Module 4 - Introduction to Performance Audit_4A

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To appreciate these distinctions, it is important to recognize the relationships among purpose, inputs, activities (or processes), outputs, outcomes, and impacts. When considering performance of any kind one may ask: Purpose: what are the objectives (i.e., intended outputs, outcomes, and impacts) of the project? Inputs: what resources are required to enable the project? Activities (or processes): what does the project do? Outputs: what does the project produce? Outcomes: what does the project achieve? Impacts: how does the project contribute to high level strategic goals? 20 For example, a program of vaccination may be considered as follows: Purpose: to reduce the occurrence and spread of disease. Inputs: medical professionals, vaccines, equipment, facilities, and other resources. Activities (or processes): promotional campaigns, administration, coordination of patients, medical professionals, and medical facilities. Outputs: targeted levels of vaccination. Outcomes: targeted levels of reduced incidence of disease. Impacts: long-term social benefits related to a healthier and more productive population. Economy relates to the use of inputs. Efficiency relates to the way in which inputs are used to achieve outputs. Effectiveness is a measure of performance relating actual outputs, outcomes, and impacts to intended results (as defined in the objectives) as well as desirable or potential results (based on other criteria). These relationships are illustrated in the graphic below. Relationship Among Economy, Efficiency, and Effectiveness 21 In evaluating the three Es, performance auditing usually involves consideration of related dimensions, such as results (outputs, outcomes, and impacts), timeliness, and quality. 20 See Indicators of Inputs, Activities, Outputs, Outcomes and Impacts in Security and Justice Programming, Department of International Development, 2013. 21 Based on Figure 1, Performance Audit ISSAI Implementation Handbook, IDI, 2021. 16
The other Es are used to illustrate the importance of: Understanding the internal and external context of the performance audit (environment). The fundamental objectives of economic and social well-being, inclusion, participation, access, and security (equity). Integrity as a pre-requisite for a robust control environment (ethics). This is reflected in the external auditor competency PAC2: “An audit professional demonstrates an understanding of context, environment, and entity in a performance audit.” 22 This competency overlaps with the requirement to exercise due professional care. Standard 1220 – Due Professional Care Internal auditors must apply the care and skill expected of a reasonably prudent and competent internal auditor. Due professional care does not imply infallibility. 1220.A1 Internal auditors must exercise due professional care by considering the: Extent of work needed to achieve the engagement’s objectives. Relative complexity, materiality, or significance of matters to which assurance procedures are applied. Adequacy and effectiveness of governance, risk management, and control processes. Probability of significant errors, fraud, or noncompliance. Cost of assurance in relation to potential benefits. 23 This further heightens the importance of materiality and audit risk at all stages in the audit process. Materiality The amount of consideration an auditor should give to any feature related to performance depends on its materiality to the engagement. Materiality is both a quantitative and a qualitative matter. When determining if something is material, it is not simply a question of making a measurement, and an auditor must always apply professional judgment. While materiality is about significance, it is not defined solely by the absolute value of an item. Much depends on the specific context. The key to a judgment about materiality is consideration of the impact on the intended users of the results and the report. This applies to judgments about the potential effect on the subsequent decisions made by the reader of the inclusion, exclusion, and/or misstatement of an item. This means the auditor must consider the needs of the intended users of the report as well as other stakeholders. Numerical value must be considered alongside factors such as frequency of occurrence, potential consequences, impact on other matters, public interest, political sensitivity, regulatory requirements, and cumulative impact of multiple occurrences. 22 Competency Framework for Public Sector Audit Professionals at Supreme Audit Institutions, INTOSAI, 2019. 23 The International Professional Practices Framework, The IIA, 2016. 17
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Module 4 - Introduction to Performance Audit_4A

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