PERFORMANCE AUDIT MANUAL

This Manual has been developed by the Pacific Association of Supreme Audit Institutions
(PASAI) as a resource for Supreme Audit Institutions (SAIs) to use when conducting
performance audit in their respective jurisdictions. The Manual is designed as a reference
tool based on international best practices as they existed at the time the Manual was
produced. Use of the Manual is the responsibility of an individual SAI, having regard to its
mandate, capacity, and country circumstances. PASAI disclaims any responsibility or
liability, whether direct or indirect, as a consequence of the use or application of the
Manual.

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FOREWARD

In 2008, the PASAI Congress endorsed the Pacific Regional Audit Initiative (PRAI). The
PRAI’s overarching objective is to raise public auditing in the Pacific region to uniformly
high standards, which in turn is expected to improve transparency and accountability in
managing and using public resources.

An output of the PRAI is to build and sustain public auditing capacity through the
preparation of guidance and training materials. This includes best practice guidance
materials for performance auditing. This manual intends to provide staff of Supreme Audit
Institutions (SAIs) with a structured process for conducting performance audits. To be
useful and relevant, these guidelines incorporate templates, checklists, and examples that
serve as useful aids.

The guidelines were prepared by the following working group with technical guidance
from PASAI consultants:
• Peter Johnson (Solomon Islands – Group Leader),
• Llewelyn Terlaje (Guam),
• Sepiuta Moala (Tonga),
• Vince Duenas (Guam), and
• Atmita Jonathan (Marshall Islands).

PASAI expresses sincere gratitude to the working group for their tireless effort and also
the SAIs for enabling the production of the manual. Additionally, PASAI acknowledges the
contributions of the various SAIs in the region, the International Organisation of Supreme
Audit Institutions (INTOSAI), and the Asian Organisation of Supreme Audit Institutions
(ASOSAI) for sharing their materials.

PASAI hopes that its members will use this manual to enhance performance audit in their
organisations.

Lyn Provost
Secretary-General of PASAI and Controller and Auditor-General of New Zealand

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We dedicate this manual in remembrance of
Sepiuta Alisi Maile Miniti Fotumaiafe Moala,
1 Feb 1985 - 19 January 2011

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TABLE OF CONTENTS

FORWARD ......................................................................................................2
GLOSSARY ......................................................................................................8

1. INTRODUCTION TO PERFORMANCE AUDITING

Purpose of Manual .................................................................................................. 12
Definition and Scope of Performance Auditing ........................................................ 12
Auditing Standards ................................................................................................. 15
Work Performed by Staff .............................................................................................. 16
Using the Work of an Expert ......................................................................................... 17
Professional Behaviour .................................................................................................. 17
Reasonable Assurance ................................................................................................... 18
Terms of Audit ............................................................................................................... 18
Quality Assurance .......................................................................................................... 18
Assessing the INTOSAI Standards ............................................................................ 19
Performance Auditing Mandate and Objective ........................................................ 19
Performance Audit Process ..................................................................................... 20

2. STRATEGIC PLANNING
Introduction ........................................................................................................... 22
Objectives of Strategic Audit Planning ..................................................................... 23
Identifying Potential Audit Topics ........................................................................... 23
Prioritising Audit Topics .......................................................................................... 24
Issues that Present Key Risks to the Public Administration ........................................... 25
The Audit Resources Available ....................................................................................... 26
Developing the Strategic Audit Plan (SAP) ............................................................... 27
Documenting the SAP ................................................................................................... 27
Approving and Publishing the SAP ................................................................................ 28
Modifying the SAP ......................................................................................................... 28

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3. PLANNING THE PERFORMANCE AUDIT

Introduction ........................................................................................................... 29
Standards for Planning Individual Audits ................................................................. 29
The Role of a Preliminary Study/Survey .................................................................. 30
Developing and Approving the Audit Proposal ........................................................ 30
Understanding the Business of an Auditee ................................................................... 31
Determine the Audit Objectives .................................................................................... 32
Determine Audit Scope .................................................................................................. 34
Lines of Enquiry ............................................................................................................. 36
Determine the Audit Criteria ......................................................................................... 39
Determine the High-Level Approach to Audit ............................................................... 46
Estimate Resources and Timing .................................................................................... 47
Approve the Audit Proposal .......................................................................................... 47

4. EXECUTING THE PERFORMANCE AUDIT

Introduction ........................................................................................................... 48
Auditee Liaison ....................................................................................................... 48
Formal Advice of the Audit ............................................................................................. 48
Entrance Meeting/Entry Conference .............................................................................. 49
Consultation during Audit .............................................................................................. 51
Developing the Audit Test Program ......................................................................... 51
Audit Techniques ............................................................................................................ 52
Audit Procedures ............................................................................................................ 52
Detailed Test Program ................................................................................................... 53
Fieldwork ................................................................................................................ 54
Audit Evidence ................................................................................................................ 55
Types of Evidence ........................................................................................................... 57
Gathering Evidence ........................................................................................................ 59
Analysing Evidence & Developing Findings & Recommendations ................................ 62
Audit Documentation and Developing Working Papers ........................................... 66
Working Papers .............................................................................................................. 66
Drawing Conclusions ...................................................................................................... 71

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5. REPORTING
Introduction ........................................................................................................... 73
Reporting Standards ............................................................................................... 74
Attributes of a Performance Audit Report ............................................................... 75
Objective ........................................................................................................................ 75
Concise ........................................................................................................................... 76
Timely ............................................................................................................................. 76
Persuasive ...................................................................................................................... 76
Balanced Reporting ....................................................................................................... 77
The Reporting Process ............................................................................................. 77
Write As You Go ............................................................................................................. 77
Organise the Content .................................................................................................... 78
Structure the Report ..................................................................................................... 79
Presenting the Report ............................................................................................. 84
Discussion/Issues Papers ............................................................................................... 84
Exit Conference/Interview ............................................................................................. 86
From Draft to Final ........................................................................................................ 86
Review ........................................................................................................................... 87
Cross-Referencing to Working Papers ........................................................................... 87
Natural Justice Considerations ...................................................................................... 87
Distribution of the Final Report ..................................................................................... 87
Fraud ............................................................................................................................. 88

6. QUALITY ASSURANCE
Introduction ........................................................................................................... 89
QA Standards .......................................................................................................... 89
Quality Assurance Review Program ......................................................................... 90
Quality Control ....................................................................................................... 91
Planning the Audit ......................................................................................................... 91
Budgeting and Monitoring ............................................................................................ 91
Using Consultants .......................................................................................................... 92
Executing the Audit ....................................................................................................... 92

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Supervising .................................................................................................................... 93
Reporting Progress ......................................................................................................... 93

APPENDICES
APPENDIX 1. - POTENTIAL IMPACTS OF PERFORMANCE AUDITITNG .............................................. .95
APPENDIX 2. - FOLLOW-UP PROCESSES ................................................................................. 97
APPENDIX 3. - UNDERSTANDING THE AUDITEE ...................................................................... 101
APPENDIX 4. - DEVELOPING AUDIT CRITERIA AND MULTI FACETED ROLE OF THE CRITERIA ................ 104
APPENDIX 5. - FURTHER ISSUES ON LIAISON WITH AUDITEES ..................................................... 109
APPENDIX 6. - SAMPLED DETAILED AUDIT PROGRAM ............................................................. 111
APPENDIX 7. - PASAI COOPERATIVE AUDIT REPORT STRUCTURE ............................................... 116
APPENDIX 8. - GRAPHICS ................................................................................................. 118

REFERENCE MATERIALS ..................................................................................123

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Glossary
Different SAI’s may use different terminology to describe the same things. Some of the
real-life examples used in the manual come from SAIs that use alternative terminology. In
this manual the following terminology will be used:
Asian Organisation of Supreme Audit Institutions (ASOSAI)
An international and independent body that aims to promote the exchange of ideas and
experience between Asian Supreme Audit Institutions in the sphere of public auditing.

Audit Criteria
Audit criteria provide the normative standards against which the audit evidence is judged.
In other words, they are a set of reasonable and attainable standards of performance.
Audit criteria provide the ‘what should be’ benchmark and are pitched at a high level.
The breakdown of criteria into more manageable statements that can be tested may also
be called sub-criteria, control objectives, normative controls, or key controls.
Audit Evidence
Information that forms the foundation to support the auditor’s or SAI’s opinions,
conclusions or reports:
• competent: information that is quantitatively sufficient and appropriate to achieve
the auditing results; and is qualitatively impartial to inspire confidence and
reliability;
• relevant: information that is pertinent to the audit objectives;
• reasonable: information that is economical in that the cost of gathering it is in line
with the result which the auditor or the SAI is trying to achieve.

Audit Mandate
The auditing responsibilities, powers, discretions and duties conferred on a SAI under a
constitution or other lawful authority of a country.

Audit Objectives
A precise statement of what the audit intends to accomplish and/or the question the audit
will answer. This may include financial, regularity or performance issues.

Audit Planning

Defining the objectives, setting policies and determining the nature, scope, extent and
timing of the procedures and tests needed to achieve the objectives.

Audit Plan/Program
A work plan, or test program, that provides guidelines for action during the execution
phase of the audit. The audit program is developed through a two-step approach
consisting of the initial audit program and the detailed audit program:

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• initial audit program consists of particular line of enquiry; audit objective for
which the audit program is to be developed; the audit criteria for the stated audit
objective; the types of evidence required; the probable sources of evidence; and
the audit techniques for gathering evidence;
• detailed audit program expands audit initial program and details the audit
procedures (or action steps) with reference to each audit technique identified in
the initial audit program. The audit procedures in the detailed audit program will
sometimes require some further breakdown resulting in an audit test program;
o audit test program is a step by step documentation of the precise actions
to be taken to collect audit evidence. For example, whereas audit
procedures may be to test vouchers for a particular control, the audit test
plan will describe which vouchers, where and how they can be accessed,
how many will be tested, how they will be selected and the specific tests
that will be carried out on each voucher.
Audit Procedures
Tests, instructions and details included in the audit program to be carried out
systematically and reasonably.

Audit Proposal
A document (provided for management consideration) that defines the specific issue to be
studied, audit objectives, scope, design of the audit, quality assurance, timetable, and the
resources required. In practice, these steps cannot always be strictly separated and they
do not necessarily take place in the same order.

Audit Scope
The framework or limits and subjects of the audit. The scope can often detail what is not
the subject for an audit.

Auditing Standards
Auditing standards provide minimum guidance for the auditor that helps determine the
extent of audit steps and procedures that should be applied to fulfil the audit objective.
They are the criteria or yardsticks against which the quality of the audit results are
evaluated.

Discussion Paper
A discussion paper is a document that is used to summarise audit findings and conclusions
for a specific segment of the audit. An example of a discussion paper is a management
letter that contains audit observations for agency comments.

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Due Care
The appropriate element of care and skill which a trained auditor would be expected to
apply considering the complexity of the audit task, including careful attention to planning,
gathering and evaluating evidence, and forming opinions, conclusions and making
recommendations.

Economy
The relationship between the output, in terms of goods, services or other results, and the
resources used to produce them.

Effectiveness
The extent to which objectives are achieved and the relationship between the intended
impact and the actual impact of an activity.

Efficiency
The relationship between the output, in terms of goods, services or other results, and the
resources used to produce them.

Findings, Conclusions and Recommendations

Findings are the specific evidence gathered by the auditor to satisfy the audit objectives;
conclusions are the statements deduced by the auditor from those findings;
recommendations are courses of action suggested by the auditor relating to the audit
objectives.

Generally Accepted Government Auditing Standards (GAGAS)

Professional standards and guidelines for conducting government audit issued by the
Comptroller General of the United States. These standards apply to the insular states in
the Pacific, and are sometimes referred to as the ‘Yellow Book’.

General Standards
The qualifications and competence, the necessary independence and objectivity, and the
exercise of due care, required of the auditor to carry out the tasks related to the field and
reporting standards in an efficient and effective manner.

Independence
The freedom of a SAI in auditing matters to act in accordance with its audit mandate
without external direction or interference of any kind.

International Organisation of Supreme Audit Institutions (INTOSAI)

INTOSAI operates as an umbrella organisation for the external government audit
community, providing and institutionalised framework for supreme audit institutions
(SAIs) to promote development and transfer of knowledge, improve government
worldwide and enhance professional capacities, standing and influence of member SAIs in
their respective countries.

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Opinion
The head of SAI’s written conclusions arising from audit findings determined over the
course of a performance audit.

Pacific Association of Supreme Audit Institutions (PASAI)

An international and independent body which aims at promoting the exchange of ideas
and experience between Pacific Supreme Audit Institutions in the sphere of public
auditing.

Performance Audit
An audit of the economy, efficiency and effectiveness with which the audited entity uses
its resources in carrying out its responsibilities.

Quality Assurance
Policies, systems and procedures established by SAIs to maintain a high standard of audit
activity

Quality Control

The requirements applicable to the day-to-day management of audit assignments.

Report
The auditor’s written findings, opinion, recommendations and other remarks on
completion of a performance audit.

Reporting Standards
The framework for the auditor to report on the results of the audit, including guidance on
the form and content of the auditor’s report.

Strategic Audit Plan describes a multi-year program of audits. Some SAIs may also have an
annual planning document called an annual work plan or a tactical work plan.

Supervision
An essential requirement in auditing which entails proper leadership, direction and
control at all stages to ensure a competent, effective link between the activities,
procedures and tests that are carried out and the aims to be achieved.

Supreme Audit Institution (SAI)

The public body of a state which, however designated, constituted or organised, exercises
by virtue of law, the highest public auditing function of that state.

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1. INTRODUCTION TO PERFORMANCE AUDITING

Purpose of the Manual
1.1 This manual provides assistance to performance auditors in the management and
conduct of audits with the aim of:
• promoting consistent, economical, efficient and effective performance audit
practice;
• establishing a basis for the further development of performance
audit methodology and professional development; and
• setting out a basic framework within which auditors can make sound decisions in
analysing performance and reporting conclusions.
1.2 Performance auditors are faced with considerable variety in their work and are
often placed in a position where they need to exercise their professional judgement
carefully in making planning decisions, developing test programs, forming conclusions and
constructing recommendations. They must often become familiar with a wide range of
organisational contexts and subject matters. They need the ability to write reports on
complex subject matters in a manner that can be understood by a wide audience. This
manual provides some assistance in these areas. But effective performance auditors must
develop skills far beyond those that can be gained from any manual.
1.3 The manual should therefore be regarded as just a starting point in developing
competence as a performance auditor. It may also be used by individual SAIs to amend
their own specific performance audit manuals and instructions.

Definition and Scope of Performance Auditing

INTOSAI’s Performance Audit Guidelines, ISSAI 3000, 1.1 states:
‘The full scope of government auditing includes regularity and performance
audit’, and ‘Performance auditing is concerned with the audit of economy,
efficiency and effectiveness and embraces:
(a) audit of the economy of administrative activities in accordance with sound
administrative principles and practices, and management policies;
(b) audit of the efficiency of utilisation of human, financial and other resources,
including examination of information systems, performance measures and
monitoring arrangements, and procedures followed by audited entities for
remedying identified deficiencies; and
(c) audit of the effectiveness of performance in relation to achievement of the
objectiveness of the audited entity, and audit of the actual impact of
activities compared with the intended impact.’

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1.4 Performance auditing is based on decisions made or goals established by the

legislature, and it may be carried out throughout the whole public sector.
The ISSAI 3000, 1.1 defines a performance audit as ‘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’.

1.5 These three terms are often confused. The overriding objective of any activity is
effectiveness. It is also often the easiest to audit. Effectiveness is a measure of how well
an audited activity achieves its objectives. These objectives may be specifically stated or
they may be the outputs of the activity. For example, the principle objective of hiring a
vehicle to move files from one building to another is that the files are moved to the other
building. If this happens then the procedure appears to be effective. Effectiveness
generally involves not just producing some sort of deliverable but doing so in a way that
optimises the expenditure of public monies; considers all applicable regulations and other
requirements; processes and reports on financial transactions accurately and manages
the human resource elements of the activity appropriately.
1.6 The other elements of performance audit are logically, subsets of effectiveness,
and are the objectives of the activity or program that are often unspoken. Any
expenditure on an activity should be done in the most efficient manner. The program
outputs being produced using the least amount of resources as possible to produce
outputs of the required standard. It would not be efficient for example to hire a ten tonne
truck to move a box of files from one place to another if there were smaller, cheaper
vehicles available, even though it would achieve the desired result.
1.7 Economy is concerned with costs of input. In the example above if it is possible to
hire two identical vehicles to move the box of files, and management chooses the more
expensive of the two, then this is not economical.
1.8 The other elements that frequently arise as components of a performance audit
are compliance with procedures and internal control requirements. These are often the
domain of a financial statement audit. However, any activity has the objectives of
complying with applicable laws and the procedures of the organisation, managing the
resources of the organisation passing through its financial system in a secure manner and
providing relevant and accurate financial reports.
The INTOSAI Performance Audit Guidelines, ISSAI 3000, 1.5 also stipulates ‘that
standards concerning ‘environmental considerations’ and ‘equity requirements’
should also be taken into account in performance auditing.’

1.9 Going back to the vehicle hire example, if the organisation chooses to ignore
occupational health and safety rules and get its employees to carry the heavy boxes of
files from one building to the other then they are not achieving this component of their
objectives.

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1.10 Likewise a performance audit can consider issues of financial regularity, that is,
the correct processing and reporting of transactions related to the activity. For example, if
the financial systems are such that the vehicle hire firm is paid twice or the cost of the
activity is under reported then this too can be reviewed and reported in a performance
audit as a failure of internal accounting control.
1.11 The performance auditor may also be expected to address concerns relating to
equity and ethics while assessing the effectiveness of a program/activity. Equity in the
context of program management relates to fairness and impartiality in the use of public
funds. Ethics in managing public expenditure includes the qualities of honesty and
integrity in personal conduct and devotion to the duty as a manager of public funds. These
are normally overall government objectives and the SAI performance auditor should be
conscious of equity and ethics issues.
1.12 Performance audits may examine and report on:
• the quality of information and advice available to government for the formulation
of policy;
• the existence and effectiveness of administrative machinery in place to inform the
government whether or not program objectives and targets have been determined
with a view to fulfilling policy objectives;
• if, and to what extent, stated program objectives have been met;
• the economy, efficiency, effectiveness and ethics of the means used to implement
a program/activity;
• if laws and organisation procedures have been complied with;
• if internal accounting controls have been effective and transactions have been
reported accurately; and
• the intended and unintended direct and indirect impacts of programs/activities;
for example, the environmental impact of government activity.
1.13 Using the vehicle hire example, a performance audit may find any of the following:
• the files have gone missing or have not been transferred to the correct place;
• management may have hired a much bigger vehicle than necessary to move the
files;
• management may have hired the correct sized vehicle but may not have hired the
cheapest vehicle they could have;
• management may have allowed staff to ignore required occupational health and
safety procedures in moving the files;
• a staff member has hired his brother’s vehicle to his personal benefit rather than
following required procedure;
• internal control procedures may have broken down allowing for duplicate payment
or overpayment of the supplier; and/or

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• the financial transaction may have been misclassified resulting in the activity being
seen to be more economical than it really was.
This list does not include all of the possible findings from a performance audit of this
simple activity. Security over the files in transit may be an issue for example.
1.14 Auditors should not confine the audit to ‘what has been done’ but should also
examine ‘what has not been done’ to endeavour to meet the policy objectives. Given the
size, complexity and diversity of many entities, it is generally impracticable to attempt to
assess the overall performance of departments or agencies. Consequently, performance
audits are usually directed towards specific functions, activities, programs or operations of
the agency. It is also common that an SAI may conduct an audit of a topic or theme across
several agencies or even on a whole-of-government basis.
The INTOSAI Performance Audit Guidelines, ISSAIs 3000, 1.2 states that
‘performance auditing is not overly subject to specific requirements and
expectations. While financial auditing tends to apply relatively fixed standards,
performance auditing is more flexible in its choice of subjects, audit objects,
methods, and opinions. Performance auditing is not a regular audit with
formalized opinions, and it does not have its roots in private auditing. It is an
independent examination made on a non-recurring basis. It is by nature wide-
ranging and open to interpretations. It must have at its disposal a wide selection
of investigative and evaluative methods and operate from a quite different
knowledge base to that of traditional auditing. It is not a checklist-based form of
auditing.’

1.15 The special feature of performance auditing is due to the variety and complexity of
questions relating to its work. Within its legal mandate, performance auditing must be
free to examine all government activities from different perspectives.

Auditing Standards
1.16 In conducting a performance audit the auditor should follow applicable
professional standards. Some SAIs in the Pacific will follow the INTOSAI Auditing
Standards and others will rely on Generally Accepted Government Auditing Standards
(GAGAS) set out in the Government Auditing Standards (the Yellow Book) issued by the US
Government Accountability Office.1 The principle, relevant INTOSAI Auditing Standards
are set out below.
1.17 GAGAS are not codified in the same manner as the INTOSAI Auditing Standards
although the main principles are similar to those in the INTOSAI standards. It is strongly
recommended that any performance auditor working in a jurisdiction that applies GAGAS,
familiarise themselves with the standards as discussed in the Yellow Book.

1
Government Auditing Standards, issued by the Comptroller General of the United States, United States Government Accountability
Office.

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1.18 In other jurisdictions, which have a court of audit arrangement, other standards
may apply and auditors in those jurisdictions should be fully conversant with those
standards.
The INTOSAI General Auditing Standards 200, 2.1 common to SAIs which subscribe to
INTOSAI standards are: ‘(a) the auditor and the SAI must be independent; (b) the auditor
and the SAI must possess the required competence; and (c) the auditor and the SAI must
exercise due care and concern in complying with the INTOSAI Auditing Standards. This
embraces due care in planning, specifying, gathering and evaluating evidence, and in
reporting findings, conclusions and recommendations’.

1.19 The performance auditor and SAI must be, and be seen to be, independent and
objective in the conduct of audits.
The INTOSAI General Auditing Standards 200, 1.2 note that SAIs should: ‘(a) recruit
personnel with suitable qualifications; (b) develop and train SAI employees to enable them
to perform their tasks effectively, and to define the basis for the advancement of auditors
and other staff; (c) prepare manuals and other written guidance and
instructions concerning the conduct of audits; (d) support the skills and experience
available within the SAI and identify the skills which are absent; provide a good distribution
of skills to auditing tasks and assign a sufficient number of persons for the audit; and have
proper planning and supervision to achieve its goals at the required level of due care and
concern; and (e) review the efficiency and effectiveness of the SAI’s internal standards and
procedures.’

Work Performed by Staff

INTOSAI Field Auditing Standards 300, 0.3 (b) requires: ‘the work of the audit staff
at each level and audit phase should be properly supervised during the audit,
and documented work should be reviewed by a senior member of the audit staff’.

1.20 When work is delegated to members of the audit team, the auditor in charge
should carefully direct, supervise and review this work.
1.21 When multi-disciplinary audit teams are used, adequate direction, supervision and
review are necessary to ensure that the different perspectives of team members, their
experience and specialties are appropriately used in the audit. All team members should
understand the objectives of the audit, the terms of reference of work assigned to them
and the nature of obligations imposed on them by applicable auditing standards.
Adequate direction, supervision and review will assist in such an understanding.

