Contemporary Issues in Public Sector Accounting and Auditing: Volume 105

Cover of Contemporary Issues in Public Sector Accounting and Auditing


Table of contents

(16 chapters)


Pages i-xvii
Content available

In Turkey for a long term, the public financial management system was carried out according to the provisions of the General Accounting Laws No. 1050 since this law was in force over a long period of time. This law had not been changed for long years and it became far from the needs due to developing dynamic conditions and rapidly changing economic conditions. In addition to these factors, the emergence of economic crises, the need for reform and the country’s EU harmonization process increased the need for revision in this field. The Public Financial Management Project was signed with the Ministry of Finance and the World Bank in 1995 and the Public Financial Management system was renewed with the Public Financial Management and Control Law No. 5018 dated January 01, 2006.

Due to the reasons mentioned above, these changes in public financial management led to the use of the concept of public sector accounting instead of state accounting. Public sector accounting is defined as a financial system that provides data for the effective and efficient use of resources. In this accounting, the current accounting system needs to provide the necessary data. While obtaining financial data in an economy, it is necessary to obtain information about the economic situation of that country in a healthy and transparent manner also.

The main objective of this study is to address a number of problems related to the effectiveness of public sector accounting auditing and to propose solutions. For this purpose, the public sector accounting system in Turkey has been handled by giving basic information on this subject; problems arising in this context have been evaluated and suggestions for solutions have been proposed.


The increasing attention toward the so-called globalization is underlining the need to build and enforce the contact point among the multiple domains of culture, knowledge, and experiences over the world. Within the specific business domain, global trends are underlying the need for linking multiple local and national accounting standards to support global activities and international collaborations. In such a domain, this chapter investigates the topic of Albanian national accounting standards for depicting opinions and perceptions of interested actors through a direct interview with 35 experts including, economists, accounting experts, tax inspectors, and businessmen. The research shows the existence of a divergent approach to the process for accounting harmonization in Albania and it opens the possibility for tracing a possible path for supporting the inclusion of Albania under the international accounting standards framework.


The need for independent audit goes back to the agency theory, the theory of delegation of power and the issue of trust. Stakeholders delegate power to management to manage the business on their behalf, yet they face the risk of information asymmetry and management motivations to commit fraud. The main aim of having an independent auditor was therefore to reduce the risk of information asymmetry and fraudulent behaviour by management. Auditors are required by the International Auditing Standards to detect material fraud and error, and they are expected to have a duty of care for stakeholders. However, recently independent auditors, whether conducting private or public audit, have been scrutinised for failing to detect material fraud. There have been a lot of discussions in the literature about the role of private auditors in detecting fraud, but very little discussions about the role of public auditors in detecting fraud. This chapter will outline the difference between private audit and public audit; explain the legal liability of public auditors in relation to fraud detection; the role of public auditors in detecting fraud; and will critically review the root causes for auditors’ failure to detect fraud.


Accountability and financial transparency came to be accepted as the basic principles in obtaining and using public resources in an efficient and productive manner. One of the most important tools to realize this goal is the annual report, also referred to in Public Financial Management and Control Law. Annual reports are comprehensive reports that also contain the realization outcomes according to the performance indicators that pertain to the activities that these institutions implement according to their strategic plan and performance program. The authors explain the reasons of variations from the plans, and also contain the administrative and financial information on the institution. The contribution of the annual reports, in presenting a transparent and accountable structure by enabling efficiency and productivity in municipalities that use a major part of public resources, is undeniable.

The purpose of this study is to evaluate the financial and performance information within the annual reports issued by the municipalities of Turkey within the scope of accountability and to reveal the present condition from the results of this evaluation. In short, this study investigates to which degree the municipalities enlighten their stakeholders from the aspect of financial information via annual reports. Within the scope of the study, annual reports of metropolitan municipalities for the year 2017 and 2018 were obtained and the presence of several considerations, defined according to the extent of the financial and performance information they provide and their manner of presentation, were checked.


On the one hand, the auditing of the public hospitals regarding their financial information is carried out by the State Audit Court which is the Supreme Auditing Institution in our country, on the other hand it is carried out by the auditors of the Ministry of Health. While the audits made by the Ministry of Health are generally about compatibility and medical controls, the financial information of the hospitals needs to be made by the external independent auditors and their impact on the general budget needs to be determined.

In this study, the subject matter of financial auditing has been elaborated on within the specificity of the public health sector and evaluated as to whether the conducted auditing is effective in determining the mistakes in the financial information of the organizations. For the purpose of conducting the evaluation, the six-year auditing reports between the years of 2012 and 2017 of the Supreme Auditing Institution (State Audit Court) conducting the financial auditing of the public health sector regarding the Public Hospitals Administration of Turkey (Türkiye Kamu Hastaneleri Kurumu). The auditing reports are addressed within the framework of the types and numbers of findings determined by the State Audit Court, the responses that the Public Hospitals Administration of Turkey has given against those findings and the opinion of auditing. In the consequence of the conducted evaluation, it was concluded that the Court of Accounts was effective in determining the mistakes in the financial reports and increasing the correctness and reliability of the financial information of the Administration.


