Propriety Audit

What is Propriety Audit?

The propriety audit is confined to examine the validity of appropriations or is concerned with verifying that there is no leakage of revenue and wastage of funds knowingly or unknowingly in disregard to any legal requirement or financial or economic consideration.

Under ‘propriety audit’, it is to be seen that the contracts entered into by the concern are in its best interest and there is a proper check to ensure that the properties are safe. Thus it is a form of super or higher audit. The propriety Audit is the inter-related aspect of ‘Management Audit’ also.

The management of an enterprise is expected to guarantee the propriety and validity of all the transactions and the propriety auditor has to certify them. Thus, the audit is meant to cover examination of propriety aspects of transactions as well as the review of operational aspect of a concern. In a way, it is over and above the regular audit conducted as per the requirement of the company legislation.

Propriety Audit: The term ‘propriety’ means ‘justness’ or ‘rightness’. When the term is applied in audit it signifies the audit of rightness of expenditure incurred or the rightness or optimum result or rightness of selecting alternative plan of action.


Definition of Propriety Audit

Propriety is that which meets the tests of public interest, commonly accepted customs and standards of conducts and particularly as applied to professional performance, a requirement of regulations and professional codesE.L. Kohler

It requires transactions (mainly expenditure) to confirm to certain general principles:

  • Expense is not prima facia more than the occasion demand and same degree of vigilance is exercised as should be exercised in respect of his own money.

  • Authority exercises its power of sanctioning expenses to pass an order which will not occur to its own advantage.

  • Funds not utilized for benefit of a particular person/group.

  • Apart from agreed remuneration, no other avenue is kept open to benefit management personnel, employees and others.
Propriety Audit is directed towards examining the propriety of executive action beyond the formality of expenditure to its wisdom, faithfulness, and economy. Under this type of audit we try to bring out cases of improper, avoidable, or infractuos expenditure even though the expenditure has been incurred in conformity with existing rules and regulations.CMA Ramesh Krishnan

Functions of Auditor Related to Propriety Audit

The functions of Auditor in the context of Propriety Audit may be specified as under :

  • To see that all expenditure incurred are properly planned.

  • To see that the size and channels of expenditure are rightful and expected to give maximum results.

  • To appraise (Audit) whether those expenditure are likely to give optimum result.

  • To see that any substitute plan of action can bring about an improvement on current operation and as well as return from capital expenditure.

  • To examine the actions and decisions of the management to see that they are conductive to public interests and that they meet the standards of conduct.

The auditor conducting such an audit is not merely confined to the evidence relating to the transactions audited but takes particular care to appraise each transaction carried out by the manager as a man of prudence in a manner which is not irregular.


Propriety Audit relates to Government Companies

The audit of Government Companies conducted by the Comptroller and Auditor General of India can be regarded as a Propriety Audit because the objective of such audit “is to bring to the notice of the administration, lacunae in the rules and regulations and to suggest wherever possible ways and means for the execution of plans and projects with greater expedition, efficiency and economy.”

Actually one of the specific objectives of Government audit is to ensure that “expenditure confirms to the following general principles which have, for long been recognised as standards of Financial Propriety, namely

  • That the expenditure is not prima facie more than the occasion demands, and that every Government servant exercises the same vigilance in respect of expenditure incurred from public money as a person of ordinary prudence would exercise in respect of expenditure of his own money;

  • That no authority exercises its powers of sanctioning expenditure to pass an order which will be directly or indirectly to the own advantages;

  • That public money are not utilised for the benefit of particular person or section of the community unless:
    • the amount of expenditure involved is significant, or

    • a claim for the amount could be enforced in a court or law, or

    • the expenditure is in pursuance of a recognised policy or custom, and iv. that the amount of allowances such as traveling allowances granted to meet expenditure of a particular type is so regulated that the allowances not on the whole sources of profit to the recepients”

Leave a Reply