Accounting, Financial Reporting, and Internal Control in the Public Sector
This domain tests accounting records, financial statements, and the control environment on which auditors rely.
Accounting
- Law No. 234-III of 28 February 2007 “On Accounting and Financial Reporting” governs accounting policy, primary documents, the chart of accounts, and reporting.
- Accrual accounting recognizes transactions when they occur, not only when cash moves.
- Financial statements include the statement of financial position, profit or loss/income statement, cash flow statement, changes in equity or net assets, and notes.
Internal control
- COSO components: control environment, risk assessment, control activities, information and communication, and monitoring.
- Key controls include segregation of duties, authorization, reconciliation, physical safeguards, and IT access control.
- Internal audit evaluates design and operation; external audit may rely on internal control after testing it.
Worked example
A 12 million tenge server purchase is recorded as a current expense in the month paid, although the asset has a five-year life. The auditor compares the accounting policy and capitalization threshold. Expenses are overstated and assets understated by 12 million. The control cause is the absence of review when capital versus operating codes are assigned. The recommendation is to enforce coding review and adjust the statements.
Traps
- Treating cash-basis treasury reports as the only accounting truth.
- Assuming a control exists because a policy describes it.
- Missing the completeness assertion for liabilities.