In this study, various acts including regulations of public financial management, fiscal responsibility, and state budget in the selected six countries were subjected to different readability tests, and an international comparison was made. The fiscal responsibility act of six countries – Turkey, the UK, India, Australia, Canada, and Pakistan – were included in the study and analyzed. Each country was analyzed under its official language. Since English is an official language of all of the countries except for Turkey, the authors have evaluated the fiscal responsibility acts of these countries using the following readability tests: Flesch Reading Ease, Flesch-Kincaid, Gunning-Fog, and Dale-Chall. Additionally, Public Financial Management and Control Law No. 5018 approved in Turkey was analyzed by the Ateşman Readability Test which was uniquely designed for Turkish grammar rules. The acts discussed in the study were analyzed not only as a whole but also in parts and subsections. According to the results of the study, the levels of readability of the existing laws in most of the selected countries are very difficult to understand for a university graduate. However, when the readability level of the British Budget Responsibility and National Audit Act tested as parts and subsections and a whole, it was rated at a level a university student could understand. This study analyses the readability and intelligibility of acts related to fiscal responsibility and the state budget in six selected countries, adopting Anglo-Saxon public administration model and making an inter-country evaluation. Since it is important that citizens have enough information about legislation for a citizen-oriented understanding, a legislation system that is understood by the larger part of the society is essential.


The protection of public assets, fighting corruption and providing accountability for government agencies is necessary for public welfare, and it is possible to achieve this by quality auditing of the public sector. Since audit quality depends on the competencies of the auditor, this chapter focusses on the competencies of the public auditor and how these competencies are expected to evolve in the future with the development of technology. The chapter concentrates on the most sought-after skills for today’s public auditors by analysing the employment criteria in the Supreme Audit Institutions (SAIs) of the European Union, the United States, the United Kingdom and Turkey. Even though the SAIs of these countries/regions are quite different, it is possible to find common ground. The SAIs of these countries, in general, require public auditors to have an undergraduate degree and require the candidates to pass extensive tests on reasoning abilities.

Moreover, the author investigates the requirements for public auditor competency in the public auditing standards followed by these countries. In addition to this, the author discusses the future expectations from public auditors and the new skills these will need. Past skills include technical knowledge, prior experience, hierarchical order in audit teams, professional scepticism, reasoning abilities and reporting skills. Advancements in technology such as Artificial Intelligence and Industry 4.0 will require auditors to have technological knowledge, emotional intelligence, interpersonal skills, project management skills, critical thinking and strong communication skills. Furthermore, understanding the business and related risks will overshadow prior experience.


The favorable results of fiscal/tax policies implemented in a country depend on the accuracy of the declarations and the full timely payment of taxes. Tax auditing is the administrative function that ensures the accuracy of the taxes to be paid. From a global perspective, tax auditing is very important in all countries. Each country wishes to bring its own tax audit structure to an optimal level. Along with the audit, the tax function of the taxpayers and the investigations carried out on the books and documents related to these transactions, as well as, the exploratory function aimed at finding out and correcting errors, frauds and deficiencies, and preventing the occurrence of errors and frauds are in question. Ensuring the effectiveness of tax auditing will result in effective tax administration. Any increase in total tax revenues whilst keeping the expenses made for taxation at a certain level will increase the efficiency of tax administration. The tax audit, which is mandatory for the realization of the intended purpose, will also contribute to the tax compliance of taxpayers. Voluntary compliance of taxpayers who think that they will be audited in certain periods will be strengthened. All this can be achieved through an effective audit system. The aim of this study is to provide an assessment of the tax audit, highlighting its need and the things to be done in order to ensure the effectiveness and the advantages of the tax audit.


Those charged and authorized with the acquisition and usage of all types of public resources are responsible for obtaining, using, accounting for, reporting resources in an effective, economical, efficient and legal way, and taking the necessary precautions to prevent their misusage. They have to report to the offices that are authorized regarding these issues. In this context, overpayment and undue payments made by public administrations become significant in terms of using public resources in an effective, economical, efficient, and legal way. One of the confusing issues for public institutions regarding salaries and similar payments to civil servants is on which legislation provisions should collection of salaries, additional course, severance, additional payment and similar payments should be collected in terms of overpayment and undue payments made for civil servants. In practice, most institutions interpret overpayments and undue payments to civil servants as public loss, and they carry out collection operations within the framework of the provisions of the Directive on Collection of Public Loss.

