PERFORMANCE & EFFICIENCY AUDITING

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PERFORMANCE AUDIT

Meaning

An independent examination of the efficiency and effectiveness of government undertakings, programs or organisations, with due regard to economy, and the aim of leading to improvements”.

Performance audit is simply an audit of Sound financial management, namely of the economy, efficiency and effectiveness with which audited entities have carried out their responsibilities.

Performance Audit invariably is referred to as Value-for-Money audit or Operational audit.

Performance Audits= Value for Money Audit = Operational Audits.

Objectives of Performance Auditing

Acquire Resources of the right quality, in the right quantity, at the right time and place at the lowest possible cost (Economy).

Achieve the optimal relationship between output of Services or other results and the resources used to produce them (Efficiency)

Achieve policy objectives, operational goals and other intended effects (Effectiveness).

More specifically, in the public sector, benefits of performance audit may include the following:-

Helps in the identification of problem areas, including factors that cause problems. This helps in finding alternative solutions, that is, through recommendations for improvements to policies, procedures and structure which could help in reducing wastage and inefficiencies.

Helps in evaluating performance of individuals and departments or sections in an organisation. Evidently, performance audits assist in obtaining a critical view of compliance with legal requirements, policies, objectives and procedures.

Helps citizens obtain insight into the management of different government programmes and activities. Performance audits may serve as a basis of decisions on future funding and priorities.

EFFICIENCY AUDIT

Table of Contents

Efficiency audit is related to that whether corporate plans are effectively executed. In this, auditor investigates the reasons of variances in actual performance and planned-performance.
It also investigates that capital resources of company are properly utilized.

Purposes of Efficiency Audit

Modern managements now-а-days undertake efficiency audit with а variety of objectives in mind. The principal objectives are:

1. То diagnoses the operational weaknesses by а review of the organization’s Environment.

2. То sees whether the resources of the business flow into constructive and profitable channels.

3. То assesses how far the measures and techniques adopted are effective in attaining the goals and objectives of the firm.

4. То highlights the important fact in each of the functions or operations that are employed.

5. То evaluates and compares the optimum return on capital invested in the business operations.

б. То suggest and recommend feasible alternative treatments for improvements in а manner that the heads of the functional or operational management themselves would do if they have time for self — introspection (Examination of their own thoughts and feelings).

Performance and efficiency auditing is a type of audit that focuses on the effectiveness and efficiency of an organization’s operations. The goal of performance and efficiency auditing is to improve the organization’s performance by identifying areas where improvements can be made.

Performance and efficiency audits are conducted by auditors who are trained in auditing techniques and who have knowledge of the organization’s operations. The auditors will review the organization’s financial statements, as well as other documents and records, to identify areas where improvements can be made. The auditors will also interview the organization’s employees to get their perspective on the organization’s operations.

After the audit is complete, the auditors will prepare a report that outlines their findings and recommendations. The report will be sent to the organization’s management, who will be responsible for implementing the recommendations. The auditors will follow up with the organization to ensure that the recommendations are implemented and that the organization’s performance has improved.

Performance and efficiency auditing can be a valuable tool for organizations that are looking to improve their performance. By identifying areas where improvements can be made, performance and efficiency audits can help organizations to save money, improve efficiency, and provide better services to their customers.

Here are some of the benefits of performance and efficiency auditing:

Improved performance: Performance and efficiency audits can help organizations to identify areas where they can improve their performance. By making these improvements, organizations can save money, improve efficiency, and provide better services to their customers.
Reduced risk: Performance and efficiency audits can help organizations to identify and mitigate risks. By reducing risk, organizations can protect themselves from financial losses, legal problems, and reputational damage.
Increased compliance: Performance and efficiency audits can help organizations to ensure that they are complying with laws and regulations. By complying with laws and regulations, organizations can avoid fines and penalties.
Improved decision-making: Performance and efficiency audits can provide organizations with data and insights that can help them to make better decisions. By making better decisions, organizations can improve their performance and achieve their goals.

