Auditing the Auditors: Evaluating the Methodology of Performance Audits

Abstract

It is hard to deny that the last two decades have witnessed an ‘audit explosion.’ Increasingly, Supreme Audit Institutions in most counties are allocating greater share of their resources for Performance Auditing of government entities. However, this paper finds that serious academic work examining the methodological foundations of Performance Auditing is conspicuous by its absence in the extant literature on Performance Auditing. Much of the literature on the subject comes from various Supreme Audit Institutions. Academics have either only elaborated on the methodology adopted by these Supreme Audit Institutions or taken issue with the magnitude and direction of the impact of Performance Audit on the performance of government entities. This paper seeks to fill an important void in the literature and argues that the current methodology of performance auditing is fundamentally flawed. Using the well-established principles in financial auditing, it points to the necessity for the existence of a ‘performance statement’ before a Performance Audit can be undertaken. The current practice of auditors making this ‘performance statement’ ex-post violates a well-established norm – the creator of a performance statement cannot be the auditor of the same statement. The paper then goes on to suggest a methodology for developing performance statements and auditing them.