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

During the performance audit of a State-run irrigation scheme, CA Deepa finds that the project was completed within estimated cost and time, and all expenditure was properly sanctioned. However, the canals deliver water to only 35% of the intended command area, so the intended benefit to farmers is largely not achieved. Which audit conclusion best fits the scenario?

The audit should report a deficiency in effectiveness. Performance audit tests whether intended outcomes were achieved, and delivering water to only 35% of the planned command area shows the objective was not met, even though cost, time and sanctions were in order.

  1. AThe audit is clean because compliance and regularity audit objectives are met
  2. BThe audit shows the project was economical and efficient, so no adverse comment is needed
  3. CThe audit should conclude on effectiveness, because intended outcomes were not achieved despite economy in cost and timeCorrect
  4. DThe audit should treat the matter as a fraud indicator and withdraw from the engagement

Explanation

Performance audit examines economy, efficiency and effectiveness. Effectiveness asks whether intended objectives and outcomes were met. Here cost and time were controlled, but only 35% of the target benefit was achieved, so the shortfall relates to effectiveness. Compliance with sanctions does not remove that finding.

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