Auditing
American Accounting Association:
An audit is a systematic process of objectively obtaining
and evaluating evidence regarding assertions about
economic actions and events to ascertain the degree of
correspondence between these assertions and
established criteria and communicating the results to
interested users.
Auditing
Independent Auditor
Following a
systematic process
Objectively obtains
and evaluates evidence
Established the degree of
correspondence between
Assertions
Established Criteria
Communicates the results
to interested users
Types of Audits
Nature of assertion or data
Financial
statement audit
Compliance Audit
Operational Audit
Types of Audits
Nature of assertion or data
Types of auditor
Financial
statement audit
External Auditors/
Independent Auditor
Compliance Audit
Government Auditors
Operational Audit
Internal Auditors
Shareholders
Board of Directors
Audit committee
Management
President / CEO
VP
Management
Supervisors
Staff
Internal Auditors
Financial Audit
Compliance Audit
Operational Audit
Assertions
made by the
auditee
That the financial statements
are fairly presented.
That the organization
has complied with
laws, regulations or
contracts
That the
organizations
activities are
conducted
effectively and
efficiently
Established
criteria
Financial Rerporting
Framework such as the
Philippine Financial Reporting
Standards (PFRS)
Laws, regulations
and contracts
Objectives set
by the board of
directors
Content of
the auditor’s
report
An opinion about whether the
f/s are fairely presented in
conformity with the applicable
financial reporting framework
Reports on the
degree of compliance
with the applicable
laws, regulations and
contracts
Recommendati
ons or
suggestions on
how to improve
operations
Operations Audit
and the value it provides
Operational auditing is defined as “A futureoriented, systematic, and independent evaluation of
organizational activities.
Financial data may be used, but the primary sources of evidence
are the operational policies and achievements related to
organizational objectives. Internal controls and efficiencies
may be evaluated during this type of review.”*
Financial data may be used, but the primary
sources of evidence are the operational
policies and achievements related to
organizational objectives. Internal controls
and efficiencies may be evaluated during this
type of review.”*
Operational auditing
review of how an organization’s management
and its operating procedures are functioning
with respect to their effectiveness and
efficiency in meeting stated objectives.
Internal Auditing (according to IIA)
Internal auditing is an independent, objective
assurance and consulting activity designed to add
value and improve an organization’s operations. 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.
Key language in the definition of Operational Auditing
Independence
Internal audit should report to the audit
committee (or its equivalent); Internal
audit should not be under the control of
those they audit.
Key language in the definition of Operational Auditing
Objectivity
ability to examine documents, processes, and
programs without a bias, without an agenda,
with no other motive than to find the truth
and communicate it accurately and promptly
Key language in the definition of Operational Auditing
Assurance
ability to give confidence and make
statements regarding the condition of
matters within the organization.
Key language in the definition of Operational Auditing
Consulting
Giving advice to management and the
Board,and engaging that helps the
organization resolve nagging business
issues.
Key language in the definition of Operational Auditing
Improve an Organization’s Operations
Key language in the definition of Operational Auditing
Help an organization accomplish its
objectives
Key language in the definition of Operational Auditing
By bringing a systematic disciplined approach.
This is encapsulated in the Standards, the
Practice Guides and Practice Advisories, which
provide a great deal of guidance on how to plan,
execute, and communicate the results of the work
done
Key language in the definition of Operational Auditing
By bringing a systematic disciplined approach.
This is encapsulated in the Standards, the
Practice Guides and Practice Advisories, which
provide a great deal of guidance on how to plan,
execute, and communicate the results of the work
done
Key language in the definition of Operational Auditing
To evaluate and improve the effectiveness
Help to improve the organization’s ability to achieve
the goals and objectives related to:
a.
Risk management
b.
Control
c.
Governance processes
Risk- based audit vs. Controls – based audit
Auditing Beyond Accounting, Financial, and
Regulatory Requirements
Operations Audit
Operations management
Human resources
IT
Marketing
CSR
Environmental Health and Safety (EHS)
The Value Auditors Provide
An important aspect of the modern manager and auditor’s job is to
identify relevant stakeholders and to understand their interests. It is also
important to understand the power they have to assert these interests.
This process is called stakeholder analysis, which asks three
fundamental questions:
1. Who are the relevant stakeholders?
2. What are the interests of each stakeholder?
3. What is the power of each stakeholder?
Primary (economic) stakeholder
Secondary (economic) stakeholder