial statements
1.
From the point of view of the audited company or organization, the
unqualified opinion is the best possible audit outcome. This is when
the auditor has examined the financial reports and is of the opinion
that the financial information is presented fairly and in conformance
with Generally Accepted Accounting Principles (GAAP). However,
when not satisfied the Auditor will need to issue a modified opinion
as detailed below:-
2.
A qualified opinion means the auditor found the financial reports
essentially in conformance with Generally Accepted Principles, except
for one or a few areas which are material but not pervasive to the
financial statements and the auditor cannot, or does not want, to
assert conformance thereupon.
3.
An adverse opinion means the auditor having obtained sufficient
appropriate evidence concludes that misstatements individually
or inaggregate are both material and pervasive to the financial
statements with significant departures from GAAP.
4.
The auditor may issue a disclaimer of opinion, that is, report that he
has chosen not to issue an opinion. This may occur when the auditor
is unable to obtain sufficient appropriate evidence on which to base
the opinion and concludes that the possible effects on the financial
statements of undetected misstatements, if any, could be both material
and pervasive.
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Commonly used Terms in Audit

Audit: An audit is a systemattic and independent examination of
books, accounts, statutory records, documents and vouchers of an
organisation to ascertain how far the financial statements as well as
non-financial disclosures present a true and fair view of the concern.
Auditee: An auditee is an organisation ( or part of an organisation)
that is being audited.
Audit Evidence: Facts gathered during the audit procedures that
provide a reasonable basis for forming an opinion regarding the
financial statements under audit.
Audit Sampling: This can be defined as the process of applying
auditing procedures to under 100% of different items in an
organisation's account balance in a way that every single unit might
have an equal probability of being selected.
Bank Reconciliation: This is the process of explaining the difference
between the bank balance in an entity's bank statement, as supplied
by the bank, and the corresponding amounts shown in an
organisation's own accounting records at a particular point in time.
This may also be confirmed using a certificate of bank balances
signed by the bank manager .
Consolidated Fund: This is the treasury's current account with the
central bank through which all or almost all government's
expenditure and receipts are processed.
Credit Balance: This is the ending amount found on the right side of
an account versus the debit balance. A credit balance is expected for
the liability accounts.
Debit Balance: This is the ending amount found on the left side of an
account. A debit balance is expected for the following accounts:
Asset accounts such as cash, accounts receivable, inventory, prepaid
expenses, buildings, equipment, etc.

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Due Professional Care: Taking the time to gather reasonable audit

evidence to support the fact that the financial statements are free of
material misstatement.
Internal Controls: The operating standards a client uses to prevent
or uncover mistakes.
Imprests: Self-checking account where a fixed balance is maintained
by regular replenishments and used for paying small, routine
operating expenses. It is an advance of money paid by the
government to someone doing work for the government, or a petty
cash fund used by businesses to meet expenses.
Inherent Risk: The likelihood of arriving at an inaccurate audit
conclusion based on the nature of the client's business.
Materiality - Materiality is a concept or convention within auditing
and accounting relating to the importance/significance of an
amount, transaction, or discrepancy. The objective of an audit on
financial statements is to enable the auditor to express an opinion
whether the financial statements are prepared, in all material
respects, in conformity with an identified financial reporting
framework such as Generally Accepted Accounting Principles (GAAP).
Objectivity: The ability to evaluate client records with no
pre-conceived notions or prejudices. "Objectivity is an unbiased
mental attitude that allows internal auditors to perform
engagements in such a manner that they believe in their work
product and that no quality compromises are made.
Professional Judgement: This means the application of relevant
training, knowledge and experience, within the context provided by
auditing, accounting and ethical standards, in making informed
decisions about the courses of action that are appropriate in the
circumstances of the audit engagement.

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Professional Skepticism: Professional skepticism is an attitude that

includes a questioning mind, being alert to conditions which may
indicate possible misstatement due to error or fraud, and a critical
assessment of audit evidence.
Reimbursement: This is a repayment of money already spent.
Reimbursement should be accompanied by prior approval. For
example, it could include travel on official duty where an imprest for
travel has not been issued but prior approval was secured.
Sampling: Selecting a small but pertinent and representative
number of records to represent the entire population of records.
Funds Unaccounted for: These are funds whose spending could not
be verified through documentations like receipts, invoices,
certificates of completion, etc. without details such as dates, why the
money was issued, by whom and for what purpose, etc. This calls for
further investigation to establish whether actual expenditure
occurred, whether the funds were stolen and if the works, goods or
services procured met the required standards.

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