Forming an opinion in compliance audit
Back to Home

Forming an opinion in compliance audit

Forming an opinion in compliance audit

In the Statement of Assurance the auditor shall form an opinion on whether the underlying transactions comply with all material respects with the applicable legal and regulatory framework.
Compliance audit
Reporting
Ref: 48.400

Principles

ISSAI 4000 requires:
  • The auditor shall compare the obtained audit evidence with the stated audit criteria to form audit findings for the audit conclusions(s).
  • The auditor shall communicate the level of assurance provided in a transparent way.
  • The auditor shall communicate the conclusion in the audit report. The conclusion can be expressed either as an opinion, conclusion, answer to specific audit questions or recommendations.
  • When a compliance audit is combined with a financial audit, the opinion on the aspect of compliance should be clearly separated from the opinion on the financial statements.

Instructions

Statement of Assurance

The results of the ECA’s recurrent compliance audits on the legality and regularity of transactions underlying the consolidated annual accounts are reported in a Statement of Assurance. The ECA’s opinion on legality and regularity of underlying transactions is a consolidation and based on the conclusion in the specific assessments. The reliability of the annual accounts and the legality and regularity of the underlying transactions are two interconnected objectives. The auditor should consider the relationships between these two objectives when reporting on the audit.

Elements of auditor’s conclusion

The auditor should conclude whether reasonable assurance has been obtained about whether the underlying transactions taken as a whole (or, in the case of the EU general budget, by MFF heading) are free from material errors and irregularities. This conclusion should take into account his/her evaluation as to whether:
  • sufficient appropriate audit evidence has been obtained;
  • identified errors or irregularities are material, individually or in aggregate;
  • the qualitative aspects of the entity’s compliance practices are consistent with the applicable legal and regulatory framework and are appropriate, including consideration of the practices and processes of the entity and its management, and whether there are indicators of possible bias in management’s judgements or actions.

Potential management bias

Management makes a number of judgements when taking decisions within the legal and regulatory framework. When considering the qualitative aspects of the entity’s compliance practices, the auditor may become aware of possible bias in management’s judgements. The auditor may conclude that the cumulative effect of a lack of neutrality, together with the effect of errors and irregularities, cause the transactions underlying the annual accounts as a whole to be materially non-compliant with the applicable laws and regulations. Indicators of a lack of neutrality that may affect the auditor’s evaluation whether the underlying transactions as a whole are materially non-compliant include the following:
  • selective correction of errors and irregularities brought to management’s attention during the audit or previous audits;
  • possible management bias in the management representations.

In the case of the compliance audit of the EU general budget, this point may be relevant not only at the level of the European Commission, but also at the level of national authorities.

The applicable legal and regulatory framework

Management is responsible for taking decisions on the transactions underlying the annual accounts in accordance with the applicable legal and regulatory framework. The definition of the legal and regulatory framework is important because it advises the
discharge authority
and interested public of the framework on which the decisions on the underlying transactions are based. The auditor should ensure that the definition of the legal and regulatory framework exists and is appropriate. The auditor should make reference to the applicable legal and regulatory framework when forming the auditor's opinion and the basis for that opinion. There may be cases where the underlying transactions, although compliant with one regulatory requirement, do not comply with another regulatory requirement. In the event of contradictory requirements within the legal and regulatory framework, the auditor should seek the advice of the Legal Service.

Types of opinions

The auditor can express an unmodified or a modified opinion on the legality and regularity. The detailed flowchart describes how the auditor’s considerations determine the type of opinion. Opinion in CA

Related documents

Standards ISSAI 4000
ISA 700
Last Modified: 11/01/2021 16:03   Tags: