1

ORGANISATION AND PURPOSE OF THE MANUAL

1.1 Purpose of the Audit Manual

The purpose of this Audit Manual is to provide Department of the Auditor-General of Pakistan auditors
with a set of modern auditing standards, concepts, techniques, and quality assurance arrangements that are
consistent with international standards, for auditing entities in the Government of Pakistan. The Manual
covers the entire audit cycle from planning to follow up.

This Audit Manual lays out what is expected of the auditors of the DAGP. It provides the standards by
which the audits are to be conducted. It provides guidance with regard to the methods and approaches to
audit that can be applied by the auditors in carrying out their duties.

1.2 Types of audits dealt with

This Manual focuses on regularity audit, as defined by INTOSAI Auditing Standards, which have been
adopted by the DAGP.

Regularity audit embraces:

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

records and expression of opinions on financial statements;
2. Attestation of financial accountability of the government administration as a whole;
3. Audit of financial systems and transactions, including an evaluation of compliance with applicable
statutes and regulations;
4. Audit of internal controls and internal audit functions;
5. Audit of the probity and propriety of administrative decisions taken within the audited entity; and
6. Reporting of any other matters arising from or relating to the audit that DAGP considers should be
disclosed.

1.3 Audit entities dealt with

DAGP’s mandate includes the audit of federal, provincial and district government accounts which
encompass government ministries, departments and agencies, self-accounting entities and exempt entities.
The types of entities being audited include financial institutions, commercial entities, public utilities, and
tax-collecting entities.

1.4 Accounting Responsibility Structure of the Government of Pakistan

1.4.1 The following is a brief summary of the accounting structure of the Government of Pakistan.

1. Federal government: The Controller General of Accounts (CGA) has primary responsibility for the
completeness and accuracy of the Federation’s financial statements. Reporting to the CGA, the
Accountant General Pakistan Revenues (AGPR) is responsible for the centralised accounting and
reporting of federal transactions. Additionally the AGPR is responsible for the consolidation of
summarised financial information prepared by federal self-accounting entities.
 2

The AGPR receives accounts and reports from the sub-offices of the AGPR, District Accounts
Officers, Principal Accounting Officers of self-accounting entities, federal treasuries and the State
Bank of Pakistan/National Bank of Pakistan. The AGPR, in turn, provides annual accounts to the
CGA. There are AGPR sub-offices in each of the provinces that act as the District Accounts Officers
in respect of federal government transactions.
2. Provincial governments: The CGA also has primary responsibility for the completeness and
accuracy of the financial statements of the provincial governments. Reporting to the CGA, the
Accountant General of each province is responsible for the centralised accounting and reporting
functions within his/her respective province.
3. District governments: Each province is divided into districts. The District Coordination Officer of
each district is the Principal Accounting Officer of that district. The District Coordination Officer is
supported by Executive District Officers who, in turn, supervise offices headed by Drawing and
Disbursing Officers.
4. Principal Accounting Officers (PAOs): Each ministry and department has a PAO. For the self-
accounting entities, the PAOs have been delegated authority to maintain their own accounts. They
provide monthly accounting data to the AGPR and to the Accountant Generals.
5. District Accounts Officers (DAOs): The DAOs are responsible for the accounting functions of the
districts. They have authority to pre-audit bills, issue payments, and record government transactions
at the district level. They receive reports from the Drawing and Disbursing Officers and bank scrolls
from the State Bank of Pakistan/National Bank of Pakistan. They report district and provincial
transactions to the Accountant General responsible for the province in which their districts are
located. They also report federal transactions to the AGPR.
6. Departmental treasuries: Departmental treasuries are established to record specific accounting
transactions such as income and sales taxes and customs duties.
7. Drawing and Disbursing Officers (DDOs): The DDOs are responsible for the accounting, cash and
personnel functions of specific entities. They submit bills for pre-audit to the District Accounts
Officers, and report to the District Coordination Officer of each district. They also report to the
Principal Accounting Officer of his/her entity.

1.4.2 DAGP’s mandate includes the audit of the entire process described above.

1.5 Stages of audit work dealt with

The manual covers the entire audit cycle for both the financial attestation and compliance with controls
aspects of regularity audits, including planning, fieldwork, evaluation of findings, reporting and follow
up. While many of the same procedures apply to both the attestation and compliance audit activities,
sometimes different approaches are required to meet specific audit objectives. Where this is the case, the
different approaches are described. This Manual also deals with such quality assurance techniques as
supervision and review.