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Using the Work of an Expert

INTOSAI General Auditing Standards 200, 2.43 state: ‘if the SAI employs external experts
as consultants it must exercise due care to assure itself of the consultants' competence and
aptitude for the particular tasks involved; and
Obtaining advice from an external expert does not relieve the SAI of responsibility for the
opinions formed or conclusions reached on the audit task’.

1.22 An expert is a person or firm possessing special skill, knowledge and experience in
a particular field other than auditing. Because of the diverse range of activities subject to
performance auditing, the auditor may need to obtain audit evidence in the form of
reports, opinions, valuations and statements of an expert. Although the auditor may
use the work of an expert as audit evidence, the auditor retains full responsibility for the
conclusions in the audit report.
1.23 When using the work performed by an expert, the auditor should obtain sufficient
appropriate audit evidence to ensure that such work is adequate for the purposes of the
audit.

Professional Behaviour
The INTOSAI Code of Ethics and Auditing Standards, Chapter 5 requires that: ‘auditors
have a duty to conduct themselves in a professional manner at all times and to apply high
professional standards in carrying out their work to enable them to perform their duties
competently and with impartiality.’

1.24 The auditor should comply with ethical principles and codes of conduct governing
the auditor’s professional behaviour and responsibilities, which include:
• integrity;
• objectivity and fairness;
• confidentiality; and
• technical standards.
1.25 The auditor should comply with any code of conduct or ethical standards issued by
the government or SAI for which they work. Although this manual sets out a coherent
basis for conducting a performance audit, professional judgement remains an
important ingredient in performance audit work.
1.26 As with any audit, the performance auditor should adopt an attitude of
professional scepticism throughout the audit, recognising that circumstances may
exist that could cause the information relating to performance to be irrelevant, misleading
or incorrect.

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Reasonable Assurance
1.27 A performance audit conducted in accordance with applicable auditing standards
provides reasonable assurance that the conclusions drawn in the audit report may be
relied upon.
1.28 Reasonable assurance relates to the accumulation of audit evidence necessary for
the auditor to respond to the audit objective.
1.29 What is ‘reasonable’ is dependent on the facts of the situation including what
evidence could reasonably be gathered and what conclusions could reasonably be drawn
in the situation.

Terms of the Audit

The INTOSAI General Auditing Standards 200, 2.26 provides that ‘In contrast to private
sector audit, where the auditor's agreed task is specified in an engagement letter, the
audited entity is not in a client relationship with the SAI. The SAI has to discharge its
mandate freely and impartially, taking management views into consideration in forming
audit opinions, conclusions and recommendations, but owing no responsibility to the
management of the audited entity for the scope or nature of the audits undertaken.’

1.30 The SAI should formally notify the auditee of the details of the audit, preferably
before the commencement of the audit, to help avoid any misunderstandings. With some
audits, the objective and scope of the audit and the auditor’s obligations are established
by law. Even in those situations identifying the features of the audit may be useful to the
agency and assist the auditor develop a productive working relationship with the agency.

1.31 Often during the course of an audit, findings will lead the auditor to broaden the
scope of the audit or eliminate areas that were initially advised as being included. When
this occurs the auditor should advise the auditee management of this change in scope well
before the auditor issues the draft report. If an auditor reports on matters that the
auditee was not even aware were included in the audit scope, the auditor may lose
credibility and the value of the audit report can be compromised. If this happens useful
recommendations may be rejected without due consideration. It is a good idea to discuss
with senior management in the SAI any proposed changes to audit scope and seek their
approval.

Quality Assurance
INTOSAI General Auditing Standards 200, 1.27 states that: ‘The SAI should establish
systems and procedures to: a) confirm that integral quality assurance processes have
operated satisfactorily; b) ensure the quality of the audit report; and c) secure
improvements and avoid repetition of weaknesses.’

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1.32 Each SAI should have its own quality assurance procedures to meet this standard.
The auditor should be familiar with these processes and conduct and document their
audit with a view to meeting the quality assurance requirements. Additional information
on this topic can be found in PASAI’s Quality Assurance Manual.

Accessing the INTOSAI Standards

1.33 The INTOSAI Auditing Standards may be found in a document on the INTOSAI
Website (www.intosai.org) entitled INTOSAI Code of Ethics and Auditing Standards. The
references in this manual are generally to the paragraph numbers in that document. The
standards component of this document has also been broken down into individual
standards, entitled International Standards of Supreme Audit Institutions (ISSAI) and each
of these is numbered. For example ISSAI 300 is the number for Field Standards in
Government Auditing, which corresponds to Chapter 3 of the Auditing Standards. The
ISSAI documents may be found at www.issai.org.

Performance Auditing Mandate and Objective

ISSAI 3000, 2.1 states: ‘the mandate of performance auditing should cover the state
budget and all corresponding government programs. The auditor must be free to select
audit areas within its mandate. Political decisions and goals established by the legislature
are the basic frame of reference. A performance audit may, as a result of its findings,
question the merits of existing policies. Performance audits are in general ex post audits
that deal with current issues. High levels of quality in the work must be promoted and
secured.’

1.34 The mandate for SAIs to undertake performance audits varies from country to
country. Some countries have a performance audit role specifically written into the
legislation that creates the SAI. In other countries it may not be so specific. The head of
the SAI could, for example, have the ability to report to the national parliament on
performance issues he or she may come across in the course of their regularity work.
Other SAIs may only be able to conduct performance audits at the behest of the
government or parliament. Even others may have no wider performance audit mandate
than is reflected in their accounts, records and reports on financial audits; that is, the
performance aspects of financial regularity.
1.35 The interpretation of the breadth of the performance audit mandate is generally
made by the head of the SAI. Performance auditors should plan and conduct their audits
in line with this interpretation. Put simply, the objective of performance audit in the public
sector is to improve public administration. At one level this is achieved by making sound
recommendations based on sufficient evidence obtained in an audit planned and
conducted to a professional standard.

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1.36 The actual conduct of an audit can also lead an auditee to improve systems and
procedures, particularly through audit interaction with management at an operational
level. The performance audit process may provide the impetus for management to
consider the activities they manage in a different perspective. They may make changes
irrespective of the findings and recommendations of the audit. This is a very good
outcome in terms of improving public administration.
1.37 It is also important that the performance auditor not pre-empt management’s
right to manage. Management may develop their own plans to resolve the findings
reported by the auditor. That is their prerogative and this too will improve public
administration, even if the audit recommendations are not accepted, as long as the
findings are based on solid evidence. It is often the case that audit recommendations are
rejected but the entity fixes the problems in another way, which is more suitable to their
operations.
1.38 Performance audits also have another role. They provide stakeholders such as
senior management, members of the government and, if made publically available, the
public with information and assurance about the quality of management of
public resources. The emphasis placed on the assurance role of performance auditing as
against the role of public sector improvement will vary between SAIs and is also decided
by the head of the SAI.

Performance Audit Process

1.39 The stages in the performance audit cycle and the related layout of this manual are
outlined in Figure 1 below.
1.40 The first stage in performance auditing is strategic planning, which requires the
development and maintenance of information on the agency that will assist in identifying
potential areas for audit. Potential topics can then be analysed and ranked to form annual
audit strategy documents for each agency. Chapter 2 of these guidelines deals further
with strategic planning. Once a topic has been selected for performance audit, an audit
program is developed and this is gradually refined into a detailed audit plan. It sets out the
audit procedures that will be applied in the conduct of the audit. A preliminary study may
be undertaken to gather information on the topic and to identify significant issues for
audit. Chapter 3 of these guidelines deals with planning the performance audit.
1.41 The execution stage of a performance audit is dealt with in particular in Chapter 4
of these guidelines and involves:
• development and execution of an audit program of procedures;
• collection and documentation of sufficient relevant and reliable evidence,
including quantitative and qualitative analysis;
• formulation of audit findings, conclusions and recommendations; and
• development of discussion papers and confirmation of audit findings at an exit
conference.

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1.42 It should be noted that the audit program and detailed audit plan need to be
reviewed continually throughout the audit to ensure that it remains relevant and
sufficient. A report on the audit will then be drafted for consideration by the government,
the legislature, the agency and the public.
1.43 Throughout each stage of the performance audit the emphasis should be on
the production of a final report that is balanced and has value-added impact. The report-
writing process should be viewed as a continuous one of formulating, testing and revising
conclusions, if necessary, about the audit topic. Therefore, issues such as the expected
impact and value of the audit, the likely improvements and savings resulting from it
and methods of communicating its conclusions should be considered throughout the
audit. Chapter 5 of these guidelines deals further with reporting.
1.44 Follow-up activities by the SAI provide impetus for the implementation of accepted
recommendations. Management are more likely to focus on implementing
recommendations if they are aware that the SAI could revisit the area. Follow-up
procedures should identify and document the impact of the audit and the progress of the
agency in implementing audit recommendations. The conduct of follow-up activity is also
vital to provide feedback to the SAI, the legislature and the government on
performance audit effectiveness in producing improvements in public
sector management. Follow-up processes are dealt with in Chapter 6.
Figure 1. Stages in the Performance Audit Cycle
Source:
DIAGRAM OF THE STAGES OF A PERFORMANCE AUDIT Product 4:
Audit Report Chapter 6 - Stage5:
Follow-Up

Obtain Auditee Corrective Actions

Establish Follow-up Plan
Product 3:
Assess Progress of the Recommendation
Findings Chapter 5 - Stage4:
Report Follow-Up Activity
Reporting

Prepare Draft Audit Report

Obtain Auditee Comments

Address Comments

Conduct Internal Quaity Assurance Review (Referencing)
Product2:
Conuct Exit Conference
Audit Proposal &
Issue Final Report
Chapter 4 - Stage3:
Audit Program
Execute the Audit

Gather Information

Analyze Information
Product1:
Strategic Audit Plan
Prepare Audit Documentation
Chapter 3 - Stage2:
Develop Findings and Recommendations
Audit Planning

Develop Audit Proposal

Develop Audit Program (Work Plan)
Chapter 2 - Stage1:
Communicate with the Auditee (Scope, Objectives, and Criteria)
Strategic Audit Planning

Identify Potential Audit Topics

Prioritise Audit Topics Based on Risk-Based Approach

Estimate Resource Requirements

Document Strategic Audit Plan

Performance Audit Manual Working Group.

1.45 A performance auditor should also be aware of the quality assurance and control
processes that apply in the SAI and these are discussed in Chapter 6, along with a brief but
important statement about what the performance auditor should do if they come across
indications of fraud or other criminal activity.

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2. STRATEGIC PLANNING
Introduction
2.1 This chapter discusses the strategic planning process. A performance auditor new
to the profession, the main audience for this manual, will presumably not be heavily
involved in this process. However, all performance auditors should understand the
process adopted by their SAI to undertake strategic planning and should be watchful for
information they may accumulate during the course of their work that may inform or
contribute to that process. Performance auditors should make themselves fully aware of
their SAI’s strategic planning process and their role in that process.
2.2 The scope for undertaking a performance audit is almost limitless. Even if a
business activity is currently performing well, there is generally the potential for some
improvement. If performance audit resources were unlimited then audits would be
undertaken on any activity where it was expected that the savings to be made would
exceed the cost of the audit.
2.3 In reality, SAIs can only conduct a relatively small number of performance audits
and the resources that can be devoted to them are very limited. Strategic planning, from
a performance audit perspective, revolves around deciding which of the very large
number of performance audit topics will yield the largest long-term gain, either in terms
of savings or the improved achievement of the key objectives of programs and activities.

ISSAI 3000, 3.2 states: ‘strategic planning is the basis for the selection of audit topics.
Linked to a SAI’s annual planning system, it may be a useful tool in setting priorities and
selecting audits. It may serve as a mechanism for selecting future audit themes, and a
basis for detailed planning. Finally, it may serve as an instrument for strategic policy
decisions on the future direction of the audit. Planning might be carried out in the
following steps: determining potential audit areas; establishing the selection criteria to be
used; and identifying the main sources of information for the potential audits. The
strategic planning exercise would normally result in a coherent and cogent audit program
for the SAI and serve as a basis for operational planning and resource allocation.’

2.4 In order to determine which audits are to be undertaken the SAI needs to rank
audit topics. The audits which are identified as having sufficient priority to warrant having
resources allocated to them are documented in what is generally called a strategic audit
plan (SAP). Different SAIs may call this by different names but for the purposes of this
manual, a strategic audit plan is any plan to conduct a number of specific audits over a
period. Three years is the most common planning period but some plans range over two
years and others up to five years depending on the SAI. For ease of discussion a longer-
term program of audits will be referred to in this manual as a SAP.

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Objectives of Strategic Audit Planning

2.5 The objectives of strategic audit planning are to:
• provide a firm basis for the SAI management to give strategic direction for future
audit coverage;
• identify and select audits with the potential to improve public sector accountability
and administration;
• provide a platform for communication with agencies and the legislature on SAI
audit strategies;
• produce a work program that can be achieved with expected available resources;
• understand agency risks and take them into account in audit selection; and
• provide a basis for SAI accountability.
2.6 In order to create a SAP, first the SAI must define the population of the audit topics
that exist. Having done that, there are a number of variables to consider in developing a
ranking of audit topics.

Identifying Potential Audit Topics

2.7 Identifying the complete population of potential performance audit topics in even
a small public sector would be a very time consuming and resource-intensive task. Most
SAIs make the assumption that information about the most significant programs and
activities is already available to them. The sources of this information include:
• the auditee, and concerns information such as:
o public documents including annual reports and media releases;
o business plans;
o financial statements and internal financial management reports;
o performance reports;
o internet sites.

• external stakeholders:
o media reports;
o academic papers;
o publications from professional bodies;
o papers issued by NGOs and donor agencies.
• other legislature information:
o previous SAI reports;

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o committee reports and evidence;

o transcripts of sittings;
o other reports to the legislature; and
• from other audit or inspection bodies:
o work done by internal audit teams;
o reports from other internal reviews;
o material from financial auditors;
o other Supreme Audit Institutions’ reports on similar activities.
2.8 In reviewing all of these sources the SAI is seeking to determine whether a
performance audit will add value in some way. Rather than assembling a detailed map of
all the performance audits that could be undertaken, it is more common for SAIs to rely
on the accumulated knowledge of their auditors and the available information to identify
potential audit topics. The range of audit topics identified in this way will be far greater
than the available audit resources could realistically cover and the list must therefore be
prioritised.
2.9 The SAI should also consider undertaking audits across more than one agency. This
sort of performance audit, called perhaps an across-the-board or whole of government
audit, or a cross-portfolio audit, examines a single activity in different agencies. It is
particularly useful where a central department or ministry provides guidance, policy,
procedures or rules to other agencies. A cross agency audit can assess how well the
requirements are being followed and if they are effective at achieving what the central
agency expects.
2.10 Cross agency audits can also examine activities which should be done in an
efficient and effective manner in different agencies. For example, it is possible to review
something like physical security, energy use or motor vehicle management to assess
whether existing rules are being followed or, where there is no central guidance, whether
some rules should be introduced.

Prioritising Audit Topics

2.11 In determining those audit topics which are likely to provide the best value for the
audit dollar, there are a number of parameters the SAI may consider. These include the:
• issues that present key risks to public administration;
• significance of the activity in terms of materiality, sensitivity and impact;
• audit resources required to achieve the expected audit result and the availability of
those resources.
2.12 In some countries, the legislature may pass legislation which requires the SAI to
undertake particular audits. In these instances the SAI is obliged to conduct the audit and

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it is allocated priority. Committees of the legislature may also make similar requests and
this is taken into account when prioritising identified audits.

Issues that Present Key Risks to Public Administration

2.13 Some activities are inherently more risky than others, which means there is more
chance of something going wrong. The riskier the activity, the greater the likelihood that
a performance audit will be able to identify risks that could be managed better. For
example, a project to develop a major computer system is far riskier than a project to
customise a similar commercially available system that is itself riskier than acquiring a
commercial system that needs no modification.
2.14 Risk will also be determined by the extent of past reviews of the activity. Any area
that has recently been subject to an independent review will generally be less risky than
one that has not. Initiating a performance audit in such an area may be a poor use of audit
resources, particularly if all it does is duplicate the findings of the earlier review.
2.15 A performance auditor needs to have an excellent understanding of risk analysis
and risk management techniques to be able to assess the risks associated with a potential
audit topic and also to form a preliminary opinion on whether they are being managed or
not.

2.16 These risk analysis skills are also very valuable during the conduct of an audit.
Performance auditors responsible for strategic planning who don’t already have training in
risk analysis and management should access training in these techniques as a matter of
priority. Key aspects to consider in determining the significance of an audit include;
materiality, sensitivity and impact.

The Significance of the Activity - Materiality

2.17 This parameter is generally the most straightforward to assess. It has two
components, how much does the activity cost over time and how much is invested in it. It
should be recognised that the overall size of an activity is not an absolute determinant of
audit priority. A mature program that has been running for some years and has had
various reviews done of it may be a poor candidate for audit, even though it expends
hundreds of millions of dollars a year. This is because the likelihood of identifying any
significant recommendations is limited. Alternatively, controls may have weakened over
time and it is also possible that the audit could yield significant benefits. Clearly the
auditor needs to know more about a program or activity than just the cost of it in order to
decide whether it is a worthwhile subject for a performance audit.

The Significance of the Activity - Sensitivity

2.18 The objectives of any government activity will have a certain profile with the public
and with the legislature. The more important an activity is in the eyes of its collective

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stakeholders, the more suitable it is as a performance audit subject. This is because the
stakeholders are, by definition, more concerned about the achievement of objectives and
they benefit from being reassured about this achievement. This means that a small but
sensitive program may be more suitable as a performance audit topic than a much larger
routine one. Government advertising is one such topic where various stakeholders have a
keen interest in the nature, cost and propriety of the activity, even though in overall terms
it is not generally a major public expenditure.
2.19 Programs or activities that are particularly important from a national interest point
of view also rank highly. Health and education programs, for example, are often allocated
significant performance audit resources.
2.20 In deciding on the priority for an audit topic, the auditor should consider carefully
the importance of the activity to the various key stakeholders.

The Significance of the Activity - Impact

2.21 The more complex an activity is, the greater the likelihood that some key
management controls will not have been considered in the development of management
systems. This means that there is more potential for a performance audit to add value, by
identifying controls that may be put in place to improve the outcomes of the activity. For
example, a distributed accounts processing system operating across a number of
geographic sites is much more difficult to manage effectively than a system at a single site
processing the same volume of transactions.

The Audit Resources Available

2.22 The number of auditors available to undertake performance audit work is one
factor that will limit the number of audits that can be included in a strategic plan.
Preparation of the SAP will require knowledge of the total number of auditors expected to
be available to conduct audits over the period.
2.23 Another aspect of audit resources that needs to be considered is what the
individual staff members, at their current stage of development, are capable of doing and
what their development needs in terms of experience are. If some of the available
auditors are inexperienced then there must be sufficient audit activity in the program that
they are capable of doing.
2.24 It would be inappropriate to assign an audit, which would involve sensitive
dealings with very senior management, to newly qualified auditors. Likewise it would not
be an efficient use of resources to use highly experienced staff to undertake an audit of a
simple line management activity.
2.25 Many larger SAIs have more than one performance audit team and assign areas of
public sector activity to specific teams. A team may have responsibility for one or more
discrete areas such as defence, social security or health. The audit resources assigned to
these teams will be determined by how much priority the SAI assigns to that group of
topic areas. If a SAI decides that it needs a team of 5 people concentrating on audits of
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say, education, this is a strategic planning decision and the audit manager must then
allocate priorities within that topic area. The assignment of staff to audit teams with
specific responsibilities is therefore another consideration in the strategic planning
process.
2.26 In preparing a strategic plan for performance audit, the SAI needs to consider the
total audit resources available, the breakdown of those resources into functional areas
and the skills and experience of the individuals involved. In practice, this generally
becomes a collective assessment by all of the responsible audit managers who provide
input to the strategic planning process.
2.27 Performance audits are often unable to commence at the expected time, mostly
for auditee related reasons. So the plan should include enough audits to provide further
topics if the highest priority ones are not able to be done for some reason. A prudent
audit manager could have as much as 30% more audit hours planned than are actually
available, to be sure that the audit team always has audits that can be commenced if a
planned audit fails to start as expected.

Developing the Strategic Audit Plan (SAP)

2.28 Assembling a SAP from the available topics generally involves using the topic
knowledge and management experience of the audit managers. They should each have a
good understanding of their assigned areas and their staff, as well as of the stated
priorities of the SAI. This is important because the senior management of the SAI may
have taken a strategic decision to focus on a particular theme, such as procurement, or
human resource management. This means that audit managers must take this component
of the topic area into account in defining a possible audit and in assessing its importance.
2.29 A well-structured strategic planning process, based on a sound rationale, is
necessary to ensure that the resources of the SAI are used in the most efficient and
effective manner.

Documenting the SAP

2.30 The key deliverable of the strategic planning process is a document which is
prepared for the SAI management to enable it to critically assess the proposed planning
strategy for overall consistency with the SAI’s corporate objectives. The basic SAP
document will be a list of audit topics in the various government agencies along with
expected resource requirements for each audit and the proposed start and finish dates for
the audit. The document will also assist management to make appropriate resource
allocations and allow an assessment of the strategic planning process.
2.31 The strategic plan should be supported by working papers that may include:
• a description of the agency and its environment;
• an assessment of the risks to good performance of the agency’s programs and
activities;

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• a summary of the long-term strategic view of SAI performance audit directions in

each agency; and
• recent SAI audits, recent and proposed enquiries by the legislature, and agency
evaluations and internal audits.
2.32 The SAP will provide a list of audits proposed for the next two to five years. This list
should reflect resource availability and should also distinguish between new performance
audit topics, cross-agency audits and follow-up audits.

Approving and Publishing the SAP

2.33 The SAI should have procedures in place that allow the senior management of the
SAI to sign off on the overall plan. This is important because it enables the head of the SAI
to ensure the allocation of resources is appropriate across the whole. It may be that audits
that rank as the most important in one branch or group may not be as important overall
as some audits that have not been selected because the branch or group responsible for
them has too many high priority audits. The senior management of the SAI may then need
to reconsider the allocation of audits and staff to the various audit groups.
2.34 Once the SAP is approved it may be worthwhile to provide it to the relevant
parliamentary committee or other government body charged with overseeing the work of
the SAI. To provide transparency it could also be made available as a public document on
the SAI’s website or through some other means. The SAP should also be made available to
staff to provide some context and understanding of the performance audit work of the
SAI.

Modifying the SAP

2.35 The SAI should also regularly review the SAP to ensure that all audits still maintain
the same priority or whether the priority should change.
A sample of the United States Government Auditing Organisation’s (GAO) can be viewed
on the website http://www.gao.gov .

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3. PLANNING THE PERFORMANCE AUDIT

Introduction
3.1 This chapter outlines the steps involved with initiating the performance audit:
the purpose of a preliminary study; the approach to be considered in planning
individual audits and the development of a n audit program.

