Overview of Key Audit Steps

This introduction provides a brief overview of key audit steps that auditors must complete when undertaking an audit of the oil and gas sector. Many of these steps are discussed in more details in the following sections of the Practice Guide.

Audit Selection

In this Practice Guide, selection of audit topics is considered part of the overall performance audit process. Often, audit topic selection is done as part of an office’s strategic planning process. Strategic planning is usually led by senior executives and is informed by an audit office’s knowledge of business about its “audit universe” and analyses of materiality, significance, risks, and known problems. Other important considerations include the audit office’s mandate, the availability of skilled auditors and resources, and the auditability of potential audit topics. The audit selection process normally results in a list of planned audits to be carried out over time.

There are many compelling reasons why audit offices would include audits of the oil and gas sector in their long-term plans, from concerns about environmental impacts to the significant economic role that this sector plays in many jurisdictions. For the purpose of this part of the Practice Guide, it is assumed that an executive decision has been made to audit the oil and gas sector and to proceed with audit planning.

Determining the Audit Focus

As shown in Figure 6, after an audit topic has been selected, the planning phase begins. This phase involves acquiring knowledge of business, assessing risks, and conducting analysis in order to determine the audit focus and set the stage to prepare a detailed audit plan that will include the audit objective(s), criteria, evidence collection methods, and analytical techniques.

The first step in this audit planning process is to determine what exactly should be audited in the oil and gas sector (that is, the audit focus). To make this decision, auditors will need to undertake two initial research and analysis tasks.

• Acquire knowledge of business by gathering and analyzing relevant information on the oil and gas sector and on government responsibilities in regulating, monitoring, and overseeing the sector.
• Identify and assess risk factors that could prevent the government from carrying out its responsibilities in this sector effectively and meeting its objectives.

At this stage, auditors can also review audits on the oil and gas sector that have been previously published by their office or other jurisdictions. This may help audit teams to complete their list of potential issues to examine and to identify risk factors that they might not yet have considered.

While there are a number of potential audit issues to examine in the oil and gas sector, the remainder of the Audit Methodology part of the Practice Guide focuses on auditing revenues from oil and gas extraction and financial assurances for site remediation.

Detailed Audit Planning

Once it is decided that the audit will examine revenues from oil and gas extraction or financial assurances for site remediation, auditors can begin detailed planning work to further define their audit focus and audit procedures.

Detailed planning involves deciding which programs and controls to audit. To make these decisions, auditors will need to complete two tasks.

• Acquire further knowledge of business, by gathering and analyzing relevant information on the different types of revenues or financial assurances that the government is collecting and managing, and on the systems and practices it uses to do so.
• Identify and assess risk factors that could prevent the government from collecting all the revenues it is entitled to or all the financial assurances it needs to ensure that decommissioned oil and gas production sites will be properly remediated.

Equipped with the required information, audit teams will be able to determine which revenue or financial assurance programs and controls to audit. Once these decisions are made, auditors will be in a position to:

• draft their audit objectives,
• select their audit criteria, and
• prepare plans with detailed audit procedures.

All these steps are covered in more detail in this part of the Practice Guide. Auditors working on an oil and gas audit will find the information they need in the Auditing Revenues from Oil and Gas Extraction and Auditing Financial Assurances for Site Remediation sections.

Finally, a short section on The Reporting Phase concludes this part of the Practice Guide.

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