Question

An examination of part of an organisation's procedures and methods for the purpose of evaluating efficiency and effectiveness in the manufacturing department is what type of audit?

		compliance audit.
		financial statement audit.
		production audit.
		performance audit.

Answer 1

Solution:

The correct option is  Performance Audit .

• Performance auditing is the review of a program or process, and the systems supporting it, to determine whether it is achieving the primary goals of efficiency, effectiveness, and economy in its use of available resources.
• Making recommendations for improving operational performance is an objective of performance audit.
• Reviewing operating procedures and methods is a characteristic of performance audit

A brief explanation of other options are given for clear understanding of the differences between the above mentioned types of audits.

Compliance audit :

• An audit to determine whether the auditee is following specific procedures or rules set down by some higher authority.
• One example of a compliance audit is the ISO 9000 family of quality management standards.

Financial statement audit:

• A financial statement audit is the examination of an entity's financial statements and accompanying disclosures by an independent auditor. The result of this examination is a report by the auditor, attesting to the fairness of presentation of the financial statements and related disclosures.
• For example, the most financial institution is required by law and central bank to have their financial statements audited by an authorized CPA firm. You may also note that most of the security and commission authority also required the corporation listed in the stock exchange to have their financial statements audited.

Production audit:

• A production audit is a comprehensive inspection of a process to determine whether it is performing satisfactorily.