Adem Performance Audit Module

SRS College of Management and Public Service
Table of Contents
Chapter-1 Introduction 1-10

Chapter-2 Mandate and General Principles for performance audits 11-20
Chapter-3 Strategic audit planning and Selection of audit topics 21-26
Chapter-4 Planning individual performance audits 27-42
Chapter-5 Implementing the performance audits 43-50
Chapter-6 Evidence and Documentation 51-59
Chapter-7 The Reporting process 60-68
Chapter-8 Follow-up of performance audits 69-73
Performance Auditing Module

1. Introduction
1.1 These guidelines contain the framework for the process of performance auditing
within the Indian Audit and Accounts Department (IA&AD) headed by the
Comptroller and Auditor General (C&AG) of India hereinafter referred as the
Department. They provide the best practices that the officers and the staff of
Department must follow in planning, implementation, reporting, observing follow-up
processes and obtaining quality assurance in performance audits. They outline
principles, objectives, approach, methodology, techniques and procedures for
conducting performance audits. These guidelines are based on the existing guidelines
of C&AG of India and International Standards of Supreme Audit Institutions- (ISSAI)
100, 300 and 3000 and ASOSAI Performance Auditing Guidelines. These Guidelines
contain comprehensive implementation instructions and replace the Performance
Auditing Guidelines, 2004.
Scope for individual initiative and professional judgement
1.2 While these guidelines are prescriptive in nature, these are not intended to
supersede the professional judgement of the Accountant General 1, relevant to the
individual sectors of entity operations and within each sector, to the individual
subjects. The Accountant General is expected to make situation or subject specific
adjustments to the provisions set out in these guidelines. However, Accountants
General will be expected to document the rationale of all significant departures from
the guidelines and obtain authorisation from the competent authority.
Performance Auditing
1.3 Regulations on Audit and Accounts, 2007 provide the appropriate guidance for
audits undertaken by the Department. The Department performs its auditing functions
as per C&AG Auditing Standards, 2002 which have been adapted from ISSAIs (100-
400). C&AG's Auditing Standard 4.9 defines the scope of audit as under:
“The term 'Audit' includes financial audit, regularity audit and performance audit”.
1 The term Accountant General includes all heads of field audit offices of the rank of SAG and above within the
IA&AD.
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The auditing standard further adds that in pursuance of the constitutional
responsibility, the Department is empowered to decide the nature, scope, extent and
quantum of audit to be conducted by it or on its behalf.
“Performance audit is an independent assessment or examination of the extent

to which an organisation, programme or scheme operates economically,
efficiently and effectively.”
Regulation 68 of Regulations on Audit and Accounts, 2007
1.4 Performance auditing carried out by the Department is an independent, objective

and reliable examination of whether government undertakings, programs, systems,
activities or organisations are performing in accordance with the principles of
economy, efficiency & effectiveness and whether there is room for improvement.
1.5 Performance auditing seeks to provide new information, analysis or insights and,
where appropriate, recommendations for improvement. Performance audits deliver
new information, knowledge or value by:
n providing new analytical insights (broader or deeper analysis or new

perspectives);
nmaking existing information more accessible to various stakeholders; n
providing an independent and authoritative view or conclusion based on audit

evidence;
n providing recommendations based on an analysis of audit findings.
1.6 Typically, Performance Audits address the issues of economy, efficiency and
effectiveness.
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Economy, Efficiency and Effectiveness
Economy
Effectiveness Efficiency
Economy
Minimising the cost of resources used by acquiring

Economy them in due time, appropriate quantity and quality
and at the best price.
1.7 Judging economy in itself implies forming an opinion on the resources (human,
financial and material) deployed. This requires assessing whether given the context,
resources have been acquired, held and used economically and acquired in due time, in
appropriate quantity and quality at the best price. The performance auditor needs to
examine whether the means chosen represent the most or at least a reasonable
economical use of public funds.
Efficiency
The relationship between resources employed and

Efficiency outputs delivered; in terms of quantity, quality and
timing.
1.8 The principle of efficiency means getting the most from the available resources.
Efficiency exists where the use of financial, human, physical and information
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resources is such that output is maximised for any given set of resource inputs, or
input is minimised for any given quantity and quality of output. The main issue to be
examined here is whether the resources have been put to optimal or satisfactory use or
whether the same or similar results in terms of quality and turn-around time could
have been achieved with fewer resources. It refers to the relationship between the
quality and quantity of goods and services yielded and the cost of resources used to
produce them, in order to achieve the results.
1.9 A finding on efficiency can be formulated by means of a comparison with similar

activities, with other periods or with a standard, which the entity has explicitly
adopted. Assessments on efficiency might also be based on conditions that are not
related to specific standards, i.e., when matters are so complex that there are no
standards. In such cases, assessments must be based on the best practices and available
information.
1.10 Auditing efficiency embraces aspects such as whether:
n human, financial and other resources are efficiently used;

n public sector programmes, entities and activities are efficiently managed,
regulated, organised and executed; services are delivered in a timely manner;
n
and the objectives of public sector programmes are met cost-effectively.

n
Effectiveness
Meeting the objectives set and achieving the

Effectiveness
intended results.
1.11 Effectiveness is essentially a goal-attainment concept. It addresses the issue of

whether the programme/activity has achieved its objectives. When focusing on
effectiveness, it is important to distinguish between the immediate outputs or products
and the ultimate impacts or outcomes. Outcomes are important to the effectiveness of
programmes/activities but may be more difficult to measure and assess than the inputs
and outputs. Outcomes will often be influenced by external factors and may require
longterm rather than short-term assessment.
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1.12 In auditing effectiveness, performance audit may, for instance:
n assess whether the objectives of and the means provided (legal, financial,
etc.,) for a new or ongoing public sector programme are proper,
consistent, suitable or relevant to the policy;
n assess and establish with evidence whether the observed direct or indirect
social and economic impacts of a policy are due to the policy or to other
causes;
nidentify factors inhibiting satisfactory performance or goal-fulfilment; assess
n
whether the programme complements, duplicates, overlaps or counteracts other

related programmes;
n assess the adequacy of the management control system for measuring,
monitoring and reporting a programme's effectiveness; and
n identify ways of making programmes work more effectively.
Two basic questions
1.13 Performance auditors may find answers to the following two basic questions:
nAre things being done in the right way? n
Are the right things being done?
The first question means, broadly speaking, whether policy decisions are being carried
out properly. This question is usually associated with a assessment vis-à-vis norms i.e.,
the performance auditor wants to know whether the executive has observed the rules
or the requirements consistent with the programme. Up to this point, performance
auditing is mainly concerned with different aspects of the economy or the efficiency of
operations. The scope for analysis becomes considerably greater by posing the second
question, i.e., whether the right things are being done. In other words, effectiveness of
the operations would be examined by asking questions whether the adopted policies
have been suitably implemented. A performance auditor might, for instance, find a
chosen measure ineffective and inconsistent with the policy objectives.
1.14 In the effort to find answer to the second question, adequate caution should be
exercised by not going beyond the audit mandate by respecting the roles assigned to
executive and audit. However, the correctness of the information or inputs that were
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considered while framing the policy and sufficiency of the programmes and resources
to fulfil the policy objectives may be assessed and reported.
Objectives of Performance Audit
1.15 The main objective of performance auditing is to constructively promote

economical, effective and efficient governance. It also contributes to accountability
and transparency. Performance auditing promotes accountability by assisting those
charged with governance and oversight responsibilities to improve performance. It
does this by examining whether decisions by the legislature or the executive are
efficiently and effectively prepared and implemented, and whether taxpayers or
citizens have received value for money. It does not question the intentions and
decisions of the legislature, but examines whether any shortcomings in the laws and
regulations or their way of implementation have prevented the specified objectives
from being achieved. Performance auditing focuses on areas in which it can add value
for citizens and which have the greatest potential for improvement. It provides
constructive incentives for the responsible parties to take appropriate action.
Performance auditing promotes transparency by affording parliament, taxpayers, those
targeted by government policies, media and other stakeholders an insight into the
management and outcomes of different government activities. It thereby contributes in
a direct way to providing useful information to the citizen, while also serving as a
basis for learning and improvements.
Elements of Performance Audit
1.16 Public Sector audits have certain basic elements (i) Three parties in the audit i.e.
the auditor, the responsible party, intended user, (ii) the subject matter information and
(iii) criteria to assess the subject matter.
The three parties
1.17 Public sector audit involves at least three separate parties: the auditor; the
responsible party and the intended user. These are briefly described below:
1.18 The auditor: In public sector auditing, the role of auditor is fulfilled by the
Department and by the persons delegated with the task of conducting audits.
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However, clear-cut demarcation of roles and responsibilities of officers and staff for
various functions and processes is done through a hierarchical structure. Auditors in
performance audits typically work in a team with different and complementing skills.
1.19 The responsible party: Responsible party would typically mean audited entity
and those charged with governance. The role of responsible party may be shared by a
range of individuals or entities, each with responsibility for a different aspect of the
subject matter in some cases at different points in time. Some parties may be
responsible for actions that have caused problems. Others may be able to initiate
changes to address the recommendations resulting from a performance audit. Still
others may be responsible for providing the auditor with information or evidence.
1.20 Intended users: The intended users are the persons for whom the auditor
prepares the performance audit report. The legislature, government agencies and the
public can all be intended users. A responsible party is also an intended user.
Subject matter
1.21 The subject matter of a performance audit need not be limited to specific
programmes, entities or funds but can include activities (with their outputs, outcomes
and impacts) or existing situations (including causes and consequences). The subject
matter is determined by the objective and formulated in the audit questions.
Audit Criteria
1.22 Audit criteria within the context of performance audit are audit specific,
reasonable standards of performance against which the economy, efficiency and
effectiveness of operations can be evaluated and assessed. The auditor may sometimes
be involved in developing or selecting the criteria that are relevant to the audit as
further discussed in para 2.7 to 2.11 under Chapter 2.
Assurance and confidence in performance auditing
1.23 As in all audits, the users of performance audit reports seek confidence about the
reliability of information in the reports. The performance auditors should, therefore, in
all cases provide findings based on sufficient and appropriate evidence and actively
manage the risk of inappropriate reports.
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1.24 The level of assurance that a performance audit report provides should be
communicated in a transparent way. Whether economy, efficiency and effectiveness
have been achieved may be conveyed in the performance audit report in different
ways:
n through an overall view on aspects of economy, efficiency and effectiveness,

when the audit objectives, the subject matter, the evidence obtained and
the findings reached allow for such conclusions; or
n by providing specific information in the report on different points, including
the audit objectives, the questions asked, the evidence obtained, the
criteria used, the findings reached and the specific conclusions.
However, the performance auditor is not normally expected to provide an overall

opinion on the achievement of economy, efficiency and effectiveness on the level of
the audited entity in the same way as the opinion on financial statements.
1.25 The decisions made in drawing up a balanced report, reaching conclusions and
formulating recommendations frequently need to be elaborated in order to build user
confidence. Performance auditors should specifically describe how their findings have
led to a set of conclusions and, if applicable, an overall conclusion.
This means explaining the criteria developed and used and why, and stating that all
relevant viewpoints have been taken into account. The principles on reporting give
further guidance for this process.
Outcomes of performance audits
1.26 Performance audits provide entities and stakeholders with information and
assurance about the quality of management of public resources and also assist public
sector managers by identifying and promoting better management practices.
Performance auditing may, therefore, lead to better accountability, improved economy

and efficiency in the acquisition of resources, improved effectiveness in achieving
public sector programme objectives, a higher quality in public sector service delivery
and improved management planning and control. It is an important responsibility of
the auditor to ensure that through each performance audit one or more of these
objectives are met.
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1.27 Performance auditing is a means to an end and not an end by itself. Performance
audit should be aimed at adding value to the Management by way of reliable, objective
and independent information, highlighting the shortcomings in programme planning,
implementation, information systems affecting the outputs and outcome specifically
and quality of expenditure or management generally. In addition, performance audit
reports provide valuable information and independent assessment on programme
management and the extent of fulfilment of the policy objectives to the stakeholders
including the Parliament, the State Legislatures and the general public. Thus, good
quality performance audit contributes to good governance.
1.28 The users of performance audit reports expect reliable reports. All performance
audits should, thus, be planned and performed keeping in view the expected outcome.
It is a good practice to evaluate the real impact of performance audit on entity policies
and programmes.
General outlay of Performance Auditing Guidelines
1.29 These guidelines are presented in a sequence as the process of performance audit.
The Department has to deal with a variety of subjects of performance audits and
conduct audit in diverse entity environments. Besides, different structures for audit
management exist in the Department for the Union Government (civil, defence,
railways, communication, revenue and commercial audits) and the audit of State
Governments. It may, therefore, be necessary to adjust the actual process of planning,
field audits and consolidation of the performance audits in the context of the entity
environment and composition of audit offices.
Chapter 2 of these guidelines deals with the Mandate and General Principles for
Performance Audits.
Chapter 3 deals with the strategic audit planning and selection of subjects.
Chapter 4 enumerates how to plan individual performance audits.
Chapter 5 discusses various elements of implementing the performance.
Chapter 6 deals with aspects relating to evidence and documentation.
Chapter 7 deals with the reporting process of draft performance audit report.
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Chapter 8 deals with follow-up procedures.
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2. Mandate and General Principles for
Performance Audits
Mandate for Performance Audit
2.1 The audit mandate of the Department is derived from the Constitution of India.
Article 151 of the Constitution of India provides that the reports of the Comptroller
and Auditor General of India relating to the accounts of the Union or a State
government shall be submitted to the President or the Governor of the State
respectively, who shall cause them to be laid before each House of Parliament/
Legislature of the State. The statutory position is established under the Comptroller
and Auditor General's (Duties, Powers and Conditions of Service), Act 1971. The
mandate of C&AG of India for performance audits is described in Sections 13, 14, 15,
16, 17, 19 and 20 read with Section 23 of this Act. Chapter 7 of the Regulations on
Audit and Accounts, 2007 provides the specific guidance on this subject. Regulation
68 defines performance audit as an independent assessment or examination of the
extent to which an organisation, programme or scheme operates economically,
efficiently and effectively. The mandate is further strengthened by practice and
convention drawn from 50 years of performance audits relating to the receipts and
expenditure of the Union and State governments, government supported autonomous
bodies and other public sector undertakings on a variety of subjects carried out by the
Department.
General Principles
2.2 The General Principles of performance auditing give guidance on those aspects of
performance auditing that are relevant throughout the audit process as implemented in
the Department.
Ethics and Independence
2.3 Auditor should comply with the relevant ethical requirements and be
independent.
Performance Auditing Guidelines 11

