UNIT14 PROJECT AUDIT AND CLOSURE Project Audit and

Closure

Objectives

After studying this unit, you will be able to:

• Describe what the terms "project closure," "auditing," and "auditing"

mean.
• Examine the characteristics and complexities of the audit, the audit
report, and project closure.
• Name the different kinds of audits, project closures, performance
evaluations, and
• To understand concepts like regular project closure, premature project
closure, perpetual projects, unsuccessful projects, and
• Recognize that there are different words and instructions at the national
and global levels.

Structure

14.1 Introduction
14.2 What is a Project Audit?
14.3 When to Audit?
14.4 How to Audit
14.5 Who should Audit?
14.6 Audit Report
14.7 Project Closure
14.8 Types of Project Closure
14.9 Project Closure Process
14.10 Performance Evaluation
14.11 Let Us Sum Up
14.12 Self-Assessment Exercises
14.13 Further Readings

14.1 INTRODUCTION
In this unit, the foundations of auditing, auditing, and project conclusion will
be covered. Here, we will discuss the characteristics, categories, definitions,
and meanings of audit, auditing, and project completion. You will also learn
the goals, procedures, and steps of auditing and how to close a project.

This unit will explain what audit, auditing, and project closure mean from
different points of view. As a result, you can apply your experiences to the
relevant audit, auditing, and project closing. In addition, distinctions have
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Project Closure been made between successful and unsuccessful initiatives and between
normal and premature project conclusions. The overall objective of this unit
is to offer several conceptual inputs, both western and Indian, to make project
audit and closure appropriate to the context of developing countries. Also,
words like audit, auditing, and projects are tried to be explained. Describe the
process of performance evaluation, team evaluation, and project conclusion
using examples from India.

14.2 WHAT IS A PROJECT AUDIT?

A formal project management audit aims to assess a project considering
predetermined standards. Project performance, quality, and conformity to the
statement of work are a few examples.

Audits differ from conventional project reviews in that they are undertaken
by a party external to the project team and command structure. A designated
audit department, steering committee, or external auditor typically performs
the project audit.

The Chartered Institute of Internal Auditors defines auditing as "an

independent, impartial assurance and consulting activity meant to provide
value and improve an organization’s operations." It assists an organization in
achieving its goals by bringing a systematic, disciplined approach to
evaluating and improving the efficacy of risk management, control, and
governance systems. In any audit, the auditor(s) see and understand the
claims that need to be looked at, collect evidence, evaluate it, and use this
information to form an opinion about how well the controls work in the
activity being audited.

In this unit, we use the word "project" to mean "a unique, temporary effort
undertaken to achieve planned goals", according to the Association for
Project Management(APM) Body of Knowledge, 6th edition. Different
techniques will be needed to audit programmes and portfolios. The auditing
of a project should be seen in the context of how the APM Body of
Knowledge defines the project, program, and portfolio (P3) assurance. P3
Assurance is the process of giving stakeholders Assurance that projects,
programmes, and portfolios will meet their scope, time, cost, and quality
objectives and realize their benefits.

14.3 WHEN TO AUDIT?

A process or quality system is audited to ensure that it complies with
requirements through on-site verification activities like inspection or
examination. A function, process, or step in the production process may be
the focus of an audit, which may also apply to the entire organization. Some
audits have specific administrative objectives, such as document, risk, or
performance audits, or they may follow up on corrective actions that have
been taken and are complete.
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ISO 19011:2018 defines an audit as a "systematic, independent and Project Audit and
Closure
documented process for obtaining audit evidence and evaluating it
objectively to determine the extent to which the audit criteria are fulfilled."
There are three main types of audits:

• Process Audit: The purpose of this kind of audit is to confirm that

processes are operating within predetermined parameters. In order to
assess compliance with these standards and the efficiency of the
instructions, it compares an operation or method to predetermined
guidelines or requirements.

• Product Audit: In this kind of audit, a specific good or service, such as

hardware, processed goods, or software, is examined to determine
whether it complies with the standards.

• System audit: A management system audit that is performed. It can be

characterized as a documented activity carried out to confirm, through
the examination and assessment of objective evidence, that pertinent
system elements are appropriate and effective and have been developed,
documented, and put into place in accordance and in conjunction with
specified requirements.

Project Audit Components: Review of the selection criteria for the project.
The project's place in the organization's priorities is being reevaluated by
Checking the organizational culture to see if it supports the kind of project
being carried out, a review of the project team's performance and the number
of staff members needed to meet its needs. A review of outside factors that
might alter the project's direction or level of importance. A review of all
elements important to the project and project management in the future.

