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Unit 12: Special Features of Audit

12.1.2 Comprehensive Audit of Public Enterprises Notes

The areas covered by comprehensive audit are those of investment decisions, project formulation
and management, organisation, delegation of powers and management information systems,
organisational effectiveness, capacity utilisation, management of equipment, plant and
machinery, production performance, use of materials, productivity of labour, idle capacity,
costs and prices, development of complementary ancillary small scale industries, materials
management, sales and credit control, budgetary and internal control systems, etc. The areas
covered in comprehensive audit will naturally vary from enterprise to enterprise depending on
the nature of the enterprise, its objectives and operations.

Some of the issues examined in comprehensive audit are:
(a) How does the overall capital cost of the project compare with the approved planned costs?
Were there any substantial increases and, if so, what are these and whether there is evidence
of extravagance or unnecessary expenditure?
(b) Has the accepted production or operational outputs been achieved? Has there been under-
utilisation of installed capacity or shortfall in performance and, if so, what has caused it?

(c) Has the planned rate of return been achieved?
(d) Are the systems of project formulation and execution sound? Are there inadequacies?
What has been the effect on the gestation period and capital cost?

(e) Are cost control measures adequate and are there inefficiencies, wastages in raw materials
consumption, etc.?
(f) Are the purchase policies adequate? Or have they led to piling up of inventory resulting in
redundancy in stores and spares?
(g) Does the enterprise have research and development programmes? What has been the
performance in adopting new processes, technologies, improving profits and in reducing
costs through technological progress?

(h) If the enterprise has an adequate system of repairs and maintenance?
(i) Are procedures effective and economical?
(j) Is there any poor or insufficient or inefficient project planning?
(k) Has there been undue waste, unproductive time for men and machines, wasteful utilisation
or even non-utilisation of resources? If so, why?
The efficiency and effectiveness audit of public enterprises is conducted on the basis of certain
standards and criteria. Profit is not the key criterion on performance; management’s performance
in the economical and efficient use of public funds and in the achievement of objectives is more
relevant. Public enterprises have been set up with certain socio-economic purposes and for
fulfilment of certain objectives. The objectives vary from enterprise to enterprise. Audit appraisal
analyses the performance of an enterprise to bring out the extent to which the objectives for
which the enterprise was set up have been served. Admittedly this is a complex task but basic to
effectiveness appraisal.

The feasibility/detailed project reports give the basis of investment, capacity, costs, time
schedules, gestation period, etc. and are built up of capacities, parameters and norms of
consumption, yields, productivity, costs, rate of return, etc. These provide yardsticks by which
the performance is measured. Some of the parameters may change due to external or internal
factors subsequent to the setting up of the enterprise/project. In conducting efficiency audit due
account is taken of the changes effected. Then enterprises are required to have their long and

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