Overpayment and undue payment refer to all forms of payments that are determined to be excessively or improperly made by an institution to employers, insurance holders, voluntary insurance holders, those who receive income or monthly payment, beneficiaries of these, holders of general health insurance and their dependents. An institution might provide more payment to a civil servant than they deserve due to reasons originating from the civil servant themselves or the administration. The purpose of this study is to explain in detail what overpayment and undue payment are and describe operations regarding collection of overpayments and undue payments, calculation of interest to be applied on these and accounting for it by providing examples.


The data expected from the governmental accounting, in which all the budget operations are recorded, and the reports based on these data couldn’t be achieved until recently. To meet the necessities of society, the most important instrument of the modern state aiming to maximize the level of welfare is the taxes collected from the citizens, and the state has responsibilities in front of the society playing a funding source role. Moreover, in order to successfully manage the public administrations, which nowadays have more duties and authorities, it is a necessity to make use of the management information and methods. Thus, the development of public accounting, which refers to the determining, recording, and reporting all the financial operations performed by the state, has become inevitable. Many international regulations, modern accounting systems, and modern approaches have been developed for the public sector. In the present study, it was aimed to emphasize the development and importance of public accounting for the management and administration of the state.


Government accounting shows the assets and resources of the government, the changes that occur in them, to provide the necessary information to evaluate the effectiveness of the government in revenue and expense management, and to produce the information required by economic management. In this context, the past, present, and future of the Turkish government accounting system discussed in the theoretical framework in the study.


Financial crises in the international markets, which have global effects, have increased the importance of internal auditing especially in the banking sector in recent years. Minimizing the negative effects of crises is closely related to the establishment and functioning of an effective internal control system. International internal audit standards (IIAS) issued by the International Internal Audit Standards Boards are internationally applicable standards that contain the basic requirements for the professional implementation and evaluation of the effectiveness of internal auditing. In developing countries where the effects of crises are intensely felt, public banks are one of the most important actors of the financial system. An effective internal control structure in public banks and in compliance with international standards is necessary for a strong and fragile financial system. The purpose of this study is to examine the internal audit activities in public banks in terms of compliance with international standards. In this study conducted at one of the leading state-owned bank in Turkey, the bank’s internal control procedures and internal control activities reports were examined. In addition, the Bank’s internal audit activities were analyzed by conducting interviews with bank officials for a better understanding of the internal control system. The IIAS, which are grouped under two main headings, are related to the internal audit activities of the related bank. It is thought that the study will guide banks and auditors in terms of demonstrating the application of IIAS, which usually consist of abstract statements.


Country and company bankruptcies at international level have put the economies of the world and countries in a difficult position. As a result of these negative developments, the measurement of the effectiveness of internal audits system together with accounting and audits have become important. The unit that plays a key role in measuring the effectiveness of internal control, whether in the private or public sector, is internal audit. In this respect, the purpose of the present study was to outline the criteria that increase the effectiveness of internal audit in public institutions. For this purpose, the SWARA Method was used. The SWARA Method is a multi-criterion decision-making method that is employed by decision-makers to determine the weights of the criteria and to sort them out. The Questionnaire of the study was applied to a participant group that consisted of 11 experts. According to the findings, the criteria that had the highest importance were “the presence of an independent internal audit activity and impartial internal auditors,” “Performing internal audit activities in line with ethical rules, standards, and relevant regulations,” and “Determining the risks regarding the objectives and the purpose of the institution, and measuring the effects of these risks.”


The Public Sector is usually assumed to have a risk avoidance culture, with a reactive rather than proactive approach towards the management. However, an improved holistic approach seems to be required, especially when considering the complexity and size of the Public Sector, and the challenges it faces to connect the services, clients and the different levels of governance.

Within this chapter, the authors lay out a maturity level evaluation of Governance, Risk Management and Compliance (GRC) within the Maltese Public Sector. Through documentation analysis of the available literature on the subject, the authors determine the principal themes required to develop an effective GRC practice across the Public Sector. The authors then design statements based on the identified GRC themes and administer it using an online survey tool to Public employees across different Ministries, Departments, Agencies and Entities, in order to obtain their perception. This is in order to determine gaps, weaknesses or limiting factors towards the implementation of an effective GRC.

The results show that, although, there is a substantial percentage of scepticism and few disagreements towards some of the statements, especially those which related to Risk Management (RM) and Internal Auditing (IA), the majority of Public Sector bodies do in fact show high standards of GRC practices integrated and present in their day-to-day operations and internal environment, showing that there is a well-developed Governance, Compliance and Control structure and Internal Audit function across the Sector.

However, the perception of participants is that the RM function is the least developed area. IA needs some improvement especially where trust on advice is involved.


Pages 257-268
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Cover of Contemporary Issues in Public Sector Accounting and Auditing
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Contemporary Studies in Economic and Financial Analysis
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Emerald Publishing Limited
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