Types of Project Audits:

• In-Process Project Audits: Allow for corrective changes if conditions

have changed and for concentration on project progress and
performance.

• Post-Project Audits: Take a broader and longer-term view of the

project’s role inthe organization and emphasize improving the
management of future projects.

14.4 HOW TO AUDIT?

Although there are many different kinds of audits, when discussing them in
the context of corporate finance, we typically refer to those that are carried
out on public or private corporations. Governmental institutions like the
Securities and Exchange Commission (SEC) Securities and Exchange
Commission (SEC). Implementing federal securities laws and putting forth
proposed securities regulations fall under the purview of the US Securities
and Exchange Commission, or SEC, an independent agency of the US federal
government. In order to maintain the stock and options markets and the 223
Project Closure securities industry, it mandates that publicly traded companies carry out an
independent audit to confirm their yearly financial reporting.

Although audits are not legally necessary for privately held businesses, they
are still carried out to give banks, investors, and other stakeholders
assurances about the company's financial standing. Various financial
statements are examined during an audit, including the income statement and
the cash flow statement. Statement of Cash Flows. A company's balance
sheet and cash flow statement both include data on how much cash was
generated and used during a specific period.

Information about how money is earned and spent during the course of the
fiscal year is provided to stakeholders and regulatory organizations by the
audit. An audit may take anywhere from a few months to a year, depending
on the size of the business. At the conclusion of the engagement, the auditor
offers a qualified opinion regarding the accuracy of the financial reporting
completed.

Stages of an Audit

• Depending on the complexity of the case and the size of the corporation,
different auditing procedures may be used. An audit typically has four
main stages, though:

• The first stage is the planning stage. This engagement stage, in which a
corporation works with an auditing firm to establish details such as the
level of engagement, procedures, and objectives.

• The second stage is the internal controls stage. Auditors gather financial
records and any other information required to conduct audits at this
stage. To assess whether the financial statements are accurate,
information is required.

• Testing is done in the third stage. Using a variety of tests, auditors

evaluate the accuracy of the financial statements at this stage. It could
entail examining records of transactions, monitoring processes, or
making inquiries for more data.

• The fourth stage is the reporting stage. The auditors prepare a report that
expresses an opinion on the accuracy of the financial statements after
finishing all the tests.

14.5 WHO SHOULD AUDIT?

The Project Management Office, an authorized management committee, a
specially designated audit department, or an external auditor typically
conduct audits. The person in charge of the designated authority and the
person conducting the audit must make recommendations in relation to that
authority.

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The objective of a project management audit is to establish the actual status Project Audit and
Closure
of work accomplished on a project and its conformity with the project's
statement of work, including time and cost limits. It is a methodical, unbiased
evaluation of the condition of affairs undertaken by a qualified examiner
(Ruskin & Estes, 1984).

The allocated team should have a diverse set of abilities, including audit,
project management, and controls, as well as industry and subject area
experience. Audits cannot be completed by a single person since they require
assessment and permission. Even if that manager or supervisor is far away,
the oversight must be done. A good audit team will make a report with useful
suggestions while causing the project and business as little trouble as
possible.

To ensure that all departments are using a documented system of recording

transactions, an audit is an examination or inspection of numerous books of
accounts by an auditor, followed by a physical check of inventory. It is
carried out in order to validate the veracity of the organization's financial
statements. An audit may be conducted both internally by staff members or
the department head in question and externally by a third party or
independent auditor. The goal is to have an independent authority review and
validate the accounts to make sure that all books of accounts are completed
fairly, and that no misrepresentation or fraud is taking place.

The auditor's sole responsibility is to assist a company in compiling its

financial data into readable financial statements in a notice to readers’
engagement. No additional investigations are conducted, and no viewpoints
are offered regarding the reliability of the financial reporting. Small
businesses without any responsibilities to external stakeholders are the only
ones that typically use notice-to-reader engagements.

14.6 AUDIT REPORT

An impartial external auditor typically performs the auditing of a company's
financial statements. A letter from a company's auditor that summarizes the
findings of the audit process is known as an audit report. It expresses the
auditor's judgement regarding whether the company's financial statements,
including the balance sheet, are in accordance with generally accepted
accounting principles (GAAP) and whether they are free from material
misstatement.