Standards for Planning Individual Audits

ISSAI 3000, 3.4 states that: ‘the auditor should plan the audit in a manner which ensures
that an audit of high quality is carried out in an economic, efficient and effective way and
in a timely manner’2 and also identifies the following steps th at are ordinarily included
in planning an audit:
• ‘collect information about the audited agency and its organisation in order to assess
risk and to determine materiality;
• define the objective and scope of the audit;
• undertake preliminary analysis to determine the approach to be adopted and
the nature and extent of enquiries to be made later;
• highlight special problems foreseen when planning the audit;
• prepare a budget and a schedule for the audit;
• identify staff requirements and a team for the audit; and
• familiarise the audited entity about the scope, objectives and the assessment
criteria of the audit and discuss with them as necessary.’3

3.2 Planning consists of developing a general strategy and a detailed approach for the
expected nature, timing and extent of the audit. The audit plan is a key document for
controlling and monitoring audits in the SAI. Before executing the performance audit, it is
consequently important to define the audit objectives, the scope and the methodology to
achieve the objectives. The preparation of an audit plan is the necessary first step in
audit planning as it is the document that the head of SAI will authorise so that the audit
can proceed. It is important to remember that planning is not a single audit phase but that
it will be necessary to revisit initial plans over the course of the audit. This will be to
ensure that the audit team is on track, or as a result of unforeseen circumstances, it might
be necessary to revisit and revise the audit plan and its underlying approach.

2
INTOSAI Auditing Standards 3.0.3
3
INTOSAI Auditing Standards 3.1.4

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3.3 A preliminary study is an important tool to ensure that the audit team is well
acquainted with the activity to be audited and can develop a persuasive audit proposal for
senior management ‘sign off’.

The Role of a Preliminary Study/Survey

3.4 Once a topic has been selected for audit, the SAI may often conduct a preliminary
study so that it is better able to understand the context of the audit and judge the audit
resources that are required. The preliminary study aims to explain why the audit should
be carried out and provide sufficient justification to proceed with executing the
performance audit.
INTOSAI Performance Audit Guidelines 3000, 3.3 provide that: ‘if conditions do
exist to continue on to the execution stage of the audit (main study), an audit
proposal should be prepared. If a performance audit is not recommended, a
preliminary study report should summarise the preliminary study conclusions.
To finalise the preliminary study, an exit conference may be held with the
agency management.’

3.5 If the head of a SAI decides to move from a preliminary study to a full audit, an
audit proposal for management consideration and endorsement is the next step.

Developing and Approving the Audit Proposal

3.6 The steps involved in developing an audit proposal require that the auditors:
• understand the business of an auditee;
• determine audit objective;
• determine audit scope;
• determine audit criteria;
• identify key audit foci;
• determine the audit approach;
• estimate resources and timing; and
• approve the audit proposal.
3.7 These steps may be grouped together differently or sometimes done in different
order, but in any case, these steps will allow for greater efficiency when developing a
detailed work plan (also referred to as ‘audit program or test program’). It is through a
well thought out plan that the auditor will be able to carry out the audit in an economic,
efficient and effective way and in a timely manner and provide SAI management with the
necessary assurance to approve the audit proposal.

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Understanding the Business of an Auditee

3.8 It is important that the auditor develop a sound understanding of the auditee’s
business to allow the development of more specific audit objectives and
relevant audit criteria. This knowledge would include an understanding of:
• the mandate of the agency and the areas being audited within the agency;
• objectives of the agency and of programs related to the audit activity;
• programs and performance goals of the agency;
• organisational and accountability relationships within the agency;
• the internal and external environment of the agency and the stakeholders;
• external constraints affecting program delivery;
• agency management processes and operations; and
• the resources of the agency.
3.9 Sources of information to assist in understanding the agency include:
• enabling legislation and legislative speeches;
• ministerial statements, government submissions and decisions;
• recent audit reports, reviews, evaluations and enquiries into the agency;
• agency strategic and corporate plans, mission statement and annual
report;
• budget statements;
• agency policy files, management committee and executive board
minutes;
• agency organisation charts, internal guidelines and operating manuals;
• agency program evaluation and internal audit plans and reports;
• conference reports and minutes;
• discussions with agency management and key stakeholders; and
• management information systems.
3.10 Past audits and other reviews can provide an extremely useful source of
information. If the SAI has maintained a permanent audit file, for either financial or
performance purposes, then this should be a major source of information. They can help
avoid unnecessary work in examining areas that have been under recent scrutiny
and highlight deficiencies that have not yet been remedied. There is, however, no
substitute for discussions with senior agency management to gain an overall
program perspective against the background of the above information.
3.11 Performance monitoring, accountability and evaluation processes within the
public sector are generally agency-based. However, there could also be a range of

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information, which crosses agencies and which may also assist in the information-
gathering stage, such as:
• studies by industry, professional or special interest groups;
• enquiries or previous reviews by the legislature;
• information held by coordinating agencies or by interdepartmental
committees;
• research by academics;
• work undertaken by other governments overseas; and
• media coverage.
3.12 The purpose of understanding the business of the auditee is to allow the auditor to
develop the objective and scope of the audit and to assist with the next planning
component, which is the development of audit criteria. It is not a substitute for field-work
in the agency and should be kept to the minimum required to develop the initial objective,
scope and audit criteria. The appendix to this chapter discusses some key features of
government agencies that may be taken into account in developing an understanding of
the business of the auditee.

Determine the Audit Objectives

3.13 Audit objectives relate to the reasons for conducting the audit and should be
established early in the audit process to assist in identifying the matters to be audited
and reported.
3.14 The audit objective should address concerns of accountability and good
governance and may focus on the economy, efficiency and/or effectiveness of program
management as well as financial control where relevant. Compliance with legislation and
financial regularity should also be considered where appropriate. For example, an audit
objective may be ‘to determine whether capital procurement managed by the ministry is
being managed to provide best value for money and in accordance with industry best
practice.’
3.15 The audit objectives should be designed to maximise the benefits and impacts
from the audit. It must be remembered that at this stage of the process, audit knowledge
is relatively limited and all planning must be considered fluid depending upon what is
found as further work is undertaken. In setting the audit objective the audit team
should take into account the mandate of the SAI, and be careful not to exceed it, as
well as the reasons for the audit as defined in the strategic audit plan.
3.16 It is good management practice for audit objectives and scope to be
discussed with the agency management. In holding such discussions auditors should
be careful not to compromise their independence.

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About Audit Objectives

3.17 The purpose of the audit is to initiate improvements in public administration
and/or to provide assurance to management that an activity is being managed effectively,
economically and efficiently and in accordance with government policy and legislation.
3.18 A performance audit is an expensive activity so it is rare that an audit will be
undertaken just to meet the assurance objective. In most cases such audits will arise from
information coming to light that an activity is being badly managed in some way and the
government has asked the SAI to review the program as a result. Even in these cases the
auditor should be looking to add value in terms of initiating improvements in those things
that may be able to be done better.
3.19 The objective of initiating improvements in administration is often unwritten but
follows implicitly from the act of reviewing the activity. For example, the objective of the
audit was to assess whether the procedures established to manage the program would
ensure that government policy was followed. What is not stated is that if the auditor
finds that these procedures do not ensure that government policy is followed then they
will recommend changes to the procedures to achieve this end.

Writing the Audit Objective

3.20 The audit objective consists of two main parts, (a) what is being reviewed and (b)
what is being used as a benchmark. In the example above ‘the program’ is being reviewed
and ‘government policy’ is the performance benchmark.
3.21 The structure of a performance audit objective is therefore: To assess/
determine/discover/report whether a specified activity/program/entity is being managed
to provide the best result to the government in terms of economy/
effectiveness/efficiency/probity/performance reporting/security over assets or
information etc.. For example, in an audit of capital procurement, ‘the objective of this
audit is to determine whether capital procurement managed by the ministry is being
managed to provide best value for money and in accordance with industry best practice.’
3.22 When developing an audit objective, the auditor should seek to frame both parts
of the objective in the clearest possible terms and as simply as possible. The objective of
the audit may be written as a question. It is also possible to extend the objective into a
series of associated questions which may be answered in the audit process. The above
objective could be redrafted as:
‘the objective of the audit is to answer the question: does the ministry manage capital
procurement so that it provides best value for money and is in accordance with industry
best practice?’
3.23 Associated questions may be:
‘If not, what is the impact? If the impact is significant, what are the causes? What may be
done to address these causes?’

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Importance of Defining the Audit Objective(s)

3.24 It is very important to establish audit objectives clearly. It provides a sense of
direction to the auditor and also justifies the purpose of the audit. Each and every audit
conclusion reported must be made against the corresponding audit objective. Suppose
the audit objective was to ensure whether the procurement of material was done at the
lowest cost (economy) with due regard to appropriate quality. In that case, the auditor
may come to anyone of the following conclusions:
• yes, the procurement of material was done at the lowest cost with due regard to
appropriate quality; or
• no, the procurement of material was not done at the lowest cost with due regard to
appropriate quality; or
• yes, the procurement of material was done at the lowest cost, however,
appropriateness of quality was not considered at the time of the procurement
decision; or
• yes, the procurement of material was done at the lowest cost with due regard to
appropriate quality, however, excessive volume of material was procured in
comparison to actual requirements.
3.25 After the audit work is complete, the auditor develops conclusions that respond to
the audit objectives. So, if there is no audit objective, there can be no appropriate audit
conclusion.

Determine Audit Scope

3.26 The scope of the audit defines the boundaries of the activity being reviewed and
tends to narrow the ambit of the audit from the broad audit objective. In the example, the
scope of the audit as it stands includes all of capital procurement in the ministry, but there
may be some value in refining this in a separate scope statement.
For example:
‘The scope of the audit will include all procurement on construction projects, all other
capital purchases exceeding $5 million and will consider issues of value for money and
compliance with documented procedures. This narrows the scope from the original
objective.’
3.27 In some cases the scope statement outlines the elements excluded from the scope
as defined by the audit objective. For example, following the capital procurement
objective above there could be a scope statement which reads: no procurement under $5
million will be included in the audit unless it is part of a building construction project.
3.28 The decision on the scope of the audit is made taking into account the areas of the
activity where most benefit could be gained from the audit while considering the amount
that can be covered in the time and resources available for audit field work.

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3.29 Scope may be geographic, excluding some physical areas, where an activity is
widely distributed. Scope is also time-related and the auditor should specify a time-period
to be covered. The scope statement may also narrow the focus of the audit by specifying,
for example, that the audit will only consider issues of effectiveness or compliance.
3.30 In some cases, where a performance audit has been requested, the scope may be
extremely narrow. If, for example, there have been credible allegations about corrupt
procurement practices in an agency, the SAI may be asked to conduct an audit to provide
assurance that the allegations are groundless or action needs to be taken. The scope of
such an audit would be restricted to procurement practices and may be further restricted
to compliance with required procedures and the accuracy of financial reporting.

Changing the Scope

3.31 When the objectives and scope of an audit are defined, the auditor does not know
as much about the activity being audited as he or she will after several weeks or months
of field work. It may be that at some point in the audit the audit manager realises that
there is significant value to be gained in changing or widening the scope to include areas
that were not encompassed in the original audit plan.

The INTOSAI Performance Audit Guidelines, ISSAI 3000, 4.4 stipulates that ‘a
performance audit may run for a long time, and there may be changes in
knowledge and reality from the point in time when it started. In performance
auditing it is often difficult to make a choice between the directions set out in the
work plan and the description of the audit’s structure on the one hand, and the
interest in studying questions that arise at a later date on the other. To avoid
getting caught up in details and a flood of data, detailed assessments of the
need for information must be made both before and during the audit. Based on
experience, this makes it easier to eliminate extraneous detail and irrelevant
approaches, and to sort or structure the information gathered. Again, however,
the auditors must not be rigid and avoid all unplanned data gathering.’

3.32 Senior audit management should be involved in any decision to widen the scope of
the audit. They may decide that this extra work should be identified as part of a future
audit, rather than an extension of the current one. It is essential that the auditee is
advised in writing that the scope of the audit is to be widened. Senior audit management
may be involved in negotiations with the auditee. Where it is prudent to do so, the
reasons for widening the scope should also be explained. The audit objectives and scope
are closely interrelated, and since changes in one usually affect the other, they need to be
considered together.

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Lines of Enquiry
3.33 After selecting a suitable project for performance audit and establishing the audit
objectives and scope, it is important to identify significant lines of enquiry or identifying
issues of significance to pursue in the audit.

Factors for Identifying Key Areas

3.34 A rational approach to identifying key areas of a selected project involves analysis
of entity information on the basis of valid factors. While there could be a variety of
factors that may be considered by audit teams in different SAIs. Some of the more widely
used factors are:
• significance;
• risk to management;
• likely impact of audit;
• audit-ability.

Significance
3.35 The significance of an audit area should have regard to the magnitude of its impact
on the project as a whole. It will depend on whether the activity is comparatively minor
or whether shortcomings in the area concerned could flow on to other activities within
the project.
3.36 Financial materiality is an aspect of significance. This factor is based on an
assessment of the total value of government assets, annual expenditure and/or annual
revenue of the auditable area. The more material an area is, the higher is its priority for
selection as a line of enquiry. It is analogous to financial materiality in financial audit.
However, significance in performance audit is a wider concept than financial materiality.
3.37 Significance will rate highly where the activity is considered to be of particular
importance to the success of the project and where improvement would have a significant
impact on the operations of the project. A low ranking in relation to ‘significance’ would
be expected where the activity is of a routine nature and the impact of poor performance
would be restricted to a small area or be likely to have minimal impact.
3.38 Visibility is another aspect of significance. It is more the external impact of the
activity. It is related to the social, economic and environmental aspects of the activity and
the importance of its operations to the government and the public. In considering this
factor, some weight would be attached to the impact of an error or irregularity in this area
of activity on the management’s accountability to the public. It would also have regard to
the degree of interest shown by the legislature and public in that area of activity.

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Risk to Management
3.39 The auditor should assess the risk that the management of the area to be audited
is deficient in economy, efficiency and effectiveness.
3.40 Evidence of risk to good management includes:
• management inaction in response to identified weaknesses;
• adverse comment by the legislature or media;
• non-achievement of stated objectives;
• high staff turnover;
• significant under spending or overspending;
• sudden program expansion;
• overlapping or confused responsibility relationships.
3.41 A project’s activity that is complex to manage and operates in an uncertain
environment is more likely to increase risk to management. Some possible indicators of
high complexity and uncertainty are:
• highly decentralised operations with a multiplicity of interested parties;
• use of rapidly changing and sophisticated technology;
• a dynamic and competitive environment; and
• controversial social and political debate surrounding the issue.

Likely Impact of Audit

3.42 Of major importance in identifying the lines of enquiry is the added value expected
from the audit. A preliminary estimate of the likely benefits from a particular line of
enquiry should be made at the planning stage itself. If detailed audit enquiry into a
particular area of the selected project is not likely to have any significant impact, then
audit recommendations are unlikely to generate appropriate action. While considering
this factor, the question that the audit team needs to answer is ‘is the audit likely to make
a difference?’ If detailed audit in the concerned area of the project is not likely to make a
difference, then there would perhaps be no justification in applying limited audit
resources in that area at the expense of other areas of the project also demanding audit
investigation.
3.43 The following list of possible impacts classifies benefits by reference to economy,
efficiency, effectiveness, planning, control and management and accountability:
Economy
• introduction of charges where none were previously imposed, or revision of
charges;
• reduction in costs through better contracting, bulk buying, etc.;

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• reduction in costs through economies on usage of personnel or other resources;

• rationalisation of facilities.
Efficiency
• greater outputs from same inputs;
• remedying duplication of effort or lack of coordination.
Effectiveness
• better identification/justification of need;
• clarifying objectives and policies;
• introducing better sub-objectives and targets;
• better achievement of objectives by changing nature of outputs or improved
targeting.
Improved Planning, Control and Management
• introduction of or improvements to management planning;
• clearer definitions of priorities and better-defined targets;
• better-targeted incentives;
• better control and management of human resources, assets, projects and
resources;
• tighter controls against fraud;
• improved financial accounting systems;
• better financial management information;
• better computer security.
Improved Accountability
• improved external control and monitoring by the department/ministry;
• better and/or more accurate performance indicators;
• better comparison between similar organisations;
• clearer and more informative presentation of information.
3.44 The greater the opportunities for audit impact, higher the priority to be given to
that area of the project.

Audit-ability
3.45 Audit-ability relates to the audit team’s ability to carry out the audit in accordance
with professional standards. A variety of situations may arise that may cause auditors to
decide not to audit a particular area of a selected project even though it is significant. In
reaching such a decision, auditors may consider:

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• the nature of the activity is inappropriate; for example, it may not be practical to
attempt to audit the technical considerations of a research facility;
• it does not have or cannot acquire the required expertise;
• the area is undergoing significant and fundamental change;
• suitable criteria are not available to assess performance.
3.46 The significance, risk, likely impact of audit and audit-ability of an area activity will
influence prioritising in identifying lines of enquiry. If an area of the project is ranked
highly on all or most of these elements, it would be identified as a key area for detailed
audit enquiry.
3.47 The factors that we have described above are the basis for a systematic approach to
assisting the auditor in applying judgement in selecting audit projects. Using these factors
when supported by valid information and data will help auditors in allocating scarce
resources for the audit projects.
3.48 Having done this it is useful, to set out the approach the audit team will use.

Determine the Audit Criteria

3.49 Audit criteria are a key component of a performance audit. Audit criteria are
assertions that the activity being audited is being managed in a way that will achieve the
various performance objectives. The specific objectives to be tested are determined by
the scope of the audit but may include the explicit objectives of the program and also
those of efficiency, economy, safeguarding of assets, security, probity, compliance and
financial regularity. If the audit criteria are not set, there will be no basis for comparison
or measurement and consequently no basis for arriving at audit findings, conclusions and
recommendations.
3.50 The word ‘criteria’ is the plural of ‘criterion’ which means a rule, a standard or a
test by which something can be judged. Audit criteria, therefore, are a set of reasonable
and attainable standards of performance against which the achievement of program
objectives can be assessed. In other words, audit criteria reflect a normative or desirable
model for the subject matter under review. They represent good practice, a reasonable
and informed person’s expectation of ‘what should be’.
3.51 Examples of simple criteria are ‘government assets should be used only for
authorised purposes’ or ‘ministry financial instructions should be complied with.’
Specifying the audit criteria will enable the auditor to construct an audit test program that
will allow the auditor to find out if reasonable expectations are met.
3.52 The use of audit criteria is similar to the use of hypothesis testing in financial
statement auditing. In performance auditing the hypothesis being tested is ‘that this
criterion is being achieved by the activity’.
3.53 Relevant criteria arising from laws or regulations carry the force of law. Policies
and procedures of the agency are, by definition, accepted by the agency. For example, in

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an audit of teacher absenteeism, a criterion might be ‘teachers should attend school in

accordance with their conditions of employment’.
3.54 The selection or development of audit criteria becomes more complex where there
are no appropriate readily available criteria. Other externally sourced criteria such as
professional standards, industry best-practice, expert opinion or available bench-marks
may require the auditor to demonstrate that they are applicable to the activity being
audited.
3.55 Sometimes criteria are not as relevant as they seem to be. If, for example,
compliance with existing financial instructions will not ensure value for money, then
testing to determine whether instructions have been complied with is neither reliable nor
sufficient to form a conclusion that value for money is achieved.
3.56 Likewise if the government rules regarding what use of government assets is
authorised are vague or non-existent, then the auditor must analyse the activity to
develop a more relevant criterion.
3.57 In developing audit criteria, it is also important that they are organised in a logical
manner so that the audit examination can be conducted as rationally and efficiently as
possible.
3.58 In framing audit objectives as questions, the audit criteria are included in the
question. For example ‘are teachers attending school in accordance with their conditions
of employment?’ Audit procedures should then be developed to allow the auditor to
answer this question with confidence.

The Characteristics of Functional Audit Criteria

3.59 The auditor should be satisfied that suitable criteria have been identified to
enable the auditor to assess the activities subject to audit and to achieve the audit
objectives. Some characteristics of suitable criteria are explained below. Ultimately, the
relative importance of the characteristics of the audit criteria is a matter of professional
judgement.

ISSAI 3000, Appendix 2 identifies the following characteristics of suitable criteria:

• Reliability Comparability
• Objectivity Completeness
• Usefulness Acceptability
The auditor may also consider the following characteristics for determining the suitability
of criteria:
• Relevance Unambiguous/Understandable

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Reliability
3.60 Reliable criteria result in consistent conclusions when used by another auditor in
the same circumstances.
The criterion ‘goods and services are only procured after an objective competitive
evaluation of the most likely possible suppliers’ is reliable if another auditor can
determine that the statement is the benchmark against which the auditee should procure
its goods and services.

Objectivity
3.61 Objective criteria are free from any bias on the part of the auditor or
management.
3.62 The auditor should examine every audit criteria with a critical eye to make a
judgement as to whether or not they have been developed independently. The
criterion ‘goods and services are only procured after an objective competitive evaluation
of the most likely possible suppliers’ is objective because it is based on a widely accepted
business principle that applies to any purchases where a competitive marketplace exists.

Usefulness
3.63 Useful criteria result in findings and conclusions that meet users’ information
needs.
The criterion ‘goods and services are only procured after an objective competitive
evaluation of the most likely possible suppliers’ would not be useful if an audit was
requested of the effectiveness of the auditee’s contract administration process and not its
procurement process.

Comparability
3.64 Comparable criteria are consistent with those used in performance audits of other
similar agencies or activities and with those used in previous performance audits within
the agency.
The criterion ‘goods and services are only procured after an objective competitive
evaluation of the most likely possible suppliers’ is promulgated by laws governing public
entities. Therefore, it is considered to meet the comparability characteristic.

Completeness
3.65 Completeness refers to the development of all significant criteria appropriate to
assessing performance in the circumstances. To ensure that criteria have been
established for all significant aspects of performance within the scope of the audit, the
auditor should go through each significant aspect of the activity and map it against each

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aspect of the audit scope. For example, in an audit of the delivery of education in
determining the audit scope the auditor may identify human resource management,
effectiveness of teaching, suitability of school facilities and access to teaching materials as
the significant aspects of the activity and the audit may be reviewing effectiveness,
economy and probity. The auditor would first examine human resources management and
decide if criteria were needed for effectiveness and then for economy and then for
probity.
3.66 As far as effectiveness is concerned the audit criteria would revolve around the
hiring of suitably qualified staff and having an appropriate number of staff. As well,
consideration would be given to their ongoing training and development, performance
review and management and perhaps disciplinary or remedial procedures for poor
performance.
3.67 The auditor should go through each significant aspect one by one, to ensure that
they have identified the necessary criteria for each aspect of the activity, for each
performance element in the audit scope.

