The Lima Declaration of Guidelines on Auditing Precepts
Foreword
When the Lima Declaration of Guidelines on Auditing Precepts was
adopted by acclamation of the delegates more than two decades ago in
October 1977 at the IX INCOSAI in Lima (Peru) there were great
hopes, but no certainty, that it would achieve world-wide success.
The experiences made with the Lima Declaration since that time
have exceeded even the highest expectations and proven how decisively they
influence the development of government auditing in the given context of each
individual country. The Lima Declaration is equally significant for all
Supreme Audit Institutions grouped in INTOSAI, no matter to what region they
belong, what development they have undergone, how they are integrated into
the system of government or how they are organized.
The success of the declaration is above all due to the fact that
it contains a comprehensive list of all goals and issues relating to
government auditing, while simultaneously remaining remarkably significant
and concise, making it easy to use, with its clear language ensuring that
focus does not wander away from the main elements,.
The chief aim of the Lima Declaration is to call for independent
government auditing. A Supreme Audit Institution which cannot live up to this
demand does not come up to standard. It is not surprising, therefore, that
the issue of the independence of Supreme Audit Institutions continues to be a
theme repeatedly discussed within the INTOSAI community. However, the demands
of the Lima Declaration are not satisfied by a SAI just achieving
independence; this independence is also required to be anchored in the
legislation. For this, however, well-functioning institutions of legal
security must exist, and these are only to be found in a democracy based on
the rule of law.
Rule of law and democracy are, therefore, essential premises for
really independent government auditing and are the pillars on which the
Declaration of Lima is founded. The precepts contained in the Declaration are
timeless and essential values which have maintained their topicality since
the years they were first adopted. The fact that it has been decided to
re-publish the Declaration more than 20 years later indeed witnesses the
quality and farsighted spirit of their authors.
We extend our thanks to the International Journal of Government
Auditing for their effort in publishing the new edition of the Lima
Declaration, realizing the great importance of this fundamental paper which
quite rightly is held to be the Magna Carta of government auditing. We now
know that the Lima Declaration will continue to be disseminated in future.
Living up to its high ideals remains an ongoing task for us all.
The Lima Declaration of Guidelines on Auditing Precepts
Preamble
The IXth Congress of the International Organisation of
Supreme Audit Institutions (INTOSAI), meeting in Lima:
- Whereas the orderly and efficient use of public funds
constitutes one of the essential prerequisites for the proper handling of
public finances and the effectiveness of the decisions of the responsible
authorities;
- whereas, to achieve this objective, it is indispensable
that each country have a Supreme Audit Institution whose independence is
guaranteed by law;
- whereas such institutions become even more necessary
because the state has expanded its activities into the social and economic
sectors and thus operates beyond the limits of the traditional financial framework;
- whereas the specific objectives of auditing, namely, the
proper and effective use of public funds; the development of sound financial
management; the proper execution of administrative activities; and the
communication of information to public authorities and the general public
through the publication of objective reports, are necessary for the stability
and the development of states in keeping with the goals of the United
Nations;
- whereas at previous INTOSAI congresses, plenary
assemblies adopted resolutions whose distribution was approved by all member
countries;
RESOLVES:
- To publish and distribute the document entitled "The Lima
Declaration of Guidelines on Auditing Precepts."
I. General
Section 1. Purpose of audit
The concept and establishment of audit is inherent in public
financial administration as the management of public funds represents a
trust. Audit is not an end in itself but an indispensable part of a
regulatory system whose aim is to reveal deviations from accepted standards
and violations of the principles of legality, efficiency, effectiveness and
economy of financial management early enough to make it possible to take
corrective action in individual cases, to make those accountable accept
responsibility, to obtain compensation, or to take steps to prevent--or at
least render more difficult--such breaches.
Section 2. Pre-audit and post-audit
1. Pre-audit represents a before the fact type of review of
administrative or financial activities; post-audit is audit after the fact.
2. Effective pre-audit is indispensable for the sound management
of public funds entrusted to the state. It may be carried out by a Supreme
Audit Institution or by other audit institutions.
3. Pre-audit by a Supreme Audit Institution has the advantage of
being able to prevent damage before it occurs, but has the disadvantage of
creating an excessive amount of work and of blurring responsibilities under
public law. Post-audit by a Supreme Audit Institution highlights the
responsibility of those accountable; it may lead to compensation for the
damage caused and may prevent breaches from recurring.
