Essay Sample on the Difference of Auditing in Public and Commercial Sectors

Introduction

Auditing in public service has a positive effect on the usage of public service. Again, auditing in public sectors is distinct from commercial auditing in many ways. A common perspective, Value for money is a significant principle when it refers to the practice of auditing in public sectors. With the concept of value for money, the VFM auditing occurs. Therefore, we will start discussing the auditing difference resulted from the value of money between public and commercial areas. Then, like Guthrie, Parker, and Shand (1999) states that efficiency auditing can be proposed as a section of an ambitious set of changes which might be useful to raise the accountability and responsiveness of agencies to their clients in public sectors. Hence, the essay will continue to explore the key factors which can decide the different performance of effective auditing in public and business respectively and further state different performance measurement imposed on separate subjects to guarantee the effective auditing. In the following, we will go on look at the auditing society, analyzing the difference between micro and macro respectively.

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Background

As people pay more attention to the demand for public services the government has been working hard to improve the public service system from all aspects and strive for the public to truly benefit from it. Therefore, the application of auditing in public facilities is constantly developing. Audits in social public services are based on traditional auditing but in the practical application of public services, the functions and nature of public audits change accordingly in order to better apply to the needs of public services. So how do the differences in auditing be expressed in the public and commercial sectors? In a business audit, the audit is a review of the financial situation that has occurred, but for public audits, the audit assesses the future development of public services and analyzes the best feasibility. As Power (2018) states, the role of auditing in public is mainly meant to logic at work in regulatory and managerial processes and to tendencies which are to assess the public service auditing systematically. In this essay, this will cover three aspectsvalue for money auditing, effective auditing, and auditing society and focus on the differences in auditing from these three aspects.

The value for money is closely related part in auditing of public sectorswhich distinguish the auditing process in public sectors from the one in commercial sectors. With increasing common of the public, serviceit should be mentioned that the social expenditure that afforded by the government is rising day by day. Therefore, how to keep the social expenditure within a reasonable range is what the government should consider in auditing. It can be said that the government auditing is concerned with: making the social expenditure at the effective amount and reasonably using the expenditure to maximize the benefits of public service. Under this situation, the phrase "Value for money" is confronted with public sector management and audits issues (Bates, 1993). In brief, as Bates points (1993), value for money is meant to the well -done job in the public bodies: performing duties to reach high standards at low cost. The purpose of Value for money is usually to assess the performance from economy, efficiency, and effectiveness.

As Guthrie, Guthrie, Parker, and Shand (1999) further state, VFM is results-oriented since one attempt is made to emphasize the evaluation of output to determine whether the economy, efficiency, and effectiveness exist. These three key elements can component VFM auditing basis: the economy is related to minimize the input (cost); efficiency is concerned with improving productivity; effectiveness is about the extent of output achieved. Hence, the concept and application of VMF decide that audit process in a non-profit organization is different from in the commercial sector. In the audit process of commercial sectors, the auditing aspects are different and the aim is to examine the financial report of a company prepared by management to form an opinion whether they are true and fair through independent, objective and honest. This process prefers to check fraud, mistakes and false in financial situation. By contrast, the VFM auditing related to 3 "e" is to examine whether the public resource is managed and used at the optimum utility.

Although VFM brings a different mechanism than traditional auditing VFM auditing, to some degree, is still based on conventional auditing. As Glynn (1993) stated VFM auditing is a mix of commercial auditing and management consulting. For VFM auditing, the auditing procedures also need professional, independent from conventional auditing to be supported; however, the final report is aimed to provide feasibility analysis to management in public service so that the best operating strategy can be proposed and implemented in practice. In a contrast, for commercial auditing, the auditing report is prepared by the managing directors and check by the third independent party. It is eventually available to the company's shareholder in a public listed company. As a corresponding consequent, the corporate financial affair can be reflected.

