What are audit objectives in auditing?

Drafting the objective

In scoping the performance audit, the objective specifies the principle(s) that will be evaluated (i.e., economy, efficiency, effectiveness or environment and sustainable development) in relation to the underlying subject matter. An audit objective is normally expressed in terms of the conclusion the audit is expected to draw regarding the entity’s performance of an activity. It is based on the question(s) that the audit seeks to answer about the performance of an activity or program; for example, “Did the entity have effective procedures in place to manage its program?”

The objective may cover a single program area or range of responsibilities, and it may fall under the mandate area of a single entity or multiple entities. The objective should be based on the requirements of the relevant legislation, regulations, and policies. It should also flow from section 7 of the Auditor General Act, usually in terms of whether public money has been expended with due regard to economy, efficiency, and environmental impact, and whether the entity has satisfactory procedures in place to measure its effectiveness. The objective should focus on matters of significance to Parliament or to the Crown corporation that is audited. See OAG Audit 2020 Significance for more information about it.

An audit objective should be realistic and achievable and give sufficient information to the entity and other stakeholders about the focus of the audit.

Ideally, each audit would have one audit objective that provides a clear focus for the audit. Complex audits may need several objectives, but these should be limited to a small number. Presenting audit objectives as clearly and concisely as possible prevents the audit team from undertaking unnecessary or overly ambitious audit work.

Wording the objective

An audit objective is the hypothesis that will be tested through the collection and analysis of evidence. It should be framed in a way that allows a clear and unambiguous conclusion, made in a pass/fail or yes/no format—either the entity did or did not meet the required performance standard.

Performance audits

An objective should focus on the results rather than on systems and practices, and should be presented as a statement in the following format: “The objective of the audit is to determine if/whether the entity has . . . .” The objective should not be phrased in an inconclusive manner, such as “. . . assess the extent to which . . . ,” as this does not lead to a clear conclusion in a pass or fail format.

Double-barrelled objectives, where more than one question is asked, should be avoided so that clear conclusions may be reached (OAG Audit 7030 Drafting the audit report).

Usually, audit objectives should be a maximum of 20 to 30 words and should not contain sub-objectives, criteria, jargon, program objectives, or any other unnecessary elements. They usually include a modifier (e.g., adequately managed) that needs to be defined in the criteria. Best practices have shown that the shorter the objectives are, the better and clearer they are. A concise audit objective needs to be further defined in the criteria. For example,

The objective of this audit was to determine whether Environment Canada adequately enforced compliance with the Canadian Environmental Protection Act.

The name of each entity should be stated in the audit objective. If numerous entities are involved, the phrase “selected entities” may be used. Audit objectives should be expressed in the past tense, related to the period under examination. For example:

The objective is to determine whether the Canadian Food Inspection Agency managed the 2007 and 2009 avian influenza emergencies consistent with its established plans and procedures.

If an ongoing program is being audited, the objective can be phrased as “. . . has managed . . . ” For example:

The audit objective is to determine whether selected federal entities have adequately managed selected programs for Canada’s Economic Action Plan by putting in place appropriate management practices and providing programs to eligible recipients in a timely manner.

Occasionally, the present tense is the most appropriate tense, but it should be used with caution. It should not be used in a context where assurance on future activities could be inferred. Following is an example of an appropriate use of the present tense:

The audit objective was to determine whether Citizenship and Immigration Canada has adequate practices to manage the quality of service delivered to individuals.

Special examinations

The special examination audit objective is to determine whether the systems and practices we selected for examination at the Crown Corporation are providing the Corporation with reasonable assurance that its assets are safeguarded and controlled, its resources are managed economically and efficiently, and its operations are carried out effectively, as required by section 138 of the Financial Administration Act (FAA).

The Office is required to provide an opinion, with respect to the criteria established, whether there is reasonable assurance that there are no significant deficiencies in the systems and practices examined. (S. 139 2 (a) of FAA).

Each special examination conducted by the OAG has the same audit objective, and each Crown Corporation undergoing a SE has the same management responsibilities as defined in the FAA Section 131 1 (b) and 2 (a) and (c).

Since it is set by the FAA, the audit objective is the same for every special examination and is as follows:

to determine whether the systems and practices we selected for examination at [Corporation name] were providing the corporation with reasonable assurance that its assets were safeguarded and controlled, its resources were managed economically and efficiently, and its operations were carried out effectively as required by section 138 of the Financial Administration Act.

Follow-up work and new audit work

Audit teams planning a report for which there are elements of follow-up can be guided by the objective of the original audit. Between the time of the original audit and the follow-up work, many things may change: the recommendations may become obsolete because government priorities and other contextual factors may have shifted. If this is the case and the issues are still of interest to Parliament and/or present a significant risk, they may be redefined and/or a new objective may be developed to properly assess them. The respective portions of the objective should clearly be identified as “follow-up” or “new audit work.” Teams should document the rationale for the selection of issues for follow-up work.

Next steps

Once the audit objective is developed, the criteria (OAG Audit 4043 Audit criteria) and scope and approach (OAG Audit 4042 Audit scope and approach) are defined.

Audit criteria and scope are included in the audit logic matrix (OAG Audit 4044 Developing the audit strategy: audit logic matrix), which also includes the lines of enquiry, audit questions, data sources, and other information. Once finalized and approved, the audit objective (along with the audit criteria, scope, and approach) is included in the audit plan summary or the special examination plan to be sent to the entity in order to communicate the terms of the audit (OAG Audit 4090 Audit plan summary for performance audits or OAG Audit 4100 Special examination plan).

Any subsequent changes to the objective (other than minor editorial changes) and their rationale must be approved by the engagement leader, discussed with the quality reviewer (if any), and communicated to the audited entity.

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