4. The legal situation and the conditions and requirements of
each country determine whether a Supreme Audit Institution carries out
pre-audit. Post-audit is an indispensable task of every Supreme Audit
Institution regardless of whether or not it also carries out pre-audits.
Section 3. Internal audit and external audit
1. Internal audit services are established within government
departments and institutions, whereas external audit services are not part of
the organisational structure of the institutions to be audited. Supreme Audit
Institutions are external audit services.
2. Internal audit services necessarily are subordinate to the
head of the department within which they have been established. Nevertheless,
they shall be functionally and organisationally independent as far as
possible within their respective constitutional framework.
3. As the external auditor, the Supreme Audit Institution has
the task of examining the effectiveness of internal audit. If internal audit
is judged to be effective, efforts shall be made, without prejudice to the
right of the Supreme Audit Institution to carry out an overall audit, to
achieve the most appropriate division or assignment of tasks and cooperation
between the Supreme Audit Institution and internal audit.
Section 4. Legality audit, regularity audit and
performance audit
1. The traditional task of Supreme Audit Institutions is to
audit the legality and regularity of financial management and of accounting.
2. In addition to this type of audit, which retains its
significance, there is another equally important type of audit--performance
audit--which is oriented towards examining the performance, economy,
efficiency and effectiveness of public administration. Performance audit
covers not only specific financial operations, but the full range of
government activity including both organisational and administrative systems.
3. The Supreme Audit Institution's audit objectives--legality,
regularity, economy, efficiency and effectiveness of financial
management--basically are of equal importance. However, it is for each
Supreme Audit Institution to determine its priorities on a case-by-case
basis.
II. Independence
Section 5. Independence of Supreme Audit Institutions
1. Supreme Audit Institutions can accomplish their tasks
objectively and effectively only if they are independent of the audited
entity and are protected against outside influence.
2. Although state institutions cannot be absolutely independent
because they are part of the state as a whole, Supreme Audit Institutions
shall have the functional and organisational independence required to
accomplish their tasks.
3. The establishment of Supreme Audit Institutions and the
necessary degree of their independence shall be laid down in the
Constitution; details may be set out in legislation. In particular, adequate
legal protection by a supreme court against any interference with a Supreme
Audit Institution's independence and audit mandate shall be guaranteed.
Section 6. Independence of the members and officials of
Supreme Audit Institutions
1. The independence of Supreme Audit Institutions is inseparably
linked to the independence of its members. Members are defined as those
persons who have to make the decisions for the Supreme Audit Institution and
are answerable for these decisions to third parties, that is, the members of
a decision-making collegiate body or the head of a monocratically organised
Supreme Audit Institution.
2. The independence of the members, shall be guaranteed by the
Constitution. In particular, the procedures for removal from office also
shall be embodied in the Constitution and may not impair the independence of
the members. The method of appointment and removal of members depends on the
constitutional structure of each country.
3. In their professional careers, audit staff of Supreme Audit
Institutions must not be influenced by the audited organisations and must not
be dependent on such organisations.
Section 7. Financial independence of Supreme Audit
Institutions
1. Supreme Audit Institutions shall be provided with the
financial means to enable them to accomplish their tasks.
2. If required, Supreme Audit Institutions shall be entitled to
apply directly for the necessary financial means to the public body deciding
on the national budget.
3. Supreme Audit Institutions shall be entitled to use the funds
allotted to them under a separate budget heading as they see fit.
III. Relationship to Parliament, government and the
administration
Section 8. Relationship to Parliament
The independence of Supreme Audit Institutions provided under
the Constitution and law also guarantees a very high degree of initiative and
autonomy, even when they act as an agent of Parliament and perform audits on
its instructions. The relationship between the Supreme Audit Institution and
Parliament shall be laid down in the Constitution according to the conditions
and requirements of each country.
Section 9. Relationship to government and the
administration
Supreme Audit Institutions audit the activities of the
government, its administrative authorities and other subordinate
institutions. This does not mean, however, that the government is subordinate
to the Supreme Audit Institution. In particular, the government is fully and
solely responsible for its acts and omissions and cannot absolve itself by
referring to the audit findings--unless such findings were delivered as
legally valid and enforceable judgments--and on expert opinions of the
Supreme Audit Institution.
