RTI, MUMBAI / CH 31 PERFORMANCE AUDIT PLAN FOR THE SELECTED SUBJECTS PERFORMANCE AUDIT PLAN FOR THE SELECTED SUBJECTS DAY 3 SESSION NO.1 (THEORY ) BASED ON CHAPTER 3 PERFORMANCE AUDITING GUIDELINES

RTI, MUMBAI / CH 32 Learning Objectives In the previous sessions we have discussed the salient features of the Performance Auditing, Performance Audit Cycle, difference between Performance Audit and Regularity Audit, Auditing standards and mandate. We have also discussed the Strategic planning and selection of subjects for Performance Auditing.

RTI, MUMBAI / CH 33Cont… Today we will be discussing the Performance audit implementation plan in two theoretical sessions. In the first theoretical session we will discuss:  Performance audit plan  Understanding the programme, the entity and the environment  Risk analysis  Setting the audit objectives  Expected value addition to the entity/programme  Assignment, external assistance/outsourcing  Scope: Audit mandate period

RTI, MUMBAI / CH 34Cont… In the second theoretical session we will discuss:  Pilot study  Criteria for assessment of the programme/entity Role of criteria in performance audit  Characteristic of good criteria  Role of criteria  Sources of Audit criteria  Practice of setting criteria by the entity  Services of expert for developing criteria  Detailed guidelines for the performance audit  Structure of audit implementation guidelines

RTI, MUMBAI / CH 35 Planning The critical aspects in planning the individual performance audits that have to be carefully navigated are:  collection of and research on the data and information relating to the subject,  scope of audit, preliminary survey and pilot study,

RTI, MUMBAI / CH 36 Cont…  setting the audit objectives and criteria,  assessment of skill and knowledge required for the conduct of the performance audit and those available internally,  defining the gap in the requirement and its availability in-house

RTI, MUMBAI / CH 37 Cont…  plan for bridging the gap through expert advice or appointment of a full time consultant for the duration of audit,  assignment of the personnel and other resources, and finalising the guidelines along with the audit programme, etc.

RTI, MUMBAI / CH 38 Cont… In addition the Accountants General should also consider:  determining the suitability of audit criteria;  determining an efficient and effective approach to conducting the audit;  relevant accountability relationships;  remaining mindful of the users of audit reports;  reviewing the entity’s internal audit system; and  documenting the audit plan in the form of guidelines

RTI, MUMBAI / CH 39 Understanding the programme, the entity and the environment  The auditor should plan the audit in a manner, which ensures that an audit of high quality is carried out in an economic, efficient and effective way in a timely manner.’ The planning steps are:  Collect information about the audited entity and its organisation in order to assess risk and to determine materiality;  Define the objective and scope of the audit;

RTI, MUMBAI / CH 310 Understanding the programme, the entity and the environment  Undertake preliminary analysis to determine the approach to be adopted and the nature and extent of the enquiries to be made later.  Highlight special problems foreseen when planning the audit;  Prepare staff assignment and a schedule for the audit;  Identify staff requirements and a team for the audit; and

RTI, MUMBAI / CH 311 Understanding the programme, the entity and the environment  Familiarize the audited entity about the scope, objectives and the assessment criteria of the audit and discuss with them as necessary.

RTI, MUMBAI / CH 312 Understanding the subject (cont…)  Understanding the subject will help in identifying the key audit issues. A list of sources of information to understand the business of the entity are:  Plan, budget documents, vision/mission statements and strategic plan of the entity;  Enabling legislation;

RTI, MUMBAI / CH 313 Understanding the subject (cont…)  Entity organizational chart, Programme execution format and accountability relationships,  Annual reports, performance budget, and accounts etc.;  Programme documents-containing the parameters of the programme – EFC/PIB notes and minutes and Note for Cabinet documents, etc.;  Programme guidelines issued by the entity, administrative and implementation instruction, information feedback/monitoring reports and action thereon, and minutes of the meetings on relevant subject, etc.;

RTI, MUMBAI / CH 314 Understanding the subject (cont…)  Administrative and technical inspection reports within the entity, proceeding of the monitoring meeting, internal audit reports, etc.;  Evaluation reports and surveys sponsored by the entity, independent evaluations and surveys; publication/reports by the UN agencies, World Bank, etc, on the subject;  Parliamentary/legislative debates and reports;  Media reports and articles; and  Past audits; financial/regularity and performance audits, follow-up on previous audits, etc.