Mandate and General Principles for Performance Audits
The Code of Ethics adopted by Department spells out the ethical requirements on the
part of the auditors while discharging their professional obligations. The Code of
Ethics envisages appropriate ethical behaviour on part of the head of the Department,
all members of the Department and all individuals working for or on behalf of the
Department who are involved in auditing and accounting work. The Code of Ethics
requirements have to be kept in mind while conducting performance audits.
Audit Objective
2.4 Auditors should set a clearly defined audit objective that relates to the
principles of economy, efficiency and effectiveness.
The audit objective determines the approach and design of the engagement. Audit
objectives could be descriptive (How are the things?), normative (are things as they
ought to be?) and analytical (why are things not as they ought to be?). Normative and
analytical audit objectives are more likely to add value. In all cases, the auditors need
to consider what the audit pertains to, which organisations and bodies are involved and
for whom the ultimate recommendations are likely to be relevant. Well defined audit
objectives relate to a single entity or an identifiable group of government
undertakings, systems, operations, programmes, activities or organisations.
Audit objectives can be sub-divided into more precise sub-objectives. These should be
thematically related, complementary, not overlapping and collectively exhaustive in
addressing the overall audit objective.
Audit approach
2.5 Auditors should choose a result, problem or system-oriented approach, or a

combination thereof, to facilitate the soundness of audit design.
The overall audit approach is a central element of any audit. It determines the nature of
the examination to be made. It also defines the necessary knowledge, information,
data, the audit procedures and analysis required. Performance auditing generally
follows one of three approaches:
12 Performance Auditing Guidelines – C&AG of India

n a system-oriented approach, which examines the proper functioning of

management systems, e.g. financial management systems;
n a result-oriented approach, which assesses whether outcome or output

objectives have been achieved as intended or programmes and services
are operating as intended;
n a problem-oriented approach, which examines, verifies and analyses the

causes of particular problems or deviations from criteria.
2.6 Audits can be pursued from a top-down or bottom-up perspective. Top-down

audits concentrate mainly on the requirements, intentions, objectives and expectations
of the legislature and central government. A bottom-up perspective focuses on
problems of significance to people and the community.
Audit Criteria
2.7 Auditors should establish suitable criteria which correspond to the audit
questions and are related to the principles of economy, efficiency and
effectiveness.
Criteria are the benchmarks used to evaluate the subject matter. Performance audit
criteria are reasonable and audit specific standards of performance against which the
economy, efficiency and effectiveness of operations can be evaluated and assessed.
2.8 The criteria provide a basis for evaluating the evidence, developing audit findings
and reaching conclusions on the audit objectives. They also form an important element
in discussions within the Department's audit team and with Department's Management
and in communication with the audited entities.
The criteria can be qualitative or quantitative and should define what the audited entity
will be assessed against. The criteria may be general or specific, focusing on what
should be according to laws, regulations or objectives; what is expected, according to
sound principles, scientific knowledge and best practice; or what could be (given
better conditions).
Performance Auditing Guidelines – C&AG of India 13

Diverse sources can be used to identify criteria, including performance measurement

frameworks. It should be transparent, which sources were used, and the criteria should
be relevant and understandable for users as well as complete, reliable and objective in
the context of the subject matter and audit objectives.
2.9 The criteria should be discussed with the audited entities, but it is ultimately the
auditor's responsibility to select suitable criteria. While defining and communicating
criteria during the planning phase may enhance their reliability and general
acceptance, in audits covering complex issues it is not always possible to set criteria in
advance; instead they will be defined during the audit process.
2.10 Whereas in some audit types there are unequivocal legislative criteria, this is not
typically the case in performance auditing. The audit objectives, question and
approach determine the relevance and the type of suitable criteria, and user confidence
in the findings and conclusions of a performance audit depends largely on the criteria.
Thus, it is crucial to select reliable and objective criteria.
2.11 In a problem-oriented performance audit, the starting point is a known or

suspected deviation from what should or could be. The main objective is, therefore,
not just to verify the problem (the deviation from the criterion and its consequences)
but to identify causes. This makes it important to decide how to examine and verify
causes during the design phase. Conclusions and recommendations are primarily based
on the process of analysing and confirming causes, even though they are always rooted
in normative criteria.
Audit risk
2.12 Auditors should actively manage audit risk, which is the risk of obtaining
incorrect or incomplete conclusions, providing unbalanced information or failing
to add value for users.
Many topics in performance auditing are complex and politically sensitive. While
simply avoiding such types of audits may reduce the risk of inaccuracy or
incompleteness, it could also limit the possibility of providing important feedback for
better governance and adding value by audit.

2.13 The risk that an audit will fail to add value ranges from the likelihood of not
being able to provide new information or perspectives to the risk of neglecting
important factors. Consequently, audit will not being able to provide users of the audit
report with knowledge or recommendations that would make a real contribution to
better performance. Important aspects of risk may include not possessing the
competence to conduct sufficiently broad or deep analysis, lacking access to complete
and quality information, relying on inaccurate information (e.g. because of fraud or
irregular practices), being unable to put all findings in perspective, and failing to
collect or address the most relevant arguments.
2.14 Auditors should, therefore, actively manage risk. Dealing with audit risk is
embedded in the whole process and methodology of performance audit. Audit
planning documents should state the possible or known risks of the work envisaged
and show how these risks will be handled.
Communication
2.15 Auditors should maintain effective and proper communication with the
audited entities and other parties sharing the responsibility of the subject matter
throughout the audit process and define the content, process and recipients of
communication for each audit.
There are several reasons why a regular communication is of particular importance in

performance audit:
n As performance audits are not normally conducted on a regular (e.g. annual)

basis on the same audited entities, channels of communication may not
already exist. While there may be contacts with the legislature and
government bodies, other groups (such as academic and business
communities or civil society organisations) may not have been engaged
with previously.
n Often there are no predefined criteria (such as a financial reporting

framework), and therefore an intensive exchange of views with the
audited entity is necessary.

n An active effort is required to obtain insight into the points of view of the
various stakeholders to bring out a balanced report.
2.16 Auditors should identify the responsible parties and other key stakeholders and
take the initiative in establishing effective two way communication. With good
communication, auditors can improve access to information sources and to data and
opinions from the audited entity. Using communication channels to explain the
purpose of the performance audit to stakeholders also increases the likelihood that
audit recommendations will be implemented. Auditors should, therefore, seek to
maintain good professional relations with all relevant stakeholders, promote a free and
frank flow of information as far as confidentiality requirements permit, and conduct
discussions in an atmosphere of mutual respect and understanding for the role and
responsibilities of each stakeholder. However, care should be taken to ensure that
communication with stakeholders does not compromise the independence and
impartiality of the Department.
2.17 Auditors should inform audited entities of the key aspects of the audit, including
the audit objective, audit questions and subject matter. Communication will usually
take the form of a written engagement letter and regular communication during the
audit. Auditors should maintain communication with audited entities throughout the
audit process, by means of constructive interaction as different findings, arguments
and perspectives are assessed.
2.18 Audited entities should be given an opportunity to comment on the audit findings,
conclusions and recommendations before the Department issues its audit report. Any
disagreements should be analysed and factual errors corrected. The examination of
feedback should be recorded in working papers so that changes to the draft audit
report, or reasons for not making changes, are documented.
Skills
2.19 Collectively, the audit team should have the necessary professional
competence to perform the audit. This would include in addition to the
knowledge of the domain of the audited entity, sound knowledge of auditing,
research design, social science methods and investigation or evaluation

techniques, as well as personal strengths such as analytical, writing and

communication skills.
2.20 In performance auditing, specific skills may be required, such as knowledge of

evaluation techniques and social science methods, and personal abilities such as
communication and writing skills, analytical capacity, creativity and receptiveness.
Auditors should have a sound knowledge of government organisations, programmes
and functions. This will ensure that the right areas are selected for audit and that
auditors can effectively undertake reviews of government programmes and activities.
2.21 There may also be specific ways of acquiring the necessary skills. This
knowledge must frequently be acquired or developed specifically for the engagement.
Performance audits often involve a learning process and the development of
methodology as part of the audit itself. On the job learning and training should
therefore be available to auditors, who should maintain their professional skills
through ongoing professional development. An open attitude to learning and an
encouraging management culture are important conditions for enhancing individual
auditors' professional skills.
2.22 In specialised areas, external experts can be used to complement the knowledge
of the audit team. Auditors should evaluate whether and in what areas external
expertise is required, and make the necessary arrangements. The procurement of the
services of the expert or using their work will be as per the general guidelines
approved by the C&AG office from time to time.
Professional judgment, due care and scepticism
2.23 Auditors should exercise professional scepticism, but also be receptive and
willing to innovate.
It is vital that auditors exercise professional scepticism and adopt a critical approach,
maintaining an objective distance from the information provided. Auditors are
expected to make rational assessments and discount their own personal preferences
and those of others. At the same time, they should be receptive to views and
arguments. This is necessary in order to avoid errors of judgement or cognitive bias. If
they are not receptive, they may miss important arguments or key evidence.

2.24 As auditors work to develop new knowledge, they also need to be curious,
reflective and resourceful in their efforts to collect, interpret and analyse data. A
willingness to innovate is equally important. Innovation applies not only to audit
process, but also to the audited processes or activities.
2.25 A high standard of professional behaviour should be maintained throughout the

audit process, from topic selection and audit planning, via the audit proper, to
reporting. It is important for auditors to work systematically, with due care and
objectivity and under appropriate supervision.
Quality control
2.26 Auditors should apply procedures to safeguard quality, ensuring that the
applicable requirements are met and placing emphasis on appropriate, balanced
and fair reports that add value and answer the audit questions.
A robust quality management system facilitates conducting of effective performance

audits. High quality of performance audits can only be expected if a sound quality
management system exists within the Department. The key elements of Audit Quality
Management Framework of the Department have been embedded in these guidelines.
In the conduct of performance audits the following specific issues need to be

addressed:
n Performance audit is a process in which the audit team gathers a large

amount of audit specific information and exercises a high degree of
professional judgement and discretion concerning the relevant issues.
This must be taken into account in quality control. The need to establish a
working atmosphere of mutual trust and responsibility and provide
support for audit teams should be seen as part of quality management.
This may entail applying quality control procedures that are relevant and
easy to manage and ensuring that auditors are open to feedback received
from quality control. If there is a difference of opinion between
supervisors and the audit team, appropriate steps should be taken to
ensure that the audit team's perspective is given sufficient consideration
and that the Department's policy is consistent.

n In performance auditing, even if the report is evidence based, well

documented and accurate, it might still be inappropriate or insufficient if
it fails to give a balanced and unbiased view, includes too few relevant
viewpoints or unsatisfactorily addresses the audit questions. These
considerations should therefore be an essential part of measures to
safeguard quality.
n As audit objectives vary widely between different audit engagements, it is

important to define clearly what constitutes a high quality report in the
specific context of an audit engagement. General quality control measures
should therefore be complemented by audit specific measures.
2.27 A motivated and skilled audit team is required for conducting high quality
performance audits. Control mechanisms should therefore be complemented by
support, such as on the job training and guidance for the audit team.
Materiality
2.28 Auditors should consider materiality at all stages of the audit process.
Thought should be given not only to financial but also to social and political
aspects of the subject matter, with the aim of delivering as much added value as
possible.
Materiality can be understood as the relative importance of a matter within the context
in which it is being considered. The materiality of an audit topic should have regard to
the magnitude of its impact. It will depend on whether the activity is comparatively
minor or whether shortcomings in the area concerned could influence other activities
within the audited entity. An issue will be considered material where the topic is
considered to be of particular importance and where improvements would have a
significant impact. It will be less material where the activity is of a routine nature and
the impact of poor performance would be restricted to a small area or otherwise
minimal.
2.29 In performance audit, materiality by monetary value may, but need not, be a
primary concern. In defining materiality, the auditor should consider also what is
socially or politically significant and bear in mind that this varies over time and
depends on the perspective of the relevant users and responsible parties. Since the

subject matter of performance audits can vary broadly and criteria are frequently not
set by legislation, that perspective may vary from one audit to another. Assessing it
requires careful judgement on the part of the auditor. Materiality concerns all aspects
of performance audits, such as the selection of topics, definition of criteria, evaluation
of evidence and documentation and management of the risks of producing
inappropriate or low impact audit findings or reports.
Documentation
2.30 Auditors should document the audit in accordance with the particular
circumstances thereof. Information should be sufficiently complete and detailed
to enable an experienced auditor having no previous connection with the audit to
subsequently determine what work was done in order to arrive at the audit
findings, conclusions and recommendations.
2.31 As in all audits, performance auditors should keep an adequate documentary

record of the preparation, procedures and findings of each audit. However, the purpose
and context of documentation are somewhat specific in performance auditing.
n Frequently the auditor will have acquired specialised knowledge about the
audit topic that is not easily reproduced in the Department. Since, the
audit methodology and criteria may have been developed specifically for
a single engagement, the auditor carries a special responsibility to make
his reasoning transparent.
n In performance auditing, the report describes the framework, perspective and

analytical structure that were adopted and the process that was followed
to arrive at the conclusions in addition to findings and recommendations.
To some extent, the report performs functions that in other types of audits
are provided by general standards of audit documentation.
n Documentation should not only confirm the accuracy of facts, but also ensure
that the report presents a balanced, fair and complete examination of the
audited question or subject matter. Thus, for example, it might be
necessary for the documentation to include reference to arguments not
accepted in the report, or to describe how different viewpoints were dealt
within the report.