Acceptability
3.68 Acceptable criteria are those to which the audited agency, legislature, media and
general public are generally agreeable. The most acceptable criteria are those which the
agency has already endorsed. It is difficult for an agency to argue that its own internal
policies and procedures do not have to be complied with.
3.69 Making a case for accepting audit criteria often starts with ‘basic truths’ and
logically constructing criteria from there. For example:
Basic truth: government purchases should provide the best value-for-money to the
government. While this basic truth cannot be argued, some auditees will interpret ‘value-
for-money’ as ‘cheapest’ and the difference between these two terms may need to be
explained to the auditee. The statement is not suitable as a criterion, however, because
‘best value for money’ is too vague and difficult to determine and cannot be used as a
benchmark in this form.
3.70 In theory, the way to get best value is to collect bids or prices from all suppliers
who can provide suitable goods or services. Contacting all possible suppliers is generally
neither possible nor economic so this is not suitable as a criterion. An audit criterion needs
to be practical and this theory should be modified so it provides an acceptable
benchmark. The entity should canvass a sufficient number of appropriate suppliers to be
reasonably sure that there are no suppliers who are going to be able to provide the goods
or services at a greatly reduced cost.
3.71 A more useful audit criterion then becomes, ‘goods and services are only procured
after an objective, competitive evaluation of the most likely possible suppliers’.

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Relevance
3.72 Relevant criteria link the audit objectives with the activity objectives within the
scope of the audit. If the auditor is developing a criterion to assess the effectiveness of an
activity then it would not be relevant to include aspects of cost or economy, which would
have their own criteria.
3.73 In an audit of electoral education, for example, a criterion that would consider
effectiveness would be ‘all potential voters have ready access to material which will allow
them to know their rights and responsibilities in the electoral process.’ It may be that for
reasons of cost, many voters do not have this access, but inserting the phrase ‘where it is
cost-effective to do so’ would change the nature of the criterion and make it less effective.
It is far better to have a criterion relevant to effectiveness and another relevant to cost.
3.74 The criterion ‘goods and services are only procured after an objective competitive
evaluation of the most likely possible suppliers’ is relevant because it indicates one thing
that should be done to ensure that procurement achieves value for money or economy.

Unambiguous/Understandable
3.75 Unambiguous criteria are clearly stated and are not subject to significantly
different interpretations. If a criterion can be interpreted in more than one way, then it is
possible that management and audit will see the same criterion differently. It is also
possible that the audit team member making findings against the criterion will see things
differently to the audit manager, so the manager will not get the audit he or she expected.
After drafting, every criterion should be closely reviewed to ensure that it means one
thing and one thing only.
3.76 The criterion ‘goods and services are only procured after an objective competitive
evaluation of the most likely possible suppliers’ is relevant because it is not subject to
interpretation. The phrases ‘an objective competitive evaluation’ and ‘possible suppliers’
can only mean one thing. The use of the phrase ‘most likely’ is less specific and is subject
to a reasonableness test, ‘who could reasonably supply these goods or services?’ but an
independent person would mostly come up with the same answer to this question. These
characteristics should be considered together when identifying criteria and deciding on
their suitability.
Figure 2, a Model of Government Performance Expectations, includes descriptions of
various types of performance measures that could be used as a basis for criteria.

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Figure 2. A Model of Government Performance Expectations

Government performance expectations

Mission performance goals

Input Process Outcome Output
Economy Efficiency Effectiveness Effectiveness
Financial Quantity Mission & Outcome
Amount, timing Productivity Quality: products, Goal Achievement
Physical Unit Cost delivery Financial Viability
Quantity, quality Operating Ratios Timelines Cost-Benefit
Timing, price Price/cost Cost-Effectiveness
Crosscutting Performance Goals
Compliance with Laws and Regulations
Resources – Safeguarding - Infrastructure
Continuous Improvement
Reliability, Validity, Availability of Information
Underlying Values
Customer and Stakeholder Satisfaction

Sources of Audit Criteria

3.77 The audit team will need to identify or develop audit criteria that are valid for
the nature of the activity under review. These may include quantitative and/or
q u a l i t a t i ve measures. To avoid the necessity o f c r e a t i n g criteria from first
principles for each audit, the audit team should investigate the following sources:
• laws and regulations;
• legislative or executive decisions;
• historical comparisons;
• professional standards;
• key performance indicators of the auditee;
• independent expert advice;
• new or established scientific knowledge ;
• criteria used previously in similar audits;
• agencies carrying out similar activities; and

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• performance standards used by the agency, or previous enquiries by the

legislature;
• general management and subject matter literature;
• the internal policies and procedures of the organisation;
• government-wide policies and procedures;
• professional organisations and standard-setting bodies;
• criteria published by other SAIs.
3.78 These sources provide a basis for the development of suitable criteria for the
audit, but may require interpretation and modification to ensure their relevance to
the agency (see Figure 3 below). One source of criteria can be internationally accepted good
practice processes.

Figure 3. Components of the Waste Stream Used as Sub Criteria

The Solid Waste Management audit adopted components of the waste stream
as sub-criteria against which to ‘test’ approaches to managing waste in the
10 Pacific Islands participating in the audit. This is presented diagrammatically below.
The Waste Stream

Source: INTOSAI Working Group on Environmental Auditing, TOWARDS

AUDITING Waste.

3.79 Criteria must be realistic and take into account the context of the agency.
However, if the agency has established its own performance criteria, the auditor should
examine these critically to assess whether they are suitable for audit use. Appendix 4
provides a listing of common performance objectives for government agencies and is a

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useful starting point for developing audit criteria for some performance audits. The multi-
faceted role of criteria is also discussed in this Appendix.

Determine the High-Level Approach to Audit

3.80 In determining the audit approach, it is important to identify probable types and
sources of evidence and how the audit team will gather this information for the previously
determined audit criteria. These can be identified before the more detailed work plan is
developed. See Chapter 4 on how this is done. At this stage, the audit approach is a basic
skeleton to inform SAI decision makers of the team’s proposed approach to the audit.
Figure 4 below, provides an Example of an Audit Approach.

Figure 4. Example of an Audit Approach

Line of Enquiry: Evaluation of Options
Audit Objective: To determine if the need for the project was properly established to
ensure that desired results were achieved at an appropriate cost
Type(s) of
Probable sources of Suggested audit
Criterion evidence
evidence technique(s)
required
1.A formal project
Project appraisal report;
needs definition
Documentary; project manager, members
should be carried out Document review,
testimonial; of the committee on public
prior to interviewing; photography
Physical works, samples of
commencement of the
rehabilitated roads
project
Project need definition
2. The project needs
report; proceedings of any
definition should be
committee set-up for
carried out and Documentary; Document review,
defining project needs;
reviewed by persons testimonial interviewing
project manager; members
technically qualified
of the committee on public
for the task.
works
3.The project needs
should be stated in
Documentary Project appraisal Document review
specific measurable
terms
4.Adequate funds
should be allocated for Documentary;
Project budget, project Document review, data
this stage of the testimonial;
manager analysis, interviewing
project management analytical
project
5. Decision making in
the needs definition Project approval file
process should follow Documentary recommendations of the Document review
an objective, rational committee on public works
approach.

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Estimate Resources and Timing

3.81 The estimation of resources and timing of the audit will be a task for the audit
manager, who should prepare a budget and schedule for the audit. The proposed audit
timing and budget should be approved by the relevant senior management, which in
many cases will be the head of the SAI.
3.82 Once the audit proposal (with a work plan) has been prepared, the audit manager
will review these estimates to ensure that sufficient time and resources are allocated to
the audit to address the issues identified and respond to each of the audit criteria.

Staffing the Audit

3.83 Audit management will decide which particular auditors will be assigned to an
audit and will take into account such things as:
• capability and experience of individual staff members;
• special expertise requirements;
• development needs of staff; and
• staffing combinations e.g. placing experienced and inexperienced staff together.
3.84 If the experience or expertise requirements of the audit cannot be met by available
SAI staff, consideration should be given to engaging experts to work with the audit team.
(See the PASAI Human Resource Manual for guidance on the use of consultants and
outsourcing)

Approve the Audit Proposal

3.85 Senior SAI management should be kept informed of and involved in the
development of the audit proposal. However, it is also necessary for the audit team to
seek head of SAI approval to proceed with the audit. This formal approval is necessary not
just for internal SAI quality assurance but also as a basis for the head of SAI to inform an
agency that they will be the subject of an audit and provide them with the high-level
specifics of the audit.

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4. EXECUTING THE PERFORMANCE AUDIT

Introduction
4.1 The main purpose of the audit is to execute the audit program by conducting the
audit in an efficient and effective way in order to achieve the audit objectives and criteria
and, at the end, producing a high-quality report.
4.2 Once a decision has been made to conduct a full audit, the auditor should develop
a detailed audit program/plan to specify how the audit criteria should be tested and
identify possible means of collecting appropriate evidence against each audit criterion.
This includes developing sub-criteria or control objectives. The auditor then develops
tests to confirm whether or not these sub-criteria or control objectives have been met.
The auditor must ensure that for every sub-criteria or control objective there is least one
audit test.
4.3 The audit objectives and criteria in the detailed audit plan will normally be tested
by appropriate audit methods that include:
• observing, interviewing and questioning;
• documenting, testing and checking; and
• analysing data.
4.4 During the implementation of the audit the processes evolve gradually through
interaction with the auditee and through developing an improved understanding of the
way the activity is managed.

Auditee Liaison
4.5 Establishing a professional working relationship and careful management of
communication with the auditee while maintaining audit independence, is an essential
facet of an effective audit. To enhance the good relationship, this includes not only the
correspondences and consultations between the auditee and the auditors but also
maintaining their cooperation throughout the process is important. The correspondence
includes the following.

Formal Advice of the Audit

4.6 It is in the interest of both the auditor and the auditee that the auditor sends a
letter or memo to the auditee before the start of the audit field work. This documentation
is important to avoid misunderstandings about the proposed audit. This letter is similar in
some respects to the engagement letter in a financial audit and some SAIs use this
terminology. Other SAIs do not use the term ‘engagement letter’ but often provide a
‘terms of reference’ or just a letter or memo setting out what the auditee needs to know.
4.7 The letter should explain the mandate under which the SAI is performing the audit
and the obligation of the auditee under the relevant legislation to cooperate with the SAI
and provide access to records and staff and the objective and scope of the audit. This

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letter should also advise the auditee of what will happen at the end of the audit and the
consultation process for the discussion papers and the draft report. It is also useful to
emphasise the positive nature of the audit and that the SAI will be seeking to develop
recommendations which will assist auditee management. An example of a letter providing
formal advice of the commencement of a performance audit is provided in Figure 5 on
page 58.

Entrance Meeting/Entry Conference

4.8 Upon approval of the audit program the audit manager arranges with the auditee
for a formal meeting prior to the official commencement. This is to communicate relevant
information contained in the program to management. The objectives of the entry
meeting/entrance conference are to:
• enable the audit team to meet the key auditee staff;
• discuss the audit program i.e. identifying the audit objective, audit scope and the
audit work to be performed (a copy of the audit program should be supplied for
the auditee);
• establish suitable liaison arrangements both at the management and working
levels including arrangements for continuous cooperation between the parties;
• ensure the auditee clearly understands the audit processes, including a description
of access powers and the steps taken to safeguard the confidentiality of the
information obtained and the audit issues before issuing the audit opinion;
• outline the auditee’s responsibilities, clarify any queries or misunderstandings the
auditee may have and inform the auditee of the expected timeframes of the audit.
4.9 Depending on the nature of the audit, careful consideration needs to be given to
the level of the SAI and agency representatives at the entry meeting/entrance
conference. The entry meeting/entrance conference must be documented.

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Figure 5.. Example of Formal Advice of an Audit

Source: Office of the Public Auditor, Guam, 2009

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Consultation during Audit

4.10 Throughout the audit, a continuous constructive process of interaction between
the parties should be properly maintained. This is to ensure the success of achieving the
audit objective. It is good practice that the auditee is provided with regular briefings on
the progress on the audit. This allows for a number of benefits which include:
• enabling management or the responsible officers to comment on or clarify any
arising incongruity during the audit;
• providing the management with the opportunity to place a different perspective
on audit findings;
• drawing on management’s experience in assessing recommendations for
improvement;
• advising management of issues requiring early corrective action.
4.11 Allowing an audit to be carried out in such a cooperative manner means there is a
much greater possibility of suggestions for improvement being seriously considered by
auditee management. It is important that the audit team members maintain an objective,
independent and professional attitude. They should also exercise professional judgement.

Developing the Audit Test Program

4.12 Audit test programs (referred to here as test programs) are guidelines for action
during the execution phase of the audit. Test programs set out the detailed audit
procedures for cost effective collection of evidence.
4.13 Developing test programs for carrying out audits provides assurance that there is a
key link between the audit objectives and the conduct of an audit. In this respect audit
programs serve as:
• a guide for gathering competent, relevant, sufficient evidence during the execution
phase of the audit in a cost effective way;
• a framework for assigning work amongst the members of the audit team;
• a means of transferring knowledge to junior staff; and
• a basis for documenting the work done and the exercise of due care.
4.14 Test programs need to be developed after obtaining an understanding of the
entity, defining audit objectives and scope, establishing audit criteria, and deciding on the
audit approach because these constitute the key inputs of an audit program. At the same
time, the test program should be developed before proceeding to gather evidence so that
the actual evidence gathering process is efficient and effective. However, it must be
remembered that in real life all these stages are iterative. In other words, we may have to
revisit and partially modify our audit objectives, scope and audit criteria while developing
the test program in order to make our test program more focused. We may also have to
revisit our test program after commencing the execution phase if, for example, it is found

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that certain sources of evidence suggested in the test program turn out to be
inappropriate.

Audit Techniques
4.15 This refers to methods/techniques used by the auditor to gather evidence.
Examples include (among others) documentation review, interviews, questionnaires,
data analysis and physical observation.

Audit Procedures
4.16 Audit procedures refer to the action steps to be taken to execute an audit
technique, systematically and reasonably. Figure 6, is a case example of the development
of audit procedures that may be carried out for the audit technique ‘document review’
against the criterion ‘a formal project needs-definition should be carried out prior to
commencement of the project’:
Figure 6. Example of an Audit Procedure

Name of the project: Road rehabilitation and maintenance project

Line of enquiry: Evaluation of options
Audit objective: To determine if the need for the project was properly
established to ensure that the desired results were achieved
at an appropriate cost.
Criterion: A formal project needs-definition should be carried out prior
to commencement of the project.
Audit technique: Documentation review

Audit procedures: 1. Review the project needs-definition segment of the project

appraisal report.
2. Obtain information to verify whether survey of users was
conducted, traffic volume statistics were collected and
anticipated growth in traffic determined.
3. If verification at Step 2 above is positive, determine whether
the data was gathered and reported in a systematic manner
supported by appropriate methods.
4. Conclude whether the criterion has been met
5. Note any exceptions.

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Detailed Test Program

4.17 The detailed audit program should:
• establish a clear relationship between audit objectives, audit methodology, and the
anticipated field work to be carried out;
• identify and document the procedures to be p erformed;
• provide a basis for more detailed audit planning once the audit team has started to
collect and analyse information; and
• facilitate supervision and review.
4.18 As a minimum, the detailed audit plan should set out and specify:
• objectives and sub-objectives of the activity being audited; these should include the
explicit objectives of the activity but also the universal implicit ones of economy,
compliance, financial regularity etc unless they have been excluded from the scope of
the audit.
• audit criteria to be applied to test whether the objectives are being met;
• the timeframe of the activity to be covered;
• procedures/techniques for collecting the evidence;
• the allocation and timing of tasks to be performed by audit team members; and
• other specific requirements as necessary.
Figure 7 below is one example of a detailed audit program while Appendix 6 includes
another sample of a detailed audit program.
Figure 7. Example of a Detailed Audit Program
Line of Enquiry: Project options should be evaluated against project objectives
Criterion: A formal project needs-definition carried out Done By Date
prior to commencement of the project
Audit Procedures:

Review the project needs definition segment of
the project appraisal report.

Obtain information to verify whether a survey of
users was conducted, traffic volume statistics
were collected and anticipated growth in traffic
determined.

If verification at step 2 above is positive,
determine whether the data was gathered and
reported in a systematic manner supported by
appropriate methods

Conclude whether the criterion has been met

Note any exceptions

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4.19 As the processes evolve gradually throughout the audit, the auditor must perform
further revision of the detailed audit program to ensure the validity (methods should
measure what they are intended to measure) and reliability (findings should remain
consistent if studies are made repeatedly in the same environment) of methods to be
used to collect and analyse data.
4.20 The level of detail will depend on a number of factors:
• the number of criteria to be tested;
• the complexity of the audit issues to be tested;
• the extent of the audit. For example, for audit carried out in different geographical
locations, a detailed plan will be required to ensure consistency; and
• the level of the staff carrying out the audit. Where junior staff have responsibility for
carrying out fieldwork, a more detailed plan would normally be appropriate.
4.21 In carrying out planned audit procedures, additional information not explicitly
covered by the audit plan may come to light. In this case, the auditor should identify and
highlight the issues discovered and consult with audit management to assess whether the
audit program should be modified.
4.22 It is also important that auditors weigh the cost of obtaining information and the
additional value of the information to the audit. The auditor is intent on gaining enough
evidence to support an argument that the control objective is being met, or that it is not.
He or she should be careful not to gather more information than is needed to support this
argument because this would be a waste of expensive audit resources.
4.23 In the Figure 7 example, the test program may be:
‘Select a sample of ten purchases over the threshold amount from the general ledger
for the twelve months to 30 June.
Obtain the documentation for each purchase from the accounts payable section.
Review the tender board minutes for each purchase to ensure that each one has been
through the tendering process.’
4.24 Once an audit is underway, new issues may arise that require further
reconsideration and revision of the initial audit plan and specified criteria. However,
before adding new issues, the likely impact on the audit budget and timetable must be
considered. As noted previously, if these additions involve an increase in the scope of the
audit, then the auditee should be formally advised.

Fieldwork
4.25 The main steps in the fieldwork stage of the audit are:
• gathering and verifying audit evidence;
• analysing audit evidence; and

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• preparing audit working papers.

Audit Evidence
The INTOSAI Auditing Standards Glossary defines Audit Evidence as ‘Information that
forms the foundation which supports the auditor's or SAI's opinions, conclusions or
reports.’

Standard of Evidence
4.26 The standards for performance audits require that the auditor retain a record of
the work in working papers, have procedures for their preparation, and support the
findings and conclusions in the report through evidence.
Audit procedures should be aimed at fulfilling the INTOSAI Field Standards 300,
0.3(d), which states: ‘Competent, relevant and reasonable evidence should be
obtained to support the auditor's judgement and conclusions regarding the
organisation, program, activity or function under audit.’
Evidence should also be sufficient for the auditor to form an opinion.

Competency of Evidence
4.27 Evidence is competent (valid and reliable) if it actually represents what it purports
to represent. The reliability of evidence can be ensured and assessed by considering that
corroboration of evidence is a powerful technique for increasing reliability. This involves
the auditor looking for different types of evidence from different sources:
• evidence sourced from outside the agency is normally viewed as more reliable for
audit purposes than information generated within the agency;
• documentary evidence is usually considered to be more reliable than oral
evidence;
• evidence generated through direct auditor observation or analysis is more reliable
than indirectly obtained evidence;
• the reliability of agency-generated information will be a function of the reliability
of the agency’s internal control systems and its reliability will need to be assessed
if audit teams use it as a source of evidence;
• oral evidence that is corroborated in writing is more reliable than oral evidence
alone; and
• original documents are more reliable than photocopies (if originals are reviewed
the auditor should note the source of the original and the date copied).
Photocopies of evidence regarded as being of significant importance to an audit
should, whenever possible, be certified by relevant authorities, unless the auditor
has sighted the original document.
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Relevance of Evidence
4.28 Relevance requires that the evidence bear a clear and logical relationship to the
audit objectives and to the criteria. As noted in the previous chapter, one approach to
planning for data collection is to list, for each sub-criterion, the nature and location of
evidence that is needed, as well as the audit procedure that is to be implemented.

Reasonable and Sufficient Evidence

4.29 Reasonable evidence is economical in that the cost of gathering it is
commensurate with the result which the auditor or the SAI is trying to achieve. Sufficient
evidence would be that amount of information needed for a knowledgeable person to
understand and accept the auditor’s conclusions. Auditors should prepare and maintain
audit documentation in the form of working papers. Working papers which record the
work done in planning, conducting, and reporting on the audit should contain enough
information to enable an experienced auditor, who has had no previous connection with
the audit, to understand the evidence that supports the auditors’ judgments and
conclusions. Audit managers should ensure that working papers provide persuasive
support for findings, conclusions, and recommendations before the report on the audit is
issued.
4.30 Auditing standards require that the auditor should obtain sufficient appropriate
audit evidence to be able to draw reasonable conclusions on which to base the audit
report. Auditors need to continually ask themselves two questions. ‘Does this evidence
relate to audit criterion being assessed?’ and ’Do I have enough evidence to form a
conclusion?’
4.31 The first of these questions is simple to answer and is a matter of logic and
judgement. The second is more complex and requires the auditor to consider whether the
evidence would persuade a reasonable person that the finding should be accepted. In
deciding how much weight the ‘reasonable person’ would place on the evidence, the
auditor must take account of the status of the document. For example, first hand
evidence is better than hearsay evidence, documentary evidence is more convincing than
oral evidence, final documents are more conclusive than draft documents. The other
factor to consider is how much evidence will be needed to persuade stakeholders of the
validity of the finding.
4.32 The factors that dictate the strength of evidence required to support an
observation in performance auditing include:
• level of materiality or significance of the observation;
• degree of risk associated with coming to an incorrect conclusion;
• experience gained in previous audit examinations on the degree of reliability of the
agency’s records and representations;
• known agency sensitivity to an issue; and

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• cost of obtaining the evidence relative to the benefits in terms of supporting the
observation.
4.33 Evidence gathered during a performance audit may be predominantly qualitative
in nature and requires extensive use of professional judgement. Accordingly the auditor
would ordinarily seek corroborating evidence from different sources or of a different
nature in making assessments and forming conclusions.
4.34 When planning the audit, the auditor would identify the probable nature, sources
and availability of audit evidence required. The auditor should consider such factors as the
availability of other audit reports or studies and the cost of obtaining the audit evidence.

Characteristics of Performance Audit Evidence

4.35 In performance audit terms, audit evidence concerns the facts or information
used:
• to conclude whether an agency’s management and employees have carried out
appropriate actions to conform to operational principles, policies or standards for
using resources effectively, efficiently and economically; and
• to demonstrate to a third party that the auditor’s findings are credible and
defensible.
4.36 Auditors need to be aware of potential problems or weaknesses with performance
audit evidence. Potential problems include:
• evidence is based on a single source (this may impact on reliability, validity and
sufficiency);
• oral evidence is not supportable by documentation or observation (reliability);
• evidence is time-sensitive, i.e. outdated and does not reflect changes (relevance);
• evidence is too expensive to obtain relative to benefits (relevance and sufficiency);
• the source of evidence has a vested interest in outcome (reliability);
• samples collected are not representative (relevance, validity, sufficiency);
• evidence may be related to an isolated occurrence (validity, sufficiency);
• evidence is incomplete, i.e. does not demonstrate a cause or effect (reliability,
sufficiency); and
• evidence is conflicting (reliability).

Types of Evidence
ISSAI 3000, 4.3 categorises evidence as to its type - physical, documentary, testimonial, or
analytical.

