Familiarizations

Before starting performance audit, the auditor should become familiar with the activities
being audited. To do this, the auditor reveals background information, objectives,
organizational structure and controls of the activity of function being examined and
determines their relationship to the overall environment.

In addition, the auditor should clearly understand the purpose and scope of the
engagement and the nature of the report to be issued. The auditor should also determine
whether the individual or entity requesting the audit has the authority to do so.

Survey

During the survey phase, often referred as a preliminary survey, the auditor should
attempt to identify problem areas and those areas that are critical to the overall success
of the activity or function. Usually a questionnaire is used to identify those aspect of the
unit activity or function that should be addressed further. This survey serves as a guide
for the development of the audit program

Program Development

The auditor designs a work program, based on the audit objectives, that details the test
and analyzes to be performed on those area identified as critical as a result of the
preliminary survey. In addition the auditor schedules the work, assigns appropriate
personnel to the engagement, determines the involvement of other personnel, and
provide for the review of the working papers.

Audit Application (Field Work)

The audit application is the primary phase of the operational audit. The auditor
performs the audit procedures identified in the work program gather evidences, make
analyses, draw conclusions and develop recommendations. During field work the
auditor should complete the audit steps and achieve the overall audit objectives of
assessing effectiveness, efficiency and economy.

Reporting

This phase is critical to the overall success of performance audit. Generally performance
audit reports contain two major elements:
1. engagement objectives, scope, and approach
2. specific findings and recommendations

These reports usually include an executive summary that highlights the contents and
conclusions of the detailed report.

After reporting follow up is required to ensure that any deficiencies disclosed in the
audit report are satisfactorily handled.

Types of Performance Audit

There are three broad categories of performance audit: Functional, Organizational and
Special Assignments.

Functional: functions are a means of categorizing the activities of a business, such as the
billing function or production function. As the name implies a functional audit deals
with one or more function in an organization. It could concern, for example, the payroll
function for a division or a company as whole. The functional audit has the advantages
of permitting specialization by auditors.

Organization: a performance audit of an organization deals with an entire

organizational unit. The emphasis in an organizational audit is on how efficiently
functions interact. The plan of organization and the methods to coordinate activities are
especially important in type of audit.
Special Assignment: special performance audit assignments arise at a request of
management. There are a wide variety of such audits. Examples include investigating
the possibility of fraud in a division and making recommendations for reducing the cost
of manufactured product.