lOMoARcPSD|16292820 Notes in Operations Auditing Bachelor of Science in Accountancy (Bicol University) Studocu is not sponsored or endorsed by any college or university Downloaded by Khelly Ann Buala (khellybuala@gmail.com) lOMoARcPSD|16292820 OPERATIONAL AUDIT Operational Audit is a methodology for assessing the conformity of implementing the procedures and methodologies set forth in the department’s instructions, regulations or documents. Operational audit is performed by specialized auditors. Upon completion of the auditing process, a report of findings with recommendations is submitted. Operational audit contributes to improving implementation, complying with the government organizations’ procedures and providing the management with points of nonconformity so that corrective and preventive actions can be taken, thereby improving the efficiency and effectiveness of operations and increasing customers’ satisfaction. The systematic process of evaluating an organization’s effectiveness, efficiency & economy of operations under management’s control & reporting to appropriate persons the results of the evaluation along with recommendations for improvements. Notes: Operational audit = management auditing = performance auditing Systematic process logical, structured, organized series of steps/procedures. Proper planning, obtaining & objectively evaluating evidence. Evaluating operations based on some established or agreed upon criteria, e.g. performance standards Effectiveness, efficiency, economy focus on future Effectiveness versus Efficiency Effectiveness refers to the accomplishment of objectives. Efficiency refers to the resources used to accomplish those objectives Phases in Operational Auditing ~ Planning - Having a preliminary preparation/risk assessment – gather background information about the entity’s operation. ~ Evidence accumulation and evaluation/risk response - You will gather evidences to support the financial statement and other documents that are useful in performing the audit. ~ Reporting and follow-up/Audit Report - Completion, and giving auditor’s opinion Downloaded by Khelly Ann Buala (khellybuala@gmail.com) lOMoARcPSD|16292820 Impact of operational audit on increasing customers’ satisfaction ~ ~ ~ ~ ~ Operational Audit Identify points of nonconformity in procedure implementation Corrective actions by the management Increased efficiency and effectiveness Increase customer satisfaction Why Operational Audit? - Identify poor work practices in order to improve them. - Verify that employees implement operations in conformity with instructions and regulations, which guarantees achieving the desired effectiveness and efficiency. - Assist in the evaluation of quality control procedures adopted in the organization. - Evaluate implementation processes in the organization. Types of Operational Audits Functional audit - concentrates on activities of the business, e.g. billing function, production, accounting, IT Allows specialization, but fails to take into account interrelated functions Organizational - Organizational unit, e.g. branch, subsidiary, dept., unit, center Concentrates on organizational structure, coordination of activities Special assignments - Determining the cause of ineffective IT system, fraud investigation INTERNAL AUDITING It is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. Downloaded by Khelly Ann Buala (khellybuala@gmail.com) lOMoARcPSD|16292820 It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. - Helping the organization accomplish its objectives Evaluating and improving the effectiveness of risk management, control, and governance processes. Assurance and consulting activity designed to add value and improve operations. Independence and objectivity A systematic and disciplined approach (specifically, the engagement process) Notes: Broader objectives than external auditing more flexible to meet company’s needs. Internal within the organization. Sometimes can be outsourced. Independent & objective free of bias Systematic, disciplined follow professional standards Helps an organization accomplish its objectives aids/benefits an organization, guided by organization’s goals/objectives Institute of Internal Auditors’ Code of Ethics & Rules of Conduct Integrity The integrity of internal auditors establishes trust and thus provides the basis for reliance on their judgment. Objectivity Internal auditors exhibit the highest level of professional objectivity in gathering, evaluating, and communicating information about the activity or process being examined . Internal auditors make a balanced assessment of all the relevant circumstances and are not unduly influenced by their own interests or by others in forming judgments Confidentiality Internal auditors respect the value and ownership of information they receive and do not disclose information without appropriate authority unless there is a legal or professional obligation to do so. Downloaded by Khelly Ann Buala (khellybuala@gmail.com) lOMoARcPSD|16292820 Competency Internal auditors apply the knowledge, skills, and experience needed in the performance of internal auditing services. Relationship of Internal and External Auditors The external auditor is responsible to financial statement users. The internal auditor is responsible to management. Notes: - Audit risk model & materiality External auditors rely on internal auditors through the use of the audit risk model Internal auditors reduce the CR reduce substantive testing if effective Relationship between Operational Auditing & Internal Controls Internal control evaluation – to evaluate efficiency & effectiveness, make recommendations to management. Scope – concerns any control affecting efficiency & effectiveness, e.g. policies, procedures Downloaded by Khelly Ann Buala (khellybuala@gmail.com)