Audit Tips

5 Considerations When Choosing Value-added Audits

Audit Tips

Choosing an audit topic is a crucial moment in the performance audit process. Ultimately, audit topic selection reflects on the credibility and the relevance of the audit organization and on the usefulness of its audit reports. A good way of selecting the right audit topic is to aim to add value for the recipient of the audit report. A value-added audit is more likely to be well received and to lead to concrete improvements. But what does “value-added” really mean?

There are several considerations involved in defining value-added:

	Providing assurance is important If a truly significant area is examined, the audit will add great value by providing assurance to the oversight body and management. This is true whether or not the audit identifies major problems. If problems are already known, the audit is in a good position to shed light on how well or how badly they are being addressed. Audits, by contributing to strengthening accountability, can add substantial value.
	Improving the understanding of a topic is very valuable An audit often presents a unique opportunity to provide recipients with new information or perspectives about key factors or dimensions impacting the program or activity audited. As a result, audits can offer report recipients knowledge and insights that will deepen their understanding of the examined issues and enable them to better deal with them.
	The potential for the identification of improvements should always be taken into account Audits can result in insightful, practical recommendations that could lead to substantial performance improvements and cost savings. Some audit offices have explored the use of various methods to quantify the value-added of their audits. However, in many instances the benefits generated by the audit are difficult to quantify but can nonetheless be assessed qualitatively using professional judgement, surveys, interviews and focus groups.
	Focusing on high-risk topics does not automatically add value Audit standards require explicitly that audits be reflective of a good understanding of the risks facing the audited entity, with an obvious preference for high-risk areas. However, auditors have to be mindful that a high-risk area that is well managed could have only low residual risks and therefore not warrant audit attention (unless of course the controls and other mitigation strategies are themselves the object of the audit).
	Formally integrating the potential value-added of audits in decision-making can be worthwhile All of the above considerations are part of a deliberate exercise of professional judgement mandated by standards and good practices. Some audit offices go a step further and built-in the efforts to seek value-added topics in their audit plan preparation process. For example, the Office of the Auditor General of New Zealand requires for each proposed audit that the potential value added be identified. The proposer is required to rank the impact as high, medium, or low, and to justify the ranking by describing the potential for public benefit, performance improvement, significance, and fit with the office’s role. The Office of the Auditor General of Canada has a similar requirement at the stage of audit selection, and requires that potential value added be refined at subsequent stages of approved audits, including a post-publication assessment of whether the anticipated value-added was achieved.