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by Susanne Volz, Financial Control Expert The Programming Period 2007-2013 introduced new Financial Control requirements for the Structural Funds. The consequences were extensively discussed within the Second Level Control Community and with the European Commission, which produced several Guidance Notes with the purpose of clarifying the wide range of open questions. While special attention had been paid to European Territorial Cooperation (ETC) Programmes both with the new EU Regulations and with the Guidance Notes, practitioners of ETC Second Level Control (SLC) are still confronted with special challenges in their attempt to comply. This article intends to assess the past and current benefit of ISA for ETC Programmes, as well as the limits of ISA for the ETC SLC problems.
Major Changes for Financial Control Requirements The biggest change between the last and the current programming period is the replacement of the minimum sample requirement of 5 % of declared eligible expenditure (article 10 Reg. (EC) No 438/2001) with the requirement of an audit opinion based on reasonable audit assurance (article 62 I d) ii) Reg. (EC) 1083/2006), the latter effectively leading to much bigger sample sizes. In the last programming period, in principle Second Level Controllers needed to perform any check necessary to obtain enough assurance for their opinions, however, in practice they would use their room of manoeuvre, meaning that audit work was not extended until reasonable assurance was achieved but until a minimum of 5 % of declared expenditure was checked and SL Controllers were confident to have achieved audit assurance sufficient for their purposes. A further major change is that for the current programming period Audit Authorities need to deliver annual opinions and a final opinion at the end of the programming period, instead of only one opinion at the end of the programming period (Winding-Up declaration). This increases the pressure for Second Level Controllers, as the audit work programme needs to be accomplished each year completely, with overlapping tasks: performing system audit and on-the-spot checks, reporting, follow up in parallel for various years. In principle, audit work as such remained the same: there had been a requirement to perform system audits and on-the-spot checks in the old programming period, which is still foreseen in the current programming period. However, in line with the requirement to deliver an audit opinion based on reasonable assurance, audit work needs to be much more focused on risks and is likely to be more extensive. As strong similarities exist between Second Level Control for the old and the new programming period, it is worthwhile to assess established Second Level Control practices compliant with international audit standards here International Standards on Auditing (ISA) with the intention of evaluating their benefit and their limits for SLC of ETC programmes.
What are International Standards on Auditing (ISA)? Audit standards are a set of systematic guidelines used by auditors when conducting audits on companies or other organisations finances, ensuring the accuracy, consistency and
verifiability of auditors actions and reports. It is important to be aware that audit standards are primarily concerned with the quality of the auditors work, not with the quality of the organisations finances. The key to understand ISA or any other audit standard is that they are a set of rules that is intended to help the auditor to perform his/her work in such a way that it produces assurance1 not absolute certainty about the financial statements in the most efficient way: auditing the right issue with the appropriate audit procedure to the appropriate extent. They are a tool to manage the audit risk2. ISA are published by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). Some examples of ISA are (list is not complete!): 200 - Objective and General Principles Governing an Audit of Financial Statements 220 Quality Control for Audit Work 230 Audit Documentation 240 The Auditors Responsibility to Consider Fraud in an Audit of Financial Statements 250 Consideration of Laws and Regulations in an Audit of Financial Statements 300 Planning an Audit of Financial Statements 315 Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement 320 Materiality in Planning and Performing an Audit 330 The Auditors Procedures in Response to Assessed Risks 500-599 Audit Evidence, esp: 505 External Confirmations 520 Analytical Procedures 530 Audit Sampling and other Means of Testing For reasonable assurance audits, such as foreseen for ETC SLC, the responsible auditor must apply all ISA relevant to the audit. It is not possible to stick to the selection listed above, ISAs must be used in their entirety, including the code of ethics that deals with the professional behaviour of the auditor, issues of conflict of interests and independence, etc. In practical terms, ISA contain: A risk model that can be applied to ETC Programmes, giving guidance on classification of risks