2.32 Maintaining adequate documentation is not only part of safeguarding quality (e.g.
by helping to ensure that delegated work has been performed satisfactorily and that the
audit objectives have been achieved) but also of the Department and individual
auditors' professional development, as it can shape good practice for similar audits in
the future.

Strategic Audit Planning and Selection of Audit Topics
3. Strategic Audit Planning and Selection of

Audit Topics
Strategic Audit planning
3.1 Strategic Audit planning is the process of determining the long term goals for the
Department and the best approach for attaining them. It consists of strategic goals
(mission statement), strategic objectives (more specific and detailed statements) and
strategic measures to attain them. Strategic plan for performance audit is a subset of
the strategic audit plan of the Department. In the context of performance audits, the
Department may define its long term mission statement consisting of goals to be
achieved through the performance audits, statements of detailed objectives expected to
be accomplished through performance audits and the subjects of performance audits to
be carried out in pursuance of the strategic goals and objectives. The field audit offices
are also required to prepare their audit plans with reference to the Department's
strategic audit plan. While formulating their audit plans, the fields offices should
ensure that the plans are consistent with Department's strategic audit plan and help in
accomplishment of long terms objectives as enumerated in the Strategic audit plan of
the department as a whole besides addressing the audit risks in their respective areas
of jurisdiction.
3.2 While no uniform time frame for the planning of performance audits by the field
audit offices can be determined since there could be variation in the requirement of
different audit offices in charge of various types of entity audits, a reference frame of
five years may be considered for performance audit planning. However, the planning
drill would be reviewed every year at the time of preparation of the annual audit plans
as a rollover exercise. The annual audit plan of the field audit offices would depict
various stages of all performance audits under the captions of 'brought forward', 'to be
taken up', 'to be completed' and 'carried forward'.
Objectives of strategic audit planning
3.3 Strategic Audit Plan of the Department sets out a vision that provides an important
starting point in deciding what to audit; sets out the outcomes that we are trying to
achieve and in general, better managed government programs and better accountability
to Parliament and the public. A well structured strategic audit planning process, based

on a sound rationale, is necessary to ensure that the resources of the Department are
used in the most efficient and effective manner.
The objectives of strategic audit planning are to:

n Provide a firm basis for the Department's Management to give strategic
direction for future audit coverage;
n Identifyand selectauditswith the potentialto improvepublicsector
accountability and administration;
n Understand entity risks and take them into account in audit selection;
n Provide a basis for Department's accountability; and
n Produce a work programme that can be achieved with expected/available
resources
Strategic audit planning process
3.4 Before preparing the strategic audit plan, it would be useful to develop a sound
understanding of:
n general economic and social conditions; n
government priorities, goals and

programmes; and
n the regulatory and accountability frameworks within which the audited
entities operate.
3.5 The Department's Senior Management2 may conduct brainstorming meetings with
Accountants General from time to time in respect of strategic audit and annual audit
plans to select the subjects which address the Department's concerns for high risk
programmes and activities.
2 Senior Management comprises C&AG of India, Deputy C&AsG and Additional Deputy C&AsG.

Inputs Outputs
n
Previous strategic plan
n
Past Audit reports and follow up action on Strategic
them
Audit Plan
n
Plan documents, Departmental outcome
for the
budgets and Results Framework Documents
Department
n
Annual reports of Government departments
n
Legislative interest
Priorities
n
Audit Advisory Board proceedings
n
Media and external reports
Resource requirements
n
Academic reports
n
Reports by multilateral agencies
Annual Audit Planning Process
3.6 Once the Strategic audit plan for the Department is in place, the process of
preparing the annual audit plan is taken up by the field audit offices. Annual audit plan
of the field audit office would include performance audits, compliance audits and
financial audits to be taken up during the financial year. It is an exercise of balance
between the audit priorities and the resource availability. One of the important
components of audit plan is the selection of specific subjects for performance audits to
be undertaken in the audit cycle. The audit plan component for the performance audit
would typically include subjects relating to specific sectors or the states under their
audit jurisdiction and also certain audits with All-India scope. Timely intimation of
the All- India performance audits as approved by headquarters would enable
participating field audit offices to prepare their plan appropriately. It has to be ensured
that quality of performance audit does not suffer because of undertaking too many
audits. The concerns of the stakeholders may be obtained and given due regard while
selecting topics of performance audit at the time of preparation and finalisation annual
plans of field audit offices.
Selection of audit topics
3.7 The selection of audits to be taken up requires serious deliberations as the potential
areas for audit could be considerable and the Department's capacity in terms of effort

and time is limited. This means that choices must be made with care. It is not always
necessary to conduct performance audits of the entity or the programme as a whole.
Accountants General should select a mix of performance audit subjects covering either
the programme or activities of the entity comprehensively and the subjects for which
the scope and audit objectives are confined only to significant aspects of the
programmes or activities. The selection of the components or parts of the programme
may be guided by the materiality and risk profiles. This will enable the Accountant
General to increase the coverage to a large number of relatively more important and
contemporary issues, which may be expected to enhance the perceived and actual
value addition through performance audits.
3.8 Where desirable, the subjects of performance audit may be selected cutting across
various departments or entities. This will provide a platform for performance audit on
a theme or thrust area over a cross section of entities, who are entrusted with the
responsibility for the programme, activity, etc. Performance auditors may, quite often,
find it necessary to extend the scope of audit to other agencies/departments to assess
the effectiveness/impact of a programme, irrespective of the fact that their allocation
of business is in different sectors (civil, railways, communications, social, economic
and service sectors, etc.) or their status may be different (government department,
government funded institute and government companies, etc.).
3.9 Emerging issues like environmental challenges, sustainable development and

information technologies should also find a place in the performance audits of various
entities. Programmes, schemes etc. Finally, the problems of significance to people and
the community should also be given appropriate emphasis while selecting the subjects
of audits.
Some considerations for selection of subjects are:
(a) Assessing risks: Since all the entities and all activities of the entities cannot be
audited because of resource constraints, awareness of entities or areas that put the
programme or public resources at risk from the point of view of economy, efficiency
and
effectiveness helps focus audit attention on them. Risk profiling of audited entities,
sectors and programmes help in deciding the selection of subjects.

(b) Materiality and Significance: Auditors should consider materiality in all

stages of the audit process and in doing so consider not only financial, but also social
and political aspects of the subject matter and how to add the most value possible
through the audit. Significance of a topic is its importance in the context of the
organization, programme or subject. A topic will have a high significance if the
project or activity it addresses is central to the functioning of the entity.
(c) Visibility of a subject is an assessment of the interest it generates in the general

public and the legislature. While no uniform index of visibility can be prescribed,
legislative debates, media reports or articles and subjects of workshops and seminars
could serve as an index of visibility.
(d) Past audits by the Department could provide an index of significance,

materiality and risk of the subjects.
(e) Estimated impact of the performance audit is also a criterion for prioritisation.
This could be the impact of improved economy, efficiency and effectiveness of the
entity, project or activity which is the subject of performance audit. Impact can be
assessed through an understanding of the entity's risk profile and the areas proposed to
be addressed by the topic.
(f) Coverage refers not only to previous audit coverage by the Department but
also to other independent reviews of the activity. Such reviews may have been
conducted by internal audit, external consultants or government committees or the
activity could have been subject to programme evaluation. When there has been a
substantial review of the activity in recent past, the activity will attract low ranking.
Whereas, a higher ranking would be warranted where the audit has been requested by
the legislature or by the government and the previous performance audit indicated that
such a follow-up should occur; and
(g) The stage of the programme development should also be kept in mind when
assessing management performance.
This process would provide the Accountant General with a list of subjects which may
be taken up for performance audits for the period under consideration.
Interaction with audited entities and other stakeholders
3.10 The Accountant General may elicit suggestions from the Executive or those
charged with governance of the audited entities for the subjects or areas which could

be selected for audits. Holding of seminars, conferences and discussions with other
stakeholders at the time of audit planning can also be considered as means for
associating stakeholders with planning process. This will also help in understanding
the concerns of the audited entities and would also supplement the risk assessment
exercise being undertaken in the Department for finalisation of topics of Performance
Audit. It would also give the Department a chance to appreciate the governance and
regulatory issues concerning the audited entities.
Periodic updating of the data and the risk profile
3.11 The data and information gathered for strategic planning for performance audits
and risk profile of the entity or programme should be updated periodically, the
periodicity being determined by Accountants General depending upon the changes in
the entity environment. While Accountants General may establish procedure for
updating the data, it should be incumbent upon the audit officer to update the data in
respect of entities at the close of each periodic audit.
4. Planning individual performance audits
4.1 A performance audit has to be planned 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. A well thought out plan is indispensable in performance auditing. Before
implementing the performance audit, it is important to identify the audit objectives,
the scope and the methodology to achieve the objectives of a particular performance
audit. This is often done in the form of a pilot study. The purpose of this study is to
establish whether the conditions for carrying out a performance audit exist and, if they
do exist, to produce an audit proposal. It provides background knowledge and
information needed to understand the entity, program, or function. At the end of the
study, it may be clearly stated whether performance audit is feasible or not. Pilot
study should normally be carried out in a fairly short period. In selecting audits
through this process, the Accountants General would have to use their preliminary
knowledge of the subject area to form a reasonable basis for believing that the audit
can be completed in accordance with the performance audit guidelines.
4.2 Planning consists of developing guidelines and assessing resources. The audit
guidelines should be detailed, including information on the audited entity's
environment, audit materiality and risks, and description of the audit scope, objectives

and methodology as discussed in subsequent paragraphs. Planning consists of

developing a detailed approach for the expected nature, timing and extent of the audit.
Adequate planning of the audit helps to ensure that appropriate attention is devoted to
important areas of the audit, potential problems are identified and the work is
completed expeditiously. Planning also assists in proper assignment of duties to team
members and coordination of work performed by other offices within the Department
and those of the experts.
4.3 Audit planning should lead to the development of a detailed audit proposal that
identifies the specific audit tasks to be undertaken. An appropriate audit proposal
makes it easier to ensure that the performance audit coverage is comprehensive and
realistic. It is pertinent to mention that adequate time and effort should be spent on
planning a performance audit. Planning documents could also indicate the expected
impact of the performance audit.

Planning individual performance audits
4.4 The important steps in drawing up an audit proposal are the following:
n Defining the specific issue to be studied and the audit objectives,

n Developing the scope and the design of the
audit, Determining
n the timetable and the
resources.
The following chart indicates the process involved in planning an individual

performance audit in practice. These steps cannot always be strictly separated and
they do not necessarily take place in the same order through.
Understanding the entity/programme
Defining the objectives and the scope of the audit
Determining audit criteria
Deciding audit approach
Developing audit questions
Assess audit team skills and whether

outside expertise required
Preparation of Audit Design Matrix
Establishing time table and resources
Intimation of Audit programme to audit entities

(a) Understanding the entity/programme
4.5 Understanding the entity/programme is the starting point for planning individual
performance audit. The following can be the sources for understanding the entity:
n Documents of the entity: documents on administration and functions of the

entity, policy files, annual reports, budget and annual plan documents
including the files on them, accounts, minutes of internal meetings,
operating manuals/ guidelines, management information systems,
information on the website, programme evaluations and internal audit
reports, electronic databases and MIS reports, proactive RTI material
etc.;
n Legislative documents : legislation, parliamentary questions and debates,
reports of the Public Accounts Committee, the Committee on Public
Undertakings, the Estimates Committee and the Department-Related
Standing Committees and letters from Members of Parliament; Policy n
documents: documents of Planning Commission, Ministry of

Finance etc; Academic or special research: independent evaluations on
n
the entity, academic research and similar work done by other governments and
other
SAIs; Past audits: past financial and performance audits on the entity
n
provide a major source of information and understanding. Follow-up

requirements, perceived non compliance to recommendations and increased
risk and materiality may also provide significant inputs;
n Media coverage: both print and electronic media - their systematic
documentation on regular basis in a transparent manner; and
n Special focus groups: Audit Advisory Committee concerns, issues emerging
from national or international workshops/seminars, annual and special
reports of World Bank, IMF, UN agencies, Reserve Bank of India,
reports by special interest groups, NGOs, etc.

