Operational
Auditing Concepts
ACC 152 – OPERATIONS AUDIT
Learning Objectives
Upon completion of this chapter, you will
• Define operations auditing
• Differentiate efficiency, effectiveness, economy and other components of 7Es of audit
• Understand the risk-based audit model
• Appreciate the nature and value of audits other than extreme financial audits
• Describe the benefits and challenges of operations audit
• Learn the categories of and who performs operational auditing
• Appreciate the internal audit function
• Understand and start developing the soft skills and the qualities expected from an internal
auditor
ACC 152 – OPERATIONS AUDIT
Learning Objectives
Upon completion of this chapter, you will
• Define operations auditing
• Differentiate efficiency, effectiveness, economy and other components of 7Es of audit
• Understand the risk-based audit model
• Appreciate the nature and value of audits other than extreme financial audits
• Describe the benefits and challenges of operations audit
• Learn the categories of and who performs operational auditing
• Appreciate the internal audit function
• Understand and start developing the soft skills and the qualities expected from an internal
auditor
ACC 152 – OPERATIONS AUDIT
Operational Auditing
“An effective tool of managerial control is the internal audit, or,
as it is now coming to be called, the operational audit . . .
Although often limited to the auditing of accounts, in its most
useful aspect operational auditing involves appraisal of
operations.”
- O’Donnell and Weihrich
ACC 152 – OPERATIONS AUDIT
Limiting Factors
• Ability of an enterprise to afford a broad audit
• Difficulty of obtaining people who can do a broad
audit
• Practical consideration that individuals may not like
to be reported upon
ACC 152 – OPERATIONS AUDIT
Who Performs Operations
Audit
• Internal auditors
• Government auditors
• CPA firms or external auditors
ACC 152 – OPERATIONS AUDIT
Who Performs Operations
Audit
• Internal auditors
• Government auditors
• CPA firms or external auditors
ACC 152 – OPERATIONS AUDIT
Definition of Operational
Auditing
“A systematic process of evaluating an organization’s effectiveness, efficiency
and economy of operations under management’s control and reporting to
appropriate persons the results of the evaluation along with recommendations
for improvement” – IIA
“A future-oriented, independent, systematic, and business-focused evaluation of
management, and the organization’s activities controlled by management and
third parties” – Magadia et.al.
ACC 152 – OPERATIONS AUDIT
Scope of Operational
Auditing
• Evaluating management’s performance
• Verifying a variety of qualitative aspects of the organization and its
activities
• Verifying documents are relevant, complete, up to date, and
safeguarded from unauthorized use
• Evaluating the organizational structure
• May cover multiple time periods
ACC 152 – OPERATIONS AUDIT
7E’s of Operational Auditing
“Doing the
right things”
Refers to
meeting
objectives
“Doing things
well”
Determining
the resources
used to
achieve
objectives at
minimum cost
“Doing them
cheap”
Price paid for
organizational
resources
“Quality”
Measuring
quality is
essential to
determine if it
is being
achieved
ACC 152 – OPERATIONS AUDIT
“Right and
wrong”
Individual’s
viewpoint
drives most
aspects of
decisionmaking and
corporate
behavior
“Environment”
“Treating
others”
Treatment of
others with
dignity and
respect
Ecological
awareness and
stewardship
can have
positive impact
on the
organization
Risk-Based Audit
“A methodology that links internal auditing to an organization’s overall risk
management framework. Provides assurance that risk management processes
are managing risks effectively, in relation to the risk appetite”
ACC 152 – OPERATIONS AUDIT
Risk-Based Audit
Operational Risk is the risk of loss resulting from inadequate
internal process, people, and systems or from external events
ACC 152 – OPERATIONS AUDIT
ACC 152 – OPERATIONS AUDIT
Categories of Operational Audit
Functional Audits
Deals with one or more
functions in an
organization the
efficiency and
effectiveness for the
company as a whole.
Functions are a means
of categorizing
activities of a business,
such as billing or
production function.
Organizational Audits
Deals with an entire
organizational unit. It
emphasizes how
efficiently and
effectively functions
interact. The plan of
organization and the
methods to coordinate
activities are important
for this type of audit.
ACC 152 – OPERATIONS AUDIT
Special Assignments
Arise at the request of
management for a wide
variety of audits.
Benefits of Organizational Audits
The Organization – can achieve its aims by applying disciplined,
systematic methods to assess and advance the effectiveness of
control, risk management, and governance processes
The Individual – can continuously improve their ability to apply
knowledge and skills to deliver intended results
The End User or Consumer – receives more cost efficient and highquality products or services
The World – benefits from a better, more sustainable future
ACC 152 – OPERATIONS AUDIT
Goals of Organizational Audits
Influence positive change
Review internal controls
Understand risks
Identify improvement of opportunities
Inform senior management
ACC 152 – OPERATIONS AUDIT
Organizational Structure
GOCCs/GFIs
SUCs
ACC 152 – OPERATIONS AUDIT
Organizational Structure
ACC 152 – OPERATIONS AUDIT
Organizational Structure
ACC 152 – OPERATIONS AUDIT
Organizational Structure
ACC 152 – OPERATIONS AUDIT
Organizational Structure
ACC 152 – OPERATIONS AUDIT
Qualifications
ACC 152 – OPERATIONS AUDIT
Qualifications
ACC 152 – OPERATIONS AUDIT
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