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O P E R AT I O N S
AUDITING
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MODULE 1
Definitions a n d Characteristics of O p e r a t i o n s A ud i t
Objectives a n d P h a s e s of Oper ati onal A u d i t s
L e a r n i n g Objectives
After s t u d y i n g th e r e s o u r c e s a n d a c c o m p l i s h i n g t h e activities g i v e n for
t h i s le s s o n , y o u a re e x pe ct e d t o b e a b l e to:
1. Describe the characteristics of operational auditing
2. Understand the objectives of Operations audit.
3. Identify the phases of Operational audits.
4. Explain an audit program and types of evidence
Definition a n d Characteristics
Operational Auditing
is a future oriented, systematic, and independent
evaluation of organizational activities. Financial
data m a y be used but the primary sources of
evidence are the operational policies and
achievements related to organization objectives.
Internal controls and efficiencies m a y be
evaluated during this type of review.
Definition a n d Cha racteristics
AUDITING
EXTERNAL
F S Au di t (Pri m ar y)
F S assertions
Risk Based Approach
INTERNAL
C O M P LIA N C
E
F S Au di t ( N o t
Primary )
C o m p l i a n c e with
laws
M a n a g e m e n t Au di t
O p e r a t i o n s Au di t
C o m p l i a n c e with
ru les a n d policies
Risk Based Approach
Risk Based Approach
Definition a n d Cha racteristics
FINANCIAL
Au di t of Financial
I n fo rm ati o n
INTERNAL
MAANUAGDEIMTENT
Au di t of
M a n a g e m e nt
Policies
OPERATIONS
Au di t of Operati on al
Policies
Definition a n d Characteristics
S k i l l s R e q u i r e d for Effective O p e r a t i o n a l A u d i t s :
1. Communication Skills
2. Problem Identification and Solution Skills
3. Ability to promote internal audit
4.Knowledge of Industry, regulatory and standard
changes
5. Organization Skills
Definition a n d Characteristics
S k i l l s R e q u i r e d for Effective O p e r a t i o n a l A u d i t s :
6. Conflict resolution/negotiation
7. Staff training and development
8. Accounting framework, tools and techniques
9. Change management skills
10. IT Framework, tools and techniques
11. Cultural fluency and foreign language skills
Definition a n d Cha racteristics
IIA Standards
Attribute S t a n d a r d s
P u r p o s e , Authority,
R es po n s i bi li ty
I n d e p e n d e n c e a n d Objectivity
Proficiency a n d D u e P r o f e s s i o n a l
C are
Qu ali ty A s s u r a n c e a n d
Improvement Program
P e rfo rm a n ce
Standards
M a n a g i n g Internal Au di t
Activity
N a t u r e of W o r k
Engagement Planning
P e r f o r m i n g the E n g a g e m e n t
Communicating Results
Monitoring Progress
R e s o l u t i on o n A c c e p t a n c e of
Risks
Definition a n d Characteristics
RISK-BASED AUDIT
• Objectives and Operational Consideration (to
identify risks)
• Risk Assessment (for Internal Control)
• Risk Response (Audit Approach)
• Evidence Gathering
Definition a n d Characteristics
INTEGRATED AUDITING
• Inclusion of business and IT subjects in the review
• Designed to address IT questions while
simultaneously examining business dynamics
• (over time it became apparent that accounting/financial controls
are increasingly dependent on computer systems)
Definition a n d Characteristics
IN SUMMARY:
• Internal audit is an evolving profession
• Internal auditors’ scope of work is expanding to
examining how effective an organization in its
pursuit of its stated mission and vision.
• Skills requirements are increasingly diverse.
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O P E R AT I O N S
AUDITING
•
MODULE 1
Definitions a n d Characteristics of O p e r a t i o n s A ud i t
Objectives a n d P h a s e s of Oper ati onal A u d i t s
Objectives a n d P h a s e s
Objectives of O p e r at i o n al A u d i t s review c ou l d
b e driven by:
• New rules
• Poor Performance
• Compliance Issues
• Anomalous Revenues /Expenses
Objectives a n d P h a s e s
P h a s e s of O p e r at i o n al Audit:
• Planning
• Fieldwork
• Reporting
• Follow-Up
Objectives a n d P h a s e s
Planning
• includes scoping, budgeting, defining the
population of interest, how testing will be
performed and announcing the audit
• performance of the risk assessment
Objectives a n d P h a s e s
Fieldwork
• Determining if the process or program under review is
designed effectively so that the related goals and
objectives are likely to be achieved
• Verify that the controls in place are performing a s
designed by management
Objectives a n d P h a s e s
Types of Audit Evidence:
• Strongest
• Document Inspection
• Observation
• Inspection
• Professional Skepticism
• Inquiry ( 3 rd party)
Objectives a n d P h a s e s
• Moderate
• Recalculation/Reperformance
• Working Papers
• Flowcharts
• Internal Control questionnaire
• Weak
• Testimonial (Employees)
• Inquiry (Employees)
Objectives a n d P h a s e s
Reporting
• Consists of communicating findings, observations,
and best practices noted during the review and
developing recommendations for corrective
action.
Objectives a n d P h a s e s
A ttributes of Effective A u d i t F i n d i n g s :
Source: Operational Auditing, Murdock
Objectives a n d P h a s e s
Follow-Up
• A follow-up review m e an s that the auditor is
checking to make sure the corrective action was
performed, so it consists of checking what
management did to address the issue reported.
Objectives a n d P h a s e s
Metrics
• Metrics exist to a s s e s s the performance and
provide a comparison between what should have
been done and what was actually done.
Objectives a n d P h a s e s
In Summary:
• Operational audits are versatile
• Identification of risks play a pivotal role
• Audit evidence is essential to document the
arguments made by the auditor.
Module 1- Introduction to Operational Audit
Seatwork:
D o you think operational audit is versatile /
flexible?
Discuss and cite examples
Module 1- Introduction to Operational Audit
THANK YOU!
Module 1- Introduction to Operational Audit
References:
Operational Auditing, Hernan Murdock
The Operational Auditing Handbook. Andrew Chambers and
Graham Rand