(b) Defining audit objectives
4.6 The most important stage in the performance audit process is defining the audit
objectives. These are the basic audit questions that performance auditors seek answers
to.
These are usually expressed in terms of questions about performance i.e., achievement
of economy, efficiency and effectiveness of an entity, programme or activity under
audit. The audit objectives should be defined in a concise manner, as they will impact
the nature of the audit, govern its conduct and affect audit conclusions.
4.7 Setting audit objectives early in the performance audit process ensures good
quality performance audits by the Department and, therefore, is one of the most
important quality assurance measures. Setting audit objectives:
n helps preclude the perception of prejudged

outcomes; n fosters discipline and precision; n
facilitates clarity;
n helps focused data gathering activities; helps establish
n
underlying logic; n demonstrates consistent quality of

audit; and n serves as a measure of quality assurance of
performance audit.
4.8 Audit objectives are the reasons for conducting audit and therefore should be
clearly spelt out. The objectives should be limited in numbers, ideally three to five, to
provide appropriate focus to the audit. They must be defined in a way that will allow
the audit team at the end of the audit to conclude against each of the objectives. Since,
the entire audit effort is directed toward answering the questions raised in the
objectives, these should be, therefore, be defined as precisely as possible. Objectives
should not be expressed in broad terms, as it makes them difficult to achieve. Once
detailed design of the audit begins, the team should identify the full hierarchy of
issues and sub-issues that need to be covered against each audit objective.

(c) Scope of audit
4.9 The scope is the boundary of audit. Scope narrows down the audit to significant
issues that relate to the audit objectives. Defining scope focuses the extent, timing and
nature of the audit. Answers to the following four questions help in defining the audit
scope:
What?
4.10 What specific questions or hypotheses are to be examined? What kind of audit
approach and methods seem to be appropriate? This part of the scope has a
relationship with the audit objectives, the depth to which the subject matter is going to
be examined and the methodology which has to be adopted.
Who?
4.11 Who are the key players involved and the audited unit(s)? While determining the
audit scope it is useful that the responsible parties dealing with the subject matter and
their roles are recognised.
Where?
4.12 Which are the selected units/locations to be covered? Often the entity,
programme or activities under performance audit may be broad. It may be necessary
to limit the segments/locations that the audit will cover and to which the conclusions
will apply. Where it is not feasible to analyse the entire population, sampling
techniques have to be used. Sample size may be selected statistically, as far as it is
feasible.
Which period?
4.13 Which is the period to be covered under audit? The time period of the operations
to be audited may vary widely with reference to the type of programmes or subjects
undertaken for audit. Apart from the type of the programme, this will depend upon
risk parameters, audit objectives and sufficiency, competence and the reasonableness
of evidence to be collected.

4.14 Scope determined on the basis of the above aspects would have following
important implications:
n audit programmes generally increase in size and complexity (more detailed

procedures, questionnaires and checklists) with increases in the scope of
the audit and size of the programmes to be audited;

dispersion and location of sites to be visited can markedly affect the audit
programme. Detailed procedures may be required to ensure consistency
when different personnel are carrying out the same audit at different
locations; and
n sample size has an impact on scope of audit as the selected sample may have
different geographic locations and the risk perceptions.
(d) Determining the audit criteria
4.15 Audit criteria give direction to the assessment (helping the auditor to answer
questions such as 'on what grounds is it possible to assess actual behaviour?', 'what is
required or expected?' and 'what results are to be achieved and how?'). Audit criteria
are standards used to determine whether a program meets or exceeds expectations.
Audit criteria are reasonable and attainable standards of performance against which
economy, efficiency and effectiveness of programmes and activities can be assessed.
The criteria which may be general or specific and reflect everything from what should
be according to laws, regulations or objectives; and what is expected, according to
sound principles and best practice; to what could be (given better conditions). In
audits covering complex issues it is not always possible to predefine the criteria;
instead they will be defined during the audit process. The nature of the audit and the
audit questions determine the relevance and the type of suitable criteria. The
credibility of the findings and the conclusions of the performance audit depend largely
on the criteria as such due care must be exercised while determining the audit criteria.
While criteria assist performance auditors in reaching logical conclusions, the fact
whether the entity has a system of setting criteria for concurrent monitoring and
evaluation of the programme, actual monitoring against the performance criteria,
impact of insufficient or deficient criteria, etc. is itself a matter for examination in
performance audits.
4.16 In examining performance information, auditors should:

n ascertain whether the performance measures in place are complete, relevant
and justified on a cost benefit basis;
n consider whether the entity has sufficient and reliable procedures in place to
measure and report on performance such as Key Performance Indicators

(KPI) and Results Framework Document (RFD) etc.;
examine procedures to determine if they relate to the entity's corporate

goals; and
n consider whether the performance measures are incorporated into the
management decision making processes, i.e., are they reported and used
within the agency.
These issues draw the performance auditor into a consideration of quantitative and
qualitative performance information. Such consideration should be an essential
element in all performance audits. The headquarters and Accountants General may
influence the entity through performance audit conclusions and recommendations to
develop appropriate performance indicators as part of their programme planning,
implementation and monitoring system.
Sources of criteria
4.17 It is unrealistic to expect that activities, systems or levels of performance of the

audited entity 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 the circumstances in which the
entity operates. Therefore, audit criteria must be sought to be obtained from the
following sources:
n enabling and related legislation which governs the operations of the

audited entity;
n entity operating and procedure manuals; n
entity policies, standards, directives and guidelines; n
multilateral international accords signed by India; n
criteria used previously in similar audits;

n performance standards used by the entity for the programme / activity to be
audited, or previous inquiries by the legislature;
n criteria used by the same entity or other entities in similar activities or
programmes;

n criteria used or developed by professional organisations and standard setting

bodies;
independent expert advice and know how;

n new or established scientific knowledge and other reliable
information; n criteria published by other SAIs; and n general
management and subject matter literature and research papers.
4.18 For establishing the basis of the audit criteria, depending on the case in point, the
most authoritative sources will be official standards (such as goals laid down in laws
and regulation, decisions and policies taken by the legislature or the executive
branch). Specialist scientific literature professional standards and best practices also
form an acceptable basis of criteria. In some cases it might be helpful to arrive at
criteria through discussions with stakeholders and decision makers. Sharing sources
of criteria with audited entity especially in cases where sources are other than the
official regulations etc. would be a good practice.
Services of expert for developing criteria
4.19 The services of a consultant or expert of repute in the relevant field may be
useful in developing the criteria, particularly on subjects, that are either new or
complex. It will also contribute to acceptability and reliability of the criteria by the
entity in particular and by the legislature, media and public, in general. Institutional
consultancy, rather than individual consultancy, for developing criteria may enhance
the acceptability of the criteria. Unless otherwise decided in particular cases,
Accountants General are encouraged to share the information with the entity that the
criteria are determined in consultation with the institute or expert.
Refining the criteria and acceptance by the entity
4.20 While informing the Secretary and/or the Chief Executive Officer of the intent to
carry out performance audit, the audit objectives and criteria, if already developed
could be shared with the entity with a request to communicate acceptance of the
criteria. Acceptance of all audit criteria used in performance audit by the entity is a

desirable condition and contributes to the effectiveness of performance audit. Yet,

there could be occasions when the entity expresses a reservation about the validity of
one or more criteria. While it is not mandatory or possible, that entity must always
agree with the

criteria, Accountants General should make efforts to resolve the disagreements, as far
as possible and document their efforts.
Characteristics of good criteria
4.21 Suitable criteria need to be identified to enable the performance auditors to assess
the activities subject to audit and to achieve the audit objectives. Since criteria are
crucial to developing audit findings and, therefore, addressing the audit objectives,
they should be such as to be generally acceptable. Some characteristics of suitable
criteria include:
Reliability: reliable criteria result in consistent conclusions, when used for assessment
in the same circumstances;
Objectivity: objective criteria are free from any bias of the auditor or management;
Usefulness: useful criteria result in findings and conclusions that meet users'
information need;
Comparability: comparable criteria are consistent with those used in performance

audits of other similar agencies or activities and with those used in previous
performance audits; and
Completeness: completeness refers to the development of all significant criteria

appropriate to assessing the performance in the given circumstances.
(e) Deciding audit approach and methods
4.22 Performance auditing generally follows one of three approaches in examining the
performance of the audited entity (ies). The audit may take:
n a system-oriented approach, which examines the proper functioning of

management systems, especially financial management systems;
n a result-oriented approach, which assesses whether the outcome objectives
have been achieved as intended or whether programs or services are
operating as intended; and

n a problem-oriented approach, which examines, verifies and analyses the

causes of particular problems or deviations from criteria.
4.23 No uniform audit approach can be prescribed that is applicable to all types of
subjects of performance audits. Selection of approach also determine methods and
means used for conducting the audit. Some of the methods which could be used in
conducting performance audits include:
Analysis of
Case studies Use of existing data
procedures
Surveys Analysis of results Quantitative analysis
(i) Analysis of procedures
4.24 It consists of review of the systems in place for planning, conducting, checking
and monitoring the activity being audited. This would involve examination of
documents such as budgets, financial reports, programme guidelines, annual or other
plans, procedure manuals, delegations and reporting requirements. The performance
auditors should assess the appropriateness of the procedures, the quantum of resources
and the accountability relationships highlighted in the programme guidelines.
Procedures would be tested against the criteria or a desirable control model. This
would typically mean that procedures would be checked, among other things, for
completeness, relevance against the legislation and administrative instructions,
internal consistency, practicability and compliance.
(ii) Case studies
4.25 A case study is a descriptive, exploratory or explanatory analysis of an entity,

scheme or a programme. It is a method for learning about a complex issue, based on a
comprehensive understanding of the particular instance. It involves an extensive

description and analysis of the particular issue within the context of the whole area
under review.
(iii) Use of existing data
4.26 It is important for audit staff to investigate the data held by entity management
and by other relevant sources. This may include the information systems used to
manage entity programmes/activities and/or the data collected on individual
programmes. One of the important sources of data could be the data generated from
voucher level compilation (VLC). The confidence level of audit conclusions is
enhanced by testing the available data for correctness and completeness with
reference to the basic documents maintained by the entity. The audit team will
maintain evidence of tests carried out to ensure correctness of data maintained and
furnished by the entity.
(iv) Surveys
4.27 Another method of obtaining insight into an agency's activities, including the
outputs and outcomes and their quality is by the conduct of a survey. This is a
method of collecting information from members of a population to assess the
incidence, distribution and interrelation of events and conditions. In social sector
programmes, credible surveys on predetermined parameters can supplement the
audit findings and conclusions, which add value to the performance audits. The
nature of some programmes or activities selected for performance audits could be
such that a focussed survey of a limited sample during the planning stage may
provide more insight for setting the audit objectives and criteria. The decision to
conduct survey and design of the survey will be approved by the Department's
Senior Management on the proposals initiated by the Accountant General. It may,
however, be kept in mind that the results of survey alone cannot be the primary
evidence for audit findings. Surveys can be used as corroborative evidence for audit
findings established with the help of primary evidence.
(v) Analysis of results
4.28 Analysis of results from examining a number of instances of entity activity in a

particular area will help decide whether entity performance in that area conforms to
audit criteria and is generally satisfactory. This will also require the auditor to assess

the outputinput model designed in the programme and carry out actual output-input
analysis to determine the efficiency of the programme. The analysis of results would
also call for analysis of impact of the programme against the expected impact.
(vi) Quantitative analysis
4.29 Quantitative Analysis is a way of measuring things. It involves examination of

data available in any form, it could be the data relating to financials like earnings,
revenue, market share or data relating to programme implementation like details of
beneficiaries etc. The audited entities' data can be analysed by auditors to illustrate or
corroborate a statement. Mathematical, economical, computational and statistical
analyses are some of the quantitative techniques which can be used by the auditors
while analyzing complex data of the audited entity. It is quite possible to analyze the
whole population with the help of the various IT tools available. Data analytics and
other techniques can be used for these purposes. The quantitative analysis can provide
trends, explanation for a particular behaviour and other results.
4.30 However, when it comes to substantive testing, it may not be possible to work
with the complete data due to the high volume of data and information associated with
a progarmme or entity. In such cases, sampling techniques are required to be used.
The nature of the population should be examined to decide the most appropriate
sampling methodology. The sample selected and the sampling approach and
methodology should be documented and shared with the entity.
4.31 When selecting an audit sample, specific audit objectives and the attributes of the
population from which the sample is to be drawn should be taken into account. In
determining the sample size, it should be considered whether sampling risk would be
reduced to an acceptable low level. The sample items are to be selected so as to have a
reasonable expectation that all sampling units in the population have an equal chance
of selection. The extrapolation of audit findings based on substantive testing of audit
sample to the whole audit universe has to be considered keeping in view homogeneity
of the population, audit objectives and the analytical tools applied.
4.32 The selection of audit methods is an important part of planning a performance

audit. The selection of audit method has to be done considering the audit approach,
the objectives, the complexity of the assignment and the resources involved in
implementing the audit. Audit team should consider the nature and cause of any errors

identified and their possible effect on the particular audit objective and on other areas
of the audit.
(f) Developing audit questions
4.33 Following the design of audit objectives and the identification of audit criteria,
the audit team should prepare a list of questions to which they would seek answers.
There could be many ways to develop and frame audit questions. The performance
auditors should frame a comprehensive and detailed list of questions.
4.34 Under each audit objective there can be two or more sub objectives. Under each
objective/sub objective there could be a detailed hierarchy of questions, resulting in a
pyramid structure. The last level audit questions should result in a yes or no answer.
Breaking down of audit objectives into audit sub-objectives, level 1 questions and
level 2 questions should result in at least 2 questions at each level. If not, then the
validity of the question and the possibility of its incorporation with some other
questions at any level should be considered. Detailing the audit objectives into the
manageable audit questions has multifarious advantages. It helps in creating link
between the audit question and evidence to be collected and the audit conclusions
arrived. This analysis will lead to the creation of Audit Design Matrix discussed later.
Audit
objective
Sub Sub
objective A objective B
Level 1 Level 1 Level 1 Level 1

questions (i) questions (ii) questions (i) questions (ii)
Level 2 Level 2 Level 2 Level 2 Level 2 Level 2 Level 2 Level 2

questions (a) questions (b) questions (a) questions (b) questions (a) questions (b) questions (a) questions (b)