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Physical Evidence
4.37 Physical evidence is obtained through direct inspection or observation of people,
property, or events. The evidence can take the form of photographs, charts, maps, graphs,
physical samples, memoranda summarizing the matters inspected or observed, and other
sources. A picture of an unsafe condition is far more compelling than a written
description.
4.38 When the observation of a physical condition is critical to achieving the audit
objectives it should be corroborated. This may be achieved by having two or more
auditors make the observation, if possible accompanied by representatives of the agency.

Documentary Evidence
4.39 Documentary evidence in physical or electronic form is the most common form of
audit evidence. It may be external or internal to the agency. External documentary
evidence may include letters or memoranda received by the agency, suppliers’ invoices,
leases, contracts, external and internal audits and other reports, and third-party
confirmations. Internal documentary evidence originates within the audited agency. It
includes items such as accounting records, copies of outgoing correspondence, job
descriptions, plans, budgets, internal reports and memoranda, statistics summarising
performance and internal policies and procedures.
4.40 The reliability and relevance of documentary evidence should be assessed in
relation to the objectives of the audit. For example, the existence of a procedures manual
is not evidence that the manual is put into practice. As with testimonial evidence, the
position, knowledge and expertise of the author or approver of the document may need
to be assessed.
4.41 Documents that are the output of management information and control systems
(eg. the accounting system) will need to be assessed in the light of the internal controls
that operate within that system. Auditors who intend to rely on such evidence should
assess the system’s internal controls.

Testimonial or Oral Evidence

4.42 Testimonial evidence is obtained through responses to enquiries, surveys, or
interviews that can provide important leads, not always obtainable through other forms of
audit work. They can be made by employees of the agency, beneficiaries and clients of the
program being audited, experts and consultants contracted to provide corroborating
evidence on an audit, and by members of the general public.
4.43 Corroboration of testimonial evidence is required if it is to be used as evidence
rather than simply as background. This could be by:
• written confirmation by the interviewee;
• weight of multiple independent sources revealing the same facts; or

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• checking records later.

4.44 In assessing the reliability and relevance of testimonial evidence the auditor needs
to have regard to the credibility of the interviewee; that is, the position, knowledge,
expertise and forthrightness of the person being interviewed.

Analytical Evidence
4.45 Analytical evidence is compiled by the audit staff from other types of evidence. It
includes computations, comparisons, rational arguments, interpretations, and the
separation of information into components. The quality of analytical evidence depends on
the accuracy and reliability of the data used, the level of detail, and the logic applied in the
audit.

Gathering Evidence
4.46 Collection of evidence takes place during both the preliminary study and
examination phases of an audit. Work done in the preliminary study phase also
constitutes part of the overall evidence. Auditors should:
• examine the characteristics of data required;
• collect data relevant to the achievement of the explicit audit objectives;
• collect data based on the audit criteria outlined in the audit work program of the
audit plan;
• collect data which is sufficient and persuasive to logically support the analysis,
observations, conclusions and recommendations; and
• apply the standard of evidence to build a successful case ‘on the balance of
probabilities’.
INTOSAI Performance Audit Guidelines, ISSAI 3000, 4.2, states that ‘data,
information, and knowledge are, broadly speaking, similar, linked concepts. Data
is the primary tool. Data, which has been compiled, is transformed into
information. Information, which is analysed and understood, will become
knowledge. Both qualitative and quantitative data may be collected for different
purposes during an audit, whether as part of the learning process, or in order to
describe and analyse an outcome or a problem.’

4.47 Types and sources of evidence are discussed in the following paragraphs.

Surveys
4.48 Surveys are a useful method of obtaining insight into the auditee’s activities. They
can be conducted over a number of different respondents or the whole population to

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obtain a different perspective on the auditee. For example, the survey population can be
from within the agency such as the staff members, the management level or outsiders
such as the suppliers, clients and others who work directly with the auditee.

Quantitative Analysis
4.49 Where applicable, the entire population should be analysed. Where this is not
feasible due to cost and time constraints, sampling techniques should be used. The
auditor should ensure that the sample selected should be examined to decide the most
appropriate sampling methodology. When using either a statistical or a non-statistical
sampling approach, the auditor should select an appropriate audit sample, perform audit
procedures on the sample and evaluate sample results so as to provide sufficient audit
evidence.

Sampling
4.50 Case examination provides an opportunity for in-depth studies while focusing on
assessing the efficiency of various services by analysing a sample of cases to obtain an
understanding of the precise workings of an activity (See Figure 8).

Figure 8. Example of Sampling

In the Fiji Islands Revenue and Customs Authority, the auditor may take a sample of
income tax assessments to evaluate the response time of the department to letters
received from taxpayers. Data would be tabulated to show dates on which letters were
received and processed and the dates of replies.
Source: The Fiji Performance Audit Manual

4.51 Auditors should be aware that sampling is a complex tool and they should ensure
they select a valid sample. For those who have not had training in sampling techniques,
the PASAI Financial Audit Manual provides information on these techniques.

Policy Statements and Legislation

4.52 Auditors should gather policy documents, operating guidelines, manuals,
ministerial directives, delegations, etc., and examine the background leading to their
development and distribution. Auditors should also consider changes to legislation and
the document trail leading to the need for change, for example, submissions, press
clippings, complaints, case histories and speeches.

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Published Program Performance Data

4.53 Published agency budget statements may provide evidence on the objectives and
performance of agencies. They include an agency overview and also provide financial and
other performance information.

Interviews
4.54 Interviews can be useful, but it is necessary to identify the appropriate people to
provide information, and to corroborate the oral information. Solid preparation for the
topic is essential and a pre-prepared list of questions is useful. In some cases, it may be
effective to supply this list to the interviewee beforehand.

File Examination
4.55 Information obtained from files provides strong evidence to support audit findings
and recommendations. A listing of files should be obtained from agency registry systems.
In addition, file information of relevance to a particular work area may be found in that
work area. Audit interviews may also give hints on which files to seek and review. Files
which may prove useful for review include those on:
• strategic and operational planning;
• management control;
• executive meeting minutes;
• complaints and disputes; and
• reviews and audits.
4.56 File examination is time-intensive, and it is usually not possible to examine all files.
Judgement must be exercised whether to examine a random selection or a selection
based on the purpose of the investigation. Usually the latter approach would be adopted
but, if time permits, a random sample of other files should be examined.

Management Reports and Reviews

4.57 Agencies usually generate a number of internal reports or reviews summarising for
senior management the issues at the time, or proposing courses for action. Auditors
should locate and analyse such reports. Ways of identifying these reports include
interviews and examination of minutes of management meetings.

Databases
4.58 Most agencies have some form of management information system that collects
relevant information for the conduct of operations. These systems can be important
sources of evidence, especially in quantifying relevant audit matters.

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Internet
4.59 Many agencies have their own internet website and intranet and much
information may be located there. It is also possible to find documents and reports
relating to an agency on the internet by using a web search engine e.g. Google, and
appropriate search terms. Auditors should always check the validity of documents found
on the internet, unless they are sourced from the agency’s own website or its intranet.

External Sources
4.60 Larger agencies may have sophisticated, specialist libraries relevant to their areas
of responsibility. Literature searching on relevant topics and key words can be particularly
useful.

SAI Sources
4.61 Evidence collected in previous audits or through the SAI strategic planning process
should be used if it is relevant.

Observation
4.62 The value of direct observation should not be overlooked. Observation of the
general demeanour of staff can give information about pressure, morale, or lack of work
which can then be followed up if thought appropriate.
4.63 However, careful consideration needs to be given to selecting activities or facilities
to be physically inspected. These should be representative of the area under examination.
Auditors should also be aware that people perform differently when they are being
observed.
4.64 This type of evidence can be regarded as ‘soft’ unless corroborated. Photographs
and video recordings increase the value of direct observation. Detailed description of the
results of the observations in written form is recommended.

Analysing Evidence and Developing Findings and Recommendations

ISSAI 3000, 4.5 details the importance of analysing data and drawing
conclusions. It is necessary to review audit evidence throughout the entire audit
process to ensure that it meets the standards of competency, relevance and
sufficiency so that the assessment, made by the audit team against the audit
criteria, is soundly based.

4.65 Instances where the auditee performance exceeds the expected performance (as
inferred from the audit criteria) are good practice and such findings should be reported.

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4.66 The process of analysing evidence, developing findings and producing

recommendations to resolve identified areas of underperformance is set out in Figure 9,
below.
4.67 The detailed evaluation of audit findings is generally completed during the
preparation of discussion papers for distinct segments of the audit or near the conclusion
of the fieldwork. However, some evaluation may extend into the reporting phase, as some
findings may be challenged by the agency and further evidence needs to be obtained to
substantiate the findings. It is at this stage that a final decision is to be reached on the
findings and recommendations and be ready for reporting.
4.68 Once an audit finding has been identified, two complementary forms of
assessment take place. These are the assessment of the significance of the finding and the
determination of the causes of increased performance or of the lack of performance
where performance is below the expected level.

Figure 9. The Process of Developing Recommendations

Audit criteria …..(what should be)

Audit evidence…..(what is)

Audit finding…..(variation between ‘what is’ and ‘what should be’)

Determine the cause and effects of the finding

Develop audit conclusions and recommendations

Estimate likely impacts of the recommendations whenever possible

Source: ISSAI 3000, 4.3

4.69 The comparison of observed conditions (what the auditor actually finds as a result
of the review) against audit criteria results in audit findings. Audit findings are based on
the identification of performance gaps such as where controls are deficient or ineffective
in mitigating risks.
4.70 Audit findings have often been regarded as containing the elements of criteria,
condition, effect and cause when problems are found. However the elements needed for

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a finding depend entirely on the objectives of the audit. Thus a finding or set of finds is
complete to the extent that the audit objectives are satisfied. The elements of a finding
contain the following:
• criteria - standards against which the adequacy of performance is assessed. They
represent a reasonable and informed person’s expectations of ‘what should be’.
When they are compared with what actually exists, audit findings are generated.
Failing to meet the criteria would indicate that improvements could be made.
Where possible, it is a good idea to identify the nature of such improvements or
even how they might be achieved;
• condition - what the auditor actually finds as a result of his review. It should be
compared to the criteria to assess if the condition falls short of the criteria;
• effect - impact of the gap or result of an event i.e. the consequences of the
condition falling short of the criteria. The effect of a finding may be quantifiable in
many cases such as making an estimation of the cost of expensive processes,
expensive inputs or unproductive facilities. Additionally, the effect of inefficient
processes, for example, idle resources or poor management may become apparent
in terms of time delays or wasted physical and other resources. Qualitative effects
as evidenced by a lack of control, poor decisions or lack of concern for service to
taxpayers may also be significant. The effect should demonstrate the need for
corrective action. The effect can also have occurred in the past, be occurring now
or possibly in the future.
To make a finding stand, be certain that, if the effect occurred in the past, the
situation has not already been remedied to prevent it from recurring. If observed
deviation from a criterion is of a minor nature, and is not likely to affect, in a
substantive way, over-all performance on accountability, the auditor may decide
to omit it from the audit report. Ideally, the report should contain only matters of
significance and matters that are worthy of attention;
• cause - reason(s) for occurrence of the gap/event. Identifying the cause provides
information on accountability relationships and provides the means to initiate
improvements. Some causes may be of a nature, which are beyond the control of
management such as natural calamities like floods or unanticipated realignment of
currencies leading to some distortions in comparing actual with budget;
• finding - this may be presented in discussion papers for comment by auditee
management. Auditee responses can then be documented and analysed. Where
the agency disagrees with the audit findings and recommendations, the reasons
for such disagreement should be fully analysed.
4.71 The auditor should identify the cause of a finding, as this will also form the basis
for recommendations. The cause is that which, if changed, should prevent similar findings
in the future. As mentioned, the cause may be outside the control of the entity under
audit, in which case the recommendation should direct attention outside the agency.
However the agency concerned should be provided with the relevant part of the report

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for comment. Figure 10 provides one model of the process of formulating findings. Figure
11 provides a sample
ple of a way to present the elements of a finding.
Figure 10. Model of the Audit Analysis P
Process

Source: USGAO training materials.

Figure 11. Case Example

xample on the Elements of a Finding.
Project Need Identification
Criteria Condition Cause Effect
a. The minimum a. The feasibility study a. All relevant costs were a. Ineligible road works were
Internal Rate of of the project was not considered during selected for rehabilitation.
Return (IRR) on carried out resulting investment evaluation.
project should be at in an IRR of 12%.
least 10%. However, on the basis
of actual costs
costs,
estimated IRR of rroad
A and D were 6.3%
and 5.7%
respectively.
ctively.

b. The decision b. Selection

ection of b. The DOR does not b. More beneficial and essential
making in the need projects is done on maintain detailed road projects might not have
definition process the basis of best information on roads to been selected.
should be based on judgement of D Director identify/ prioritize the
objective and General of projects.
rational approach. Department
epartment of Roads
Roads.
(DOR). Needs
identification is not
based on specific
procedures.

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Audit Documentation and Developing Working Papers

4.72 This section describes working papers, the purposes they serve, and the standards
they must meet. It describes the nature of evidence and explains how working papers are
organised, prepared, and reviewed.

The INTOSAI Field Auditing Standards 300, 5.5 and 5.6 state that:
‘Auditors should adequately document the audit evidence in working papers, including the
basis and extent of the planning, work performed and the findings of the audit…’ and that:
Adequate documentation is important for several reasons. It will:
• confirm and support the auditor’s opinions and reports;
• increase the efficiency and effectiveness of the audit;
• serve as a source of information for preparing reports or answering any enquiries from
the audited agency or from any other party;
• serve as evidence of the auditor’s compliance with auditing standards;
• facilitate planning and supervision;
• help the auditor’s professional development;
• help to ensure that delegated work has been satisfactorily performed; and
• provide evidence of work done for future reference.’

4.73 The auditor should also comply with the specific documentation requirements of
the SAI.

4.74 In summary, thorough documentation is a vital aspect of maintaining a

professionally acceptable level of auditing because:
• there must be an adequate and defensible basis for the audit opinions expressed in a
report;
• it enables auditors to explain audit findings better to the legislature;
• it provides an effective link between successive audits; and
• it provides a basis for quality assurance reviews.

Working Papers
4.75 Working papers are a record of work that is done on an audit. They include the
administrative materials maintained by the supervisor and/or auditor-in-charge and the
evidence collected and developed by audit team members during the project. They may
take the form of documents, interview notes, analyses, tapes, films, electronic records,
and other materials.

4.76 As used here, the term working papers refers to each document or piece of
evidence, the summaries and analyses of these documents, and also the body of compiled
evidence.

Purposes of Working Papers

4.77 The three primary purposes of working papers are to support the information
presented in the written report, especially the findings and recommendations, to help

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audit team members and supervisors and/or auditors-in-charge manage the work of the
project, and to allow others to review the audit’s quality.

4.78 As a management and supervisory tool, working papers:

• document progress towards achieving project objectives and showing the work done,
data collected, and methods used;
• assist supervisors and/or auditors-in-charge in monitoring the work and ensuring that
it is accurate and timely;
• assist in planning for and carrying out follow-up work;
• help audit team members organise the materials;
• facilitate report preparation.

4.79 As supporting evidence and to allow for the review of audit quality, working
papers:
• demonstrate that the project was performed in accordance with the required
standards;
• demonstrate that the findings and recommendations in a report are based on facts
and are reasonably concluded from the evidence;
• provide evidence to defend the audit against criticism;
• maintain the credibility of the SAI.

Preparation of Working Papers

4.80 The preparation of working papers should be adequately planned and supervised
to ensure that the purpose and scope of the work performed is sufficiently documented to
support the findings, conclusions and recommendations presented in the audit report.
Working papers should be systematically arranged and organised to facilitate their use
and supervisory review. Working papers should therefore contain at least three sections:
planning; execution; and reporting.
Because working papers represent the accumulation of physical, documentary,
testimonial, and analytical evidence gathered or developed during the course of an audit,
they become the foundation for report preparation and substantiation.

4.81 Working papers serve as the connecting link between the fieldwork and the audit
report and should be sufficiently complete and detailed to provide an understanding of
the audit. Thus they should contain the evidence accumulated in support of the opinions,
conclusions and analysis supporting recommendations in the report.

4.82 Working papers organise and facilitate access to the evidential documentation and
thus:
• assist in the planning and performance of the audit;
• facilitate effective management of individual audits and the total audit task;
• assist in the supervision and review of the audit work; and
• record evidence resulting from audit work performed to support the audit opinion.

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4.83 Set out below are several broad characteristics that working papers should have.

Completeness and Accuracy

4.84 Working papers should be complete and accurate. They should provide proper
support for findings, conclusions and recommendations, and demonstrate the nature and
scope of the examination performed.

Clarity and Conciseness

4.85 Working papers should be clear and concise. Without supplementary oral
explanations, anyone using the working papers should be able to understand their
purpose, the nature and scope of the work done, and the conclusions reached. The
working papers should also contain a summary, indexed and cross-referenced to relevant
documents.

Ease of Preparation

4.86 Working papers should be easy to prepare. This may be achieved by using agency-
produced schedules, pre-printed standard audit stationery and automatically-generated
standard working paper formats using databases or word processors.

Legibility and Neatness

4.87 Working papers should be neat and legible. If they are not, their use in report
preparation will be restricted and they may lose their value as audit evidence.

Relevance

4.88 The information contained in working papers should be restricted to matters

which are materially important, pertinent, and useful to the objectives established for the
audit.

Organising of Working Papers

4.89 Working papers should be organised and exhibit a consistent structure. This is
facilitated by a logical and easy-to-follow index. The filing and indexing of working papers
as they are prepared, promote an efficient cross-referencing system that can help avoid
the continual restatement of information throughout the file.

4.90 All supporting documentation should be cross-referenced to related working

papers, where necessary, and also to the audit plan. This provides for easy access to all
information concerning the audit. It is also important to index and cross-reference the
information held in media other than print, relating to the audit.

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4.91 Audit managers should explore, where necessary, the use of databases, search
facilities in word processing packages, or other software packages, as these can assist in
information storage and retrieval.

Multiple Uses

4.92 A particular working paper may document work completed under several
objectives or be used as evidence for more than one statement in the audit plan, findings
and recommendations, or office draft. Even when the working paper has multiple uses, it
is identified by a single, unique index code.
Working papers should contain:
• the objectives, scope, and methodology, including any sampling and other
selection criteria used;
• the audit staff’s determination that certain standards do not apply, that an
applicable standard was not followed, the reasons, and the known effect that not
following the applicable standard had, or could have had, on the audit;
• documentation of the work performed to support significant conclusions and
judgments; and
• evidence of supervisory review of the work performed.

4.93 Ideally, the organisation of working papers ties together all the work of executing
an audit. An experienced audit staff, having no previous connection with the audit, should
be able to understand what was done, why it was done, and how the findings and
conclusions follow as logical consequences.
Working papers are indexed to the tasks in the work plan. Organizing the working papers
in this manner makes them easy to access and understand.

Sequence

4.94 Figure 12 shows a possible organisation of working papers and some suggested
index codes.

Figure 12. Organisation of Working Papers

Organisation Index Code

Reports and Responses A
Project Control Checklist B
Statements of independence C
Approved Audit Plan D
Approved Work Plan/Budget E
Organisation’s Background Information F

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Organisation’s System Description G

Legislations/Regulations H
Policies and Procedures I
General Documents and Correspondence J
Preliminary Interviews K
Preliminary Findings and Recommendations L
Review Checklist M

4.95 Auditors may use other methods to index material to tasks in the work plan. (For
example, some auditors may prefer to have an indexing system that keeps all interview
notes together.) The only requirements are that the indexing system and the sequence of
material be easy to use and to understand and that the auditor-in-charge and/or
supervisor agree to this indexing plan during the planning phase of each audit.

Table of Contents

4.96 There should be a table of contents listing all documents that are collected or
prepared for working papers. During the course of work, auditors may want to list each
item as it is received or developed. This ‘master list’ can be used to create the table of
contents for each group of working papers and, eventually, the ‘notes’ (end notes) in the
report.

Indexing and Cross-Referencing

4.97 All pages in the working papers should be indexed, as should every piece of other
evidence. Where a whole document is included in the working papers, the cover page of
that document should be given an index number, rather than every page of the
document. The indexing system should be in line with the table of contents and should
allow convenient accessing of every piece of audit evidence.

4.98 Where there is a link between two pages of the working papers, say between the
audit plan and an audit test or between a finding and the audit report, there should be a
reference on both documents to the other document. This would allow a reader to go
from an item included in the report directly to the finding that supports it, or from the
finding directly to the report to ensure that the finding has been reported.

Security

4.99 During the course of an audit, the supervisor and/or auditor-in-charge and team
members are responsible for the safe custody of working papers. These materials must be
protected from theft or destruction and be accessible only to authorized persons. As a
general rule, working papers should not be left at the auditee work site unless they can be
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secured under lock. As needed, sensitive or confidential material may be placed in locked
cabinets. To safeguard their data, the SAI should back up computer data regularly and
arrange for secure storage of the electronic material.

Retention

4.100 The auditor should follow the required procedures in the SAI to maintain the
confidentiality and safe custody of the working papers and the working papers should be
retained by the SAI for a period sufficient to meet the needs of the legal and professional
requirements of record retention.

Quality Assurance

4.101 The SAI maintains and documents the quality of working papers through
supervisory reviews and independent verification of the indexed report draft. The purpose
of these reviews is to ensure that all tasks in the work plan have been completed and
provide sufficient evidence for the written report.

Drawing Conclusions

4.102 Based on the findings, the auditor determines the audit conclusions. These are
made in relation to the audit objectives. Conclusions should be clearly stated and not
implied. Tentative findings and conclusions should be tested against accumulated
evidence. Once this is done they can be discussed with the agency to obtain valuable input
and to validate both correctness and completeness.
4.103 Recommendations are drawn out, based on the findings and conclusions.
Recommendations should be directed at eliminating or correcting the cause(s) of
performance (condition) failing to meet criteria. The recommendations made by the SAI
regarding performance audit should be argued in a logical manner. Recommendations
should be targeted at the person/position with authority to take action and should be
measurable and reasonably attainable. They should indicate broadly what issues might be
examined by management when seeking solutions and should focus on the more
significant issues requiring attention. The less significant issues should be referred to
agency management for action.
4.104 Recommendations require careful review to ensure that they are realistic and add
value. The recommendations should address the objectives of the performance audit i.e.
economy, efficiency and effectiveness or accountability as appropriate.
4.105 A good test for the auditor is to consider how the recommendation would be
followed up, how the implementation of the recommendation could be tested and what
specific actions the agency can undertake to implement the recommendation.
4.106 It is also important to recognise that all recommendations will have some sort of
cost impact and that management have competing priorities for their resources.
Management will also often try to use audit recommendations to obtain further resources

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from the government. The SAI should ensure that its recommendations do not drift into
the area of government policy making, recommending that extra resources be applied to
one policy area that must ultimately be at the expense of another. If the audit reveals that
it would be beneficial to obtain extra resources, the recommendation should respect
government budgeting processes and recommend that the auditee try to obtain increased
funding through the relevant process. The auditee may use the audit report as support for
this proposal.