IV. Powers of Supreme Audit Institutions
Section 10. Powers of Investigation
1. Supreme Audit Institutions shall have access to all records
and documents relating to financial management and shall be empowered to
request, orally or in writing, any information deemed necessary by the SAI.
2. For each audit, the Supreme Audit Institution shall decide
whether it is more expedient to carry out the audit at the institution to be
audited, or at the Supreme Audit Institution itself.
3. Either the law or the Supreme Audit Institution (for
individual cases) shall set time limits for furnishing information or
submitting documents and other records including the financial statements to
the Supreme Audit Institution.
Section 11. Enforcement of Supreme Audit Institution
findings
1. The audited organisations shall comment on the findings of
the Supreme Audit Institution within a period of time established generally
by law, or specifically by the Supreme Audit Institution, and shall indicate
the measures taken as a result of the audit findings.
2. To the extent the findings of the Supreme Audit Institution's
findings are not delivered as legally valid and enforceable judgments, the
Supreme Audit Institution shall be empowered to approach the authority which
is responsible for taking the necessary measures and require the accountable
party to accept responsibility.
Section 12. Expert opinions and rights of consultation
1. When necessary, Supreme Audit Institutions may provide
Parliament and the administration with their professional knowledge in the
form of expert opinions, including comments on draft laws and other financial
regulations. The administrative authorities shall bear the sole
responsibility for accepting or rejecting such expert opinions; moreover,
this additional task must not anticipate the future audit findings of the
Supreme Audit Institution and must not interfere with the effectiveness of
its audit.
2. Regulations for appropriate and as uniform as possible
accounting procedures shall be adopted only after agreement with the Supreme
Audit Institution.
V. Audit methods, audit staff, international exchange of
experiences
Section 13. Audit methods and procedures
1. Supreme Audit Institutions shall audit in accordance with a
self-determined programme. The rights of certain public bodies to request a
specific audit shall remain unaffected.
2. Since an audit can rarely be all-inclusive, Supreme Audit
Institutions as a rule will find it necessary to use a sampling approach. The
samples, however, shall be selected on the basis of a given model and shall
be sufficiently numerous to make it possible to judge the quality and
regularity of financial management.
3. Audit methods shall always be adapted to the progress of the
sciences and techniques relating to financial management.
4. It is appropriate for the Supreme Audit Institution to
prepare audit manuals as an aid for its auditors.
Section 14. Audit staff
1. The members and the audit staff of Supreme Audit Institutions
shall have the qualifications and moral integrity required to completely
carry out their tasks.
2. In recruiting staff for Supreme Audit Institutions,
appropriate recognition shall be given to above-average knowledge and skills
and adequate professional experience.
3. Special attention shall be given to improving the theoretical
and practical professional development of all members and audit staff of
SAIs, through internal, university and international programmes. Such
development shall be encouraged by all possible financial and organisational
means. Professional development shall go beyond the traditional framework of
legal, economic and accounting knowledge, and include other business
management techniques, such as electronic data processing.
4. To ensure auditing staff of excellent quality, salaries shall
be commensurate with the special requirements of such employment.
5. If special skills are not available among the audit staff,
the Supreme Audit Institution may call on external experts as necessary.
Section 15. International exchange of experiences
1. The international exchange of ideas and experiences within
the International Organisation of Supreme Audit Institutions is an effective
means of helping Supreme Audit Institutions accomplish their tasks.
2. This purpose has so far been served by congresses, training
seminars jointly organised with the United Nations and other institutions, by
regional working groups and by the publication of a professional journal.
3. It is desirable to expand and intensify these efforts and
activities. The development of a uniform terminology of government audit
based on comparative law is of prime importance.
VI. Reporting
Section 16. Reporting to Parliament and to the general
public
1. The Supreme Audit Institution shall be empowered and required
by the Constitution to report its findings annually and independently to
Parliament or any other responsible public body; this report shall be
published. This will ensure extensive distribution and discussion, and
enhance opportunities for enforcing the findings of the Supreme Audit
Institution.
2. The Supreme Audit Institution shall also be empowered to
report on particularly important and significant findings during the year.
