Question Tag: Economy

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  • 4 Marks

AA – May 2016 – L2 – Q5a – Audit and Assurance Evidence

This question explains the purpose and objectives of a value for money (VFM) audit.

(a) Explain the purpose of value for money audit. (4 marks)

The purpose of a value for money (VFM) audit is to assess whether an entity is obtaining the best possible combination of services for the lowest level of resources used. VFM audits focus on the 3 Es:

  1. Economy:
    • Ensuring that resources (such as labor, materials, and equipment) are acquired at the lowest possible cost without compromising quality.
  2. Efficiency:
    • Evaluating the relationship between the resources used (inputs) and the outputs achieved. An efficient operation is one that maximizes outputs while minimizing the resources used.
  3. Effectiveness:
    • Determining whether the intended goals and objectives of the entity are being achieved. This involves assessing whether the activities of the entity are producing the desired outcomes.

In summary, a VFM audit aims to ensure that an organization is managing its resources in a way that delivers the highest value for money, balancing cost, productivity, and outcomes.

  • 5 Marks

PT – July 2023 – L2 – Q1a – Overview of the Ghanaian Tax System and Fiscal Policy

Explanation of how the characteristics of a good tax system can improve Ghana’s tax system.

Adam Smith, reputed as the father of economics, postulated the characteristics of a good tax system as: “equity”, “certainty”, “convenience”, and “economy”. These postulates are still as relevant today as they were in Adam Smith’s days.

Required:
Explain how these characteristics of a good tax system can be employed by the Finance Minister of Ghana to improve the tax system of Ghana. (5 marks)

The characteristics of a good tax system, as postulated by Adam Smith, include:

  1. Equity:
    • Ensures fairness by making taxpayers with the same circumstances pay the same amount of tax (horizontal equity) and making wealthier taxpayers pay more (vertical equity).
    • The Finance Minister can implement equitable taxation by ensuring progressive tax rates that reflect taxpayers’ ability to pay.
  2. Certainty:
    • Taxpayers should be able to determine their tax liabilities in advance, and the government should know the expected revenue.
    • The Finance Minister can ensure clear, transparent tax rules to foster compliance and effective tax planning.
  3. Convenience:
    • The tax system should be designed so that taxes are collected at convenient times and methods for the taxpayer.
    • The Minister can simplify payment methods and align tax payments with income flows, such as through payroll deductions.
  4. Economy:
    • The cost of collecting taxes should be less than the amount collected.
    • The Minister can improve tax collection efficiency by reducing administrative costs and enhancing compliance mechanisms.
  • 10 Marks

AAA – May 2021 – L3 – Q4b – Public sector audit | Assurance services

Discuss the principles of performance audit and describe the documentary evidence useful during the planning stage of a performance audit.

Performance audit is an independent assessment of an entity’s operations, typically associated with government agencies. The goal is to evaluate the performance of a stated program to determine its effectiveness and to make changes if needed. Performance audits often include an analysis of the conditions necessary to ensure that the principles of economy, efficiency, and effectiveness are upheld. It is necessary in a performance audit to document the audit plan in an audit engagement.

Required:

i) Discuss the principles of performance audit. (6 marks)

ii) Describe FOUR (4) documentary evidence useful at the planning stage during an audit exercise. (4 marks)

i) Principles of Performance Audit:

  1. Economy:
    • Economy refers to minimizing the cost of resources used for an activity while maintaining an appropriate level of quality. It is concerned with the availability of resources in due time, in the appropriate quantity and quality, and at the best price. The principle of economy ensures that resources are acquired at the lowest possible cost without compromising on quality.
  2. Efficiency:
    • Efficiency is about getting the most from the available resources. It assesses whether resources have been put to optimal use or whether similar results could be achieved with fewer resources. Efficiency focuses on the relationship between resources employed, conditions given, and results achieved, including the quality, quantity, and timing of outputs and outcomes.
  3. Effectiveness:
    • Effectiveness is concerned with meeting the objectives set and achieving the intended results. It is a goal attainment concept that examines whether the outcomes observed are the result of the program or other circumstances. Effectiveness assesses whether the desired impact has been achieved and whether the program’s goals have been met.

