Question

The audit assistant has been assigned to review performance indicators in the purchasing department of Kentucky Kapers, a manufacturing audit client. The assistant reports to you that he has obtained a copy of reports used by the supervisor in the purchasing department to assess the performance of the purchasing team. The reports include details of orders processed each day, any backlog of orders and the time taken to clear the backlog each week, and overtime requests by staff in the department. The assistant also reports that his discussions with the supervisor reveal that the performance indicators are used to manage the department but are not used for follow-up on unexpected results in the financial reporting system.
Required
Are the performance indicators in the report useful as audit evidence for the financial statement audit? Explain.

Answer 1

The performance indicators appear to be useful to the client. That is, the supervisor of the procurement department uses the performance indicators in the reports to assess the performance of the purchasing team. This means that the client has faith in the quality of the data. As such, the auditor has more confidence in the data.

 

However, the supervisor also reveals that the performance indicators are not used for follow-up on unexpected results in the financial reporting system. The performance indicators are based on non-financial data. Although the non-financial data are relevant to financial data (e.g., overtime requests would be related to payroll expense classified as overtime payments), the client does not appear to relate the performance indicators to the financial reporting system. This means that the relevance of the indicators to the topic of the financial statement audit is lower.

This means that the relevance of the indicators to the topic of the financial statement audit is lower.