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5. REPORTING
Introduction
5.1 The audit report is arguably the most important component of the entire audit
process. It has several purposes:
• identifying structures and processes that aren’t working as well as they could be
and bringing them to the attention of stakeholders so they can initiate change;
• presenting a case for change to improve the administration and management of
the area or activity being audited by;
o presenting the findings of the audit work
o setting out the auditor’s conclusions, based on the findings, about the
performance of the audited activity or area in terms of the audit criteria
and
o making recommendations as to the form any change(s) should take
• providing assurance to stakeholders about those areas and activities that are being
well managed, where these are reviewed in sufficient detail to make this
assessment;
• reporting on those activities and procedures that represent good practice which
may be usefully adopted by other areas of the entity;
• providing a basis for follow-up work either by the auditor or by the entity to review
the implementation of recommendations, or alternative action taken by the
auditee;
• providing evidence about the work done by the auditor and validating the
allocation and use of scarce audit resources on the audit topic.
5.2 The main steps in the reporting stage are:
• the preparation of issues papers/discussion papers/draft management reports;
• the conduct of an exit interview with the entity(s);
• the preparation of the final report; and
• the tabling or public release of the audit report.

ISSAI 3000, 5.1 states: The auditors should prepare written audit reports. Given the
amount of reporting required during an audit, the reporting process may be facilitated by
the use of a continuous report-writing process.

5.3 Readers should also note the INTOSAI Auditing Standards that provide a map of
the headings which should be included in an audit report. Auditors should also examine

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the GAGAS requirements4 if those apply to their SAI. The PASAI Reporting Guidelines
Manual should also be referred to for further details.

Reporting Standards
5.4 INTOSAI Reporting standards 400 and ISSAI 3000, 5 provide some guidance
applicable to the drafting of performance audit reports.
ISSAI 3000, 5.2 states: ‘The audit report should be reliable. The report should be
informative and, if provided, have logical and clear recommendations that are linked to
the audit objectives and the findings. The auditors should report the audit objectives,
scope, methodology and sources used, as well as audit findings, conclusions, and
recommendations. It should be easy to understand the purposes of the audit and interpret
the results. The report should be complete, accurate, objective, convincing and as clear and
concise as possible.’

5.5 The standards further note that the form and content of all audit reports are
founded on the following general principles.
INTOSAI Reporting Standards 400, 8 states that the form and content of audit reports to
are founded upon the following general principles:
Title. ‘The opinion or report should be preceded by a suitable title or heading, helping the
reader to distinguish it from statements and information issued by others.’
Signature and date. ‘The opinion or report should be properly signed. The inclusion of a
date informs the reader that consideration has been given to the effect of events or
transactions about which the auditor became aware up to that date.’
Objectives and scope. ‘The opinion or report should include reference to the objectives
and scope of the audit. This information establishes the purpose and boundaries of the
audit.’
Completeness. ‘Opinions should be appended to and published with the financial
statements to which they relate, but performance reports may be free standing. The
auditor’s opinions and reports should be presented as prepared by the auditor. In
exercising its independence the SAI should be able to include whatever it sees fit, but it
may acquire information from time to time which in the national interest cannot be freely
disclosed. This can affect the completeness of the audit report. In this situation the auditor
retains a responsibility for considering the need to make a report, possibly including
confidential or sensitive material in a separate, unpublished report.’

4
Government Auditing Standards, issued by the Comptroller General of the United States, United States Government Accountability
Office.

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Addressee. ‘The opinion or report should identify those to whom it is addressed, as

required by the circumstances of the audit engagement and local regulations or practice.
This may be unnecessary where formal procedures exist for its delivery.’
Identification of subject matter. ‘The opinion or report should identify the financial
statements (in the case of regularity (financial) audits) or area (in the case of performance
audits) to which it relates. This includes information such as the name of the audited
agency, the date and period covered by the financial statements and the subject matter
that has been audited.’
Legal basis. ‘Audit opinions and reports should identify the legislation or other authority
providing for the audit.’
Compliance with the standards. ‘Audit opinions and reports should indicate the auditing
standards or practices followed in conducting the audit, thus providing the reader with an
assurance that the audit has been carried out in accordance with generally accepted
procedures.’
Timeliness. ‘The audit opinion or report should be available promptly to be of greatest use
to readers and users, particularly those who have to take necessary action.’

Attributes of a Performance Audit Report

5.6 If it is to achieve its objectives a performance audit report must be objective,
concise, timely and persuasive. Because its aim is to bring about improved procedures and
structures, it must establish its credibility by accurately reflecting the audit findings,
presenting logical conclusions and making meaningful, practical and relevant
recommendations.
5.7 The presentation and structure of the report should make the target audience
motivated to read it promptly, understand it easily, accept what it has to say and support
or implement the recommendations.
ISSAI 3000, 5.3 states: ‘Good performance audit reports add value to the stakeholders and
meet the objectives set. They contribute to better knowledge and highlight improvements
needed. They are reader-based and well structured, and the language is not ambiguous.
Findings are presented objectively and fairly. There are separate presentations of findings
and conclusions, and facts are presented and interpreted in neutral terms. Different
perspectives and viewpoints are represented, all relevant findings, arguments and
evidences are included, and the reports are constructive; i.e. positive conclusions are
presented.’

Objective
5.8 In order to be seen to be objective, when drafting a performance audit report, the
auditor needs to present any relevant evidence that is opposed to his or her opinion, not
just the evidence in favour of it. There is a temptation to only present the evidence which
supports the auditor’s opinion and let the auditee management come up with evidence to

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refute it. This is not objective and when such countering evidence is produced, the auditor
and the audit report lose credibility because it appears as if the auditor has not done
sufficient work to gather and analyse all evidence on which to base audit conclusions.

Concise
5.9 An audit is often the result of many hundreds of hours work and involves perhaps
thousands of pages of working papers and audit evidence. The role of the author of the
report is to distil this material into as concise a report as possible.
5.10 To this end the performance auditor must develop his or her writing skills. They
need to be able to review their words and find a way to express their ideas in the shortest
possible way, replacing long words with shorter ones, and reducing the number of
sentences in an argument without detracting from that argument.
5.11 The auditor should also go through the report carefully and test every point to see
if they are all necessary. This test is simple; if this point was left out would the report be
less effective at meeting its objectives.

Timely
5.12 An audit report should be drafted as quickly as possible after the completion of the
audit field work. The process should commence during the fieldwork and finishing it
should be a matter of urgency once the auditor has gathered all the required information.
There are two reasons for this.
5.13 The first presumes that the audit report is going to result in improvement in
processes and structures and those improvements are going to enable the entity to
achieve its objectives more efficiently or effectively, or manage its assets more securely or
even ensure its compliance with legislation. The sooner those changes are brought into
being, the better.
5.14 The second reason is that a delay in producing the audit report makes the auditor
appear to be inefficient. Where delays occur, senior SAI management need to
communicate the reasons for this to the agency. As part of maintaining relationships with
the auditee, it is important that they are fully acquainted with the audit process including
the time needed to analyse audit evidence and consider what it means.
5.15 Performance audit report sections should be drafted when findings are identified.
Then refined throughout the audit process as further information becomes available and
should be completed as soon as possible after the end of audit fieldwork.

Persuasive
5.16 Basically a performance audit report is making a case for change. No matter how
compelling the findings of the audit, it is best to assume that decision-makers will start
from a position of being opposed to change. An auditor who believes that having strong

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findings and drawing valid conclusions are all that is required to have management accept
and implement the recommendations may be surprised when management choose to
attack the credibility of the findings and reject the recommendations. Even if the auditor
has put forward a persuasive and convincing report, there is no guarantee that the
recommendations will be accepted, although it does greatly increase the chances of a
good result.
5.17 In order for a report to be persuasive the author of the report must consider the
point of view of the audience for the report and what will persuade them to take
appropriate action to address the findings.
5.18 To be persuasive there must be clearly defined and logical links from the audit
evidence to the findings, the conclusions and recommendations. If this chain of links is
broken at any point, then the reader can dismiss the argument from that point on. If, for
example, the findings do not necessarily lead to the conclusions drawn by the auditor,
then the reader may reject the conclusions and the recommendations, even if the
recommendations actually solve the problems highlighted by the findings.

Balanced Reporting
5.19 Auditees appreciate it when the auditor makes positive statements in the audit
report about those things that the entity appears to have done well. Many SAIs believe
this is worthwhile as well. The problem with this is that audits are expected to add value,
and when an auditor comes across something that seems to be working well, there is very
little value to add to the individual agency but it can serve as a demonstration of good
practice to other parts of the public service.
5.20 An auditor should not be influenced by the desire of the SAI or the auditee for
positive comments to make statements that he or she has not gathered enough evidence
to support. And where an auditor does feel it is possible to make a positive comment
about some aspect of the management of an activity, this statement should be supported
by evidence. In public administration it is rare to find that all aspects of an agency’s
management of a particular activity or program is working well. Equally it is rare to find
that all aspects need to be improved. Where auditors find areas of good practice they
should acknowledge this positively while focussing attention on developing
recommendations to strengthen areas requiring improvement.

The Reporting Process

Write as You Go

5.21 As noted above, the drafting of the audit report should begin as findings have been
identified and confirmed. Very little is written that is not improved by further thought and
review. The sooner the auditor’s initial analysis about a finding are recorded, the more
time there is to consider and review his or her report writing before the audit report has
to be finalised.

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5.22 The other reason an auditor should start writing the audit report as soon as
possible is that it is more effective to do so. Once the auditor starts to construct an
argument, they may find they need more or different evidence to support their
conclusions. It is more efficient and easier to do this if the audit team is still in the field.
5.23 By the time the field work of any section of the audit has been completed, the
auditor should have drafted the relevant paragraphs for the audit report, even though the
final structure of the report is not yet decided. By the time the bulk of the field work is
completed the auditor should be starting to formulate an overall structure for the report.

Organise the Content

5.24 The detailed content of an audit report can be organised in a variety of ways and
the auditor should look at different parameters to decide which will work best. If, for
example, the audit was based on a small number of criteria and there is roughly the same
amount of material in relation to each of them, then the criteria could each be a chapter.
The conclusion for each chapter would be whether or not that particular criterion was
met.
5.25 Developing an audit report from evidence collected during the course of the audit
is an exercise in critical thinking. There are many ways to go about this task. Graphical
representation such as a spider diagram of the links between findings, brainstorming with
the audit team or even copying the organisation of a similar audit done by another SAI are
all possibilities. What is important is that the audit manager goes through a clear
methodology to work out an appropriate way of assembling the content of an audit report
so that it is clear and compelling.
5.26 One approach to organising the content of the report is to reframe the audit
objectives as questions that have to be answered. The questions should be able to be
answered using the material you have collected in the audit.
5.27 For example, in an audit of a construction project that is being managed on behalf
of the government by a contractor, one of the audit criteria is to determine if the contract
is being managed economically. The audit has found that the contractor is inflating the
price of all contract variations partly because government is in a weaker negotiating
position because of the contract but also because the project does not have robust
procedures for investigating and analysing the cost of the proposed variations. When
reframing the ‘economy’ audit criterion, one of the questions may be ‘what procedures
are in place to ensure that government gets best value for money on contract variations
and are they adequate?’
5.28 Once you have identified all of the questions that need to be answered to achieve
the audit objectives, then these questions may be organised into a logical outline that
presents the material in the most convincing manner.
5.29 In some audits where there are some very significant issues and a range of less
significant ones, it is useful to develop a structure that has the more significant issues

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towards the front of the report. This is helpful to readers and increases the impact of the
report. A senior stakeholder reading the executive summary may wish to read more detail
on the significant issues and this will be more prominent and easier to find towards the
front of the report.
5.30 In the audit report, the auditor is telling the story of the audit and of the findings of
the audit. The content of the audit report should be arranged so that it flows logically
from one section to the next. The task of the auditor is to identify the best features of the
audit or the activity being audited to anchor the various chapters and so make this flow as
smooth and logical as possible.

Structure the Report

5.31 In most cases an SAI will determine a report structure which will be used for all its
performance audit reports. If no such structure exists then the auditor will have to decide
how the report is to be structured. All reports of more than a few pages should be layered
so that readers can find out what they want to know by choosing as much of the report as
they need to. The sections which should be in every report are an executive summary,
key findings and recommendations. Detailed findings and appendices with relevant source
documents can be added. Figure 13, Structure of the Report, sets out the key features or
sections of an audit report.

Figure 13. Structure of the Report

Section Target audience Purpose Content

Media Media/members of Interest people in accessing and reading A brief overview of
release/bro the public/members the report. the thrust of the
chure of parliament. report. About 500
words at most.

Executive Ministers and Provide enough information to senior A summary of the

summary ministerial staffers, stakeholders so they can make a sound objectives of the
CEOs and other judgement on the extent they need to audit, the overall
senior management get involved. conclusion drawn by
personnel removed the auditor and the
from direct main issues that
operational control. arose from the
audit. The size of
the executive
summary should
take into account
the time pressures
of senior
stakeholders.

Key Managers To allow stakeholders to see at a glance Recommendations

findings responsible for the basis for the audit and the findings
and responding to the recommendations and what those that support them.
audit report or recommendations are. Also to give Recommendations
recommen

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dations developing plans to those people who want to know more should be as written
address the findings the chance to read the key features of in the report,
or implement the the report without having to read findings should be a
recommendations. through the detailed findings. concise summary of
the findings that
support the
recommendation.

Body of the People at an This should be the ‘story’ of the audit so The details of the
report operational level that people who are required to audit (scope,
who are required to comment on the audit or manage the objectives,
implement the implementation of recommendations deadlines,
recommendations have sufficient material to understand resources, cost etc.;)
or take other action fully the reasons for the auditor’s and the results with
to address the findings. enough detailed
findings or question findings to make a
their validity. This is strong case for each
also the section that of the
management will recommendations.
use to dispute the
findings of the audit.

Appendices Operational level This section is generally for those Detailed analysis to
staff responsible people at an operational level who need support the
for implementing to implement the recommendations or findings, relevant
recommendations. develop alternatives. The information is external papers,
not essential to understanding the documents that may
report but provides further support to provide further light
the findings. on content in the
report. Most of the
items in appendices
do not have to be
read by anybody but
are being made
available if someone
is involved in
questioning the
findings or
implementing the
recommendations.

Media Release
5.32 Some SAIs also issue media releases or brochures to accompany audit reports.
While technically not a part of the report, they are drafted as part of the same process
and provide a summary which is even more abbreviated than the executive summary. This
is designed to get people interested in the report so that they are motivated to look at it
more closely.

The Executive Summary

5.33 The importance of an efficient and effective executive summary cannot be over-
estimated. If the report is to make an impact with stakeholders who can direct that action
be taken, then the executive summary must grab their attention and tell them everything
they need to know to make a decision to involve themselves in the resolution of the audit

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findings. These high-level decision-makers do not have time to read information that they
do not need to know. If they start to read an executive summary that does not quickly get
to the point, then they may not develop an interest in the findings and recommendations
at all and will leave its resolution to people at a lower level.
5.34 A section providing relevant information about the auditee and a description of
the audit should also be prominent in the report, either as a separate section or in the first
chapter of the report.

The Body of the Report

5.35 The body of the report should itself be structured so that it provides the reader
with a full understanding of the audit and its results. It should include:
• introduction - a brief description of the activity being audited and the main details
of the audit. This should also give the reader a description of the report, providing
a map of the rest of the body of the report;
• about the audit - a full description of the audit, its scope, objectives, resources and
timeframes. This places the findings and conclusions of the audit into context for
the reader. Any limitations on the scope of the auditor’s work and the reasons for
this should be described here. A scope limitation occurs, for example, when the
auditor is unable to audit key organisational units or systems or to perform
necessary audit procedures due to factors beyond the auditor’s control. The scope
of the audit can also be limited by the inability to identify suitable criteria. The
auditor would consider whether it is appropriate to comment in the report on the
implications of the lack of suitable criteria for the activity being audited;
• overall conclusion - is the activity performing well and what evidence caused the
auditor to draw this conclusion? This is drafted with the audit objective in mind;
• chapters outlining the detailed findings of the audit - each chapter should provide
details of what would constitute good performance, what the audit found in
sufficient detail to establish the credibility of the findings and the conclusions
drawn by the auditor. Positive aspects of performance should also be reported. In
the conclusion to each section or chapter of the report, any recommendations
relating to the findings discussed should also be provided.

The Use of Visual Aids

5.36 Judicious use of visual aids such as graphs, charts, and maps as well as relevant and
informative photographs make the report much easier to understand for people who
respond better to a visual presentation. With visual aids it is important to ensure that they
are unambiguous and immediately draw attention to the point the auditor is trying to
make. Sometimes in a bid to be efficient, an auditor will prepare a visual aid which
addresses several points. This may obscure the point for some people and for others may
mean that they have to analyse the visual aid closely.

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What is true for sentences is true for visual aids, there should only be one idea
represented. Many of the reports of the US Government Accountability Office (GAO)
make excellent use of visual aids and auditors looking for examples on how to use visual
aids in an audit report should examine recent reports on the GAO’s website
(www.gao.gov).

General Points about Using Graphs

5.37 Tables include the raw data gathered during the audit. Some auditors are not
interested in a graphical presentation of data and may be inclined to put any graphs in
appendices. However, auditors are not writing the report for themselves, and there will be
readers for whom the graphs provide a better understanding of the audit. Put any graphs
in the body of the report, because putting them in an appendix requires the reader to go
searching for them and this may mean they won't be read at all. However, the raw data
should be included in tables included in appendices.
5.38 Consider how the graph will look in the final document. If the report may be
reproduced, it will probably be printed in black and white. In this case, print the report
and see how the graphs look in black and white. Graphs may become difficult to interpret
if there is little difference between shades of grey.

Thinking about Special Charts

5.39 Sometimes special charts can help clarify or even reduce the amount of text
needed to explain something. For example, often a process or flowchart can help the
report reader to understand a process or procedure. A well-constructed flow chart can
also highlight unnecessary, overlapping, or repetitive steps. Likewise, readers can
visualise an organisation very quickly when the report includes an organisation chart.
Readers can often understand organisational issues when they can see reporting
relationships.

Including Maps
5.40 In some cases having an understanding of where something is happening may be
important to understanding the report findings. If the auditor suspects that readers may
not be familiar with the area under discussion, and if that is important to the report
message, then appropriate maps should be included in the report text.

Photographs
5.41 Photographs are very good for ensuring that all
readers get a clear understanding of a particular situation
when explaining it in sufficient detail to provide this
understanding would take hundreds of words. Photographs
are also good for ‘before and after’ presentations. Auditors

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should take care to ensure that the picture really shows what they want it to show.
5.42 For example, Photograph 1 is a simple photograph that was used in an audit report
on solid waste management to show a new tool introduced to collect waste. The
introduction of this special trash cart made the process more efficient. It was more
effective to include a photo rather than try to describe the cart.

5.43 Photograph 2 demonstrates the use of composting to reduce waste. Although this
can be easily described, the photograph creates more impact for the reader.

Photograph 2. Composting to reduce waste

Source: Office of the Auditor-General of Tuvalu, Solid Waste Management Performance Audit Report, 2010

5.44 Sometimes it is possible to make a significant impact by providing a photograph to

illustrate a problem as well. Photograph 3 illustrates the unauthorised use of a
government motor vehicle on the weekend.

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Photograph 3. Unauthorised motor vehicle use

Source: Office of the Auditor-General of the Solomon Islands Motor Vehicle Management Performance Audit Report,
2011

5.45 Appendix 8 provides more detailed guidance on including visual aids in the audit
report.

Presenting the Report

5.46 Presenting the report is a staged process beginning with discussion papers
provided to the auditee at a local level to clarify issues and ending with the final public
report. The exit or closing interview is the first formal part of this process.

Discussion/Issues Papers
5.47 During an audit it can be useful to develop discussion papers (also sometimes
referred to as issues papers) to raise potential issues that have been identified through
the audit field work. A discussion paper may be prepared for internal use and/or
for comment by the agency. These papers can be used to inform the more senior audit
management of the possible findings of the audit and also to test the likely findings with
auditee management.
5.48 Discussion papers can be used to:
• put the findings of the audit to auditee management for their comment;
• test that the auditor has a correct understanding of the program; and

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• explore the findings and recommendations with the auditee management to

obtain its preliminary response or reaction before proceeding to the more formal
audit report stage.
5.49 It is often useful to give auditee management the opportunity to identify
weaknesses in audit findings and supporting evidence or logic at this stage rather than
waiting to the final audit report when it is more difficult to revisit the evidence.
5.50 It is important to remember, however, that auditee management may have a
vested interest in influencing the audit report so any particular component of the audit
should be basically complete before raising significant issues with them. When auditee
managers are aware of the thrust of the audit findings, particularly if they are highly
protective of the image of the area or program, it is not unusual for documents to become
hard to find or files to go missing temporarily and for staff to be unavailable to talk to.
5.51 Discussion papers bring together findings and conclusions for a specific segment or
area of the audit. They must be clear, concise, simple and above all, logical. They should
include sufficient information to describe adequately the issues and why they are being
considered as significant audit findings. When writing a discussion paper it is important to
keep the final report in mind. It is desirable that these papers be in the same
logical structure as will be used in the development of the exit conference discussion
paper.
5.52 It is important to ensure that there is enough detailed evidence in the discussion
paper to support the conclusions. If there is not, then management will be justified in
rejecting the issues raised and this will automatically damage the credibility of the final
report in the eyes of that management.
5.53 Most of the ‘tips for writing effective reports’ in Chapter 6 also apply to the
drafting of discussion papers although such papers need not be formatted in the same
manner. Also, because they are operational documents that are meant to be read in full
by the addressee and the issues raised may be subject to significant change, they should
not have an executive summary.
5.54 Suggestions for improvement may be included if thought appropriate. This may
lead to early implementation of SAI recommendations with an immediate effect on
improving public administration. If this does happen the remedial action taken by the
auditee should be acknowledged in the final audit report.
5.55 Discussion papers may improve communication between the audit team and the
auditee management. They serve to confirm facts with the agency and to progress the
development of audit findings and recommendations.
5.56 When presenting an agency with a discussion paper, it needs to be made clear that
it is only a draft for comment and to facilitate discussion. It is not uncommon for agencies
to overreact to a discussion paper. Some will treat the discussion paper as they would a
formal proposed report. Others will regard it as an opportunity to get advance warning of
audit findings so they may develop a strategy to counter the audit report. Close liaison
with the agency on the purpose of the discussion paper, together with an appropriate

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introduction, should enable the agency to provide a response appropriate to that stage of
the report production.

