The primary purpose and objective of a financial statement audit is to provide financial statement users with an opinion on whether an entity’s financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework as per GAGAS/IAS.
The problem with this objective is that:
a.) An unqualified audit opinion does not mean the organisation is operating effectively or efficiently, but simply means the financial statements are not materially misstated and are prepared in accordance with applicable laws. It is possible for accounts not to be materially misstated, but the organisation still may not be prudent in resource utilisation.
b.) The auditor has no jurisdiction to question the policies of an organisation. As long as management spends according to its policies, the auditor will not question that. For instance, some organisations have policies where travel costs are supposed to be retired, while others allow their directors to stay in hotels and submit invoices to the office for payment. Others simply give cash floats to their employees, for which they should bring receipts. So, the auditor will simply read the organisation’s policy to check if expenditure was in line with the policy and authorised.
c.) Unlike profit-making organisations, whose key objective is to make a profit, most NGOs’ main objective is to address a certain problem or provide certain services to the community. These objectives are well-stated in the organisation’s strategic plan, but the mandate of financial statement audit is not to review whether or not the organisation is achieving its aligned objectives.
d) Financial audit is rather focused on identification of weaknesses in internal controls, detection of errors and fraud, override of policies, proper accounting according to international accounting standards, etc. For instance, the objective of a church is to preach the Gospel of Jesus Christ and bring mankind to salvation. However, financial audit does not provide a report on how well the church preached the word of God, how many people were saved, but rather how the church managed its offerings.
e.) The financial audit report does not indicate how the numbers in the financial statement contributed to the achievement of the organisation objective. An organisation can indicate an expenditure of K10million in its financial statement and an auditor will simply verify the legitimate sources of funds, contracts signed with funders, budgets, expenditure as per budget, accurately posted in general ledger. Financial statement auditors have no jurisdiction to provide a report how the K10million contributed to the achievement of the organisation objective or whether or not the organisation had value for money.
In my view, the inclusion of performance audit to the scope of financial audit to increase effeciency in resource utilization.
By; Winfred Mupakasi Silumbwe