1.6 Organisation of the manual

The Manual begins with several Chapters that provide background material on audits in general, DAGP’s
mandate, and the auditing standards adopted by DAGP. This is followed by a discussion of DAGP’s
management structure and the annual planning process by which DAGP establishes its departmental goals
and resource needs.
 3

The auditors’ responsibilities through the complete audit cycle – the planning, fieldwork, evaluation,
reporting and follow-up of individual audits – are presented using a framework which is based on
professional standards issued by the International Standards of Supreme Audit Institutions, ISSAI.

Throughout the manual, various quality assurance procedures are introduced. The Manual concludes with
a summary of these procedures. The Manual also contains a number of annexes that provide additional
details and guidance material on specific matters, as well as a glossary of the terms used.

1.7 Links to other guidance material

This manual is supported by a Standard Audit Working Papers Kit and a set of tailored audit programme
guides/sectoral audit guidelines. This Manual also makes reference to other DAGP documentation in
existence at the time when this Manual was revised in year 2012.

1.8 Standard Audit Working Papers Kit

1.8.1 The kit includes standard audit programme guides, checklists and forms, and a table of contents
that follows a suggested standard working paper indexing scheme. The kit also includes samples of the
various supervision instruments used in DAGP.

1.8.2 Audit guidelines for specialized areas: This Manual and the Standard Audit Working Papers Kit
are applicable to the regularity audits of all audit areas. These documents are complemented by tailored
audit programme guides that show how the concepts in the Manual, and the programmes, checklists,
forms and supervision instruments in the Working Papers Kit, are applied to perform financial audits in
certain specific audit areas.

1.9 Need for professional judgment

Despite the detailed guidance presented in this Manual, professional judgment is always required. It is not
possible to present guidance material in sufficient detail to eliminate the need for professional judgment
and general knowledge of auditing theory. Nor is it possible to select one audit approach and mandate its
use in all circumstances. There are many possible approaches to obtaining the required level of audit
assurance, each appropriate in certain circumstances. The auditor must be prepared to consider the
circumstances of each audit and determine the best approach.

1.10 Updating the Audit Manual

DAGP’s work, like the work of any SAI, continues to evolve. Consequently, this Manual should be
periodically updated to ensure that it reflects the current policies and procedures of the office and to
provide the most appropriate assistance to the auditors. Each auditor is therefore encouraged to identify
areas in which the Manual requires updating or enhancement. With appropriate updating, this Manual will
continue to provide a clear statement of the authorities, responsibilities and policies of DAGP and a
practical guide to auditors as they carry out their responsibilities in a professional and conscientious
manner.
 4

ROLE OF THE AUDITOR-GENERAL

1.11 Parliamentary Control and Public Accountability

Accountability of elected officials and the public servants that implement their policies is a cornerstone of
democratic government. In Pakistan, the government is formed of elected representatives of the people,
and is required by the Constitution to seek a fresh mandate every five years. To ensure the administrative
machinery of the government performs its functions in accordance with the aspirations of the people, the
National Assembly (lower house of the Parliament) and the four Provincial Assemblies constitute
Standing Committees on Public Accounts (PACs). The PACs are mandated to oversee the
implementation of government policies and programmes.

The Government departments and agencies are held accountable for any major departure from the
approved budget and for significant violations of rules and regulations. The Auditor-General of Pakistan
reviews the financial statements submitted by each Government department and agency and reports
findings to the President and Provincial Governors who submit them to the National and Provincial
Assemblies respectively. The legislatures assign these reports to the PACs for detailed scrutiny. Each
PAC holds hearings at which secretaries of the ministry, divisions and departments submit their responses
to the Auditor-General’s observations. Based on this testimony, each PAC then makes its
recommendations to the National Assembly. This process ensures that departments and agencies are
accountable to government for implementation of policies in accordance with regulations.

1.12 Introduction to Auditing

Auditing is the process by which the Auditor-General of Pakistan (or such officer of the department as
may be authorised in this regard by a general or special order) evaluates the financial statements that have
been submitted for audit by the ministries, departments and agencies, against the government’s
accounting and financial administration policies to enable him to prepare a report or state an opinion on
the financial statements.

Section 3.4 of DAGP’s Auditing Standards requires that a financial audit will include a test of compliance
with applicable laws and regulations. To ensure that an audit has value, it should be conducted in
accordance with Generally Accepted Auditing Standards (GAAS). These standards have developed over
many generations of auditors around the world to provide the basis for ensuring complete, accurate,
honest and transparent reporting of financial operations.