Exit Conference/Interview
5.57 The exit meeting, conference or interview is a part of the reporting process.
Although discussion papers may have been issued to the auditee through the course of
the audit, the exit meeting is the first occasion where auditee management have the
opportunity to discuss the whole report with SAI senior management and the audit team.
5.58 The purpose of the exit conference/interview is to:
• present an exit conference/interview discussion paper;
• communicate the audit in a positive light and explain the advantages to the
agency;
• discuss the audit findings, conclusions and recommendations with agency
management and obtain management comment on them;
• draw on management’s experience in the assessment of recommendations for
improvement; and
• afford the agency the opportunity to correct misunderstandings and question the
audit conclusions and findings.
5.59 Prior to the meeting, the auditee should be provided with a copy of the
discussion/issues paper or the draft report. The auditor should provide the auditee
sufficient time to review the findings of the audit and confirm them or provide additional
evidence to dispute them. Many jurisdictions require the SAI to include the auditee’s
comments in full in the final report. It is therefore in the interests of the SAI that the
auditee be given every chance to review and analyse the findings before they reach the
final report stage and to have an open and frank discussion with SAI management on
areas that may be in dispute.

From Draft to Final

5.60 After the exit conference the SAI will prepare the final report taking into account
the agency responses. The oral and written responses elicited from the agency by the exit
conference discussion paper should be sufficient to complete the preparation of the
proposed report.
5.61 In some jurisdictions a timeframe for the auditee to comment on the draft report
may be included in legislation and in others there may be no requirement for the SAI to
allow any set amount of time. The SAI should always give the auditee an appropriate
amount of time to comment on the draft report before issuing a final report.
5.62 It is important that the auditor pay careful attention to the responses the auditee
has provided to the draft report. If the auditee has dismissed some of the findings or
disagreed with the conclusions the auditor needs to review the reasons for this. It just

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may be that despite all of the careful preparation and attention paid to the audit work,
the auditor has got it wrong. After all that work the auditor will be strongly wedded to his
or her findings and conclusions, and needs to try and set aside this belief and consider
them independently in the light of any new information provided by the auditee.
5.63 It may be a requirement of legislation or procedure that the auditee’s response be
included in the final report. Even if this is not the case the SAI should give consideration to
including them to provide balance in the report.

Review
5.64 Because of the potential for the auditor to be convinced of the correctness of their
own work, before the final report is issued, the auditor’s supervisor should review the
final report against the comments provided by the auditee in response to the draft report.

Cross-referencing to Working Papers

5.65 It is important that after production of the final report, a master copy of the report
is thoroughly cross-referenced to the working papers so that if the report is questioned it
is easy for the auditor to quickly find the relevant supporting evidence and analysis.

Natural Justice Considerations

5.66 Where an audit report names specific persons or organisations, procedural fairness
requires that comments be sought from those parties whose reputations or interests may
be adversely affected by the report. Only relevant parts of the report should be provided
to such people and they should be given adequate notice and opportunity to respond to
the material in the report.

Distribution of the Final Report

ISSAI 3000, 5.4 states: ‘Comprehensive reports and wide distribution of every report are
keys to the credibility of the audit function. If possible, each performance audit should be
published in a separate report.’

5.67 Some SAIs will have dedicated publications areas which handle everything about
the publishing of the report. Others will have a less structured process because they
produce far fewer reports. It is important that the auditor be aware of what they will have
to do to get the report published once it has been finalised. If the report is to be printed
professionally, for example, the printer may need some amount of notice to be ready for
the print run. Or if a report has to be translated into other languages, this must be
organised in advance.

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5.68 Before the report is finished the auditor should research the current procedure in
the SAI for publishing the audit report and make sure that all preparatory work is done.

Fraud
5.69 If a performance auditor identifies practices during the course of their work which
may be indicative of criminal activity or fraud, they should immediately raise the matter
with senior audit management. Fraud is a sensitive matter and the SAI will generally have
a procedure to be followed when audit work indicates that fraud may have occurred.
5.70 Even if the SAI has no specified procedures for dealing with a possible fraud, the
auditor should do nothing which may jeopardise a possible investigation, and raise the
matter immediately with their supervisor.

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6. QUALITY ASSURANCE
Introduction
6.1 The SAI should implement quality assurance/control policies and procedures.
Quality assurance refers to policies, systems and procedures established by SAIs to
maintain a high standard of audit activity. Quality control refers to the requirements
applicable to the day-to-day management of audit assignments. The PASA Quality
Assurance Manual should be referred to for any further details.

QA Standards
INTOSAI General Auditing Standards 200, 1.28 states that: ‘…it is desirable for SAIs to
establish their own quality assurance arrangements. That is, planning, conduct and
reporting in relation to a sample of audits may be reviewed in depth by suitably qualified
SAI personnel not involved in those audits…’

6.2 As part of the SAI’s legal and professional obligations it must establish and support
adequate systems of quality assurance. The systems comprise an organisational structure,
policies and procedures designed to provide the SAI with adequate assurance that the
work undertaken within the SAI meets professional requirements and standards.
6.3 A system of quality assurance should provide:
• indicators for recruitment and promotion;
• guidance for assignment of administrative and technical aspects of quality control to
appropriate staff;
• a basis for communication of quality control policies, procedures and outcomes to all
relevant staff; and
• adequate monitoring and review of the quality assurance systems.
6.4 Quality assurance mechanisms include:
• planning reviews - the planning of selected tasks may be reviewed by SAI management
independent of the task to ensure adequate consideration has been given to all
matters considered essential for the successful completion of the task at the planning
stage;
• on-going review - the work on all tasks would be subject to continual review by
supervisors and task managers. This review is essential to maintaining the quality of
audit tasks and providing staff development through feedback and on-the-job
training;
• task reviews - all completed tasks should be reviewed prior to signing any reports
required as a result of the audit; and

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• annual review program - a well-defined, independent review process of a sample of

completed tasks to inform SAI management of any weakness in current methodology
and practices of the SAI.
6.5 Planning and task reviews should generally focus on high risk or complex audit
tasks. These reviews give added assurance that those tasks have addressed all key areas of
the audit prior to signing the report.

Quality Assurance Review Program

6.6 A quality assurance review program is a series of independent peer reviews of
activities undertaken within the SAI that assess the overall quality of the work performed.
The results of the program should be reported to the SAI management at least annually. A
quality assurance review may examine adherence to policy and procedures and
identify areas where there is any scope for improvements in these policies
and procedures, or it may assess the quality of work performed to meet specified
objectives.
6.7 Quality assurance reviews will generally address both adherence to specified
processes and the quality of the work performed on a selected task or group of tasks and
may include an annual program of task reviews and ad-hoc reviews of any task
undertaken at any time.
6.8 Tasks selected by SAI management should, as far as possible, be representative of
the nature of all tasks undertaken by the SAI. The reviews would include a selection of
high risk, large and complex tasks and some smaller and less complex tasks.
6.9 The report on the quality assurance review program should summarise the results
of all the reviews including the tasks selected (number and type), the findings and any
recommendations. The report should not focus on individual audits but be a summary of
those findings identified during the review program.
6.10 Quality assurance reviews are generally undertaken using a questionnaire to
ensure consistency across the reviewing teams but the approach would allow for the
qualitative characteristics of audits to be assessed.
6.11 The quality of performance audits should be assessed against the relevant auditing
standards. In short, the quality assurance review process reports whether there is
sufficient, appropriate evidence to support the audit report.
6.12 Review team members will be selected by the SAI management on the basis of
their knowledge and experience and should generally be at the audit manager level. The
team members must be independent of the work they review.
6.13 The quality assurance review reports, in addition to identifying weaknesses in
current methodology and practices, should accentuate positive findings and identify
improved practices that may be introduced as office-wide best practice.
6.14 It is the responsibility of all audit managers to address the findings of the quality
assurance reviews of their tasks. SAI management should be responsible for ensuring that

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problems noted or recommendations made for improvements are adopted in appropriate

changes to SAI methodology and practices.

Quality Control
6.15 Quality control procedures should be designed to ensure that all audits are
conducted in accordance with relevant auditing standards. The objectives of quality
control procedures should incorporate:
• professional competence;
• professional independence;
• supervision and assignment of personnel to engagements;
• guidance and assistance;
• auditee evaluation; and
• allocation of administrative and technical responsibilities.
6.16 The SAI’s general quality control policies and procedures should be communicated
to its personnel in a manner that provides reasonable assurance that the policies and
procedures are understood and implemented. Quality control requires a clear
understanding of where responsibility lies for particular decisions. It is the responsibility
of everyone involved in the audit to fully identify and understand his or her
responsibilities.
6.17 The audit manager is responsible for the day-to-day management of the audit,
including detailed planning, execution of the audit, supervision of staff, reporting to SAI
management and overseeing preparation of the audit report. These aspects are covered in
more detail below.

Planning the Audit

6.18 This includes establishing milestones, allocating resources (including the use of
consultants), preparing timelines and generally, the use of project management principles
as discussed above. The audit manager needs to take into account factors such as quality,
resources and timing in planning the audit.

Budgeting and Monitoring

6.19 Audit plans/programs should contain a financial budget and a timetable for
completion of the audit. The budget should consist of allocations for salaries, travel,
consultants and any other direct costs that may be associated with the audit. The
timetable should be formulated for the purpose of meeting the agreed date for
completion of the audit report.

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6.20 The budget and timetable should be documented in the working papers. Progress
against these targets should be monitored and recorded. The audit manager and SAI
management are responsible for ensuring the audit is completed within budget and on
time and they should identify potential risks and develop contingency plans to minimise
the impact on the audit. These contingency plans could include amending the scope and
focus of the audit, swapping resources between sub-allocations within the budget,
identifying cost-neutral solutions, or extending the budget where a case for the extension
can be justified.

Using Consultants
6.21 The audit manager should ensure that staff with appropriate skills are selected for
each audit. It is up to the SAI management to judge, in the particular circumstances, to
what extent the SAI’s requirements are best met by in-house expertise or employment of
outside experts. If the SAI, in the performance of its functions, seeks advice from
external experts, the standards for exercise of due care and confidentiality of information
will apply to such arrangements. Refer to the PASAI Human Resource Manual for further
details.
6.22 Before a final decision is made to engage a consultant to assist with an audit, the
agency being audited should be given the opportunity to advise whether, in its opinion, an
actual or potential conflict of interest could exist in the event the consultant is engaged by
the SAI. It is ultimately a decision of the SAI whether or not to engage a consultant
to assist in the conduct of an audit, taking into account the views of the agency and of the
consultant.

Executing the Audit

6.23 To ensure the smooth and efficient conduct of the audit, the audit manager will
need to be aware of risks to the timely audit completion, such as lack of familiarity with
the audit subject, lack of audit resources, changes occurring to the audited area, and lack
of reliable agency data. The audit manager should also ensure audit work is relevant to
the objectives and scope of the audit.
6.24 The audit manager is also responsible for identifying issues of importance. Where
these issues are outside the original objectives and scope of the audit or have an impact
on the team’s ability to complete the audit on time and within budget, the audit manager
should identify options for dealing with these issues. These options include, but are
not limited to:
• adjusting the scope and focus of the audit to take into account a revised outcome
while remaining within budget and on time;
• identifying an important issue as forming the basis of a new audit to be conducted
later; or

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• preparing a case for extending the audit resources or completion date to cover the
newly identified issue.
6.25 The audit manager is further responsible for ensuring that:
• the work performed and the results obtained have been adequately documented;
• no significant matters remain unresolved;
• there is adequate evidence to support findings;
• conclusions expressed are consistent with the results of the work performed; and
• the objectives of the audit have been achieved.
6.26 The audit manager is responsible for conducting regular discussions with agency
management concerning the audit findings and clarification of issues arising during the
audit.
6.27 The audit manager is responsible for supervising the preparation of discussion
papers and draft report segments, management letters and the final report.

Supervising
6.28 The audit manager, in conjunction with SAI management, is responsible for the
guidance, training and supervision of the audit team members.
6.29 The audit manager, in conjunction with SAI management, is responsible for overall
quality control within the audit and should ensure that audit work is reviewed regularly
and the results of the review are adequately documented. This review should specifically
ensure that there is sufficient evidence to support the findings and recommendations.
The reviewer should also provide feedback to the persons responsible for the audit work.

Reporting Progress
6.30 The audit manager should prepare regular reports to SAI management on the
progress of the audit, with recommendations for corrective action should the audit not be
progressing in accordance with the plan.
6.31 For the more complex audits the SAI may consider appointing a steering
committee to guide the audit team and to monitor the progress of the audit.

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APPENDICES

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APPENDIX 1 - POTENTIAL IMPACTS OF PERFORMANCE AUDITING 5

The material in this Appendix is from the ASOSAI Guidelines on Performance Auditing and
provides a useful introduction to the sort of benefits that may be gained through effective
performance auditing.
Economy
• reduction in costs through better contracting, bulk buying, etc;
• reduction in costs through economies on usage of personnel or other resources;
• introduction of charges where none were previously imposed, or revision of
charges;
• rationalisation of facilities.

Efficiency
• greater outputs from same inputs;
• remedying duplication of effort or lack of coordination.

Effectiveness
• better identification/justification of need;
• clarifying objectives and policies;
• introducing better sub-objectives and targets;
• better achievement of objectives by changing the nature of outputs or improved
targeting;
• improved quality of service
o shorter waiting lists;
o reduced response times;
o fairer distribution of benefits;
o better access to information;
o wider range of services and greater choice;
o helping the public, clients, industry, etc;
o improved equity in access to programs.

Improved Planning, Control and Management

• introduction/improvements to corporate planning;
• clearer definitions of priorities and better-defined targets;
• better targeted incentives;
• better control and management of human resources, assets, projects and
resources;
• tighter controls against fraud;

5
Fifth ASOSAI Research Project – Performance Auditing Guidelines. October 2000 Appendix B

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• improved financial accounting systems;

• better financial management information;
• better computer security.

Improved Accountability
• improved visibility of procedures and outputs;
• improved accountability for expenditure to the legislature and to the public sector;
• improved forms of account, including commercial formats;
• improved external control and monitoring by departments;
• better and/or more accurate performance indicators;
• better comparison between similar agencies;
• greater information on sectoral performance; and clearer and more informative
presentation.

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APPENDIX 2 - FOLLOW-UP PROCESSES

The primary objective of the SAI’s work is to improve public administration. To

achieve this, auditees need to be motivated to implement those audit recommendations
that they do accept, and where they reject recommendations, to take action to solve the
issues raised by the audit findings. Follow-up audit reports are one way of doing this.

Rationale for Follow-up Audits

Generally speaking, the fact that an audit has been completed means that the overall risk
of that area or activity has been reduced. The attention of stakeholders has been drawn to
issues which need to be addressed and management may have even accepted the audit
recommendations and agreed to implement them. This means the strategic planning
process discussed in Chapter 2 is more likely to allocate scarce audit resources to areas
that have not been previously audited or have undergone significant change since they
were last audited.
For the purposes of understanding how resources can be allocated to undertaking follow-
up audits or other activity, these should be thought of as extensions of the original audit.
They are done to ensure that the original audit is as effective as it could be. Also the fact
that a SAI follows-up some of its audits means that in implementing recommendations
auditees must bear in mind the fact that the SAI could return to see how well this has
been done.
Occasionally the problems found in an audit are so significant that they raise the level of
risk associated with an area or program and the SAI will follow-up the audit because the
identified risks are more important than any other audit that could be scheduled. This may
be true of audits of major defence, social security or health programs where the annual
expenditure on a program may represent a sizable portion of government expenditure or
the objectives of the program are of national importance.
At the time of concluding the original audit the auditee should be advised of the possibility
that the SAI will follow-up the audit at some point in the future and that the audit will
specifically target, amongst other things, the implementation of the accepted
recommendations.

Follow-up audits can ensure that parliament and other stakeholders know that
improvements are being made. Follow-up can also provide SAIs with an opportunity to
assess the impact of their audit.

Objectives of Follow-up Activity

Follow-up activity should be directed to encouraging the implementation of
recommendations, rather than finding examples of lack of action. The auditor should
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focus on the correction of previously identified weaknesses. By the same token if

management has taken little action to implement agreed recommendations then this is a
matter for concern and should be reported.
Follow-up processes will provide feedback to the SAI and the government on performance
audit effectiveness in producing improvements in public sector management. They will be
especially useful in showing SAI effectiveness in those cases where
recommendations were rejected by the agency at the time of the initial report
but subsequently implemented. Such self-evaluation also adds to SAI credibility.

Types of Follow-up Activity

The three main types of performance audit follow-up activity are:
• keeping abreast of agency activity;
• more detailed review of agency activity, perhaps involving meetings with the
agency. This is sometimes referred to as a desk review because it does not involve
extensive fieldwork. This type of activity may be undertaken if the subject is
particularly topical, sensitive or high-risk but only a short time has elapsed since
the original audit; and
• a follow-up audit which involves fieldwork and the tabling of a report. It could be
expected that no more than one follow-up audit would be conducted in a three-
year period.
Depending on the results of the follow-up activity mentioned above, it may be decided
that a full follow-up audit is not required. As with any audit, an audit plan should be
prepared and the investment in a full follow-up audit would need to be justified.

Planning for Follow-up Activity

In many cases a decision will be made not to undertake any follow-up activity. Reasons
for this may include that the audit was small or identified very few problems with the
management of the activity.
As part of the initial audit process, auditors should make recommendations as to the
nature, extent and timing of any follow-up activity so that this can be taken into account
in future strategic planning. The auditor who has done the initial audit is best placed to
inform the future planning process on the likelihood of a follow-up audit being a
worthwhile use of the SAI’s resources. The auditor should document reasons for
recommending a particular course of action in terms of follow-up activity.

Assessing the Progress of the Recommendations

Various sources of information are available to assist SAI staff to follow up on
recommendations made. A useful start to any follow-up work is to write to the agency and
ask for an assessment of the status of the implementation of each recommendation. The

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response then provides a basis which can be used to decide what audit work needs to be
done. For those recommendations which are reported as ‘implemented’ or ‘in progress’,
the auditor can assess the extent to which this is true. For those recommendations which
have been rejected or for which no implementation activity has commenced, the auditor
can review the factors which allowed the original audit to report the findings that led to
the recommendations. In other words the auditor should find out whether the conditions
which first led to the recommendations still exist to see if the recommendations are still
valid.
Results from the follow-up of audit recommendations should be recorded according to a
‘status of action’ category that best describes the actions taken. The reasons for the lack
of action or non-completion of action on any recommendations should be documented
and further action considered on significant recommendations that have not been acted
upon. Where there are mitigating circumstances for the lack of action on a
recommendation, for example lack of funding, these should be reported in the follow-up
report.
Aside from providing impetus for the implementation of the recommendations, assessing
the action taken on SAI findings and recommendations and also assessing the impact of
the audit will help to measure the effectiveness of SAI performance audits. Impacts
include examples of improved economy, efficiency, effectiveness, quality of service,
planning, control and management, and accountability. Where possible the impact from
performance audits should be analysed and recorded.
In identifying impacts, the costs of implementing the recommendations may also be
assessed, to determine the ‘net’ benefits of the audit. These assessed benefits should be
validated with the agency wherever possible. Isolating the impact of an audit report in the
context of significant other changes can be very difficult and the key factor is ultimately
whether the audit recommendations have been implemented. This may be the only
measurable indicator of impact.
Auditors should also regard follow-up activity as an information gathering exercise, using
the opportunity to add to the SAI body of knowledge about the auditee in general and the
activity being reviewed as well as associated activities. This information should be fed into
the strategic planning processes for performance and financial statement audits.

Reporting Follow-Up Audits

Deficiencies and improvements identified in the follow-up of audits should be reported to
the legislature. Reporting options include a stand-alone report or portfolio report which
may report on the findings of a number of follow-up audits as well as other small audits
which may not individually warrant the publication of a report themselves.
Follow-up reports should follow reporting guidelines for performance audits. Agencies
should be given an opportunity to respond and have their response, or part thereof,
included in the report. Such action is important to ensure that a balanced report is
presented to the legislature.

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Where an agency has been successful in solving the problems identified in the
performance audit, whether through implementing the audit recommendations, or
through other action the agency has initiated, the follow-up report should give credit for
this action.

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APPENDIX 3 - UNDERSTANDING THE AUDITEE6

Further Guidance
This material comes from the ASOSAI Guidelines on Performance Auditing and provides
other matters that may be considered in developing an understanding of the business of
the auditee.

Agency Objectives
The objectives of an agency may be expressed in financial terms (for example, in budgets
or financial reports) and in non-financial terms (for example, expected outputs and
impacts). An understanding of the agency’s objectives will assist the auditor in establishing
or assessing the appropriateness of the audit scope.
The auditor should be alert to any conflicting objectives as these may affect the agency’s
ability to achieve economy, efficiency or effectiveness.

Accountability Relationships
There are two types of accountability relationships; internal and external. The most
important accountability relationships involve the governing body. The key external
relationship is between the governing body and those who have an interest in the
performance of the agency; for example, the legislature and the public at large in the
public sector, and owners, creditors and employees in the private sector.
The governing body delegates to management the authority for acquiring and using the
agency’s resources. Management is responsible for administering those resources and is
accountable to the governing body for meeting the objectives set out in the agency’s
governing charter.
Accountability relationships within an agency depend on the powers that the governing
charter grants to management. Within those powers, senior levels of management hold
their staff accountable for certain elements of the agency’s performance. The auditor
should identify how and to whom authority is delegated within the agency, and
the degree of decentralisation of that authority.

Resources
The auditor needs to understand the relationships between the agency’s resources and its
objectives and performance goals.

6
Fifth ASOSAI Research Project – Performance Auditing Guidelines October 2000, Appendix C.

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The auditor should identify the resources that management has allocated among the
agency’s programs, operations and activities and may compare such allocations with those
in other similar agencies. These allocations may indicate priorities and the relative
significance of specific divisions or branches or of specific programs or operations within
an agency.
Physical resources include inventories and other assets. The auditor should determine the
source, nature and value of the physical resources and how the agency uses its physical
resources in its various activities.
Financial resources are reflected in the revenue, expenditure, assets and liabilities of the
agency. Knowledge of the financial resources enables the auditor to understand the
agency’s financial magnitude (eg. the amounts of its transactions and balances) and its
stakeholders (eg. resource providers).
Information resources comprise both internally and externally generated information to
which management has access. Access to relevant and reliable information and effective
use of it are vital elements of performance for many activities.
Human resources include management and other employees of an agency. Human
resources are affected by budgetary pressures and constraints on the capability of
personnel which may in turn affect the agency’s controls and performance.

Management Processes
The auditor needs knowledge of the agency’s management processes to understand their
suitability for the agency’s programs and operations and to identify the risks the agency
faces.
The auditor should identify factors such as the elements of performance assessed by
management, the nature and frequency of reporting, the performance criteria, the
methods of data collection and analysis and the use of performance information. For
example, the auditor should consider: (a) the systems and controls in place for
safeguarding and controlling the agency’s physical, financial, information and human
resources; and (b) the extent of internal audit involvement in performance auditing. This
knowledge will enable the auditor to identify the probable nature, sources and availability
of audit evidence.

Performance Goals
The auditor needs a knowledge of the agency’s performance goals to understand such
matters as the relevance of the agency’s activities to its stakeholders, trade-offs among
conflicting objectives, goals and inputs, quality, level of service and stakeholder
satisfaction.
The auditor should assess the suitability of the audit agency’s performance goals. For
example, when assessing the suitability of performance goals, the auditor should consider
whether those goals are consistent with the governing charter.

