Chapter - 1

Introduction
Audit Quality Management

1.1 Public audit should provide assurance to the stakeholders that public programmes and
public investments are being administered economically, efficiently and effectively and thereby
significantly contribute to the improvement of public policy, delivery of public services and quality
of governance for the benefit of the people. The assurance should extend to expressing an
opinion on the fairness with which the government financial statements are prepared and
presented. The audit should also ensure that the transactions comply with laws, rules and
regulations.

1.2 Quality has been defined as the totality of features and characteristics of a product or
service that bear on its ability to satisfy stated or implied needs. In public audit, quality
management involves a system composed of an organisation, the Supreme Audit Institution
(SAI), its people – the auditors – and the audit process, all working together to produce outputs
that fulfill the requirements of its stakeholders and the general public. The components of the
‘Audit Quality Management Systems’ (AQMS) – structure, people and process aim towards
customer satisfaction (in the context of the SAI, its clients and stakeholders), which is always the
bottom line of any organisation. Customer satisfaction is always identified with quality and hence
quality is expected of everyone in the organisation and of every output generated. The SAI is no
different from any other institution in its mission to satisfy clients’ and stakeholders’ needs and
expectations. Improvement in quality of audit can reduce time and cost of audit and increase
productivity and efficiency of auditors, thus raising the level of performance.

1.3 The ‘quality management principle’ is the conceptual underpinning of AQMS. It is a

comprehensive and fundamental rule or belief for leading and managing an organization, aimed
at continually improving performance over the long term by focusing on the clients while
addressing the needs of all other stakeholders. It is essential to have in place quality
management, assurance and control policies and procedures in audit organizations and the SAI
should ensure that these policies and procedures are subject to review mechanism. SAI needs to
foster quality attitude, supported by systematic quality systems and adequate policies,
procedures, records, technologies, financial and human resources and structures.

1.4 SAI’s ‘Quality Management System’ should be designed to provide ‘reasonable assurance’
in the light of the likelihood and magnitude of potential risks, that it conducts the audits, both
regularity and performance, in accordance with the applicable legislative requirements, rules and
regulations, audit standards, policy manuals, guidelines and procedures. Reasonable assurance
recognizes that the cost of managing risks should not exceed the benefits likely to be derived.
Reasonable assurance should not be construed to mean absolute assurance of all aspects of
quality for each individual audit and for the audit process.
Elements of Audit Quality Management System

1.5 The audit quality management system in the SAI should generally consist of following
elements: Leadership & Direction, Human Resource Management, Audit Performance, Client &
Stakeholder Relations & Continuous Improvement

These elements are discussed in detail in subsequent chapters.

1.6 The quality management system should be designed to ensure compliance with the SAI’s
Auditing Standards, which should be aligned with the INTOSAI Auditing Standards. This system
should also ensure that the audit is conducted in accordance with the applicable legislative
requirements, SAI policy guidelines and instructions, etc. and the audit practices and procedures
are in line with the auditing standards and international best practices. The quality management
system should guide SAI staff in managing performance and regularity (financial and compliance)
audits.
Key instruments

1.7 SAI should develop appropriate criteria for obtaining assurance for each of the above
elements of the quality management system. A model framework with the criteria and the key
instruments to be employed is given in Appendix-A.

Quality Continuum

1.8 Quality as a management concept has evolved over the years. The initial understanding of
quality control was compliance to specifications and the quality control task was to identify and
remove defects, achieved mainly through some form of measurement and inspection activity.
Responsibility for quality was not with line functionaries, but was vested with separate staff
departments. This had the effect of making quality a technical rather than a managerial function.
Thus, quality control is product-centric.

1.9 Quality Assurance, however, is understood as planned or systematic actions necessary to

provide adequate confidence that a product or service will satisfy given requirements for quality.
Quality Assurance is process centric.

1.10 Quality Management System (QMS) is a broader concept which comprises the
organizational structure, procedures, processes and resources needed to implement quality
management. It involves all processes in the operational life cycle of a service that affect quality,
from initial identification of clients’ needs to final satisfaction of requirements. It is designed to
provide confidence to clients and stakeholders that requirements for quality will be achieved in
delivered services.

1.11 ‘Total Quality Management’ (TQM) is a total, organization wide effort – through full
involvement of the entire workforce and a focus on continuous improvement – that organizations
use to achieve clients satisfaction. TQM is both a comprehensive managerial philosophy and a
collection of tools and approaches for its implementation. Total quality is the unyielding and
continually improving effort by everyone in an organization to understand, meet and exceed the
expectations of clients at continually lower cost. The concept of total quality stresses learning and
adaptation to continual change as keys to organizational success.

1.12 These AQMS guidelines are based primarily on ‘quality management system’ principles.
However, they contain several significant elements of total quality management.

Quality Control in the Audit Process

1.13 Quality control is operational techniques and activities during audit processes of planning,
execution and reporting. Quality control is a process in the course of which an SAI intends to fulfill
quality requirements. In the context of this document, the actual audit process is contained in
chapter-4 – ‘Audit Management’.

1.14 In many cases, quality control measures are not distinctly separate from the actual audit
processes but are part thereof. It is important to emphasize that the absence of a separate quality
control system does not necessarily imply absence of any quality control. SAIs can exercise
quality control in different ways throughout the audit without actually calling it quality control.
Control Characteristics

1.15 The following are the characteristics or principles applicable in ensuring

best audit quality control measures:

• Quality should be built into the audit process rather than relying on post audits or
checklists;
• Responsibilities for each player in the control process should be clearly defined and
properly communicated;
• An efficient control process should be put into place for effective implementation of
AQMS; controls should respond to key risks in a timely manner and should be result
focused;
• Too many controls result in no control;
• Controls are built in a cascade; and
• Practitioners of the AQMS should participate in the continuous evolution of the control
framework.