The further difference will involve the scope of auditing. In contrast to VFM auditing, seeking any areas to effective-cost is not belong to the part of commercial auditing. For the regulatory auditing, auditors should guarantee that funds have been expended in accordance with the items that money is recording accurately and accounts have been prepared properly (Glynn, 1993). From the perspective of VFM Auditing, there is a further expansion which could beyond the initial scope of traditional auditing. The scope VFM auditing is expended to the degree that the operation could be economy, efficiency, and effectiveness. To some degree, the VFM auditing scope is broader than regulatory auditing and therefore, the public areas that should be audited are more complicated and diverse. As Jones (1990) puts forward, it is necessary for the public sectors to need more than the relatively informal approach to value-for-money issues when it comes to the practice of VFM auditing. For auditors, the good value for money work can be implemented through by-product VFM work, an arrangement review, performance review, and follow-up review. The VFM auditing approach should be correspondingly more diversity rather than depend on standard auditing methods. In the process of VFM auditing, the procedures might depend on by-product VFM work to realize any saving to management through minor changes in working practices and eventually, achieve the substantial cost benefit (Jones, 1990). Through the review system, it could be used to identify poor value for money.

When auditing areas between public and commercial sectors are different, obviously, the application of effective auditing correspondingly develops in different directions. Firstly, as premise of guarantee effective auditing, both public and commercial areas auditing have the same demand for organization independence, a formal mandate and unrestricted access to information; however, the aspects that assessing the extent of auditing performance are different. For the regulatory auditing, the process needs materiality as the significant standards to assess whether the auditing is effective. This assessment is aimed to further judge whether the company financial affair could be reflected on the auditing report truly and fairly. Unlike the content of commercial effective auditing, effective auditing in public needs more measurement criteria to its performance and assesses whether it is providing an efficient, effective and economy service (Buttery, Hurford and Simpson, 1993). As a consequence, performance indicators and output indicators are introduced as the measurement standard: the performance indicators are used as key factors which are applied to decide the extent of success of auditing. This factor is about whether the high performance is achieved. Another factor is related to the output measurement and it can assess the gap between input and output to further evaluate the extent of auditing output. This factor is used to measure the degree of cost-effective. The effective auditing in public service aims to strengthen governance by raising the public' ability to obtain their public-sector entity accountable (Jones, 1990).

Secondly, in the aspect of ensuring auditing effective, the auditing practice in public areas seems to be more flexible than in traditional areas. Specifically, in the direction of contributing to higher effective auditing, besides more performance measurement factors, the targeted methodologies are also needed. As John (2017) points out, the best fit can be achieved through the specific method imposed on diversity situation in auditing between the methodological approach and the subject of evaluation. Hence, when it comes to the practice of effective auditing, for separate subjects, what the auditors in public should do are classified as four aspects. According to different subjects, the first aspect is the experimentalist approach which needs to establish the connection between cause and effect when another respect, the eclectic approach, need evaluate through argument causal link analysis. For the third one, it is "Describers" which could contribute to human behavioral and motivational aspects. Then, the fourth approach is about the cost-benefit analysis which is based on the principle "Value for money" to go after the cost-benefit and cost-effectiveness.

Auditing society can be referred to an existence that is original from public sectors auditing and reflect unique function and performance of auditing in public service as well as be separate from traditional commercial auditing. Usually, to satisfy the increasing demand for public service in a contemporary welfare society, the government should maximize the benefits of public service and ensure every item related expenditure could be effective in practice. Hence, inevitably, the application of auditing in business areas transfer to the areas of public sectors. In two areas of public and commercial, due to different expectation for audition performance, backgrounds, and other different factors, the changes related to the function and nature of traditional audition is unavoidable during the process of transferring. Firstly, Power (2018) states that audit society could make an assessment about an organizing for criticisms of the public service reforms. it meant that, in the areas of education, NHS and public transport, high school want to improve the hardware and software facilities separatelyNHS system should promote effective medical services for the general public and so on. Therefore, "auditing society" could make a comprehensive assessment, further analyzing advantages and aspects that need further improvement. This related assessment is always committed to making the relative effective public service available to the public.

Distinct from commercial auditing, the concept of auditing society concentrated on the judgment and Feasibility Analysis further improve the public service system framework of modern society. In terms of commercial auditing, auditors should make an auditing report available to analysis the corporate operation status and judge whether the organization can go concern. The commercial auditing is to guarantee the Shareholder legal interest. Secondly, the rise of auditing society indicates that the application of auditing is more extensive than that of a single commercial a...