Module 4 - Introduction to Performance Audit_4A

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.
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