In this tutorial, we will learn about propriety audit, which would mean whether the transactions are done in conformity with established rules, principles, and some established standards.
“Kohler,” has defined propriety as that which meets the test of public interest commonly accepted customs and standards of conduct and mainly as applied to the professional performance, requirements of government regulations and professional codes. The propriety audit means the verification of the following main aspects to find out:
- Proper reading has been done in an appropriate book of accounts.
- The points have not been misused and appropriately safeguarded.
- The concern is yielding the expected results.
- Financial records and reports are accurate and up to the mark.
- The assets of the company are protected and not misused.
- The propriety audit will check the utilization of funds.
- The results are budgeted and expected to meet.
The system of propriety audit is applied in respect of the government company’s government departments because public money and public interest are therein involved. It is an essential function of a check to bring to light not only the cases of apparent irregularity but also every matter which is just judgmental appears to involve improper expenditure or waste of public money and stores even though the accounts themselves may be insufficient to see that sundry rules or orders of competent authority observed.
It has been described as an audit of the actions and decisions of the executives. The focus of such a check is on the financial discipline, the authority structure, efficiency, rules and regulations, and the protection of public interest. A propriety audit would mean whether the transactions have done conform with established rules, principles, and some established standards. It is of equal importance to ensure that the broad principles of orthodox finance are borne in mind, not only officers but also by sanctioning authorities.
It may state that it is the responsibility of the executive departments to enforce the economy in public expenditure. The function of the audit is to bring to the notice of the proper authorities of wastefulness in public administration and cases of improper, avoidable, and infrastructure expenditure.
Problems in propriety audit, however, arise mainly because of its distinct nature. The expression “propriety” is a moral term and can be understood by reference to the concept of morality accepted by society at a given time. In any auditing, the essential test lies in the formulation of auditing propositions. In the audit of financial accounts by reference to financial and legal requirements, propositions are built up about happening of events, existence, accuracy, title, ownership, compliance with the law and internal regulations, etc., which are all verifiable. The propriety audit has an inherent element of subjectivity because it is very difficult to establish standards of public interest, commonly accepted customs, standards for conduct which are not a firm basis for audit evaluation. To take care of this situation, the C&AG has developed the norms of propriety for the expenditure of public funds in our country. By laying down the standards of propriety for Government expenditure the C&AG has tried to tackle practically the complex problem of subjectivity inherent in a situation calling for propriety consideration. Another dimension of the problem noticed in the application of propriety norms in the Government sector needs also to be taken into account. The norms are applied often too mechanically and create problems for expeditious and efficient working. In the private sector, this attitude may prove counter-productive. Propriety as a moral element should be a matter of evaluation based on objectives and prevailing circumstances. The element of subjectivity has caused the proper discharge of duty very delicate and demands discretion, but the wisdom of taking commercial decisions under a dynamic environment (the economic, social, and political) must be evaluated concerning the circumstances in which these were taken and therefore, the auditor in his field must reconstruct such circumstances. The judgment of the auditor must be objective as otherwise, it would dampen the initiative of management and others in taking commercial decisions, and propriety audit would prove itself to be counterproductive.
Generally, in companies and other prominent organizations, ownership and management are separate. It means the real owners of the business have to rely on executives to make the correct decisions and take the due course of action as per the law. It is where the concept of propriety audit is born. It has been described as an audit of the steps and decisions of the executives.