Government Audit - What, How, and Why?

What is the definition of Government Audit?

I could be sassy and begin the article by giving you a definition something like this:

Government auditing is the objective, systematic, professional and independent examination of financial, administrative and other operations of a public entity made subsequently to their execution for the purpose of evaluating and verifying them, presenting a report containing explanatory comments on audit findings together with conclusions and recommendations for future actions by the responsible officials and in the case of examination of financial statements, expressing the appropriate professional opinion regarding the fairness of the presentation.

But I'm not, and that's why I have broken this definition down to something that's not as boring and show you a clear picture of what the above definition really means:

In any audit, the primary objective is to form an opinion on the true and fairness of the financial statements of an entity. In addition to this, government audit a have public responsibility too. And such audit is performed by responsible officers appointed from the office of the Comptroller and Auditor General of India.

That's what a government audit is. But mind, Government Audit is still a very serious responsibility. It has to respond to the need of the administration. Therefore, it should be directed towards ensuring accountability of the executive in respect of public revenue and expenditure.

How does a government system work?

Here is how a government system works. Primarily, the Parliament and in case of States, the State legislatures control all government expenditure through insistence upon demand for grants.  The main idea underlying this control is that no expenditure can be incurred unless it has been voted upon by the Parliament or State Legislatures and funds for every such expenditure must be provided from out of the Consolidated Fund of India or of the State.

After the expenditure has been incurred and the accounts are closed, the Appropriation Accounts are prepared which are scrutinised by the Public Accounts Committee. Thus Parliamentary or Legislative control is exercised before spending and after the expenditure actually incurred.

The need and origin of audit for government

The change in the character of government and the complex nature of its activities, including regulatory functions in an international environment, called for a change in the nature and scope of audit. Audit has evolved from accountancy and regularity check to evaluation of the end results of the operations of government.

Let me tell you why.

With the Independence of India, there has been tremendous eruption in the activities of the government with the constant increase in expenditure, revenue and capital, and in receipts and borrowings to match this expenditure.

Government has entered the business field and government in business is not the same as government administering law and order and attending to regulatory functions. Independent India witnessed a steady growth of state commercial enterprise.

How audit developed?

When it started, the government auditing in India was mainly expenditure oriented. Then the government took up the audit of receipts tax and non-tax taken up. Then, with the rapid growth of the public sector enterprises, a new major area of specialization “Commercial Audit” came into existence.

Apart from that, there are also a large number of non-commercial autonomous bodies financed by government in diverse fields of development and of academic study and scientific or social research which are also required to be audited from the viewpoint of public accountability.

Government audit has not only adopted the basic essentials of auditing as known and practised in the profession to suit the requirements of governmental transactions but has also added new concepts, techniques and procedures to the audit profession.

Why Government audit?

Government audit serves as a mechanism or process for public accounting of government funds. It also provides public accounting of the operational, management, programme and policy aspects of public administration. Not only that, it also ensures accountability of the officials administering them.

The main objective of audit is a combination of ensuring accountability of administration to legislature and functioning as an aid to administration. However, criticism of administrative actions wherever warranted is inherent in auditorial function. This has to be understood and appreciated in a proper spirit, and that the criticism is made in a constructive spirit.

Who does Government Audit?

In India, the function of audit is discharged by the independent statutory authority of the Comptroller and Auditor General through the agency of the Indian Audit and Accounts Department. Audit is a necessary function to ensure accountability of the executive to Parliament, and within the executive of the spending agencies to the sanctioning or controlling authorities.

We shall talk discuss the Comptroller and Auditor General of India, in the next article.

So, that’s all on the evolution and the need for Government Auditing in India. If you have any queries, please feel free to raise a query.

Thank You!