In most cases, the audit report is accompanied by the annual report of the
company. Banks, financial institutions, investors, creditors, and regulators all
require an audit report. If the auditor issues a clean report, it means that the
financial statements of the company have been determined to be completely
compliant with accounting standards.

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Project Closure Types of Audit Reports

An auditor publishes an audit report in which they express their assessment

of the company's financial statements. There are four typical formats for
auditor reports:

i) Clean or Unqualified Report: The best report an auditor can give a

company is this one. A clean report certifies that there are no material
omissions and that the company's financial statements fully conform to
GAAP. It shows that the company's financial reporting meets the
auditors' standards and that they adhere to all applicable laws and
governing principles. A clean audit report or one without significant
findings is the norm.
ii) Qualified Opinion: There are two circumstances in which the auditor
would issue a qualified report. If the financial statements contain
materially false information, but they are not widely apparent, if there is
insufficient evidence to base the audit opinion on, but the potential
consequences of any material misstatements are not widespread, the
audit opinion should be rejected.
iii) Adverse Opinion: An adverse opinion on an audit report is the worst
possible report. When the financial statements contain material and
pervasive errors, the opinion is negative. Unless the problems are fixed, a
negative opinion can harm a company's reputation and even have legal
repercussions.
iv) Disclaimer of Opinion: If an auditor: Could not obtain sufficient audit
evidence upon which to base an opinion; Did not receive satisfactory
responses to their inquiries;Undiscovered inaccuracies might have
significant and widespread effects.This may occur if the auditor was
prohibited from accessing specific financial data or if the auditor is
unable to act impartially. When an opinion is disclaimed, it means that
the company's financial situation could not be determined.

Table 14.1 Format or Content of an Audit Report

Section/Heading Description
Title Report of the Independent Auditor. Simple and the word
"independent" should appear in the audit report's title.
This suggests that an impartial, impartial, and external
third party conducted the audit.
Addressee The report will state clearly to whom it is addressed.
Example: To the Company Name's Shareholders or
Directors
Introduction This would be a declaration that lists the name of the
organization undergoing the audit as well as the dates of
the financial period—typically the fiscal year—that the
audit will cover.

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 Project Audit and
Responsibilities Both the auditor and the board of directors of the Closure
of directors and company being audited have their responsibilities stated
auditors in this section. It states that the company's management
and directors have agreed to fulfil their obligation to give
the auditor all necessary financial records for the audit.
To the best of the director's knowledge, it also affirms
that the supporting documentation is true and accurate.
According to the statement, the auditor's duty is to
examine the company's financial statements.
Additionally, it states that the auditor's judgement must
be based on the data presented.
Opinion This section clearly states the auditor’s opinion.
Basis of opinion The audit was carried out in accordance with the
standards, and the section outlines the resources and audit
process. This section might be a little longer than the
others.
Other reporting If there are any additional reporting obligations, such as
responsibility statutory or regulatory requirements, they are listed here.
Signature of the Signed by the auditor
auditor
Date and place The date and city where the report was signed by the
auditor.

Check Your Progress 1

What are the Guidelines for Effective Auditing?

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14.7 PROJECT CLOSURE

The final stage of the project management lifecycle is project closing. At the
end of a project, the team looks over the deliverables and compares and tests
their quality against what the project was supposed to accomplish. Then, the
deliverables are shared with the project's client.

What will happen if a project is not closed properly? When a project is not
properly closed, the opportunity to learn from its process and outcomes is
lost. The likelihood of encountering the same challenges and maybe less
motivated teams increases the next time we begin a project.When we fail to
properly end a project, no lessons are learnt, and team efforts are not
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Project Closure recognized and honoured. Whether the project is intended for an internal
audience or an external organization, it is likely that our customers may be
less pleased with the results. This is true regardless of how well it meets
project criteria or how quickly our client receives our deliverables.

14.8 TYPES OF PROJECT CLOSURE

A project manager will close a project for many reasons. Those include
completing a project on time and finishing it early. Projects can also get
cancelled, continue perpetually, or fail completely. There are four types of
project closures.

i) Normal Closure:When a project is completed according to plan, that is

the usual condition of project closure. At this point, the client accepts the
project, the project's goals are met, and the regular process of project
closure starts.

ii) Premature Closure:Numerous projects either aren't given a chance or

don't manage to complete all of their deliverables. Instead, by removing
project components that were initially identified in the project scope,
they are closed before they are finished. This may be due to expenses,
such as when the client allocates less money to the project or when the
budget has already been used up. Premature closure can also happen
when a project is crucial from a strategic standpoint and needs to be
completed sooner than anticipated, like a new product launch. The client
may miss an opportunity if the product is delayed past the initial
completion date.

iii) Perpetual Projects:Others, on the other hand, seem to go on forever.

