Q.Explain Performance Audit. Discuss its objectives and state two limitations of this branch of auditing.

Performance Audit measures whether a programme genuinely achieved value for money through the 'three Es' — economy, efficiency, and effectiveness.

Definition. Performance Audit is an examination of whether an organisation's programmes, schemes, or activities have achieved their intended objectives economically, efficiently, and effectively (the 'three Es'). It is the branch of auditing most closely associated in India with the audit of government programmes and public-sector undertakings by the Comptroller and Auditor General of India (CAG), though the same idea applies equally to a large private organisation's own internal programmes.

Objectives:

1. Economy — to check whether the resources (money, manpower, materials) for the programme were acquired at a reasonable cost, without unnecessary extravagance.
2. Efficiency — to check whether the relationship between the inputs used and the outputs produced was optimal, or whether the same output could have been achieved with fewer resources.
3. Effectiveness — to check whether the programme actually achieved its intended real-world objectives and outcomes, not merely spent its allotted budget.
4. To identify specific areas of wastage, delay, or underperformance, and provide constructive recommendations for future planning.

Two limitations:

1. Effectiveness is often difficult to measure objectively — especially for social or developmental programmes with a long gestation period, where the real-world impact may not be visible for years. …