M.Comm. / Performance appraisal of employees is traditionally one of the most criticised human resource management functions. Performance appraisal is however a critical element in the success of especially a service organisation, because the employees are the most important asset in a service organisation. This asset has to be developed and managed to contribute to the achievement ofthe organisation's vision, mission and objectives. Performance appraisal is more than just a task that is performed once a year. It is a continuous management process. This study focuses specifically on performance appraisal of audit personnel and the performance management process of small to medium audit firms. The study identifies the different appraisal methods, criteria for appraisal, the performance management processes and the linking of performance appraisal and reward management. The method of the research that was followed, are a combination of a literature review and a study of appraisal methods, processes and competencies as criteria for appraisals, that are used by different auditing firms. The ranking of importance of the competencies used, as criteria for evaluating audit personnel, by employees and management of small to medium audit firms, were reviewed. Although performance appraisal is often neglected in a small to medium audit firm, it is still an essential component that will facilitate employee development and success of the organisation. The results of the research show that employee development should be the primary goal of performance appraisal and that fairness, honesty and continuous feedback are critical for a successful performance management process.