Gap Analysis Public Sector Accounting and Auditing A Diagnostic Tool for Benchmarking National Standards to International Standards

Assessment Framework Developed in 2006 by the Financial Management Unit of the World Bank South Asia Region as a new diagnostic tool to assess how well public sector accounting and auditing practices accord with the IFAC and INTOSAI standards. It uses a set of self-assessment questionnaires focusing on identifying the gaps in the national standards implemented in each country. Tested and applied in the countries of South Asia. Subsequently modified and used in Azerbaijan and Colombia (in progress).

Developing the Framework The Gap Analysis Framework is based on the ROSC (Report on Observance of Standards and Codes)-Accounting and Auditing Framework which summarizes the extent to which countries observe certain internationally recognized standards and codes in the private sector. The tool has been suitably modified to the public sector. The development of the Public Financial Management Performance Measurement Framework opened the way for a more detailed accounting and auditing diagnostic based on IFAC and INTOSAI, especially when the ISSAI were promulgated. Pilots were conducted in two countries – Bangladesh and Sri Lanka which helped refine the framework based on experience Later rolled out to the remaining countries in South Asia and reports have been completed and are available on the web. Work is in progress in India where the Government is doing a self assessment.

PFM Framework accounting and auditing indicators PI 10.Public access to key fiscal information. PI 22.Timeliness of accounts reconciliation. PI 23.Information on resources received. PI 24.Quality of budget reports. PI 25.Quality of annual financial statements. PI 26.Nature and follow-up of external audit. PI 28.Legislative scrutiny of audit reports.

Questionnaires on country accounting practices 1. The public sector accounting environment ― financial laws and standard-setting arrangements, educational requirements for accountants compared with IFAC IES, ethical requirements compared with the IFAC Code of Ethics. 2. Public sector accounting practices for the general budget sector if using the cash basis of accounting ― compared with the requirements of the Cash Basis IPSAS. 3. Public sector accounting practices for the general budget sector if using the accrual basis of accounting ― compared with the requirements that govern IPSAS accrual reporting for the public sector.

Questionnaires on country auditing practices 4. Public sector auditing environment ― compared with the provisions of the INTOSAI Code of Ethics and the general standards in the INTOSAI Auditing Standards. 5. Public sector auditing practices ― compared with the field and reporting standards in the INTOSAI Auditing Standards and the ISSAI. 6. Accounting and auditing practices for state- owned enterprises ― compared with the requirements of the IFAC International Financial Reporting Standards (IFRS) and the ISSAI.

Results for Accounting All the South Asia countries, except Sri Lanka, will adopt the IPSAS Cash Standard within the next few years. Sri Lanka has adopted the accrual basis of accounting. All the countries in South Asia have expressed a desire to move in the direction of accrual accounting in the long run. Each country is to establish an accounting standards committee to issue guidelines on how the IPSAS are to be implemented within their country. The IFAC Educational Standards are being considered as one of the criteria for staffing the accounting departments in the future.

Results for Auditing The SAIs will need to: (a) modify their audit methodology to be consistent with the international standards; (b) adopt the IFAC Educational Standards as the criteria to be followed for staffing; (c) adopt the more detailed ISSAI auditing standards; and (d) improve their laws to fully meet the independence standards set by INTOSAI. Programs for change and self improvement need stronger staff expertise to meet the increasing demands for certification of annual government financial statements at national, departmental and provincial levels. Most SAIs have little current capacity for handling environmental and forensic audit. There was a general problem of obtaining adequate implementation of recommendations included in audit reports and the systems of oversight by the Public Accounts Committees (PACs) require strengthening. Public reporting of audits needed to be much more timely and comprehensive.

Bank Strengthening Programs Used available model laws to develop suitable national audit laws. Provided capacity building through integrated accounting and audit system improvement programs. Proposed more rigorous staff appointment, training and advancement arrangements including adherence to IFAC Educational Standards for auditors. Provided manuals and training for broader themes of audit (e.g., performance auditing). Initiated support to PAC Secretariats in examining audit reports.

Results in other South Asia countries Afghanistan – IPSAS cash basis accounts, SAI improvement program. Bangladesh – assisting a broad PFM reform program. Bhutan - SAI improvement program. Maldives – new financial audit methodology supporting a SAP implementation using IDEA and TeamMate. Nepal - SAI improvement program planned. Pakistan – A stand alone project (Project to Improve Financial Reporting and Auditing called PIFRA) is under implementation for treasury computerization and SAI strengthening Sri Lanka – IPSAS adopted and SAI improvement program planned.

Gap Analysis Reports Gap Analysis Framework document and Country Reports [Afghanistan, Bangladesh, Maldives, Pakistan, Sri Lanka, Nepal, Bhutan] are available on the World Bank web-site. Report for Azerbaijan is also available The Framework is available for use by any country or institution