RTI, MUMBAI / CH 315 Understanding the entity environment  It is important for the performance auditors to clearly understand the entity environment, legislation, regulations and rules applicable to the entity, structure of the organisation and delineation of duties and responsibilities within it, work and information flow, internal control system and accountability relationships, etc.

RTI, MUMBAI / CH 316 Presentation by/discussion with entity  To explain the different aspects of programme subjects  To elicit entity cooperation for thorough understanding of the subject, cooperation in facilitating audit by way of unhindered access to documents and Information, entity response, confirmation of the facts.  Interaction should not be sought merely for the form sake but should be aimed at securing a high degree of goal matching.

RTI, MUMBAI / CH 317 Understanding the entity – collection of documents, information and data, understanding the expected objectives, inputs, processes, outputs and outcomes Preliminary survey Setting audit objectives and scope of audit Presentation by/ discussion with entity Understanding the entity – collection of documents, information and data, understanding the expected objectives, inputs, processes, outputs and outcomes Preliminary survey Presentation by/ discussion with entity Setting audit objectives and scope of audit Determine audit criteria consistent with audit objectives Assessment of skill / knowledge, and external sources of skill and expertise required Audit test programme – Entity units to be audited, sampling technique used for selection of units, organisational relationship of the units selected for test etc. along with the objective of audit of each selected unit, and time schedule, etc. Evidence – types of evidences consonant with audit objectives, sources and methods of collection, and sampling techniques to be used for evidence gathering Performance audit guidelines containing:  Information / data on the subject;  Scope of audit;  Expert services/consultant/ survey requirements;  Audit objectives and audit criteria;  Evidence – types, sources and method of collection;  Sampling of units and evidence;  Assignment of duties;  Units assignment for audit test;  Time schedule for different stages;  Mid-term reviews/ workshop;  Supervision and control system;  Field audit programme and  Reporting schedule Performance audit guidelines containing:  Information / data on the subject;  Scope of audit;  Expert services/consultant/ survey requirements;  Audit objectives and audit criteria;  Evidence – types, sources and method of collection;  Sampling of units and evidence;  Assignment of duties;  Units assignment for audit test;  Time schedule for different stages;  Mid-term reviews/ workshop;  Supervision and control system;  Field audit programme and  Reporting schedule Performance audit guidelines containing:  Information / data on the subject;  Scope of audit;  Expert services/consultant/ survey requirements;  Audit objectives and audit criteria;  Evidence – types, sources and method of collection;  Sampling of units and evidence;  Assignment of duties;  Units assignment for audit test;  Time schedule for different stages;  Mid-term reviews/ workshop;  Supervision and control system;  Field audit programme and  Reporting schedule Evidence – types of evidences consonant with audit objectives, sources and methods of collection, and sampling techniques to be used for evidence

RTI, MUMBAI / CH 318 Risk Analysis A risk analysis should be carried out with reference to the various parameters of the entity, programme or the subject after a careful study of all relevant documents for determining  the audit thrust areas  audit objectives  setting the most appropriate audit criteria. also  To assist in selection of appropriate sampling techniques for the units to be audited  For the selection of vouchers/information/data.

RTI, MUMBAI / CH 319 Cont…  The risk factors can be attributed to the different forms of inputs, processes, information systems, accountability relationships, outputs and outcomes on the basis of the perceived weakness in the design parameters, organisational structure, information system, transparency, criteria or means adopted for monitoring and review etc.

