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 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).
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