If you are considering conducting a performance and efficiency audit, there are a few things you should keep in mind:

Choose the right auditor: It is important to choose an auditor who is qualified and experienced in performance and efficiency auditing.
Define the scope of the audit: The scope of the audit should be clearly defined before the audit begins. This will help to ensure that the audit is focused and that the findings are relevant to the organization’s needs.
Collect the right data: The auditor will need to collect data to support the audit findings. This data can come from a variety of sources, including financial statements, documents and records, and interviews with employees.
Analyze the data: The auditor will analyze the data to identify areas where improvements can be made. The auditor will also develop recommendations for how the organization can improve its performance.
Communicate the findings: The auditor will prepare a report that outlines the findings and recommendations. The report will be sent to the organization’s management, who will be responsible for implementing the recommendations.
Follow up: The auditor will follow up with the organization to ensure that the recommendations are implemented and that the organization’s performance has improved.

What is performance auditing?
Performance auditing is a type of audit that assesses the effectiveness and efficiency of an organization’s operations. It focuses on whether the organization is achieving its goals and objectives, and whether it is using its resources in the most effective and efficient way possible.

What is efficiency auditing?
Efficiency auditing is a type of performance auditing that focuses on how well an organization uses its resources. It looks at whether the organization is using its resources in the most cost-effective way possible, and whether it is making the most of its resources.

What are the benefits of performance auditing?
Performance auditing can provide a number of benefits to organizations, including:

Improved efficiency and effectiveness: Performance auditing can help organizations identify areas where they can improve their efficiency and effectiveness. This can lead to cost Savings, improved customer service, and increased productivity.
Increased accountability: Performance auditing can help to hold organizations accountable for their performance. This can lead to improved transparency and trust, and a reduction in waste and fraud.
Better decision-making: Performance auditing can provide organizations with information that can help them make better decisions about their operations. This can lead to improved performance and outcomes.

What are the challenges of performance auditing?
Performance auditing can be challenging for a number of reasons, including:

The complexity of organizations: Organizations are complex systems, and it can be difficult to understand how they work and how they can be improved.
The lack of data: Organizations often do not have the data they need to conduct performance audits. This can make it difficult to identify areas for improvement.
The resistance to change: Organizations are often resistant to change, and performance audits can highlight areas where change is needed. This can lead to resistance from employees and managers.

What are the steps involved in performance auditing?
The steps involved in performance auditing can vary depending on the organization and the scope of the audit. However, the following are some general steps that are typically involved:

Planning: The first step is to plan the audit. This involves identifying the purpose of the audit, the scope of the audit, and the resources that will be needed.
Data collection: The next step is to collect data on the organization’s performance. This data can be collected from a variety of sources, such as financial statements, performance reports, and interviews with employees.
Analysis: The data collected is then analyzed to identify areas where the organization can improve its performance.
Reporting: The results of the audit are then reported to the organization’s management. The report should include recommendations for improvement.
Follow-up: The final step is to follow up on the recommendations made in the audit report. This involves ensuring that the organization takes action to implement the recommendations.

What are some of the key issues in performance auditing?
Some of the key issues in performance auditing include:

The purpose of the audit: It is important to clearly define the purpose of the audit before it begins. This will help to ensure that the audit is focused and relevant.
The scope of the audit: The scope of the audit should be clearly defined. This will help to ensure that the audit is comprehensive and covers all relevant areas.
The resources needed: The resources needed for the audit should be identified and secured before the audit begins. This will help to ensure that the audit is conducted effectively.
The data collection methods: The data collection methods should be appropriate for the purpose of the audit. This will help to ensure that the data collected is reliable and relevant.
The analysis methods: The analysis methods should be appropriate for the data collected. This will help to ensure that the results of the audit are accurate and meaningful.
The reporting methods: The reporting methods should be appropriate for the audience of the audit report. This will help to ensure that the report is clear, concise, and easy to understand.
The follow-up methods: The follow-up methods should be appropriate for the recommendations made in the audit report. This will help to ensure that the organization takes action to implement the recommendations.

