3. Performance audit

Theme: Audit.

Sub-theme: the process of audit. Compliance and performance audit.

What is a compliance audit?

A compliance audit is an operational-style audit that determines if a company is following the rules of an agreement or contract. Companies make agreements or enter contracts for a variety of business purposes. These agreements and contracts are carefully reviewed and audited to ensure no fraud or misstatements exist as the company meets the contractual obligations. Public accounting firms or individual certified public accountants (CPA) may be responsible for conducting the external compliance audit on company contracts and agreements.

Public accountants are usually given the contract or agreement pertaining to the compliance audit during a meeting between both parties listed in the agreement. During this audit meeting, accountants will be given specific guidelines on what they should test during the compliance audit. Once the audit is complete, the accountants will meet with both parties and discuss their compliance audit findings. Internal compliance audits may also be required by the contract or agreement between the companies.

Companies use internal compliance audits to ensure employees are following the standard operating procedures of a company when fulfilling contractual obligations. Standard operating procedures are implemented to ensure all goods and services produced by the company meet the same standard. Internal audits are usually completed by accounting employees for the purpose of preparing internal documents for management review. Managers use these reports to determine if any changes need to be made in the business operations or if new guidelines need to be implemented.

2. Study the pictures.

3. Performance audit

Performance audits, the public version of operational audits, are conducted to determine if an entity's operations, programs, or projects are functioning effectively and efficiently to achieve goals established. All levels of public administration in the United States—from municipalities to the federal agencies—undergo performance audits. Since all levels of government in the United States have some federal funding, the professional standards for performance audits established by the U. S. Government Accountability Office (GAO) are required for auditors who perform such engagements. Government auditing standards include the following definition for a performance audit:

An objective and systematic examination of evidence to provide an independent assessment of the performance and management of a program against objective criteria as well as assessments that provide a prospective focus or that synthesize information on best practices or cost-cutting issues. (GAO, 2003, p. 21)

Accountability is the key motivation for performance audit engagements. The performance audit, therefore, is perceived to be a valuable means of determining if goals have been achieved, as well as valuable in identifying what is needed to improve program operations.

The specific objectives of such audits, as noted in the GAO standards, are varied. Among objectives are those relating to program effectiveness, economy and efficiency in the use of resources, internal control, extent of compliance with legal requirements and policies, and prospective analyses.

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