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Programs and Operations

A sound understanding of the agency’s significant programs and operations enables the
auditor to determine whether the agency is operating within its powers and how it
achieves its objectives and performance goals. The auditor should obtain information
about the agency’s organisational structure and the characteristics and intended outputs,
outcomes and impacts of the agency’s significant programs and operations.
The characteristics of programs and operations include the source, nature and amount of
resources used in program delivery, the method of program delivery and the pricing or fee
structures.
Outputs, such as the goods or services provided, may be defined by the objectives set out
in the agency’s governing charter. Output may be subject to constraints imposed by
competition or by regulation for service or pricing levels. Outcomes and impacts may be
the positive or negative effects of a program or operation and they may be intentional or
unintentional.
The organisational structure of the agency shows how its programs and operations are
organised to fulfil its objectives and meet its performance goals. Understanding the
agency’s organisational structure involves identifying its significant divisions and branches,
and determining their responsibilities and degree of autonomy.

External Environment
The agency’s external environment includes factors over which management has relatively
little control, such as economic, political and social influences. The auditor needs to
acquire knowledge of the external environment because changes in that environment
may significantly affect the agency’s objectives, accountability relationships, resources
and management processes.

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APPENDIX 4 - DEVELOPING AUDIT CRITERIA AND THE MULTI-

FACETED ROLE OF CRITERIA7
The Appendix lists key performance aspects of government activity and is a useful starting
point to develop audit criteria and sub-criteria. It has been sourced from the ASOSAI
Performance Auditing Guidelines.

Mandate
Has management obtained the approval of the competent authority (eg. legislature) for
the program?

Objectives
Has management developed clear objectives?
Have the program objectives been appropriately determined to fulfil the policy
objectives?
Are the objectives specific enough to enable outcome measurement?
Has management set specific targets to accomplish the program objectives within the
scheduled timeframe?

Need
Has management identified and evaluated the nature and extent of the need for the
program outputs?
Does the program continue to make sense in the light of the needs that it was originally
set up to meet?

Implementation
Has management given proper consideration to alternative means of achieving the
program objectives?
Are the design of the program and its components, and the level of effort expended,
logical in the light of the program’s objectives?
Is the implementation timely?

7
Fifth ASOSAI Research Project – Performance Auditing Guidelines October 2000, Appendix D

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Direction
Does the agency have understandable objectives, plans, targets for levels of service
and organisational arrangements?
In short, does everyone understand what they are meant to be doing? One indicator of
direction is the extent to which employees clearly understand the service priorities and
targets of the current year.
Has management used resources economically and efficiently?
What is the relationship between costs, inputs and outputs?
Do systems procedures and practices promote accountability of program managers
towards economic and efficient use of resources?

Finances
Has management monitored, reported and controlled its financial performance and
position?
Are resources (budgets) commensurate with the targets and how realistic are the
budgetary assumptions?
Are the financial and physical performance reports interlinked to enable an appreciation
of the cost of delivery against the estimated cost as well as value for money?

Effectiveness
To what extent has the agency achieved intended objectives without any significant
unintended adverse impacts?
To what extent have significant intended or unintended, adverse or beneficial
consequences occurred?

Acceptance
Is the program outcome meeting the identified needs of its clients or customers?
Has management surveyed its clients to identify client expectations and satisfaction?

Responsiveness
Does the agency have mechanisms which enable it to respond appropriately to
changing technology, competition, client demand and other environmental
characteristics?

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Human Resources
Is there an appropriate policy and practice for the development of human resources?
Do human resource practices facilitate development, initiative, commitment, safety
and job satisfaction?

Economy and Efficiency

Is there an appropriate policy for the protection of key assets, ie. assets that are crucial to
the success and perhaps survival of the agency? Such assets might include key people,
sources of supply, intellectual property and machinery.
Are actual results monitored and reported against objectives and targets?
Do reporting formats facilitate effective monitoring of the program management
and delivery of outputs?
Are the performance reports accurate and free from material misstatements?
Is action taken on the basis of the reports?
Does the program framework provide for clear accountability relationships?
Is the system of program management/delivery framed to ensure good value for money?
Are the controls reliable?
Are the systems and procedures as well as the delivery mechanisms transparent?
Does the program planning, execution and delivery fulfil the concept of good
corporate governance?

Review
Has management established an effective internal audit unit, undertaken appropriate
evaluation of programs (including an analysis of unintended impacts) and established
procedures for assuring that it is managing with economy, efficiency and effectiveness?

Equity
Are outputs/services made available to intended groups without discrimination?
Does everyone have access to the benefits due to them?
Has management acted with fairness and impartiality?

Protection of Resources
Are resources protected from waste and loss?
Are there systems in place to ensure that any undue waste or loss is identified quickly?

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Monitoring and Reporting Accountability Relationships

Ethics
Has management established procedures to ensure that public servants utilise public
funds honestly?
Are the highest standards of integrity and devotion to duty ensured through
adequate management systems, including a system of review of propriety in program
management.
Are public servants motivated to optimise the outputs and subsequent outcomes of the
program for the beneficiaries?

Transparency
Are the systems and procedures used in the management of public programs transparent
and do they promote the concept of accountability and good governance?

The Multifaceted Role of Audit Criteria

Criteria can perform a series of important roles to assist the conduct of a
performance audit as they can:
• form a common basis for communication within the audit team and with SAI
management concerning the nature of the audit;
• form a basis for communication with the agency management in that the audit
team will often solicit agency management understanding of, and concurrence
with the criteria and eventual acceptance of audit findings in light of those criteria;
• link the objectives to the audit program carried out during the implementation phase;
• form a basis for the data collection phase of the audit, providing a basis on
which to build procedures for the collection of audit evidence;
• provide the basis for audit findings, helping to add form and structure to audit
observations; and
• some SAIs also utilize audit criteria to form the chapter headings for their audit
reports.
The degree to which criteria are successful in serving these uses is often determined by
their level of detail and the form they take. General audit criteria are developed during
the early planning stages of the audit. If a preliminary study or survey is conducted, these
criteria are usually expanded and made more specific during that study; otherwise
this is done in the early stages of audit fieldwork. By the end of the preliminary
study, the criteria should be sufficiently detailed to give clear guidance for the
implementation stage of the audit, particularly in the development of specific
audit programs to test the criteria.

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It is always useful to find out what agency management believe are the appropriate
criteria which apply to the activity being audited. In an ideal situation the beliefs of
management and of audit will coincide so that criteria will be established very early in the
consultation process and will be agreed by all concerned.
Unfortunately this often doesn’t happen and management may have some level of
disagreement with the auditor about the criteria which will be used to assess the activity.
Audit criteria would typically be exposed to the agency at the start of the main
performance audit. Any disagreement with agency management about criteria can then
be identified, discussed and, if possible, resolved at an early stage without impacting
adversely on audit independence.
It is unrealistic to expect that activities, systems or levels of performance
relating to economy, efficiency and effectiveness will always fully meet the criteria. It
is important to appreciate that satisfactory performance does not mean perfect
performance but is based on what a reasonable person would expect, taking into
account agency circumstances. The general aim would, however, be high level
performance within resource constraints.

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APPENDIX 5 - FURTHER ISSUES ON LIAISON WITH AUDITEES

The development of good relations with the agency is a key factor in achieving an effective
and efficient audit of an agency’s program or function. The progress and outcome of the
audit will be enhanced if the audit team can obtain the cooperation of management and
foster confidence by maintaining a fully professional approach during the course of the
audit. The quality of the audit process will depend significantly on the careful
management of consultation with the agency. The SAI should adopt a policy of ongoing
communication with the agency during the audit.
It is important that the audit team take measures to avoid the development of an
adversarial attitude by agency management. In order to facilitate good relations with the
agency, the auditor:
• should be aware of any other audit activity currently being undertaken within the
agency;
• should be able and willing to explain the role and responsibilities of the SAI in
conducting performance audits;
• should ensure that discussions with the agency take place at an appropriate and
responsible level;
• should prepare fully for all meetings with the agency;
• should emphasise improvement in the future rather than just criticism of the past and
how the audit will assist in this process; and
• should ensure audit issues are discussed in context and recognition is given to external
constraints and management-initiated improvements.
Audit managers should ensure there is regular contact with agency senior management to
ensure that program objectives and issues are fully appreciated and potential audit
recommendations are tested and properly targeted. Value will also be added to the
performance audit if the agency is asked to specify the high-risk areas that they would like
the audit to cover.
If the audit is conducted in a cooperative manner there is much greater likelihood of
suggestions for improvement being seriously considered by agency management with a
view to their implementation at an early date (even during the audit). A cooperative
approach is to be taken but not at the expense of audit independence.

SAI staff should observe normal professional courtesies, seek to maintain good
relationships with agencies, promote the free and frank flow of information and conduct
discussions in an atmosphere of mutual respect and understanding. The SAI should use its
powers of access to information tactfully and with due regard to the agency’s
ongoing operational responsibilities as well as to the SAI’s statutory responsibilities.
The SAI should endeavour to give agencies reasonable notice of its intention to commence
an audit and should discuss the general scope of the audit with relevant agency officers.

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Depending on the nature of the audit, careful consideration needs to be given to the level
of the SAI and agency representatives at the opening/entry conference. The
opening/entry conference must be documented.
Once a decision is made to proceed with a full performance audit, details of the audit
methodology and likely coverage should be provided to the agency.
At the conclusion of each audit an exit conference is arranged, preferably with the persons
with whom the opening/entry conference was held. The exit conference must be
documented.

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APPENDIX 6 - SAMPLE DETAILED AUDIT PROGRAM

Another example of an audit program in a different format using different terminology is
provided below.
This is an early draft of the audit plan for a performance audit conducted by the Office of
the Auditor-General of the Solomon Islands

Example 1: Management of Teacher Absenteeism in Primary Schools, from the OAG

Solomon Islands
Audit Criterion: The Ministry/Education Authorities should be identifying common factors
that cause excessive teacher absenteeism and introducing measures to counter them.

Control Objective 1:
In areas where absenteeism is a problem the Ministry/Authorities should be attempting to
identify common reasons for absenteeism.
Tests:
Identify any data collection and analysis activities by the Ministry/ Education
Authorities or individual schools in relation to the levels of absenteeism.
Type of test: Interview, review of data
Analyse available data to confirm problem areas and assess work done to enable
authorities to manage these areas and minimise absenteeism.
Type of test: Interview, documentation review, analysis of data
Review any work done by the Ministry/ Education Authorities or individual schools
to identify reasons for excessive absenteeism by teachers by interviewing relevant
managers and reviewing relevant files.
Type of test: Review of files, interview
Survey teachers, principals and community leaders in schools visited, by interview,
to identify reasons for excessive teacher absenteeism.
Type of test: Survey by face to face interview.

Control Objective 2:
Where common reasons have been identified for excessive absenteeism the
Ministry/Authorities should be developing strategies to alleviate the issues.
Tests:
Where the Ministries/Education Authorities have identified common causes of
excessive absenteeism, review the plans made and work undertaken to remedy
these causes.

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Type of test: Review of documentation, interview

Where the audit has identified common causes of excessive absenteeism, identify
action that may be taken to alleviate these causes and discuss with management in
the Ministry/Education Authorities to formulate practical recommendations.
Type of test: Analysis of findings, consultation with management.

Control Objective 3:
The Ministry should be proactive in providing a working environment which encourages
greater commitment from teachers (e.g. development of human resource management
practices, job design, supervisory training and staff development etc;).
Tests:
Review relevant Ministry files and other formal documentation to assess the level
of involvement by the Ministry in developing an improved working environment
for teachers.
Type of test: Review of documentation.
Interview staff in the Ministry and the Education Authorities to determine the
extent of development of the teacher’s working environment in recent years
Type of test: Consultation with management
Interview teachers to determine whether they feel the Ministry has taken note of
any concerns raised by teachers over the working environment and the extent of
development of the teacher’s working environment in recent years
Type of test: Survey (by interview).

Audit Criterion: The Ministry should have systems in place and operating that ensure that
teachers attend school in accordance with their conditions of employment.

Control Objective 1:
Teachers’ conditions of employment should be clearly stated, setting out acceptable
reasons for absences, documentation required for absences and penalties for non-
compliance.
Tests: Review conditions of employment to ensure that hours of service, leave
entitlements and absentee processes are documented
Type of test: Review of documentation
Analyse conditions of service to identify actions to be taken when teachers do not
attend school
Type of test: Analysis of procedures

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Determine if teachers have been provided with conditions of service

Type of Test: Observation, interview or survey.

Control Objective 2:
If teachers are absent from school they should comply with their conditions of
employment
Tests:
In each school visited, observe and document procedures for noting absences from
school
Type of test: Observation, interview, documentation review
Select a sample of teacher absences and for each instance of absenteeism
recorded, determine if teachers have advised the school of the absence and the
reasons for it.
Type of test: Review of documentation
Identify any instance of teacher absenteeism during audit visit to schools, and
determine if teachers have advised the school of the absence and the reasons for
it.
Type of Test: Observation, interview
Meet with members of school board or community leadership to identify the
perceived level of teacher absenteeism and assess whether the recorded absences
and the perceived absences are in accord with each other (i.e. is it likely that all
absences are being recorded?)
Type of Test: Interview

Control Objective 3:
Procedures should be in place to ensure that any absences from school are recorded and
recognised by the human resources system.
Tests:
In each school select a sample of recorded absences (as well as any absence
observed by audit, if possible). Review documentation prepared by the school to
inform the education authority of the absence.
Type of test: Documentation review
For each instance of absenteeism reported to the education authority ensure that
it has been recorded and recognised appropriately.
Type of test: Documentation review

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Control Objective 4:
Where teachers are absent from school and do not comply with the requirements of their
conditions of employment, action should be taken which should include withholding of
salary.
Tests:
Select a sample of instances from the records of schools where staff members
have been absent from school without medical certification or approved leave.

Type of test: Selection of sample

Review the personnel/payroll records held by school authorities/ ministries to
determine if salary action has been taken for these absent days.
Type of test: Review of documentation.

Control Objective 5:
Where failure to comply with conditions of employment occurs with regularity, the system
should ensure that disciplinary action is taken against the staff.
Tests:
Review school and authority records to identify instances of excessive
absenteeism.
Type of test: Documentation review.
Select a sample of teachers who appear to be regularly absent without cause and
review their personnel files to determine whether appropriate disciplinary action
has been taken against them.
Type of test: File review
Discuss the situation about disciplinary action for excessive absenteeism, with
human resources management and principals to identify actions which have been
taken and where action has not been taken, identify reasons why it has not.
Type of test: Interview

Example 2: from the PASAI Solid Waste Management Cooperative Performance Audit
The audit program may take many forms or designs. Below is the sample skeleton of the
audit program or as it is referred to below ‘audit test program’ from the PASAI Solid Waste
Management Cooperative Performance Audit.

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Case example
The case example was taken from the 1st Co-operative Performance Audit on the
Effectiveness of Solid Waste Management performed by ten SAIs across the Pacific.
Audit topic: The Effectiveness of Solid Waste Management in Tongatapu
Audit objective: To assess the effectiveness of the management of solid waste (in a
selected location) by auditing the existence of a legal and policy framework for solid waste
management; the process by which the legal and policy framework is implemented
(including whether risks to implementation have been considered) and compliance with
the legal and policy framework, including monitoring arrangements.

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APPENDIX 7 - PASAI COOPERATIVE AUDIT REPORT STRUCTURE

Figure 1. Typical Report Structure

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1

Source: PASAI Cooperative Audit– Access to Safe Drinking Water.

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APPENDIX 8 - GRAPHICS
The information box below contains some other general tips for using graphs in an audit
report.

Hints for better graphs

Titles should clearly state what the graph is. The graph should be
referenced and easily connected to the relevant section of the text by
either the title or the reference.

Graphs should avoid acronyms. Someone may have forgotten that MAPM is
mean applications per month. Makes sure that both the X and Y axis are
properly labelled and have enough values indicated to be able to see the
relationship between the variables.

Include a total of items measured if it's relevant. For example, n = 638

indicates that your sample included 638 transactions.

Do not use a legend unless you cannot find a way to prepare a graph that
does not need one. A legend requires the reader to take another mental
step to translate the information.

As with the language in your report, you are creating a functional graph to
convey a message, not a work of art. Don’t try to be too creative. Skewing,
or twisting the bars to odd angles, may add visual interest, but can make it
more difficult to understand or even change the meaning of the graph.

Use larger, simple fonts that are easy to read. Fonts without serifs, such as
Arial or Calibri are less fussy than fonts like Times New Roman. If the words
are taking up too much space on the page, find other words, don’t reduce
the font size to a point where it maybe unreadable.

Avoid using clip-art and other amusing pictures. This material is fine for
presentations where you are talking to people and trying to keep their
attention. Its presence in reports makes the reports seem less serious and
detracts from the overall effectiveness.

If you are printing your report in colour, avoid bright colours like lime green

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or hot pink; they are hard on the eyes and distract from the message.
8% of the male population are colour blind. The most important reader of
your report may be one of those 8%. The most common form is an inability
to distinguish red from green.. If printing in colour, consider using colours
that can distinguished by people who are colour blind or may suffer some
other form of visual impairment.

Remove the grey walls and background lines from graphs unless they are
needed to make the data more readable. White is the best background and
the fewer lines on the graph that are not data lines, the easier it is to see
what the graph is trying to communicate.

Make borders thinner and dark grey instead of heavy and black. This
emphassizes the content of the chart rather than the border.

Make the y-axis in particular legible. Use larger increments in the y-axis
using larger intervals so that the number of labels is reduced. Choose a font
size that is easy to read and doesn't obscure the numbers above and below.
Make the maximum number only slightly higher than the tallest bar to
optimize use of space.

Always identify the source of a graph. If it is sourced externally,

acknowledge the provider. If it is constructed from audit evidence, indicate
where this evidence has come from.

Types of Graph and their Use

There are various types of graphs that may be used to present data. The most common
types are pie charts, bar (horizontal representation) and column (vertical representation)
graphs and line graphs (also called trend graphs). Various software applications such as
Excel provide a variety of other types which are more complex versions of these four or
are more specialised. These latter types may be more difficult for a reader to understand.
An area graph for example is a three dimensional version of a line graph, adding a second
variable. Many people will have difficulty understanding what this means. The auditor
should keep graphs as simple as possible and never try to show too many variables at
once.

Pie Charts
Pie charts show the parts of a whole. Pie charts are the most common form of graph used
in business communication, because they are simple to understand. Their use in audit
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reports is also common, particularly when the auditor is dealing with a relatively small
number of items and some of those items are very large. They have been criticised
because it is often difficult to differentiate between the si
size
ze of smaller slices of the pie and
auditors should be careful to put values in the chart if this is the case. Because of this, pie
charts are generally better at showing that a particular population is dominated by one or
two items rather than allowing a reader to gain an understanding of the makeup of the
entire population.
If you want to show the different levels of purchases from five or six different suppliers,
then a pie chart will enable you to clearly demonstrate that one supplier is being heavily
favoured or that the purchase are being spread around.
Figure 1 shows which sectors of the population are responsible for waste generation,
generation
which support the development of appropriate waste reduction strategies and which have
been implemented and monito
monitored.
red. Note, with pie charts it is important to use colour
carefully; different
ent colours may be hard to ‘see’ when the chart is copies into black and
white.

Figure 1 - Waste Generators by Percentage

ercentage

Source: PICT 2, Solid Waste Management performance audit report, 2010.

Bar Charts/ Column Charts

Bar charts and column charts show data at a "point in time" not unlike a snapshot. They
are useful for showing comparisons and relativities between the various items which
make up a population. They are designed tto o show the relationship between variables
which have discrete values rather than being continuous. When the reader looks at a bar
or column chart they can see that one item is bigger or smaller than another. If you want
to show that the total number of mac
machines
hines parts bought in 2006 is greater than it was in
2005 and twice as much as it was in 2004, then a bar or column graph will show this most
effectively.

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Figure 2 shows how a bar graph has been used to show the change in a number of
parameters from year to o year
year. Because
ecause there are only five parameters and five years, it is
cleaner and more effective than a line graph
graph, which could also be used. If the period here
was fifty years, a line graph would be more effective.

Figure 2 - Waste Management B

Budget Allocation for the Fiscal Years 2006 – 2010, by Activity
A

Source: PICT 2, Solid Waste Management performance audit report, 2010.

Line Graphs
Often called a trend graph, a line graph is used to show the way something has moved
over time. It is also useful for
or those occasions where the auditor wants to demonstrate
how related variables have moved over time, through using more than one line. One of
the best examples of the use of multiple line graphs is with currency exchange rates. It is
possible to plot the movement of multiple currencies against the American dollar on a
single graph by using a line for each currency. Line graphs also provide a more useful
facility for plotting two completely different variables against a third variable. For
example, it may be useful to plot the number or volume of houses sold and the total sales
of new cars against the unemployment rate, even though the sales of cars and the
turnover in houses appear to have little to do with each other.

When creating line graphs it is imp

important
ortant to limit the number of trend lines so they don't
overlap and you can't tell which is which. A full
full-page
page chart can include more lines than a
small one, which should have only a few.

It is also useful to make the lines heavier, with larger markers ((the
the little triangles or boxes
along the lines) so that they can be seen more easily
easily. Care should be taken when using
colours, lines such as those shown in Figure 3 would be hard to understand if copies were
made in black and white.

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Legends are more useful in line graphs than in other types of graph because it is often
difficult to associate text boxes with the specific lines they describe. The graph below
shows the electricity usages for an entity over three different years and enables the
reader to easily see that it declined from 2008 but for some reason peak usage moved to
later in the year.

Figure 3 - Example
ample of Use of a Line Graph to Show Trends for D
Different Time Period
eriod Activity

Supporting
ng Information for G
Graphs
It is helpful to provide the data tthat
hat supports a graph, either in the relevant chapter or in
an appendix to the report. This allows a reader to see precisely what data the graph is
representing. Some readers will also be more comfortable with data in a tabular form
than in a graph.

Formatting Graphs
All visual aids should have a title and a letter or number that can be used in the text. The
title and/or reference letter or number should be used in the text (do not use words such
as above, below, or on the next page when referring to the vi visual
sual aid). Additionally, the
visual aid should be placed as close as possible to the text in which it is referenced.
The source for each visual aid should be specifically identified. Usually the source is given
at the bottom of the visual aid. It can be something provided by the auditee, it can be
something developed by the audit team, or it may be something drawn from a public
reference resource. Regardless of what it is, the source should be identified clearly.

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Reference Materials
Performance Auditing Guidelines, 2010, ISSAI 3000 – 3100, INTOSAI
Pacific Regional Audit Initiative, 2008, PASAI
Performance Audit Guidelines, 2000, ASOSAI
Performance Auditing Guidelines, 2010, ISSAI 3000 – 3100, INTOSAI
Performance Audit Manual, 2008, Fiji
General Standards in Government Auditing, 2007, ISSAI 200, INTOSAI
Field Standards in Government Auditing, 2007, ISSAI 300, INTOSAI
Reporting Standards in Government Auditing, 2007, ISSAI 400, INTOSAI
INTOSAI Auditing Standards Glossary, 2007, INTOSAI
INTOSAI Code of Ethics and Auditing Standards, 1998, INTOSAI

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