1.13 Legislative Basis

The authority under which the Auditor-General of Pakistan conducts audits is given by Article 169 of the
Constitution of the Islamic Republic of Pakistan. In addition, Articles 168 to 171 also relate to the work
of the Auditor-General.

Until 1 July 2001, most of DAGP’s audit work was performed under Articles 168 to 171 of the
Constitution, and the Pakistan (Audit and Accounts) Order, 1973.

Effective 1 July 2001, the Pakistan (Audit and Accounts) Order, 1973 was replaced by the following two
ordinances:
 5

a) Auditor-General’s (Functions, Powers and Terms and Conditions of Service) Ordinance, 2001
(Auditor-General Ordinance); and
b) Controller General of Accounts (Appointment, Functions and Powers) Ordinance, 2001 (Controller
General Ordinance).

Among other things, these ordinances elaborate on the functions, powers and responsibilities of the
Auditor-General of Pakistan in line with the provisions of Article 169 of the Constitution.

Section 7 of the Auditor-General’s (Functions, Powers and Terms and Conditions of Service) Ordinance,
2001 (Auditor-General Ordinance) states that “The Auditor-General shall, on the basis of such audit as he
may consider appropriate and necessary, certify the accounts” … “of the Federation, of each Province and
of each district”. A financial attestation audit leads to the certifications called for in Section 7 of the
Auditor- General Ordinance.

In addition, Section 8 of the Auditor-General Ordinance mandates an audit of expenditures of the

Federation and of each province and Section 12 of the Auditor-General Ordinance mandates an audit of
the receipts of the Federal Government and of each Province and each district.

1.14 Vision, Mission and Values

DAGP has developed a set of guiding principles for the exercise of its mandate. These principles – the
Vision, Mission and Values - are as follows:
1.14.1 The Vision of DAGP is to add value to public resources.
1.14.2 The Mission of DAGP is to develop our auditing and accounting capabilities to establish
ourselves as a credible professional institution that promotes good governance and public accountability.
1.14.3 The Values held by DAGP are:
1. Accountability: DAGP holds itself accountable for the achievement of its vision, mission, and these
stated values.
2. Professionalism: DAGP conducts all of its activities in an open, transparent, disciplined and highly
ethical manner that is worthy of professional respect and trust.
3. Integrity: DAGP takes an objective, fair, honest and balanced approach to all of its activities.
4. Excellence: DAGP strives for excellence in all of its activities.
5. Reliability: DAGP produces high quality products that are timely, accurate, useful, clear and candid.
6. Cooperative and constructive spirit: DAGP works with parliamentarians and with its audit
entities, staff, suppliers, consultants and other parties with whom it deals in a professional,
cooperative and constructive manner.
7. Innovative spirit: DAGP constantly looks for ways to improve its audit practices, operations and
other activities.
8. Making a difference: DAGP constantly looks for ways to improve the operations of the entities that
it audits.
9. Risk managers: DAGP managers and staff are encouraged to accept challenges, and to take and
manage the risks required for DAGP to achieve its vision, mission and stated values.
10. Open communications: DAGP maintains open and timely communications with parliamentarians
and with its audit entities, staff, suppliers, consultants and other parties with whom it deals.
11. A respectful workplace: DAGP provides a workplace in which a diverse workforce can strive for
excellence and professional competence, and where individuals can realise their full career potential.
 6

THE JOB OF THE AUDITOR

1.15 Introduction

The auditor is a professional with a special role to play in ensuring the integrity of the operations of the
Government of Pakistan and safeguarding its assets. As such the auditor must fulfill certain expectations
with respect to performance of duties and ethical conduct. The auditor is employed pursuant to a set of
formal conditions and should expect appropriate protection in the fulfillment of his or her responsibilities.
These issues are outlined below.

1.16 Expectations

Auditors work in teams. Audit teams perform their work in accordance with DAGP’s Auditing Standards,
which are described in detail in Chapter 2. The audit teams should fulfil a number of general expectations
in performing their duties:

a) At least one auditor within the audit team should be fully conversant with the rules and regulations
concerning the accounts to be audited.
b) The audit team should subject the audit entity to a complete and thorough check according to the
audit programme within the constraints of the time available. Any failure to complete the prescribed
audit programme must be reported clearly and fully to the Competent Authority.
c) Each auditor is expected to use professional judgment in carrying out all aspects of an audit
programme.
d) Although it is not the responsibility of the auditor to detect fraud, every auditor is expected to take
appropriate action wherever a situation of fraud is suspected.

1.17 Conditions of Employment

The conditions of employment of auditors within DAGP have been formally and extensively documented
in the Auditor-General’s Manual of Standing Orders. Please refer to the Manual of Standing Orders for
details.

