In this episode of THE SAMPLE, Leita Hart-Fanta, CPA answers the question, “What is a performance aspect?”
Welcome to The Sample, a quick discussion of auditing concepts and terms that will help you do your work. Conducting an audit in accordance with auditing standards is no small feat and I want to support you. We’ll be referring to the GAO, IIA and AICPA literature to bolster our conversations. Let’s get started.
In this episode, we answer the question, “What is a performance aspect?”
It’s kind of a funny term, isn’t it? But you see performance aspects in audit objectives all the time – economical, effective, efficient – but I put them in a graveyard for a reason because they could kill you on an audit. They’re too vague, which means that you could have problems concluding around them.
The Yellow Book uses the term performance aspect
Where does this word even come from? Well, it comes from The Yellow Book.
This is a quote out of The Yellow Book, Chapter Eight, the performance audit chapter, and it talks about what an objective has in it.
An objective has a subject matter and a performance aspect, maybe. An objective can be thought of as a question about the program based on evidence obtained and assessed against criteria.
So, notice that a performance aspect is not the same thing as a criteria. The criteria is a law, regulation, contract, grant, agreement – something solid from an authoritative body or document that both you and the client agree is authoritative. Getting the client to agree that what they’re doing is not economical or effective or efficient is going to be a lot harder than saying they don’t comply with the law or meet a certain standard.
How a vague performance aspect without criteria can cause you trouble on an audit
Let me tell you a story about that.
I was working with a legislative auditor, and they had an elected state auditor. This elected state auditor actually knew nothing about auditing when she got the job. The state auditor position was a job that she had to step through in order to make it to be governor, so she really didn’t know anything about auditing. She was a lawyer. She looked at the audit reports that this team, this whole staff of 200 people, had been creating for years, and she was bored by it because they were doing pretty strict compliance and financial audits.
She just didn’t think they were very interesting, and she told the staff as much. She said, “We’ve got to do something more interesting.” And they went, “Uh oh. We’ve heard that before. What you got in mind?” And she said, “I don’t know. Let me think about that.”
And a week later she was in her car on her way to work. She was listening to NPR, and she heard Michelle Obama talking about the school lunch program, school nutrition, which was her First Lady crusade, let’s say. Michelle Obama was saying how kids in today’s schools don’t have access to fresh food.
And the state auditor said, “That is interesting. Why don’t we evaluate whether our state’s school lunch program is effective?” And the audit team went, “Okay,” knowing that that word effective was problematic. So, they came back to her and they said, “Okay, we looked into it, and we found some guidelines from the USDA. We’ll evaluate whether our program meets the criteria set out by the USDA.” A federal agency, right?
She’s like, “You didn’t hear me. I said, ‘I want to know if it’s effective.'” And they went, “Oh, boy.”
Then they went out and they found another structure, similar but better and internationally adopted for nutrition. They went back to her and they said, “Oh, we found this international standard, which is the best in the world, and let’s use that.”
She said, “No, I want you to say whether the program is effective.”
Well, they went away knowing that they had to do an audit and they needed some criteria to work off of, because that’s what defines an audit: the evaluation of a subject manner against a criteria. So, they did their work. They came back, and they gave her the report. They said, “Okay, we concluded that our state actually does meet the guidelines of this international, hootie tootie, nutritional body.”
She’s like, “Oh, I’m going to fire you if you say that one more time. I told you to put the word effective in there. I want you to conclude whether it was effective or not.” So, they were like, “Okay.” Not wanting to get fired, they put the word effective in there. They included the school lunch program is effective. All right.
Next, the State Auditor takes the report in to the legislative audit committee and shares this report result with them.
One of the first questions from one of the legislative audit committee members was, “Well, if our school lunch nutrition program is so great, why is my niece so horribly overweight?”
At that moment, she realized what the auditors at her shop were trying to tell her, that it’s much easier to stand in front of people and say, “So and so meets a certain criteria,” than, “So and so is effective or not effective.” She said, “I’ll get back with you. Thanks for giving me a chance here.” She went back, changed the report so that it said, “Meets this criteria.”
Avoid Economical, Efficient and Effective in an Audit Objective
Performance aspects are interesting, and do make your audit reports more interesting and more compelling to the reader. So, if you do decide to use them, I recommend that you don’t use these words on the left, but instead you use the words on the right, which are more specific, and you back it up with criteria. So, what is the definition of timely? Says who? What’s the definition of reliable? Says who? And that way, you won’t get yourself into a bind with your audience.
That wraps it up for another episode of The Sample. True to the nature of a sample, we didn’t talk about everything, so you’ve probably got questions. Write to me email@example.com and I’ll do my best to fill in the blanks. Thanks for playing.