AbstractSuccessful audit of clinical practice focuses upon the systematic investigation of key aspects of the everyday work of busy clinicians. We contend that the nature and quality of local clinical practice can be characterized by critical examinations of the effectiveness and appropriateness of practice and the efficiency with which effective, appropriate clinical care is delivered to patients. When such a baseline has been established, it becomes possible to compare and contrast characterized local practice with so‐called ‘evidence‐based’ practice and agree changes aimed at narrowing the discrepancy between the two. The nature of such changes can be described and their implementation into practice studied, with subsequent quantitative measurement and qualitative description of the resulting benefits to patients. A proper understanding of the concepts of efficiency, appropriateness and effectiveness in clinical care is clearly fundamental to the successful design and applications of methodologies aimed at securing measurable improvements in the quality of patient care. In this first of two articles we examine the concepts of efficiency and appropriateness in clinical practice, with particular emphasis on cost‐effectiveness and utilization review. The clinical effectiveness of health care intervention is treated in detail within the second paper, to be published within Volume 2 Number 2 of theJournal of Evaluation in Clinical Practice(Mileset