(g) Assess audit team skills and whether outside expertise

required
4.35 Performance audit is a knowledge based mission. It is, therefore, necessary that
the performance auditors possess special aptitude, skill and knowledge. The Auditing
Standards of C&AG of India provide that the audit institution should develop and
train the auditors to enable them to perform their tasks effectively and should prepare
manuals and other written guidance notes and instructions concerning conduct of
audits. The performance auditor must possess the range of skills and experience
necessary for effective discharge of audit mandate. Programme for imparting training
and skill development for the performance auditors to enhance and reinforce the
understanding of the principles, methodology and techniques should be accorded high
priority.
4.36 Given the diverse range of subjects of performance auditing, the Accountant
General and the performance audit team may need to develop sound understanding of
the programme or entity proposed to be audited in the form of reports, opinions,
valuations and statements of an expert. They would have to decide at the planning
stage on which aspect expertise is required. This could be at the stage of outlining the
scope of audit, formulating audit objectives, or identifying the criteria for assessment.
Although, the Accountant General may use the work of an expert, he/she retains full
responsibility for the conclusions in the audit report. The procurement of the services
of the expert or using their work will be as per the general guidelines approved by the
Department's headquarters from time to time.
(h) Audit Design Matrix
4.37 Having determined the audit objective, audit approach, audit criteria, data
collection and evidence gathering method etc, audit teams should prepare a Audit
Design Matrix. Audit Design matrix is a rigorous, structured and highly focused
approach to designing a performance audit study, based around the audit objectives,
associated subobjectives and lower level detailed questions. As such, it provides a
framework for fieldwork and further analysis. Having determined audit questions that
require answers, the performance auditor is also expected to append to the audit
design matrix, the procedure to find answers to audit questions. It also highlights the
data collection and analysis method as well as the type and sources of evidence
required to support audit opinion/findings with reference the defined audit objectives.

The Audit Design Matrix is to be considered throughout planning, examination and

reporting phases to ensure that all identified audit issues are covered. Once the
examination phase is over, the audit team should suitably link Audit Design Matrix to
the Audit Findings Matrix as discussed in chapter 5. The specimen of Audit Design
Matrix is also given hereunder:
Audit Design Matrix

Audit Objective/sub Audit Audit Evidence Data collection and
objective questions criteria Analysis method
(1) (2) (3) (4) (5)
The Audit Design Matrix is prepared on the basis of information and knowledge
obtained in the planning phase during the course of pilot study. Audit teams are
encouraged to update the Audit Design Matrix as and when it acquires more in-depth
knowledge of the audit subject matter. A well-designed Audit Design Matrix leads to
efficient planning and resultant effective audits thereby providing highest assurances
to the audited entities and those charged with governance. It is desirable to prepare
ADM for each of the audit objectives.
(i) Establish the timetable and resources
4.38 The outcome of any performance audit will depend on the audit team and the
activity plan. It is important to determine the timetable and the resources needed.
Relevant factors include the manner in which the audit is organized and the expected
completion time. Selection of appropriate audit team is the most important component
in planning an audit. Considerations for selection of a particular team should be
recorded in the planning documents along with the proposed timelines for various
activities to be undertaken as part of the audit process. Progress against these
timelines should be monitored. The Accountant General would be responsible for
ensuring that performance audit is completed on time. The time required and actual
time spent should be compared and variations thereof got approved from the
competent authority.

4.39 The key milestones established for the audit will form the basis for assessing
progress. It is strongly advisable that the team build time for translation, approval and
possible delays in their own schedule in order to meet the deadlines.
(j) Intimation of audit
4.40 Audited entities must be informed about the intention of taking up the planned
performance audit with scope and extent of audit well before the commencement of
Audit. The intimation should also include the constitution of audit team, the selected
sub units, if already decided and the tentative time schedule. The intimation may also
refer to the management's responsibility and request their cooperation for successful
completion of audit assignment. Acknowledgement of this may be requested and
placed on record.
Refinement or narrowing of objectives and criteria
4.41 In view of the difficult environment in which we operate, for gathering the
information needed to fulfill the audit, it may be necessary to refine to refine an
audit's objectives as the audit progresses. The reasons for such changes in the
objectives/criteria should be recorded and the approval of the competent authority
taken. The revised objectives and the criteria should also be suitably brought into the
notice of audited entity or those charged with governance.
Flexibility in the audit programme
4.42 While developing an audit programme, it will not be possible to anticipate all
contingencies. In the early stages of an audit, there is a need to retain flexibility and to
review the audit programme for appropriateness. It is preferable to start with a
programme outlining the approach to the audit issues and revise and extend it as the
audit progresses.
4.43 The Accountant General should provide scope for sharing of all significant
refinements in the approach and additional tests and findings, concurrently with
other audit teams within the managerial control of the same Accountant
General or under different management control within the Department, when
different persons conduct the audit at different locations. The system of

sharing of the significant field audit experience should be documented and

reviewed.

5. Implementing the performance audit
5.1 This chapter contains the practices and procedures to be followed by the audit
team during the implementation of the performance audit. It covers the stages of
performance audit during the field audit process, i.e., after the audit planning and up
to the stage of developing the audit findings and recommendations. The process of
implementation of the performance audit steers through entry conference, issuance of
audit engagement letter, data collection process, collecting audit evidence, developing
audit findings and conclusions and developing recommendations.
Entry conference
5.2 Entry conference at the commencement of performance audit is to be held with

Secretary of the department concerned by the Accountant General. Wherever, more
than one department/agency is involved, representation from such
agencies/departments should be insisted upon. The purpose of this conference is to
inform the entity about the areas to be audited along with audit objectives, the audit
approach and the time-frame within which the audit is expected to be carried out.
Audit criteria/parameters/norms against which performance audit will be
benchmarked should be also discussed. A protocol for conduct of audit is to be set up
during this conference including nomination of liaison officers, production of records,
arranging joint inspections, authentication of audit evidence including photographs
etc, issuing of audit observations, time period for replies to be received and other
logistic arrangements. This conference also gives the opportunity to discuss the
concerns of the audited entity on the subject matter. The entry conference should be
followed by preparing minutes of the proceedings which should be shared with the
audited entity and acknowledgement requested.
Issuance of engagement letter
5.3 The Accountant General and the audit team are expected to be in communication
with the entity at different levels throughout the performance audit cycle. Before
initiating the audit, the Accountant General should send an engagement letter to the
Secretary/Chief Executive of the entity, communicating the launch of the audit along

Implementing the performance audit
with details of the entity units tentatively selected for audit and the timeframe for
audit and request him/her to issue necessary directions to the functional officers and
field units to provide documents and information to the audit team. This will also
serve as an opportunity to confirm the essence of the minutes of the entry conference.
In case the entry conference could not be held for unavoidable reasons, the
engagement letter would also provide a media for communicating the expectations
from the entry conference.
Field audit process
5.4 The field audit process comprises the efforts made to collect, interpret and analyse
data in relation to stated audit objectives and evaluating them against the pre-
determined criteria. The steps involved in field audit process are discussed in
succeeding paragraphs.
Entry Meeting
5.5 Besides entry conference, the audit parties should also hold entry meeting(s) with
the heads of the units before commencement of the audit of selected auditable units.
During these meetings, the audit party should narrate the purpose, objectives of audit,
timelines and cooperation expected from the head of the selected auditable unit. The
minutes of such entry meeting should be prepared and shared with the audited entity
and acknowledgement requested
Data Collection & Analysis
5.6 Data collection may be performed once, at repeated intervals or through

continuous measurements as warranted. Information may be gathered on the basis of
physical evidence, documents (including written statements), oral testimonies
(interviews), or by other means depending on the objectives of the audit. The types of
data to be obtained should be explainable and justifiable in terms of sufficiency,
validity, reliability, relevance and reasonableness. A great deal of data (material
produced by others specifically by the audited entity) is often used however the
auditors may also produce certain data (its own source material) with the aid of
questionnaires, surveys and direct observation.

5.7 Quality in data collection and documentation is vital. It is important that the
auditors seek information from different sources, since organisations, individuals in an
organization, experts and interested parties have different perspectives and arguments
to put forward. Data, information and knowledge are, broadly speaking, similar,
linked concepts. Data is the primary facts. Data, which has been compiled, is
transformed into information. Information, which is analysed and understood, will
become knowledge. Data may be collected for different purposes during an audit, as
part of the learning process, or in order to describe and analyse an outcome or a
problem.
5.8 The audit party has to call for the records from the audited entity in the form of
executive and administrative files and other information essential for accomplishment
of audit objectives. Records required should be called in a timely fashion from the
authority responsible to provide the same in terms of the protocols defined in the entry
conference and entry meeting. Information given by the audited entity (like filling up
of Annexures in Performance Audit report) may be test checked with reference to the
source and documented accordingly. File examination forms the basis of performance
audits. Files contain a wide range of types of evidence, such as the decisions of
officials, the 'case records' of program beneficiaries and the records of government
programs. It is important to establish the nature, location and availability of records at
the outset of a performance audit so that they can be examined effectively.
5.9 Based on general experience, it is important to distinguish between the following

components in the information gathering process:
n Records in form of documents, files etc. n
Questions formulated to be answered by the audit.
n Data-collection techniques needed in order to answer the questions set (study

of documentation, meetings, questionnaires, interviews etc.).
n Audit programs, i.e. the type of investigation that is needed for the
datacollection (such as sampling, case studies, secondary analysis,
inquiries, 'before- and after analysis', comparable evaluations, etc.).
n Quantitative and qualitative analysis, applied to the data collected (for deeper
analysis of the information collected).

5.10 Most audits involve some type of analysis in order to understand or explain what
has been observed. This could be done in the form of more detailed statistical
analysis, discussions on the findings within the audit team, studies of documentation
and working papers etc. The analysis might sometimes also require comparisons of
findings between, for instance, subjects that work well and those that work less well;
one or more subjects and an overview; and the audited area and a similar audit area in
other states. Some methods of data analysis have been discussed in Chapter 4. The
final stage in the analysis of data involves combining the results from different types
of sources. Audit teams should refer to the Audit Design Matrix while carrying out
data analysis and the adopting technique or tool thereof.
Developing audit findings and conclusions
5.11 Audit findings are the specific evidence gathered by the auditor to satisfy the
audit objectives. Audit findings contain the following elements: criteria ('what
should be'), condition ('what is'), and effect ('what are the consequences' – observed
as well as 'reasonable and logical future impact'), plus cause ('why is there a
deviation from norms or criteria'), when problems are found. However, all four
elements are not always required in an audit; the element 'criteria' is for instance not
always specifically addressed in the problem-oriented approach. Conclusions are
statements deduced by the auditor from those findings after analysis of causes and
effects of these findings. And finally, the recommendations are courses of action
suggested by the auditor relating to the audit objectives.
5.12 The Audit Design Matrix should be suitably updated at each stage of audit as
the same was initially prepared based on the limited knowledge acquired during the
pilot study and also to be linked with the audit findings matrix as defined in para no.
5.19. While developing the audit findings and conclusions, the reference is made
not only to number of deviations but also to total number of cases test checked and
the population size. The process of analyzing evidence, developing findings and
producing recommendations to resolve identified areas of poor practice is
summarised in the following diagram.

Audit criteria (what should be)
Audit evidence (what is)
Audit finding
('what is' compared with 'what should
) be'
Determine the causes and effects of the findings
Developing audit conclusions
Developing audit recommendations
5.13 Audit findings are arrived at by comparing the evidence to the criteria. These are
based on the analysis of information collected during the audit. Further analysis of
the nature and magnitude of the issue, will lead to the development of audit
conclusions. These conclusions should be based on objectives, rationality and project-
specific standards and criteria. Audit conclusions should be developed and evaluated
throughout the various phases of performance audit. Potential conclusions identified
in the planning stage or during the pilot study should be followed up in the detailed
examination phase of the audit. Further, the audit team must determine whether the
deficiency is an isolated instance or represents a generic or systemic problem.
Conclusions may also require the application of significant judgement and
interpretation in answering the audit questions, due to the fact that audit evidence may
be persuasive ("points towards the conclusion that...") rather than conclusive
("right/wrong") in nature. The need to be exact should be weighed against, what is
reasonable, economical, and relevant for the purpose of involvement of Senior
Management.