These are initiatives that have experienced numerous snags, hiccups, and
issues. Infinite scope creep, add-ons, and changes plague perpetual
projects as well. Due to constant changes and scope screeching, these
projects have the problem of never accomplishing their goals or
objectives. The project manager and the team find this to be extremely
frustrating. The client will also find it extremely frustrating because they
do not see the project's goals being met despite repeated requests for
changes. The project manager needs to fix the scope at some point and
create a plan for completion.

iv) Failed Projects:Far too often, projects fail. Project failure can have
many different reasons. The project may be permanently killed if the
client runs out of money, which happens frequently.

14.9 PROJECT CLOSURE PROCESS

The project closing process consists of technical, learning, and human
components. During the technical phase, tie up any loose ends. Assess what
worked and what didn't, as well as how to improve, for the learning phase.
228 During the people phase, express gratitude to the team. Follow these
procedures when a project nears completion. To ensure a stronger future, one Project Audit and
Closure
must do the steps outlined below.

i) Technical Phase: While the technical phase is rather bureaucratic, it

produces a genuine sense of completion (and achievement) among the
team and the company.

ii) Learning Phase: The project closing learning phase is time allocated to
team reflection on what you've done, how you've done it, and what
you've learned now that the project is finished. There are several
approaches to project closing that emphasize learning and growth for
both the company as a whole and individual team members.

iii) People Phase: The people phase makes you feel things. The project
deliverables were made possible by the team. Recognizing their work
and the need for emotional closure will make everyone feel good and
ready for whatever comes next.

Each project closing step contributes to the development of an appreciation,

gratitude, and accomplishment-centred workplace culture. If you take the
time to accomplish this correctly, according to your unique set of
circumstances, you'll have created the conditions for not only moving on but
also moving forward.

Check Your Progress 2

List a few best practices involved in Project closure.

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14.10 PERFORMANCE EVALUATION

Performance reviews are done regularly to see how well employees are doing
their jobs for the company. In addition to a full performance review once a
year, managers usually check in with employees on a regular basis
throughout the year. Performance reviews help employers set clear
expectations and measure how well employees and the organization are
doing. The information gathered during a performance review can affect both
the strategic decisions an organization makes about growth, retrenchment,
and downsizing, as well as the decisions each employee makes about pay
raises, promotions, and layoffs.

Performance reviews often include both the employee's own assessment of

their own success and the manager's assessment of the performance of the
organization, the team, and the employee. Performance reviews need to be
measured against clear goals and clear metrics.
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Project Closure Check Your Progress 3

Define the term Performance Appraisal. List the objectives of the

Performance Appraisal.
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14.11 LET US SUM UP

An audit includes a review of a company's income statement, cash flow
statement, and balance sheet. Regulators and investors can be certain that a
company is accurately presenting its financial status thanks to audits. A team
member's performance and the corporate culture are both improved by
various goals served by individual team member assessment. Following
completion, the auditor will express an opinion on whether the financial
statements fairly depict the corporation's financial situation.

14.12 SELF-ASSESSMENT EXERCISES

1) What is a project audit? Why do organization go for it?
2) What are the essential factors to be considered while auditing?
3) Who Should Audit? What are the guidelines for effective auditing?
4) What is a Project Closure? Discuss the importance of project closure.
5) Describe various types of Project Closure with suitable examples.
6) What do you mean by Performance Evaluation?

14.13 FURTHER READING

1. R.B. Khanna, Project Management, 2011, PHI Learning.
2. Rajeev M. Gupta, Project Management, 2014, PHI Learning.
3. SitangshuKhatua, Project Management and Appraisal, 2012, Oxford
University Press.
4. Jack Gido, James P. Clements. Project Management, 2011, Cengage
Learning India Private Limited.
5. Chandra, Prasanna, PROJECTS – Planning, Analysis, Selection,
Financing, Implementation, and Review, Tata McGraw – Hill 7th Edition.
6. A Guide to Project Auditing by Association for Project Management
2018
7. Ruskin, A. M., & Estes, W. E. (1984). The project management audit: Its
role and conduct. Engineering Management International, 2(4), 279–286.
https://doi.org/10.1016/0167-5419(84)90049-8
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