RTI, MUMBAI / CH 320 Setting the audit objectives  Audit objectives are the pivot of any performance audit around which the entire exercise resolves.  Audit objectives are usually expressed in terms of questions about performance I.e., achievement of economy, efficiency and effectiveness of an entity/programme/ activity under audit.

RTI, MUMBAI / CH 321  While setting the audit objectives and sub- objectives, it will be necessary to indicate in the implementation guidelines the performance audit issues of economy, efficiency and effectiveness that the audit objectives and sub- objectives address, either individually or jointly.  Audit objectives and sub-objectives in relation to the equity and ethics principles should ultimately be correlated to the three main concerns of economy, efficiency and effectiveness Setting the audit objectives

RTI, MUMBAI / CH 322 Setting the audit objectives  It helps preclude the perception of prejudged outcomes;  Foster discipline and prevision;  Facilities clarity;  Helps focused data gathering activities;  Helps establish underlying logic;  Accomplishes intended results;  Demonstration consistent quality of audit; and  Serves as a measure of quality assurance of performance audit

RTI, MUMBAI / CH 323 Defining the Audit Objective  The most important stage in the performance audit process is defining the audit objectives  The audit objectives define the nature of the audit, govern its conduct and the performance auditor reaches conclusions in the context of the audit objectives.

RTI, MUMBAI / CH 324 Expected value addition to the entity/ programme  While it may not be easy to anticipate with precision, the likely impact that the performance audit may achieve, it is necessary for the Accountant General to determine the expected impact on entity performance as a result of performance audit.  Determining the expected impact of performance audit early in the process will facilitate setting of appropriate audit objectives and maintaining the quality of the performance audits.  At the end of the performance audit, when it may be possible to determine the expected impact precisely, the expectation may be further developed.

RTI, MUMBAI / CH 325 Contd.  In fact, in most cases, some of the impacts of the performance audits may already be clear or even realised, if the entity cooperation has been of the desired standard.  Anticipating the expected value due to the performance audits before initiating them will enable the Accountant General assess the quality of audit planning and goal / objective-oriented selection of the subjects.

RTI, MUMBAI / CH 326 Contd.  As provided elsewhere in these guidelines, the Accountants General are to carry out an annual assessment of the impact of the performance audit and report them to the SAI top management. Annual impact assessment exercise will also afford an opportunity to review the degree of precision in determining the expected impact at the time of initiating of the performance audits.

RTI, MUMBAI / CH 327 Assignment, external assistance/outsourcing  Accountants General to assess the gap between the skill, knowledge and competence required for the selected subject of the performance audits and the availability in-house.  The need and the scope of procuring the expert advice and outsourcing may be determined transparently in the light of the established policy and procedures within the SAI and orders of the competent authority may be obtained.

RTI, MUMBAI / CH 328 What is Scope? The scope is the boundary of audit. Scope narrows down the audit to significant issues that relate to the audit objectives. It determines the extent of examination of the identified key areas.  It covers the following:- Audit mandate Period of entity operations or programme that the audit examination will cover. The time-frame to be covered in audit will apart from the type of the programme depend upon risk parameters, audit objectives, and sufficiency, competence and reasonableness of evidence to be collected, etc.

RTI, MUMBAI / CH 329 Scope (cont…)  Segments/locations of the entity to be covered in audit.  It may be necessary to limit the segments/locations that the audit will cover and to which the conclusions will apply.  In case of selection of any particular segment only for the performance audit, the conclusions apply only to that particular segment.

RTI, MUMBAI / CH 330 Session Summary Session Summary In this session we discussed:  Performance audit plan  Understanding the programme, the entity and the environment  Risk analysis  Setting the audit objectives  Expected value addition to the entity/programme  Assignment, external assistance/outsourcing  Scope: audit mandate period