Standards on public-sector auditing and the ISSAIs
"Standarderne for Offentlig Revision (SOR)" is the set of Danish standards on public-sector auditing.
The standards are issued by the Auditor General of Denmark and apply to Rigsrevisionen as well as to audits in the public-sector undertaken by certified public-accountants (private auditing firms). The standards define the requirements that auditors must comply with in order to carry out audits in line with good public-sector auditing practice as prescribed by law. Auditors therefore state in their audit reports that they have conducted their audits in accordance with Danish standards on public-sector auditing (SOR).
SOR is based on and consistent with the international principles establish in ISSAI 100 - Fundamental Principles of Public-Sector Auditing (se www.issai.org). These principles define three types of auditing that are further elaborated in ISSAI 200-Financial audit principles, ISSAI 300 – Performance audit principles and ISSAI 400 – Compliance audit principles. Each standard in SOR states which of the ISSAI it is based on.
SOR reflects the legal framework and organization of public-sector auditing in Denmark. SOR therefore defines two overall types of engagements: Major studies and Engagements to audit financial statements.
The following chart provides an overview on how the audit types of the ISSAIs are combined into the two main types of engagements that are relevant in Denmark:
Major studies are undertaken by Rigsrevision for the purpose of elaborating an audit report to the Public Accounts Committee. The subject of each audit may be selected by Rigsrevisionen or the Public Accounts Committee and may concern any parts of the public-sector that falls within Rigsrevisionen’s mandate (the Auditor General Act). Each audit may focus on performance, compliance or financial aspects and will often combine more than one of these aspects in order to provide a comprehensive conclusion on the selected subject matter.
Engagements to audit financial statements
Engagements to audit financial statements may be assigned by law to Rigsrevisionen or undertaken by certified public accountants (private auditing firms). Danish law provides that such engagement involves three types of audits reflecting different public-sector management responsibilities. The auditor’s responsibility therefore include:
- Financial audits, focusing on whether the annual financial statements are elaborated in accordance with the applicable reporting framework, e.g. the government accounting rules
- Compliance audits focusing on the legality of the administrative decisions and agreements resulting in income and expenditure reflected in the financial statements
- Performance audits focusing on the systems and processes established by management to ensure economy, efficiency and effectiveness with regard to the income and expenditure in the financial statements
Different rules apply and different management responsibilities, systems and processes are relevant for different categories of income and expenditure, such as government grants, procurements or administrative fees. SOR requires that each of the relevant categories of income and expenditure within the scope of the financial statements should be covered by compliance and performance audits at least every 5 years. In each audit, the auditor shall select and conclude on the specific subject matter, which the auditor deems involves the highest risk of material breach of law or material performance deficiency. Any material breaches of law or performance deficiencies are reported in the auditor’s report together with the financial statements or as a report from Rigsrevisionen to the public accounts committee.
SOR is comprised of the following standards:
- SOR 1 - Fundamental principles of public-sector auditing
- SOR 2 - Rigsrevisionen’s quality management
- SOR 3 – Major studies
- SOR 4 – Financial audit of the Danish Public Accounts and other financial statements
- SOR 5 – The auditor’s report in a public-sector audit
- SOR 6 – Compliance audits as part of an engagement to audit financial statements
- SOR 7 – Performance audits as part of an engagement to audit financial statements
The first four standards, SOR 1-4, does not apply to certified public accountants. Certified public accountants are subject to general legal requirements and quality control measures and perform their audits in accordance with the international standards on auditing (ISA). For these auditors, SOR 5,6, and 7 provide additional requirements that are relevant for engagements in the public sector. The financial statements of the 5 regions and the 98 municipalities as well as large number of individual public-sector entities and recipients of public grants are audited by certified public accountants in accordance with SOR as well as ISA. SOR 5,6 and 7 is developed in collaboration with the organization of certified public accountants, FSR – Danske Revisorer.