Governance is defined in the following words

Governance is defined in the following words:” It is the combination of processes and structures implemented by the board or Government to inform, direct, manage and monitor the organization’s activities toward the achievement of its objectives”. It is also consists of activities that ensure a public sector entity’s creditability, establish equitable provision of services, and appropriate behavior of government officials and also reducing the risk of public corruption.
The public sector auditors play an important role in effective public sector governance. The term governance refers to how an organization makes and implements decision. It is the processed by which organization make and implements decision. Good Governance establishes policies and procedures to guide an organization’s action. In the Local Government policy may be directed though broad national goals, legislative guidance. The policies should be made. Priorities should also be set to achieve the strategic and operational goals. For achieving the Good governance to ensure that policy is implemented as intended, strategies are met, and the overall performance of the Local Government meets expectations while conforming with policies, law and regulations.

Public auditing that holds for a transparency, accountability, efficiency, effectiveness, openness, preventing of corruption and excess expenditure, can promise good governance (Shimomura 2003: 167). This is also supported by Curtin and Dekker (2005: 36-37) who emphasised the principles of accountability, transparency, effectiveness and participation in public administration. They agreed that providing government accounting system and public sector auditing can provide accountability of public sector agencies which lead to good governance. Moreover, Barret (1996:137-146) argued that the audit institution is a part of the governance framework that influences the economic and social development.

2.5.1 Relationship between Auditing & Good Governance
An effective auditing practice is an essential precondition for good governance (Doig 1995:151). Similarly, Mulgan (2003: 24) found that the Auditor-General makes a significant contribution to the public accountability and public sector reform by standing up for values of transparency, probity and good governance. Innes (1997: 706) believed that audit reports enhance the credibility of the financial statements that are useful for investors in, and management of, the public sector.

Therefore, public sector auditing is an important tool for resulting in good governance in the long term. Auditing provides assurance of an appropriate use of resources and prevents misuse, fraud, abuse and corruption of public funds and resources. It can maintain and improve public trust, including that of local and foreign investors and also tax payers.

The local government as a segment of the pulic sector is the third tier of government in Pakistan. At the level, the authority is entrusted the public resources and charged with the task of ensuring the proper utilization. To optimize the utilization of resources entrusted to the officials, laws and regulations are enacted to control expenditures and sources of financing these expenditure. To ensure adherence of financial regulations, laid down procedures, policies and plans , internal audit units are established. Financial control has concentrated on the cash out flow, purchasing procedures and accountability of budget holders for current expenditure on resources inputs(Mainoma, 2007) and (Buhari, 2001). The survival of every organization depens on its effective and efficient utilization of resource(both financial and non-financial). Whoever accepts positions
In line with the political demands for greater accountability in providing better services to the public and efficiency in managing public resources, public sector auditing became a necessity for the public sector in recent decades (Power 2003: 191). Members of Parliament as representative of the public have greater concern about the efficiency and effectiveness of the quality of public sector goods and services. Durrant (2000: 80) highlighted that public sector auditing is a prominent aspect for encouraging public sector agencies to improve their effectiveness and efficiency in public administration.
Efficiency in using public funds and resources reduces the resources needed to provide public goods and services, while effectiveness provides a certain result (outputs, outcomes, impacts and benefits) on the quality of goods and services provided by the government. By preventing the waste of public money, fraud and misappropriation expenditure, the government can allocate funds for a greater number and quality of public goods and services. As argued by Devas (1989: 271), external auditing can ensure all government’s income is “collected, accounted for and properly” used. Moreover, efficiency can provide lower costs of goods and services that influences tariff setting by the government, which is important for a country to be able to compete internationally (McIntosh 1997: 123-129). Funnel and Cooper (1998: 283) argued that effective public sector auditing can significantly improve public sector performance.