3. Generally, the annual report shall cover all activities of
the Supreme Audit Institution; only when interests worthy of protection or
protected by law are involved shall the Supreme Audit Institution carefully
weigh such interests against the benefits of disclosure.
Section 17. Method of reporting
1. The reports shall present the facts and their assessment in
an objective, clear manner and be limited to essentials. The wording of the
reports shall be precise and easy to understand.
2. The Supreme Audit Institution shall give due consideration to
the points of view of the audited organisations on its findings.
VII. Audit powers of Supreme Audit Institutions
Section 18. Constitutional basis of audit powers; audit
of public financial management
1. The basic audit powers of Supreme Audit Institutions shall be
embodied in the Constitution; details may be laid down in legislation.
2. The actual terms of the Supreme Audit Institution's audit
powers will depend on the conditions and requirements of each country.
3. All public financial operations, regardless of whether and
how they are reflected in the national budget, shall be subject to audit by
Supreme Audit Institutions. Excluding parts of financial management from the
national budget shall not result in these parts being exempted from audit by
the Supreme Audit Institution.
4. Supreme Audit Institutions should promote through their
audits a clearly defined budget classification and accounting systems which
are as simple and clear as possible.
Section 19. Audit of public authorities and other
institutions abroad
As a general principle, public authorities and other
institutions established abroad shall also be audited by the Supreme Audit
Institution. When auditing these institutions, due consideration shall be
given to the constraints laid down by international law; where justified
these limitations shall be overcome as international law develops.
Section 20. Tax audits
1. Supreme Audit Institutions shall be empowered to audit the
collection of taxes as extensively as possible and, in doing so, to examine
individual tax files.
2 Tax audits are primarily legality and regularity audits;
however, when auditing the application of tax laws, Supreme Audit
Institutions shall also examine the system and efficiency of tax collection,
the achievement of revenue targets and, if appropriate, shall propose
improvements to the legislative body.
Section 21. Public contracts and public works
1. The considerable funds expended by public authorities on
contracts and public works justify a particularly exhaustive audit of the
funds used.
2. Public tendering is the most suitable procedure for obtaining
the most favourable offer in terms of price and quality. Whenever public
tenders are not invited, the Supreme Audit Institution shall determine the
reasons.
3. When auditing public works, the Supreme Audit Institution
shall promote the development of suitable standards for regulating the
administration of such works.
4. Audits of public works shall cover not only the regularity of
payments, but also the efficiency of construction management and the quality
of construction work.
Section 22. Audit of electronic data processing
facilities
The considerable funds spent on electronic data processing
facilities also calls for appropriate auditing. Such audits shall be
systems-based and cover aspects such as planning for requirements; economical
use of data processing equipment; use of staff with appropriate expertise,
preferably from within the administration of the audited organisation;
prevention of misuse; and the usefulness of the information produced.
Section 23. Commercial enterprises with public
participation
1. The expansion of the economic activities of government
frequently results in the establishment of enterprises under private law.
These enterprises shall also be subject to audit by the Supreme Audit
Institution if the government has a substantial participation in
them--particularly where this is majority participation--or exercises a
dominating influence.
2. It is appropriate for such audits to be carried out as
post-audits; they shall address issues of economy, efficiency and
effectiveness.
3. Reports to Parliament and the general public on such
enterprises shall observe the restrictions required for the protection of
industrial and trade secrets.
Section 24. Audit of subsidised institutions
1. Supreme Audit Institutions shall be empowered to audit the
use of subsidies granted from public funds.
2. When the subsidy is particularly high, either by itself or in
relation to the revenues and capital of the subsidised organisation, the
audit can, if required, be extended to include the entire financial
management of the subsidised institution.
3. Misuse of subsidies shall lead to a requirement for
repayment.
Section 25. Audit of international and supranational
organisations
1. International and supranational organisations whose
expenditures are covered by contributions from member countries shall be
subject to external, independent audit like individual countries.
2. Although such audits shall take account of the level of
resources used and the tasks of these organisations, they shall follow
principles similar to those governing the audits carried out by Supreme Audit
Institutions in member countries.
3. To ensure the independence of such audits, the members of the
external audit body shall be appointed mainly from Supreme Audit
Institutions.
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