(3 principles @ 2 marks each = 6 marks)

ii) Documentary Evidence Useful at the Planning Stage:

  1. Background Information:
    • Collect and document background knowledge and information about the entity, such as its name, address, organizational structure, history, objectives, strategies, and the qualifications of senior management personnel. This information helps the auditor understand the nature of the entity’s operations and facilitates the audit process.
  2. Audit Objectives and Sub-Audit Objectives:
    • Clearly define the audit objectives and sub-audit objectives. Documenting these objectives outlines what the auditor aims to achieve and the level of achievement expected, providing a framework for the audit process.
  3. Audit Scope:
    • Determine and document the scope of the audit, including the areas to be audited and the likely timeframe for coverage. This ensures that the audit is focused on relevant areas and that sufficient time is allocated to achieve the audit objectives.
  4. Audit Criteria:
    • Establish and document the audit criteria, which define the standards against which the audit evidence will be evaluated. Audit criteria provide the basis for assessing whether the entity’s operations are in line with the principles of economy, efficiency, and effectiveness.
  5. Audit methodology; the approach to be used for the audit.
  6. The estimated cost of the audit

(4 points @ 1 mark each = 4 marks)

  • 10 Marks

AAA – May 2020 – L3 – Q4b -Government external audit and public accountability, Public sector audit

Discuss the role of performance audit and the Auditor-General’s concerns in auditing the construction of the Greater Accra Regional Hospital.

The Auditor-General has a responsibility to ensure that government business is being performed in a manner which will bring development and benefits to the citizens. Various aspects of the conduct of government business will engage the attention of the Auditor-General, for example execution of contracts for the construction of a regional hospital.

Required: i) Briefly discuss what performance audit entails? (2 marks)

ii) In carrying out the performance audit, evaluate the THREE (3) main factors that the Auditor-General will be concerned with in relation to the construction of the Greater Accra Regional Hospital. (8 marks)

(Total: 10 marks)

 

i) Performance audit involves systematic review of part or all of an organization’s activities in relation to the efficient and effective use of resources. The purpose of performance audit is to assess performance, identify areas for improvement, and develop recommendations.

(2 marks)

ii) In this respect the three factors that the Auditor General will be concerned with in carrying out performance audit on the construction of the regional hospital will be:

  1. Economy: The audit will be designed to check whether the resources used in the construction were obtained at the least cost for best quality or the quantity of items used was least expected under the circumstances.
  2. Efficiency: The measure of the relationship between input and output. Where output is greater than the value of the input, efficiency is achieved. However, defining output for social and other services is a very difficult task.
  3. Effectiveness: This deals with the ability to achieve the set targets. In the case of the Regional hospital, measuring effectiveness will involve whether the intended capacity and facilities have been attained as well as the completion and commissioning of the hospital for public use within the set time frame.
  4. Check whether the contract for the construction was awarded in line with the Public Procurement Act.

(4 points well explained @ 2 marks each = 8 marks)

(Total: 10 marks)

  • 8 Marks

PSAF – May 2018 – L2 – Q5d – Financial Statements Discussion and Analysis

Discuss the basis for measuring public sector performance and justify why governments can be assessed at the end of their tenure.

One of the key performance indicators (KPI) in the private sector is to determine the profitability of a business. This is because businesses exist to make a profit. However, in the Public Sector, the objective of governments is to provide public goods and as such, satisfy the needs of the citizens. Citizens are invariably dissatisfied with government performance at the end of its term of office. This is because most of the objectives of government are social in nature and as such, it becomes very difficult to match government revenues and expenditure to determine profit or loss as a basis of measuring its performance.

Required:
Discuss the basis for measuring Public Sector performance and justify why governments can be assessed at the end of their tenure of office.

The basis for measuring public sector performance is centered on the concept of value for money, which includes the following four key elements:

  1. Economy:
    Economy measures the cost of inputs used in achieving policy outcomes of the government. It focuses on minimizing the cost of public service delivery. The goal is to control costs while achieving the intended objectives. A key tool for measuring economy is the government budget.
  2. Efficiency:
    Efficiency measures the process of converting inputs into outputs. It is concerned with how well resources are used to achieve desired outcomes. Efficiency aims to optimize the use of resources, reducing waste, and improving the conversion process. In the public sector, efficiency is about delivering services in a cost-effective manner.
  3. Effectiveness:
    Effectiveness measures the extent to which the intended outcomes are achieved. It looks at whether the government’s policies and programs are achieving their objectives. Effectiveness can be measured both quantitatively (e.g., the number of people served) and qualitatively (e.g., the quality of services provided).
  4. Equity:
    Equity considers the fairness and justice of resource distribution, ensuring that the needs of both current and future generations are met. It focuses on social justice, sustainability, and the fair treatment of all citizens. Equity ensures that public services are accessible to all, especially vulnerable and marginalized groups.

Why Governments Can Be Assessed at the End of Their Tenure:

  1. Accountability to the People:
    Governments are accountable to their citizens and must demonstrate how they have used public resources to achieve policy outcomes. This accountability is a fundamental aspect of democratic governance.
  2. Plans and Budgets:
    Governments present their plans and budgets to the public at the beginning of each fiscal year. These plans provide a basis for assessing the government’s performance at the end of its tenure, as citizens can compare the planned outcomes with the actual results.
  3. Reporting of Actual Outcomes:
    Governments report actual outcomes through financial statements and performance reports. These reports allow citizens to assess whether the government has delivered value for money and achieved its objectives. This transparency enables citizens to hold the government accountable.

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