Academic journal article Journal of Accountancy

New Opportunities: A CPA's Primer on Performance Auditing

Academic journal article Journal of Accountancy

New Opportunities: A CPA's Primer on Performance Auditing

Article excerpt

The need and demand for CPAs to conduct performance audits of government operations are increasing. Independent public accountants experienced in performing financial audits of governments are well suited to conduct performance audits. However, it's important they understand the differences in audit objectives and methodologies for performance audits, and be sensitive to the political nature of the environment. This article describes the types of performance audits and applicable auditing standards. It also explains the three stages of a performance audit: preliminary survey, field work and reporting. Illustrative audit objectives, subobjectives and program steps for a performance audit of a hazardous waste treatment program demonstrate the audit process.


Until recently, performance auditing of government operations had been considered primarily the responsibility of government auditors. However, three changes in the government environment have increased the need and demand for performance auditing by external auditors. Since the 1970s, shrinking government resources coupled with a growing demand for public services have pressured governments doing more with less. Ironically, this financial squeeze often limits budgetary support for the internal audit functions intended to ferret out inefficient and uneconomical practices. Consequently, governments often turn to external auditors to conduct performance audits.

Government auditing standards and generally accepted accounting principles for governments have progressively extended into performance-related areas. The 1988 revision of Government Auditing Standards (commonly referred ti) as the yellow book"), published by the comptroller general of the United States, details separate standards for financial and performance audits that closely mirror one another in assessing internal controls and compliance with legal and regulatory requirements. In addition, the Governmental Accounting Standards Board has been conducting research on the measurement and reporting of service efforts and other government accomplishments. Perhaps within this decade, reporting of performance indicators by government units will be required. Accompanying such a requirement would likely be some auditor attestation responsibilities akin to performance auditing.

There is an ever-widening "expectation gap" between users of government audit reports and auditors. Because of the increasing demand for public accountability, government audit report users often assume performance auditing is included in the scope of an engagement, even though such a requirement is not clearly stated in the audit objectives.


The yellow book defines two types of performance audits: economy and efficiency audits, and program audits. Economy and efficiency audits, the most common, include determining whether the government is acquiring, protecting and using its resources economically and efficiently, the causes of any inefficiencies or uneconomical practices and whether the government is in compliance with laws and regulations concerning economic and efficient operations. A sound financial auditing background is extremely useful in conducting this type of engagement. Economy and efficiency audits may, for example, entail evaluating the government's procurement practices, staffing or operating procedures to ensure resources are used efficiently and economically.

Program audits include determining the degree to which programs achieve the results desired or benefits expected by the governing body, program effectiveness and government compliance with applicable laws and regulations. Sophisticated auditing techniques often are employed in comparing actual and desired program performance. Audit techniques can range from evaluating statistical data for determining if an appropriate! number of clients were served, to user satisfaction surveys evaluating how well services were delivered. …

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