1.18 Code of Ethics

1.18.1 Concept, Background and Purpose of the Code of Ethics

The Auditor General of Pakistan (AGP) has deemed it essential to establish a Code of Ethics for auditors
in the public sector. This Code of Ethics is a comprehensive statement of the values and principles which
should guide the daily work of auditors. The independence, powers and responsibilities of the public
sector auditor place high ethical demands on the DAGP and the staff deployed on audit work. This code
of ethics for auditors in the public sector outlines the ethical precepts of civil servants in general and the
particular requirement of auditors, including the latter’s professional obligations.

With the Lima Declaration of Guidelines on Auditing Precepts as its foundation, this Code of Ethics
should be seen as a necessary complement, reinforcing the Auditing Standards issued by the Auditor
General of Pakistan in June 2002 in line with INTOSAI Code of Ethics and Auditing Standards. The
Code of Ethics is directed at the individual auditor, the Auditor-General of Pakistan, executive officers
and all individuals working for or on behalf of the AGP who are involved in audit work.
 7

It is the responsibility of the AGP to ensure that all its auditors acquaint themselves with the values and
principles contained in this Code of Ethics and act accordingly. Any deficiency in their professional
conduct or any improper conduct in their personal life places the integrity of auditors, the Department of
AGP that they represent, and the quality and validity of their audit work, in an unfavourable light, and
may raise doubts about the reliability and competence of the Department of the AGP itself. This code of
ethics for auditors should promote trust and confidence in the auditors and their work. It is of fundamental
importance that the Department of the AGP is looked upon with trust, confidence and credibility. The
auditor promotes this by adopting and applying the ethical requirements of the concepts embodied in the
key words Integrity, Independence and Objectivity, Confidentiality and Competence.

1.18.2 Trust, Confidence and Credibility

The legislative and/or executive authority, the general public and the audited entities are entitled to expect
the conduct and approach of the officers and the staff of the DAGP to be above suspicion and reproach
and worthy of respect and trust. Auditors should conduct themselves in a manner which promotes co-
operation and good relations among themselves and within the profession. The support of the profession
by its members and their co-operation with one another are essential elements of professional character.
The public confidence and respect that an auditor enjoys is largely the result of the cumulative
accomplishments of all auditors, past and present. It is therefore in the interest of auditors, and the public,
for auditors to conduct themselves in a fair and balanced way.

The legislative and/or executive authority, the general public and the audited entities should be fully
assured of the fairness and impartiality of all the work of the Department of the AGP. In all parts of
society there is a need for credibility. It is therefore essential that the reports and opinions of the
Department of the AGP are considered to be thoroughly accurate and reliable by knowledgeable third
parties. All work performed by the DAGP must stand the test of legislative and executive scrutiny, public
judgments on propriety, and examination against this Code of Ethics.

1.18.3 Integrity

Integrity is the core value of this Code of Ethics. Auditors have a duty to adhere to high standards of
behaviour (e.g. honesty and candidness) in the course of their work and in their relationships with the
staff of audited entities. In order to sustain public confidence, the conduct of auditors should be above
suspicion and reproach. Integrity, including financial, moral, and intellectual integrity, can be measured in
terms of what is right and just. Integrity requires auditors to observe both the form and the spirit of
auditing and ethical standards. Integrity also requires auditors to observe the principles of independence
and objectivity, maintain irreproachable standards of professional conduct, make decisions with the
public interest in mind, and apply absolute honesty in carrying out their work and in handling the
resources of the DAGP.

1.18.4 Independence, Objectivity and Impartiality

Independence from the audited entity and other outside interest groups is indispensable for auditors. This
implies that auditors should behave in a way that increases, or in no way diminishes, their independence.
Auditors should strive not only to be independent of audited entities and other interested groups, but also
to be objective in dealing with the issues and topics under review.
 8

It is essential that auditors are independent and impartial, not only in fact but also in appearance. In all
matters relating to the audit work, the independence of auditors should not be impaired by personal or
external influence. Independence may be impaired, for example, by external pressure or influence on
auditors; prejudices held by auditors about individuals, audited entities, projects or programmes; recent
previous employment with the audited entity; or personal or financial dealings which might cause
conflicts of loyalties or of interests. Auditors have an obligation to refrain from becoming involved in all
matters in which they have a vested interest.

