163 Times! Audit Objectives Star in Chapter 8 of the Yellow Book

Audit objectives impact every decision on a performance audit. The GAO uses the term objective 163 times in Chapter 8 of the Yellow Book. Chapter 8 explains how to conduct a performance audit and is so rich with wisdom that I refer to it in almost every course I teach.

I recently heard a preacher say that if the Bible repeats something twice, then God really wants us to ‘get it.’ The GAO, then, might appear a little heavy-handed in their frequent use of the word objective. Why not just say it once or twice?

Maybe because we just aren’t getting it.

The term ‘objective’ has two meanings to auditors

As auditors, we need to be objective, and we need to seek an answer to an objective.

The term objectivity can be used to describe a quality that auditors and third parties possess. Auditors make an objective, independent assessment of whether a subject matter meets criteria and, in turn, objective third parties judge auditors’ work. This usage of the term appears only once in Chapter 8.

The other 162 times, the word objective refers to the audit objective. Here is Chapter 8’s formal definition of an audit objective:

8.08 The audit objectives are what the audit is intended to accomplish. They identify the audit subject matter and performance aspects to be included. Audit objectives can be thought of as questions about the program that the auditors seek to answer based on evidence obtained and assessed against criteria.

That paragraph holds plenty of components that we must consider.

1. Audit objectives promises to accomplish something

An auditor’s main goal is to conclude or opine on whether a subject matter meets given criteria.

When studying for the CPA exam, I had to memorize this paragraph:

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ABC Corporation as of December 31, XXXX, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.

The original purpose of the Certified Public Accountant (CPA) license was to give professionals the ability to conduct financial audits. The objective of a financial audit could be stated as, “Are the financial statements presented in accordance with GAAP?”

I had to memorize that paragraph because it represented the promise that CPAs make to their clients.

Here is the promise that performance auditors make when they follow Yellow Book standards:

9.03 We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Notice that performance auditors – and I would argue all auditors – make the promise that they answered their objective with a conclusion and that they found evidence to support this conclusion.

2. Audit objectives includes subject matter and criteria

The more finite the audit subject and the more specific the audit criteria, the easier keeping that promise will be.

If I asked any auditor to conclude whether everything at a large university was OK, I would hear laughter or moaning. Then I could expect the auditor to ask for more specifics such as, “What specific function at the university needs to be evaluated and against what standard?”

What if, instead, I asked whether the art history department follows human resource policies regarding the evaluation of professor performance? That question is answerable, and the auditor can prove the answer in the working papers.

3. Audit objectives can be thought of as questions

The GAO does not mandate that objectives be posed as questions, but I prefer audit objectives to be in question form and the questions should be close-ended. In other words, the audit objectives work best if they are posed as questions that can only be answered yes or no.

Forcing ourselves to pose objectives as questions can help us develop them into something we can actually succeed with as an auditor. For instance, you can catch yourself creating a difficult objective like, “Identify ways to make the University’s programs work better,” because you can’t convert it into a close-ended question.

4. Conclusions are linked to audit objectives

Although no standard I know actually says this directly, it is tacit – a given – that the conclusion should speak to the objective. We should answer whatever question we pose.

My daughter recently won 1^st place in the citywide science fair for fifth graders. Before you get too impressed, realize that 1/4 of her classmates went to citywide and that 1/2 of the kids at citywide won first place. And she didn’t exactly cure cancer with her project. Her thesis was that if you shook Coca-Cola® and Sprite® and then removed their lids, Coke® would shoot higher into the air.

So how did she win with such a less-than-fascinating thesis? She clearly stated her thesis, clearly presented her evidence, and then clearly stated her conclusion that Coke and Sprite explode at the same height. Other kids in her class had theses, did a poor job gathering evidence, and then concluded, “I finished the experiment.” Their conclusions did not match their theses or their objectives.

This year, I have looked at a wide number audit reports from a variety of internal audit and legislative audit shops. And guess what I see almost every single time! The conclusions do not match the objectives!

CPA firms would never allow that to occur in their audit reports. They are engaged to find out answers to specific questions, and they deliver exactly what they promise to the client, no more or no less.

Why? Lots of reasons … but the main reason is they don’t want to be sued for not living up to their promise!

5. Audit objectives should be useful

Unlike my daughter’s science project, our audit projects should actually make a difference to our clients. Paragraph 8.35 of the Yellow Book addresses the usefulness, or what I call the wow factor, of the objective:

8.35 A written audit plan provides an opportunity for audit organization management to … determine whether a. the proposed audit objectives are likely to result in a useful report …

Essentially, we need to make sure that someone will care about our audit reports upon completion. Otherwise, we should rephrase/rework our audit objectives or use our limited audit resources on an entirely different project.

Check out your own audit objectives

Take a minute and look at your most recent audit report. Go to the audit objective section and identify your thesis. Ask whether your client will find that thesis interesting. Are you curing cancer or shaking up a Coke bottle?

Now, read the conclusion. Does it mirror, match, or speak to the objective? If it doesn’t, you might be guilty of making a promise you didn’t keep.

For more on audit objectives, check out the Government Audit Training Video Series.