Skip main navigation

New offer! Get 30% off one whole year of Unlimited learning. Subscribe for just £249.99 £174.99. New subscribers only. T&Cs apply

Find out more

What is Auditing and Assurance?

Auditing is a social practice. It’s a formal process carried out by accounting and legal professionals according to explicit and codified procedures, and it has increasingly gained in importance in the last decades.
Hand stopping dominoes falling
© CC0 Public Domain

Auditing is a social practice. It’s a formal process carried out by accounting and legal professionals according to explicit and codified procedures, and it has increasingly gained in importance in the last decades.

Public Sector Auditing

Traditional auditing in the public sector used to centre on checks that laws, rules and regulations on the use of public financial resources were followed. Nowadays, however, auditing in the public sector has a broader role of ensuring that public monies are used for attaining public policy objectives in an efficient way. Original concerns with compliance (ie, that laws, rules and regulations were followed) have been supplemented with a concern with performance (ie, that monies are spent for delivering public services). So, today the role of auditors includes checking that the public sector returns ‘value for money’ to citizens and taxpayers.

Auditing to Combat Fraud

In part, auditing focuses on ensuring that transactions have been recorded properly. Sometimes, transactions may not be recorded properly simply because of errors. Sometimes, transactions are deliberately not recorded properly because accountants or managers seek to misrepresent the use of financial resources to cover some form of wrongdoing or fraud. There are several ways financial resources can be misallocated or misappropriated: theft of assets or cash, false payments, false identities of employees, false claims for reimbursement of expenditures and bribes for winning contracts or other kinds of advantages – sadly, all are common. Auditors are well aware of such schemes for misusing an organisation’s financial resources and they typically know where and how to detect if any such fraud has taken place.

Auditing for Public Sector Performance

But how do auditors establish whether public monies are used effectively for the delivery of public services? One way to do this is to look at so-called Key Performance Indicators (KPIs) for gathering evidence about outputs and outcomes of public programmes, such as the number of beneficiaries, the kind of benefits that have been delivered and the more general consequences and effects of the public programmes on the economy and society at large.

Assurance

The result of this work is the production of assurance, which is generally understood as the improvement of the quality of information that organisations produce. Auditors can’t guarantee that the organisations that they audit are completely immune from mistakes or misrepresentations of their financial condition, part of which may remain unnoticed to some extent. However, they can tell the stakeholders of the organisation whether they judge that the organisation manages financial resources prudently and whether the financial reports provide a true and fair view of the organisation’s financial condition. In the work of the auditors, therefore, there is some amount of subjectivity when they formulate their opinions.

© SOAS
This article is from the free online

Understanding Public Financial Management: How Is Your Money Spent?

Created by
FutureLearn - Learning For Life

Reach your personal and professional goals

Unlock access to hundreds of expert online courses and degrees from top universities and educators to gain accredited qualifications and professional CV-building certificates.

Join over 18 million learners to launch, switch or build upon your career, all at your own pace, across a wide range of topic areas.

Start Learning now