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CA Final · Advanced Auditing, Assurance and Professional Ethics · Overview of Audit of Public Sector Undertakings

During the audit of Himgiri Water Supply Board, a State PSU, the auditor finds that an expenditure of Rs 3 crore on a project was incurred in strict compliance with the sanctioned rules and passed all vouching tests. However, the project was completed with a 40% cost overrun, and facilities built are lying unused. Which type of audit would specifically address the question whether the money was spent economically, efficiently and effectively?

Performance audit is the type that addresses whether expenditure was economical, efficient and effective. Here rules were followed, so compliance is satisfied, but cost overrun and unused facilities raise value-for-money questions, which performance audit examines through the three Es of economy, efficiency and effectiveness.

  1. APropriety audit only
  2. BFinancial attest audit
  3. CPerformance auditCorrect
  4. DCompliance audit with respect to the sanction order

Explanation

Performance audit examines the economy, efficiency and effectiveness of operations, which fits cost overruns and unused assets. A compliance audit tests adherence to rules, which the spending already satisfied. A financial attest audit gives an opinion on the financial statements. Propriety audit looks at wisdom and public interest of spending, but the 3E review is performance audit.

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