5.14 The audit team may identify a cause-and-effect chain and have the option of
reporting the findings and conclusions at different points in the chain. In this situation,
the auditor should highlight the most critical deficiencies in the chain.
5.15 Audit conclusions will confirm whether the entity's performance, with reference
to the criteria laid down, was satisfactory or not. If it was not adequate, they will point
either to the systemic deficiency or to the person(s) responsible, the cause and, if
determinable, effect of the problem on the subject matter of the audit.
Developing recommendations
5.16 All performance audits ought to conclude with well thought-out

recommendations, which should transcend inverted versions of audit conclusions or
truisms and clearly spell out possible solutions, without taking over management's
responsibilities. For developing recommendation, the underlying cause(s) of a finding
should be identified, as this forms the basis for the recommendation. The cause is that
which, if changed, would prevent similar findings.
5.17 Recommendations emerge from identification of the 'cause' of audit findings,

which ought to be addressed by the entity or those charged with governance.
Recommendations should be well-founded and add value. It should be clear who and
what is addressed by the recommendation, who is responsible for taking initiative and
what the recommendations mean, i.e. how they will contribute to better performance.
Recommendations should be practical and be addressed to the entities having
responsibility and competence for their implementation.
5.18 The recommendations should be clear and be presented in a logical and rational
fashion. They should be linked to the audit objectives, findings and conclusions.
Together with the full text of the report they should make it possible for the reader
that they are likely to significantly improve the conduct of government operations and
programs, e.g. by lowering the costs and simplifying the administration of the
services, by enhancing the quality and volume of the services, or by improving the
effectiveness, the impact or the benefits for the society of the services. Sometimes, the
cause may be outside the control of the entity under audit, in which case the
recommendation should direct attention outside the audited entity, the governance

structure. In some cases it is also important to present the arguments for and against
various alternative proposals. By following the underlying arguments, the reader will
be better able to understand the final recommendations emerging from identification
of the 'cause' of audit findings, which ought to be addressed by the entity.
Audit Findings Matrix
5.19 The audit teams are encouraged to prepare an Audit Findings Matrix indicating
the audit findings vis-à-vis good practices and the potential audit recommendation
along with the expected benefits in case the recommendation is implemented. It is
meant to provide a link between the audit objectives, criteria, the audit observation
and the recommendations emerging there from. The audit teams should link the Audit
Findings Matrix with Audit Design Matrix and highlight the Para number as well as
chapter number of the draft report against each of the audit objective where the
observations are reported. This will help audit teams and those responsible for
reviewing their work to ensure that the audit work completed aligns with the work
planned.
The specimen of the Matrix is given hereunder:
Audit Findings Matrix

Findings Conclusions Recommendations
Objective/ Sub Audit Criteria Evidence Cause Effects

objective Questions
Exit Meeting
5.20 The audit team leader or the Group Officer in charge should hold an exit meeting
with the officer in charge of audited unit at the close of audit to seek his observations
on the audit conclusions and recommendations, if not already received in response to
the audit memos. The minutes of such exit meeting should be prepared and shared
with the audited entity and acknowledgement requested.

Supervision
5.21 Supervision of the implementation of the performance audit of the selected

subjects will ensure that the audit is performed in accordance with the audit plan and
the provisions of these guidelines. It will also ensure that the process is focused on the
audit objectives and audit criteria and that the refinement of the criteria and audit
programme is carried out as and when required. Concurrent supervision by group
officers will fulfil this objective and make sure that their intervention is promptly
applied, where necessary. The Accountant General should conduct mid-term
appraisal to ensure that the work is being performed as per plan to avail the
opportunity of providing timely guidance to the field audit parties.
5.22 In cases, where the performance audits are conducted by different teams, within
the administrative and technical control of one or more Accountants General, one or
more mid-term workshops may assist in ensuring consistency of approach and
techniques. Where necessary, a workshop on the results of performance audits
conducted by a large number of teams across dispersed areas and under different audit
control may be held to finalise consistent audit findings and recommendations.
5.23 The quality control and supervision on the implementation of the performance
audit by the Department's Senior Management is provided through approval of the
audit implementation guidelines, periodic work-in-progress reports and guidance
during the mid-term workshops.

6. Evidence and documentation
6.1 Audit evidence is the information collected and used to support audit findings. It
provides a factual basis for developing observations and concluding against audit
objectives. As such, it is evidence which must support the contents of an audit report,
including all observations leading to recommendations.
C&AG of India's auditing standards
6.2 Standard 3(e) in chapter-III of the Auditing Standards of C&AG of India state:
'Competent, relevant and reasonable evidence should be obtained to support the

auditor's judgment and conclusions regarding the organisation, programme, activity or
function under audit.'
The auditing standards further emphasise that:
(i) data collection and sampling techniques should be carefully chosen;

(ii) the auditors should have a sound understanding of techniques and
procedures such as inspection, observation, enquiry and confirmation, to
collect audit evidence; and
(iii) the evidence should be competent, relevant and sufficient and as direct as
possible.
The concept of competence, relevance and sufficiency of evidence, particularly in the

context of performance audits, is elaborated below.
Competence
6.3 Evidence is competent when it is valid and reliable and actually represents what it
purports to represent. Some factors that can help in assessment of the evidence from
the point of view of reliability are:

Evidence and documentation
n If the piece of evidence is corroborated with help of different types of

evidence obtained from other sources;
n Documentary evidence is more reliable than oral evidence;

n Evidence obtained through direct observation is more reliable than indirectly
obtained evidence;
n The reliability of entity generated information is a function of reliability of
internal control system within the entity;
n Oral evidence, which is corroborated in writing is more reliable than oral
evidence alone; and
n Photocopies being less reliable evidence than the originals, the source of
photocopies should be identified by noting the source and as far as
possible, the photocopies should be certified.
Relevance
6.4 An evidence is relevant if it bears a clear and logical relationship to audit

objectives and to the criteria. The relevance of the evidence in the performance audits
can be ensured by linking the evidence and the audit procedure with each of the audit
objectives, sub-objectives and then to each of the criteria. Relevance is measure of
quality of audit evidence.
Sufficiency
6.5 Sufficiency is a measure of quantity of audit evidence. Evidence is sufficient if the

test is carried out on a reasonable representative of the population, the sample being
selected objectively. In performance audit the evidence may be persuasive. Thus,
evidence is sufficient or reasonable, when there is enough relevant and reliable
information to persuade a reasonable person that the performance audit findings,
conclusions and recommendations are warranted and are fully supported.
6.6 Considerations that determine the strength of evidence required are:
n If the observation is highly significant and material, it will require stronger

evidence to sustain;

n The strength of evidence should be very high when the degree of risk
associated with wrong conclusion is high;
n If previous experience suggests that the entity's documents are reliable, less
corroboration of the evidence may be necessary; and
n Evidence needs to be more convincing, if the issue is controversial or
sensitive.
Factors affecting the evidence
6.7 Some factors that may affect the competence, relevance and sufficiency of the
evidence are:
n Samples selected are not representative (sufficiency); n
Evidence collected relate to an isolated occurrence (sufficiency); n
Evidence is incomplete and does not establish a cause and effect

relationship (sufficiency, relevance);
n Evidence is conflicting (competence);
and n Evidence is biased (competence).
Types of evidence
6.8 Evidence can be categorised with reference to their type as physical, oral,
documentary or analytical.
n Physical evidence is obtained through observation, photographs, charts,

maps, graphs or other pictorial representations, etc.. It is desirable to
corroborate physical evidence, particularly if it is crucial to any audit
findings (linked to the audit objectives), with other types of evidences.
n Oral evidence is the statement in response to audit inquiries or interviews.

The statements made can either provide a background or a lead for
further examination that may not be available through other forms of
audit work or may provide corroborating evidence (e.g. beneficiary
survey). The statements can be by the employees of the entity,

beneficiaries, experts and consultants contacted to provide corroborative

evidence, etc. It will be essential to corroborate the oral evidence, if the
oral evidence is itself to be used as primary evidence rather than simply
as a background or lead for further examination.
The corroboration of oral evidence could be:
n by written confirmation by the person interviewed; n
by weight of multiple independent sources disclosing same facts;

n by checking the records later; or
n by entrusting the collection of evidence to independent organisations of
repute.
In cases of surveys through independent agencies, it may not, however, be possible

to obtain written confirmation from the subjects of the survey. In this background,
credibility of the agency selected for survey would be critical for sustaining the
competence of the evidence. It is also important to note that surveys are generally
corroborative (secondary) evidence rather than being the primary evidence. In
instances in which it is not possible to gather primary evidence, the decision to
develop audit findings on the basis of the survey or other secondary evidence may
be taken with the approval of Department's top management.
n Documentary evidence in physical or electronic form is the most common

form of audit evidence. These could be both internal as well as external.
Some examples of internal documentary evidence are accounting and
information records, copies of outgoing correspondence, plans, budgets,
annual reports and internal audit reports, etc. Some examples, of the
evidence from external sources are documents originating from other
entities (viz. notes or reports of other ministries, coming
correspondence, external evaluations and surveys). Internal
documentary evidence originates within the entity. In most cases, the
external evidence is also obtained from the records of the entity.
The reliability, relevance and sufficiency of documentary evidence

should be assessed in relation to the objectives of the audit. For
example, if the objective is to ensure whether contract procedures are
followed by an entity, mere existence of an updated manual of contract

is not a competent, relevant and sufficient evidence for audit

conclusions.
n Analytical evidence stems from analysis and verification of data, which can
involve computations, analysis of rates, trends and patterns,
comparisons against standards and benchmarks, etc. The analysis and
comparisons can
be both numerical and non-numerical. The source of data analysed to

develop an evidence should be indicated to facilitate acceptance by the
entity.
Sources of evidence
6.9 The sources of evidence may vary from case to case. The following are however
some illustrative sources of evidence:
n Policy statements and legislations - policy documents, operating guidelines

and manuals, administrative orders, etc. along with the background
papers leading to their promulgation.
n Published programme performance data - budget, accounts including VLC
outputs, plan documents, performance budgets and reports, programme
documents, annual reports and replies or statements placed before
Parliament and legislature.
n Management reports and reviews - internal reports and reviews, minutes of
meetings, management information chain and information/performance
reports, etc.
n Files of the entity on the subject - provide strong evidence to support audit
findings. It may not be possible to examine all files of the entity due to
time constraint. The selection of the files for examination will be guided
by the audit objectives or the purpose of the investigation. Depending
upon the subject of performance audit, the audit team may examine a
sample selected at random. Some of the more important files that can
provide the desired evidence are:

lStrategic and operational planning files; Budget files;

l l
Management control, monitoring and review files; l
Internal audit reports, internal and external evaluations; l
Complaints and disputes etc.;

lDatabases - maintained by the entity are important source of audit
evidence; and External sources - independent surveys, evaluation,
l
research, etc.
n Website of audited entities, the regulators and other related entities. It may be
ensured the website from which the audit evidence is being taken is
reliable and updated. The source of such information should be shared
with audited entity and suitably depicted in the audit report.
n Department's sources – evidence collected in previous audits and during
finalisation of strategic plan could provide evidence in many cases.
n Auditors' observation – could form an important source of evidence,
particularly when supported and corroborated by photograph, video
recording, etc. and attested by the representative of the entity. The audit
team should record a detailed description of the results of observation.
n Physical verification/inspection is an important source of evidence.
Accountants General may make an assessment based on the nature of the
subject of performance audit and the audit objectives as to whether
physical verification/inspection is required to achieve the audit objective
and document the results of their assessment. Accountants General
should be conscious of the relatively lower levels of acceptability of
evidence when the physical inspection/verification is carried out by
auditors alone. Some of the measures to transform the observed evidence
into competent evidence could be joint inspection in which the result of
such inspection is certified by the representative of the entity holding
responsible position, out-sourcing the physical observation to an agency
of repute and supplementing the observed results with photograph, etc.
attested by the representative of the entity.

Documentation
6.10 Meticulous documentation of the evidence supports the audit conclusions and
confirms that the audit was carried out in accordance with relevant standards. C&AG
of India's Auditing Standards (paragraph 8, chapter III) state:
“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. Working papers should contain sufficient information to enable an experienced
auditor having no previous connection with the audit to ascertain from them the
evidence that supports the auditor's significant findings and conclusions.”
6.11 The Standards further add:
“Adequate documentation is important for several reasons. It will:

n confirm and support the auditors' opinion and
report; increase the efficiency and effectiveness of
n
audit;
n serve as a source of information for preparing reports or answering any
enquiries from the audited entity or from any other party;
n serve as evidence of the auditor's compliance with Auditing
Standards; n facilitate planning and supervision; and provide
n
evidence of work done for future reference.”
6.12 Good documentation of evidence helps ensure that:
n an adequate and defensible basis exists for the audit's observations,

conclusions and recommendations;
n an effective link exists between successive audits; and
n appropriate basis exists for quality control in carrying out an audit and for
subsequent third-party reviews.

