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Advanced Auditing

Notes short term capital and operational plans and these provide another set of reference points for
assessment of performance. Rated capacity of the unit provides an acceptable benchmark against
which physical performance is evaluated.
However, utilisation of the rated capacity is assessed along with norms for consumption of raw
materials and utilities, yields and rejections as well as requirements for proper maintenance and
servicing of equipment. Cost efficiency is another important basis in appraising performance.
Standard or target costs are determined on the basis of norms of capacity utilisation, consumption,
productivity, yield etc. given in the detailed project reports, moderated in many cases by expert
studies to take care of later constraints and changes. The Bureau of Public Enterprises has issued
guidelines to be followed by the public sector enterprises in respect of general management,
financial management, materials management, production management, construction
management, etc. and these guidelines provide another basis for appraising enterprise
performance and its systems. Another source of criteria is industrial engineering and other
technical studies by internal and external experts and the standards given in these. Then there
are standards of financial propriety. This is a broad indication of the criteria and sources of
criteria for conducting efficiency and effectiveness audit of public enterprises.

Notes A basic task in audit is to carefully identify the acceptable criteria for assessing the
efficiency and effectiveness of an enterprise so that the appraisal by audit is valid and
meaningful.
The starting point of a comprehensive appraisal of a public enterprise, which covers aspects of
economy, efficiency and effectiveness, is the preparation of an audit programme based on the
study of decisions relating to the setting up of the enterprise, its objectives, the areas of operation,
organisation, financial and operational details available in the annual reports and accounts,
capital and operational budgets, deliberations of the board of directors, material in the earlier
audit inspection reports on the enterprise and other relevant available papers. These audit
programmes (or guidelines) identify the areas/aspects which require further detailed audit
analysis and criteria, the data required for such analysis and the sources of such data, the extent
of the audit analysis including the test checks to be applied and the Instructions to the audit
parties assigned to the work.

Self Assessment

Fill in the blanks:
1. Under the Act of 1971, the scope and extent of audit is determined by the
……………………….. .
2. Audit is an instrument of …………………………… .
3. ………………………… includes audit of provisions of funds, sanctions, compliances and
propriety.
4. ………………………… includes audit of efficiency, economy and effectiveness.

12.2 Audit of Banks

There are several areas in banking, cooperative banking and insurance accounting and finance,
both at the corporate level and operational level that need an auditor’s focused attention and
critical review. A banking company requires maintaining the books of account in accordance

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