There is need for objectivity and impartiality in all work conducted by auditors, particularly in their
reports, which should be accurate and objective. Conclusions in opinions and reports should, therefore, be
based exclusively on evidence obtained and assembled in accordance with the auditing standards of the
DAGP. Auditors should make use of information brought forward by the audited entity and other parties.
This information is to be taken into account in the opinions expressed by the auditors in an impartial way.
The auditor should also gather information about the views of the audited entity and other parties.
However, the auditor’s own conclusions should not be affected by such views.

1.18.5 Political neutrality

It is important to maintain both the actual and perceived political neutrality of the DAGP. Therefore, it is
important that auditors maintain their independence from political influence in order to discharge their
audit responsibilities in an impartial way. This is relevant for auditors since DAGP works closely with the
legislative authorities, which is empowered by law to consider the reports of the AGP.

1.18.6 Conflicts of Interest

When auditors are permitted to provide advice or services other than audit to an audited entity, care
should be taken that these services do not lead to a conflict of interest. In particular, auditors should
ensure that such advice or services do not include management responsibilities or powers, which must
remain firmly with the management of the audited entity. Auditors should protect their independence and
avoid any possible conflict of interest by refusing gifts or gratuities that could influence or be perceived
as influencing their independence and integrity. Government Servants (Conduct Rules), 1964 shall also
apply in this regard.

Auditors should avoid all relationships with managers and staff in the audited entity and other parties that
may influence, compromise or threaten the ability of auditors to act and be seen to be acting
independently. Auditors should not use their official position for private purposes and should avoid
relationships that involve the risk of corruption or may raise doubts about their objectivity and
independence. Auditors should not use information received in the performance of their duties as a means
of securing personal benefit for themselves or for others. Neither should they divulge information that
would provide unfair or unreasonable advantage to other individuals or organisations, nor should they use
such information as means for harming others.

1.18.7 Professional Secrecy

Auditors should not disclose information obtained in the auditing process to third parties, either orally or
in writing, except for the purposes of meeting the statutory or other identified responsibilities of the
DAGP as part of its normal procedures or in accordance with relevant laws.
 9

1.18.8 Competence
Auditors have a duty to conduct themselves in a professional manner at all times and to apply high
professional standards in carrying out their work to enable them to perform their duties competently and
with impartiality. Auditors must not undertake work they are not competent to perform. Auditors should
know and follow applicable auditing, accounting, and financial management standards, policies,
procedures and practices. Likewise, they must possess a good understanding of the constitutional, legal
and institutional principles and standards governing the operations of the audited entity.
1.18.9 Professional Development
Auditors should exercise due professional care in conducting and supervising the audit and in preparing
related reports. Auditors should use methods and practices of the highest possible quality in their audits.
In the conduct of the audit and the issue of reports, auditors have a duty to adhere to basic principles and
generally accepted auditing standards. The DAGP has a continuous obligation to update and improve the
skills of officers and staff in the discharge of their professional responsibilities.
1.19 Glossary
The terms used in this Code of Ethics have the same interpretation or definition as those used in the
Auditing Standards.
1.20 Protection of the Auditor
Auditors must have the freedom to carry out audits in a conscientious and thorough manner. There is an
onus on the auditor to carry out the audits in a fair, objective and courteous manner (and comply with the
Code of Ethics presented in the Section above). In turn, the auditor expects to receive cooperation and
courtesy from those being audited.
Any serious attempts to hinder or impede the conduct of the audit should be brought to the attention of the
Competent Authority. Any concern of possible intimidation or threat to the auditor must be taken
seriously both by the auditor and the management of DAGP. A formal process should be followed
wherever the auditor, or the conduct of the audit, is threatened, or a risk of impedance is perceived. This
process involves the following steps:
1. Whenever the auditor senses any problems in the conduct of the audit, he/she should ensure that all
meetings are held with at least two auditors present and that notes of these meetings are clearly
documented;
2. The auditor should inform his/her supervisor or Competent Authority in writing of any serious
incidents or concerns with specific details of what transpired;
3. A course of action is proposed by the Competent Authority, if necessary, in consultation with senior
management within DAGP;
4. Depending on the seriousness of the situation, and the nature of the problem, one or more of the
following courses of action should be implemented:
- The Competent Authority raises the issue with the Principal Accounting Officer, or equivalent;
- A letter, signed by the Auditor-General or Deputy Auditor-General, is submitted to the Principal
Accounting Officer, or equivalent, and/or sent to the Controller General;
- The composition of the audit team is changed;
- If necessary, after consultation with the Auditor-General, seek a legal opinion or other course of
action; and
- Whenever an individual auditor is not satisfied with the action taken, they have the right to report
their concern to the Assistant Auditor-General, Personnel, a Deputy Auditor-General or the
Auditor-General.