Module 4 - Introduction to Performance Audit_4C

Case studies are listed above as a potential documentary source but may be used as a
research method conducted by the auditor in which a detailed analysis is made of a
particular aspect of the subject matter as a way of discovering useful learning points about
the subject matter as whole.
Measuring Economy, Effectiveness, and Efficiency
The auditor must select appropriate measures to support conclusions regarding the
economy, effectiveness, and efficiency of the subject matter. Measures may be qualitative
and quantitative as well as financial and nonfinancial, and should consider:
Inputs (resources applied).
o Efficiency (i.e., the degree to which use of resource is minimized) can be
measured using input-to-output ratios in terms of costs and volumes or by
input-to-input ratios of different categories of inputs (e.g., staffing costs as a
percentage of total costs).
o Economy (i.e., degree to which resource costs are minimized), including
trends over time and variations between locations, teams, and individuals.
o Cost of quality, including quality assurance processes and the impact of
failures and wastage.
Output – work produced or services delivered.
o Output quantity.
o Output quality.
o Output timeliness.
o Output costs.
Outcomes – results achieved.
o Effectiveness of outputs in achieving the intended purpose. 71
Outcomes relate to the effects beyond the entity on people such as service users and civil
society as well as broader dimensions like the environment, law and order, the economy,
national security, and international relations. These long-term outcomes may be described
as impacts. Effectiveness measures the value added (or benefits) created by the subject
matter. To measure this the auditor should consider factors such as:
Customer satisfaction.
Coverage.
Financial results.
Financial conditions.
Readiness.
In each case, the auditor will need to determine a suitable unit of measure or proxy and a
means of gathering evidence.
In their analysis and evaluation, auditors are likely to need to apply a range of operational,
financial, and statistical techniques, including net present value (NPV), internal rate of return
(IRR), linear programming, regression, and appropriate financial margins and ratios.
Common project appraisal models covered in this Module are described below.
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See Rauum and Morgan, Performance Auditing: A Measurement Approach, The Internal
Audit Research Foundation, 2009.
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