What Is a Performance Audit?
A performance audit is an independent assessment of an entity's operations to determine if specific programs or functions are working as intended to achieve stated goals. Performance audits are typically associated with government agencies at all levels as most government bodies receive federal funding.
- A performance audit refers to an independent assessment of an entity's operations, most often at all levels of the government.
- The goal is to evaluate the performance of stated programs to determine their effectiveness and make changes if needed.
- The standards for the audits are laid out by the U.S. Government Accountability Office.
- The scope of a performance audit varies, but usually includes an assessment of effectiveness, efficiency, and compliance to legal requirements.
Understanding Performance Audit
In government, a performance audit is designed to examine the efficiency and effectiveness of a program, with the goal of implementing improvements. In Generally Accepted Government Auditing Standards (GAGAS), the term "program" can include government entities, activities, organizations, programs and functions. The goal is to provide objective data that may be used to reduce costs and make other improvements. The standards for the audits are laid out by the U.S. Government Accountability Office (GAO).
The specific objectives of an audit can vary. They may include effectiveness, economy and efficiency of a program, and compliance with legal requirements. An audit's scope is wide and can seek to determine fraud and wasteful processes that are a hindrance to the stated objectives of a program.
Performance Audit Standards
The standards for the performance audit are laid out by the GAO and cover three topics: general, field, and reporting.
General standards seek to cover areas such as professional judgment, quality control, and competence. This area seeks to ensure that the auditor is independent, capable, and abides by internal quality controls. Field standards apply to planning, gathering material for evaluation, and preparing quality documentation. This area seeks to outline the objectives, why they will be obtained, and the manner in which they will be done so. Reporting Standards relate to the content of the report and the communication of the findings.
Value of Performance Audits
Once a performance audit is completed, the findings are delivered to the management of the specific organization or program. The goal is for them to use the findings to implement any changes to improve processes that will help them achieve the stated goals. Typically, a follow-up performance audit is done to assess whether management has implemented any of the audit findings and if there has been any improvement by doing so.
The value of the audits does not only apply to the management but also to the general public, as they can see if certain programs are worth their tax dollars and they can use the information to make educated voting decisions.
Performance audits are also implemented in the business sector and follow many of the same stated goals and procedures.
In the investment world, a performance audit may be conducted on an asset manager by an outside accounting firm to verify that the performance figures shown to the public represent actual results. The CFA Institute has established performance guidelines, called Global Investment Performance Standards (GIPS). Though voluntary, they help ensure full disclosure of investment practices.