Which of the following is not a type of audit?
(A) Financial audit
(B) Performance audit
(C) Compliance audit
(D) Efficiency audit
The purpose of a financial audit is to:
(A) Determine whether the financial statements are accurate and complete.
(B) Determine whether the organization is in compliance with laws and regulations.
(C) Determine whether the organization is using its resources efficiently and effectively.
(D) All of the above.
The purpose of a performance audit is to:
(A) Determine whether the financial statements are accurate and complete.
(B) Determine whether the organization is in compliance with laws and regulations.
(C) Determine whether the organization is using its resources efficiently and effectively.
(D) None of the above.
The purpose of a compliance audit is to:
(A) Determine whether the financial statements are accurate and complete.
(B) Determine whether the organization is in compliance with laws and regulations.
(C) Determine whether the organization is using its resources efficiently and effectively.
(D) None of the above.
Which of the following is not a type of auditor?
(A) Internal auditor
(B) External auditor
(C) Government auditor
(D) Efficiency auditor
An internal auditor is an auditor who works for the organization being audited.
(A) True
(B) False
An external auditor is an auditor who is not employed by the organization being audited.
(A) True
(B) False
A government auditor is an auditor who works for the government and audits government agencies and programs.
(A) True
(B) False
Which of the following is not a characteristic of a good audit?
(A) Independence
(B) Objectivity
(C) Competence
(D) Efficiency
An independent auditor is an auditor who is not influenced by the organization being audited.
(A) True
(B) False
An objective auditor is an auditor who is not biased in their findings.
(A) True
(B) False
A competent auditor is an auditor who has the knowledge and skills necessary to perform the audit.
(A) True
(B) False
An efficient auditor is an auditor who uses resources wisely and effectively.
(A) True
(B) False
Which of the following is not a risk associated with auditing?
(A) Detection risk
(B) Inherent risk
(C) Control risk
(D) Efficiency risk
Detection risk is the risk that the auditor will not detect a material misstatement in the financial statements.
(A) True
(B) False
Inherent risk is the risk of a material misstatement in the financial statements due to the nature of the entity’s business or its environment.
(A) True
(B) False
Control risk is the risk that a material misstatement in the financial statements will not be prevented or detected by the entity’s INTERNAL CONTROL system.
(A) True
(B) False
Efficiency risk is the risk that the auditor will not be able to complete the audit in a timely and cost-effective manner.
(A) True
(B) False
Which of the following is not a step in the audit process?
(A) Planning
(B) Execution
(C) Reporting
(D) Efficiency
Planning is the first step in the audit process.
(A) True
(B) False
Execution is the second step in the audit process.
(A) True
(B) False
Reporting is the third step in the audit process.
(A) True
(B) False
Which of the following is not a type of audit report?
(A) Standard report
(B) Modified report
(C) Adverse report
(D) Efficiency report
A standard report is a report that states that the financial statements are presented fairly, in all material respects, in accordance with generally accepted accounting principles.
(A) True
(B) False
A modified report is a report that states that the financial statements are not presented fairly, in all material respects, in accordance with generally accepted accounting principles.
(A) True
(B) False
An adverse report is a report that states that the financial statements are not presented fairly, in all material respects, in accordance with generally accepted accounting principles and that the auditor is unable to express an opinion on

Efficiency audit is related to that whether corporate plans are effectively executed. In this, auditor investigates the reasons of variances in actual performance and planned-performance.It also investigates that capital resources of company are properly utilized.

Purposes of Efficiency Audit

Efficiency audit is related to that whether corporate plans are effectively executed. In this, auditor investigates the reasons of variances in actual performance and planned-performance.
It also investigates that capital resources of company are properly utilized.