Working papers
6.13 All relevant documents and information collected and generated during a
performance audit constitute the working papers. They include the documents
recording the audit planning including the audit objectives, determination of criteria
including the process of their determination, field audit and evidence gathering
procedures, evidence analysis, the nature, timing and the extent of audit procedures
performed and the process of arriving at the results of the audit tests i.e., audit
findings and conclusions. Ideally the working papers should consist of three sections –
each linked to the other: planning; execution and reporting.
6.14 Working papers also serve as a connecting link between the fieldwork and the
audit report. These should, therefore, be complete and appropriately detailed to
provide a clear trail of the audit. The confidentiality of the working papers should be
maintained and they should be retained for a period sufficient to meet the
professional, legislative and legal requirements.
6.15 Some of the broad characteristics which working papers should have are set out
below:
n Completeness and accuracy: Provide support to audit conclusions and

recommendations.
n Clarity and conciseness: Anyone using these papers should be able to
understand the entire audit process without need for any supplementary
examination.
n Ease of preparation: While the audit teams will be called upon to collect large
volumes of working papers, to the extent they can use the entity prepared
documents and reports, pre-printed standard audit stationery and
automatically generated standard working paper formats, the time and
effort may be optimised.
n Legibility and neatness: Applies particularly to photocopies.
n Relevance: Working papers should be restricted to matters, which are
important, pertinent and useful for the purpose.
n Ease of review: The working papers should contain cross-references to the
audit memoranda, discussion papers, audit observation, field audit report
and performance audit report, as the case may be, to enable Accountants

General and the supervisory authority to link the working papers to audit
conclusions and recommendations.
n Organisation and ease of reference: The working papers may contain an
omnibus, easy to follow, index with proper narration for all volumes in
an audit summary file and an index for each of the working paper files.
n Complete audit trail of analysis: The working papers should be so organised
so that even an uninitiated person can follow the trail of how the subject
was selected, how evidence was gathered, what was the evidence
collected and how audit conclusions were formulated. This should
include evidence for the positive findings as well.
Audit file
6.16 Documentation in a performance audit requires maintenance of audit file along

with set of working papers. Audit file refers to one or more folders or other storage
media, in physical or electronic form, containing the records that describe the audit
documentation for a specific engagement.
6.17 Normally, the audit file should include the audit strategy, scope and
methodology, the sample selection, nature, timing and extent of procedures
performed, results of such procedures and the evidence obtained. It should also
mention significant matters arising during the audit, the conclusions reached thereon
and significant professional judgments made in reaching those conclusions. Audit file
should also include discussions of significant matters with management, those
charged with governance and others, including the nature of the significant matters
discussed and when and with whom the discussions took place. Besides, a reference
about as to why a particular audit team was chosen for a performance audit may be
made clear in planning documents.
6.18 Audit file should be properly indexed, referenced with and supplemented by the
set of working papers. The auditor should summarise the audit documentation in an
audit file and complete the administrative process of finishing the audit file on a
timely basis. After the assembly of the final audit file has been completed, the auditor
shall not delete or discard audit documentation of any nature. In case of multiple audit
files, a master index of the files may be maintained in addition to the index of each
audit file. The responsibly of ensuring documentation of evidence in support of all

facts, figures and comments included in the audit report rest with the field audit
offices conducting the audit.

7. The reporting process
7.1 Every performance audit is to culminate in a report containing the audit findings
and recommendations. Para 1.1 and 1.6 under Chapter IV of C&AG's Auditing
Standards stipulate inter alia the following on reporting:
'On the completion of each audit assignment, the Auditor should prepare a written
report setting out the audit observations and conclusions in an appropriate form; its
content should be easy to understand, free from ambiguity and supported by
sufficient, competent and relevant audit evidence and be independent, objective, fair,
complete, accurate, constructive and concise'.
'With regard to performance or value for money audits, the report should include a
description of the scope and coverage of audit, objective of audit, area of audit, main
findings in respect of the efficiency, economy and effectiveness (including impact)
aspects of the area (subject matter) which was audited and recommendations
suggesting the improvements that are needed'.
7.2 The auditing standards further states that in contrast to compliance audit, which is
subject to fairly specific requirements and expectations, performance audit is wide
ranging in nature and is more open to judgement and interpretation; coverage is also
more selective and may be carried out over a cycle of several years, rather than in one
financial period; and it does not normally relate to particular financial or other
statements. As a consequence, performance audit reports are varied and contain more
discussion and reasoned argument.
The Reporting Process
7.3 The reporting process is illustrated in the following diagram:

The reporting process
Preparation of Draft report issued Response of the

audit observations to the entity entity Exit conference
Response of the
Sr. Management
entity or those charged
Final Report Draft Final report response to the
with Governance on
report
Draft Final report
Audit observations
7.4 An Audit Observation is defined as an area of potential control weakness, policy

violation, financial misstatement, inefficiency in programme implementation and
achievement of programme objectives, or other problematic issue identified during
the audit. These reflect the specific evidence gathered by the auditor to satisfy the
audit objectives, in order to be able to answer the audit questions and verify the stated
hypothesis, etc. These serve to confirm the facts with the entity and help in
development of audit findings and recommendation by exploring significant early
findings and recommendations with the entity and obtaining its preliminary response.
They assist the performance auditor to detect at an early stage possible mistakes in
understanding the subject, possible weaknesses in audit findings and the supporting
evidence or the logic rather than wait till the entity points these out on receipt of the
draft report.
7.5 It is a good practice to develop audit observation in a modular fashion, containing

the audit findings, conclusions and recommendations (where applicable) along with
details of evidence, their sources and analysis, so that the portion containing audit
findings, conclusions and recommendations can be used directly in the draft
performance audit report. The audit teams should be encouraged to use Audit Design
Matrix (Para No. 4.37) as well as Audit Finding Matrix (Para No. 5.19) for cross
reference to ensure that nothing is left out and they have completed the work
inconsonance with the Matrices ibid.
Draft audit report
7.6 The draft audit report is to be prepared upon conclusion of the field audit of the
controlling unit of the entity and all field units selected for audit. The purpose of
preparation of the draft report is to seek formal response of the entity-in-chief

(Secretary of the ministry/department). A reference to the auditing standards followed

for conduct of audit should suitably be made in the draft report.
7.7 It is important that the draft report describes the objectives and scope of the audit
to enable the reader understand the purpose of the audit. Any limitation imposed on
the scope of the audit, the reasons thereof and efforts made to resolve it should be
indicated in the draft report.
Accountants General may forward the draft performance audit report to the
government with a demi-official forwarding letter to the Secretary with a copy to the
Financial Adviser to the ministry, which should contain the following:
nsubject of the performance audit and reference to previous dialogues; gist of

n
major audit findings and recommendations along with the risks and materiality
of the issues;
n time limit for formal response;
n invitation to a formal discussion and presentation of the audit findings and
conclusions; and the expected value additions to the programme
management, if the recommendations are implemented.
Response of the entity
7.8 It is important that the entity is persuaded to provide written response to the draft
audit report. This may be achieved through correspondence, personal meetings and
presentation of the draft audit report. Since the audit report is presented to the
Parliament/state legislature, it is crucial that the response of the entity has the
approval of the Secretary of the ministry/department. The attempt should be to get the
audited entity to respond directly to each audit finding and recommendation so that
these can be published in final audit report.
Exit conference
7.9 The performance audit should be concluded with an exit conference with the Chief
executive of the audited entity e.g. Secretary/ Pr. Secretary to the Government
concerned as the case may be. Wherever, more than one department/agency is

involved, representation from such agencies/departments should be insisted upon. The

draft Audit report including the responses of the audited entity must be issued before
the holding of the exit conference. The Accountant General or the Group officer
should lead the exit conference. All audit findings, conclusions and recommendations
are to be discussed and as far as possible direct responses of the audited entity are to
be solicited and recorded. It is also a platform to arrive at an agreement with audited
entity about audit conclusions and recommendations. It will also allow the audit team
to clarify any point of doubt that the entity may like to raise. The minutes of exit
conference should be recorded and endorsed to the entity with a request to
acknowledge the minutes within two weeks stating that in case of non receipt of
acknowledgement with in stipulated period, it will be presumed that audited entity
concurs with the minutes. In case, head of the audited entity does not respond to
audit's request for holding exit conference, Accountant General should try to convince
the head of the entity to hold the conference. In case, the exit conference could not be
held even after pursuance, this fact should be recorded in the report.
Third party consultations
7.10 While third parties may not generally be the audited entities, their activities
affect the program and service delivery, and audit reports often include commentary
about their responsibilities and performance. Auditors should not communicate to
third parties, neither in writing nor orally any information they obtain in the course of
audit work, except where doing so is necessary to discharge the statutory or otherwise
prescribed responsibilities. In case any information is required from third parties,
audited entity would requisition the same from the third party and provide to Audit.
Further, where role of identified third parties is considered very significant to the
audit conclusions and recommendations, the audited entities may be encouraged to
bring out the concerns of those parties in their replies to audit.
Observations of the headquarters on draft report
7.11 The supervision and review by the headquarters of the audit report prepared by
field audit offices with particular reference to the audit findings and conclusions,
recommendations, evidence, drafting, etc is a measure of quality control. The
observations and suggestions for improvements by headquarters, which has not been

involved on day-to-day basis with the conduct of the audit, provide assurance on the
logical development of findings and conclusions, quality and validity of supporting
evidence and objective approach. Review by the Department's Senior Management
ensures that appropriate procedures have been followed by Accountants General in
implementation of the audit. The modifications brought out in the report due to this
process should be documented by highlighting the reasons thereof.
Draft Final report
7.12 After incorporating the replies of audited entity and modifications suggested by
headquarters, the draft final report should be prepared. The audited entity should be
again given the opportunity to comment on the audit findings, conclusions and
recommendations. As such, Draft final report, after the approval of the Senior
Management, including the responses of the audited entity/minutes of exit conference
should be issued to the head of the audited entity or persons charged with governance
as a numbered and confidential copy requesting responses to the audit conclusions
and recommendations within a period of two weeks. The response of the audited
entity to the conclusions and the recommendations received on the draft final report
should be included in the final report.
Final report
7.13 On approval of the report by Department's Senior Management, the Accountant

General may send the bond copy of the report with appropriate annotations for the
approval of the report by Comptroller and Auditor General, after which the report
stands cleared for printing of the prescribed number of copies, signature copies for
signature of the Comptroller and Auditor General in ink and others with his facsimile
signature.
7.14 The printed signature copies of the report are to be forwarded to the headquarters
for signature of Comptroller and Auditor General. The signed copies of the report
should be forwarded to the government for placing it on the table of the
Parliament/state legislatures. Simultaneously, intimation on forwarding of the report
along with a signed copy of the report is to be sent to the Secretary to the
President/Governor in respect of the reports relating to the Union and State
governments respectively. The remaining copies of the printed reports are forwarded

to the Parliament/Secretariat on their request, generally on the day the report is

presented.
Characteristics of a good report
7.15 The following points need to be emphasised in regard to performance audit

reports:
Objective
Consistent Convincing
Complete
Constructive Concise
Timely
n The audit report should be complete i.e. all pertinent information required to satisfy
the audit objective, including the information relating to the scope, criteria,
evidence, conclusions and recommendations should be available in the report;
n The objectivity of audit report is ensured through fair conclusions and balanced
content and tone. A report is balanced if it does not focus on criticism alone but
contains fair assessment or evaluation, which would mean that good performance
should also be reported;
n The audit report is convincing if the results of audit are presented persuasively and
the conclusions and recommendations follow logically from the facts presented;

n The report should be easy to read and understand; it should be concise, no longer
than necessary to convey the audit opinion and conclusions;
n Consistency of the report is secured by ensuring that it does not contain contradictory
findings or conclusions in similar contexts or the conclusions on the same
segment in different sections or parts of the report are not incompatible;
n The report is constructive if it manifests a remedial approach rather than a

critical approach and includes appropriate recommendations;
n The report adds value to the entity, if it is timely.
Structure of the report
7.16 The performance audit report should preferably be presented as per the following
structure:
n Title: the subject of the performance audit;
n Executive summary: It provides the précis of the main report. The summary
should not be very long and should contain only essential information.
The major audit findings should be placed in the same sequence as the
audit objectives and sub-objectives along with recommendations in brief;
n Introduction: It consists of a brief description of the subject of study,
information on programme, activity, or institution, its objectives, inputs,
implementation structure, expected outputs and outcome, etc. The
introduction should be brief, yet sufficient to enable the reader
understand the context of the programme;
n Audit objectives: They are the pivots of the performance audit, which set out
the reason for undertaking the audit. The entire exercise of performance
audit is built around the audit objectives. These should, therefore, be
stated in simple and clear terms. It is useful to set out the audit objectives
and sub-
objectives within each audit objective in the form of complete
statement/question;
n Scope of audit: It is defined in terms of the period of the programme covered
in audit and segments of the programme audited should be set out
precisely;

n Audit methodology: It describes methods used for data collection/evidence

gathering and testing may be stated in brief. This adds to the acceptability
of the audit findings and forms a statement for transparency of the audit
procedure;
n Audit criteria: to arrive at the audit findings and conclusions with reference to
each audit objective and sub-objective which should be stated with
appropriate explanations;
n Audit findings and conclusions made during an audit with reference to each
objective should be stated;
n Recommendations: They should be presented along with the conclusions
wherever applicable in a box or highlighted print;
n Acknowledgement: it may be useful to indicate or acknowledge in brief the
co-operation, acceptance of the criteria/findings and recommendations by
the entity. In case the co-operation or response was not forthcoming at
any stage it may be indicated if it has resulted in any limitation along
with its implication and the special efforts made by the Accountant
General to seek cooperation or response;
n Glossary of terms: It is helpful to the reader if explanations are provided in a
glossary or easy-to-find footnotes. Glossary should be comprehensive,
explaining all technical and uncommon terms used in the report.
Enhancing the presentation and readability of the reports
7.17 Readers tend to focus on contents page, headings and subheadings, the executive
summary, conclusions and recommendations and distinctive figures such as tables,
charts, diagrams, maps, text boxes and photographs. These are to be used to full effect
to draw the reader to the most important messages that the Department wants them to
receive.
7.18 Significant audit conclusions can be highlighted in box form. The audit findings
should be illustrated with the use of graphs and charts and improve the visibility of
the analysis and findings. Photographs can also be used to corroborate findings. Facts,
findings and conclusions may be reported in different paragraphs to clearly
distinguish them.

7.19 Titles for chapters and sections in the reports should be assertive rather than
descriptive as this allows the reader to steer through the report better. The audit team
needs to consider what data and information will help the reader understand the
evidence or arguments. While designing a table, graph or chart, the explicit point that
needs to be highlighted will lead to displays that are specific and meaningful. Titles
and labels should be clear and concise. All data graphics and other illustrations should
be self-explanatory, so that readers should not have to refer to the main text to
understand them. Tables and other graphics containing data sourced from outside
(including the audited entity) should have an acknowledgement of the source of such
data.
Audit implementation cycle
7.20 The following diagram depicts the Audit implementation cycle of a performance
audit:
Letter(s) of
engagement
Entity response Exit conference
intimation to the
entity-in-chief
Findings and Publication to

Entry conference Draft report to HQs
conclusions PA Report
Issuance of draft final

Examination of Compare the results report to field office Issue of final approved
records against criteria for issuance to report to Field office
at selected units audited entity
Draft final report to

Incorporation of
HQs after incorporation
Evidence gathering Analysis of evidence Audit entity's
of audited entity's
response
reponse

Timelines of Performance Audit
7.21 In order to ensure the timely completion of the performance audits and also that
the topics may not lose their importance, all the performance Audits should ideally be
completed within a period of ten months. The audit implementation cycle i.e from the
date of entry conference to the finalisation of the audit report by the headquarters
should be completed preferably within this period. However, some additional time
may be required for the complex All India performance audits or performance audits
undertaken with the help of outside experts.

8. Follow-up of Performance Audits
8.1 Performance audit reports are essentially a means to improving public sector
performance and accountability. This can be achieved through implementation of the
recommendations contained in the performance audits. Consistent and systematic
follow-up process in the Department may contribute significantly to the effectiveness
of performance audit in improving the programme management.
Follow-up refers to the situation where the auditor examines the corrective actions the
audited entity, or another responsible party, has taken on the basis of the results of
previous performance audits. It is an independent activity that increases the value
added by the audit process by strengthening the impact of the audit and by improving
future audit work. It also encourages the user of the reports and the audited entities to
take the reports seriously and provides a useful learning basis and performance
indicator for the auditors. A follow-up is not restricted to the implementation of
recommendations but focuses on whether the audited entity has adequately addressed
the problem and remedied the underlying conditions after sufficient time has been
allowed for this process. When conducting a follow-up of audit reports, the auditor
should concentrate on findings and recommendations that are still relevant at the time
of the follow up and adopt an unbiased and independent approach.
Objective of the follow-up programme
8.2 The follow-up of performance audit reports is aimed at the following objectives:
n Assisting the legislature: follow-up reports may provide valuable information

to the committees of Parliament/state legislature for their examination of
the Reports;
n Achieving improvements in performance of the public sector program: the

prime reason for following up audit reports is to increase the probability
that recommendations will be implemented and help in improving the
performance of the audited entity;
n Evaluating the Department's performance: follow-up programme and

outputs may be a good measure for assessing and evaluating Department's
Follow-up of Performance Audits

performance and improvements in programme management, etc.
anticipated at the time of planning the audit; and
n Providing an input to the strategic planning of performance audit by the

Department.
Assisting the Legislature
8.3 The follow-up procedures in the context of performance audit should be

established keeping the following features in mind:
n The performance audits which are selected by the Committees of the

Parliament/State Legislatures for detailed examination and oral evidence
should be pursued in the context of the decisions of the respective
Committees, if any recommendations have been issued. Good quality of
performance audit being assured with the help of the quality assurance
measures adopted by the Department, it would be expected that the
recommendations of the Committees of the Parliament/State legislature
would not only support but also strengthen the recommendations by
audit. However, even in cases selected by the Committees where the
examination and issue of recommendations by the committees of the
Parliament/ State Legislature have not taken place, Accountants General
may continue to pursue the follow-up on recommendations as in the cases
where the subject is not selected for detailed examination;
n In cases of the performance audits that are not selected for detailed
examination, Accountants General will carry out follow-up procedures to
examine the extent of the implementation of the recommendations,
particularly those which had been accepted by the entity. As regards,
recommendations not accepted by the audited entity, Accountants
General may persist with further discussions and persuasion to either
accept or implement the recommendation or transfer recommendations to
the audited entities for further action.
8.4 While the orders of the government, generally issued on the recommendation of
the legislative committees, in the context of follow-up Action Taken Notes by the
entities may vary from state to state, the model applicable to the Union Government,
issued at the instance of the Public Accounts Committee may be kept in view.

8.5 As per the extant procedure, applicable in case of the reports on the Union
Government, the ministries and departments are to forward the 'Action Taken Note'
(ATN) against all matters included in the report of the Comptroller and Auditor
General to the Parliamentary Committees within the prescribed time. The ATN is
vetted by Accountants General for correctness of facts and figures, adequacy of the
remedial measures and explanations for underperformance before they are submitted
to the Committees of the Parliament. The ministries and departments submit the
ATNs after attending to the comments of Accountants General. In exceptional cases,
they may include the vetting comments of Audit along with a response to the
comments before submission of the ATNs to the Committee.
8.6 In vetting the ATNs, the substantive action on the recommendations, rather than
the form, is the focal point. While no uniform model can be suggested for securing the
implementation of the recommendations and the procedure outlined above may be one
of the models, the ultimate objective should be to ensure prompt and effective
implementation of the recommendations.
Effectiveness assessment
8.7 Accountants General may also carry out an evaluation of the effectiveness of the
performance audits annually. The internal evaluation may consist of:
n the expected outcome of each performance audit anticipated at the time of
planning vis-à-vis actual outcome; and
n the reasons for significant variation between the expected value addition and
the actual. The variations may be attributed to under assessment or over
assessment, deficient entity response and deficient quality of performance
audit. The evaluation will include the remedial measures also.
8.8 The follow up or evaluation of Performance audits can be performed by:

n carrying out a desk review, which involves more detailed review of the
implementation of the recommendations, including meeting, discussions
and presentations, but does not necessarily comprise extensive field
work; and
n detailed follow-up review consisting of comprehensive field work in relation
to the action taken by the entity on Audit's recommendations with the
objective of preparing a report to the legislature.

Continuous Improvement
8.9 Continuous improvement is also one of the important outcomes of follow-up

procedures. This can be achieved by the following:
n Quality assurance review programme

An annual plan of the activities to be performed by the 'Quality Review
Group' may be drawn up, which may have the approval of the
Department's Senior Management. Only a sample of completed audit
engagements should be selected for review by the group. Once the audits
are selected, the quality review team may review the audit documentation
and meet some of the staff members who worked on those engagements.
n Peer Review
A peer review is performed by an independent team which may be
internal or external to the Department to evaluate whether an
organization's internal quality control system is suitably designed and
operating effectively to provide the entity with reasonable assurance that
established policies, procedures and applicable government auditing
standards were being followed. The peer review involves testing the
entire quality control system and not work in process. The Inspection and
Peer Review Wing of Department is responsible for carrying out internal
peer reviews. Besides, external peer reviews can also be arranged to seek
assurance of robustness of the processes.
n Dissemination of Lessons Learnt

Regular meetings, workshops and seminars should be organized to
deliberate on audit experiences, methodologies adopted, and any changes
needed in them in the light of experiences gained so that appropriate
steps are initiated for improvement.
Inventory of recommendations
8.10 The starting point for follow-up procedures could be a comprehensive inventory
of recommendations maintained in appropriate data base by all Accountants General.
The inventory, maintained performance audit wise should consist of all
recommendations,

with appropriate grading under 'vital or critical', 'significant' and 'important'. The
database should also contain other relevant information viz. the year of audit report,
status of acceptance viz. accepted, partially accepted, not accepted and not replied,
nominal implementation reported by the entity and the time of such reporting, risk
associated with non-implementation or poor implementation, besides follow-up
reviews. This inventory should be maintained as a permanent database, which may
assist in performance audit planning in future.
Where the committee of legislature has examined a performance audit report, the
inventory may contain the final recommendations made by the committee.
Annual follow-up programme
8.11 Auditors should follow-up on previous audit findings and recommendations

when appropriate. The follow-up should be reported appropriately in order to provide
feedback to the legislature together, if possible, with the conclusions and impacts of
the corrective actions taken where relevant.
8.12 Follow up results may be reported individually, or as a consolidated report.

Consolidated follow-up reports may include an analysis of different audits, possibly
including common trends and themes across a number of reporting areas. Follow-up
can contribute to a better understanding of the value added through performance
auditing in a given time period or subject matter area.

Adem Performance Audit Module

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Adem Performance Audit Module

Uploaded by

SRS College of Management and Public Service

Chapter-1 Introduction 1-10

Performance Auditing Module

Scope for individual initiative and professional judgement

“Performance audit is an independent assessment or examination of the extent

1.4 Performance auditing carried out by the Department is an independent, objective

n providing new analytical insights (broader or deeper analysis or new

providing an independent and authoritative view or conclusion based on audit

Minimising the cost of resources used by acquiring

The relationship between resources employed and

1.9 A finding on efficiency can be formulated by means of a comparison with similar

1.10 Auditing efficiency embraces aspects such as whether:

n human, financial and other resources are efficiently used;

and the objectives of public sector programmes are met cost-effectively.

Meeting the objectives set and achieving the

1.11 Effectiveness is essentially a goal-attainment concept. It addresses the issue of

whether the programme complements, duplicates, overlaps or counteracts other

Two basic questions

nAre things being done in the right way? n

Are the right things being done?

Objectives of Performance Audit

1.15 The main objective of performance auditing is to constructively promote

Elements of Performance Audit

The three parties

Assurance and confidence in performance auditing

n through an overall view on aspects of economy, efficiency and effectiveness,

However, the performance auditor is not normally expected to provide an overall

Outcomes of performance audits

Performance auditing may, therefore, lead to better accountability, improved economy

General outlay of Performance Auditing Guidelines

Chapter 4 enumerates how to plan individual performance audits.

Chapter 5 discusses various elements of implementing the performance.

Chapter 6 deals with aspects relating to evidence and documentation.

Mandate for Performance Audit

Ethics and Independence

Performance Auditing Guidelines 11

2.5 Auditors should choose a result, problem or system-oriented approach, or a

12 Performance Auditing Guidelines – C&AG of India

n a system-oriented approach, which examines the proper functioning of

n a result-oriented approach, which assesses whether outcome or output

n a problem-oriented approach, which examines, verifies and analyses the

2.6 Audits can be pursued from a top-down or bottom-up perspective. Top-down

Performance Auditing Guidelines – C&AG of India 13

Diverse sources can be used to identify criteria, including performance measurement

2.11 In a problem-oriented performance audit, the starting point is a known or

14 Performance Auditing Guidelines – C&AG of India

There are several reasons why a regular communication is of particular importance in

n As performance audits are not normally conducted on a regular (e.g. annual)

n Often there are no predefined criteria (such as a financial reporting

Performance Auditing Guidelines – C&AG of India 15

16 Performance Auditing Guidelines – C&AG of India

techniques, as well as personal strengths such as analytical, writing and

2.20 In performance auditing, specific skills may be required, such as knowledge of

Professional judgment, due care and scepticism

Performance Auditing Guidelines – C&AG of India 17

2.25 A high standard of professional behaviour should be maintained throughout the

A robust quality management system facilitates conducting of effective performance

In the conduct of performance audits the following specific issues need to be

n Performance audit is a process in which the audit team gathers a large

18 Performance Auditing Guidelines – C&AG of India

n In performance auditing, even if the report is evidence based, well

n As audit objectives vary widely between different audit engagements, it is

Performance Auditing Guidelines – C&AG of India 19

2.31 As in all audits, performance auditors should keep an adequate documentary

n In performance auditing, the report describes the framework, perspective and

20 Performance Auditing Guidelines – C&AG of India

Performance Auditing Guidelines – C&AG of India 21

3. Strategic Audit Planning and Selection of

Strategic Audit planning

Objectives of strategic audit planning

22 Performance Auditing Guidelines – C&AG of India

The objectives of strategic audit planning are to:

Strategic audit planning process

n general economic and social conditions; n

government priorities, goals and

Strategic Audit Planning and Selection of Audit Topics