Operational Auditing Principles

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Questions and Answers

What is the primary focus during the planning phase of an audit?

Conducting interviews with the auditee

Determining the scope of the engagement (correct)

Finalizing the audit report

Evaluating previous audit findings

Which of these is NOT a step in the planning considerations for an audit?

Evaluate the adequacy of control design

Identify key controls

Monitor audit completion (correct)

Understand the auditee

What does the phrase 'proper prior planning prevents poor performance' emphasize in auditing?

Conducting fieldwork without a plan

Relying solely on standard procedures

Communication with external stakeholders

The importance of thorough planning in audits (correct)

During the planning phase, why is it important to involve process owners?

To identify relevant activities and systems Signup and view all the answers

Which of the following best describes 'key controls' in the context of planning?

Controls that mitigate risks to acceptable levels Signup and view all the answers

What is the main purpose of creating a test plan in the audit process?

To outline how key controls will be tested Signup and view all the answers

What aspect should an internal auditor assess to evaluate the adequacy of control design?

Whether the controls effectively mitigate identified risks Signup and view all the answers

What does a formal work program in an audit include?

Key administrative and procedural tasks Signup and view all the answers

What is the primary aim of an operational audit?

To evaluate the efficiency, effectiveness, and economy of operations Signup and view all the answers

What does professional skepticism entail in the context of internal auditing?

Critical assessment of evidence and questioning received information Signup and view all the answers

Which of the following is NOT a key objective of operational auditing?

Assessing compliance with environmental regulations Signup and view all the answers

Reasonable assurance in auditing is best described as:

A level of assurance derived from generally accepted auditing practices Signup and view all the answers

What phase follows planning in the operational auditing process?

Fieldwork Signup and view all the answers

Which outcome is expected from a successful operational audit?

Fine-tune internal controls and maximize efficiency Signup and view all the answers

During interviews in the auditing process, auditors should maintain an attitude of:

Skepticism, with efforts to verify information's credibility Signup and view all the answers

The term '7Es of operations audit' refers to:

A comprehensive framework for evaluating operations Signup and view all the answers

Which characteristic is NOT necessary for evidence to be persuasive?

Voluminous Signup and view all the answers

What should be considered when assigning personnel for an engagement?

The tasks they are performing Signup and view all the answers

Which type of audit evidence involves direct observation or inspection?

Physical Signup and view all the answers

What is considered more reliable evidence according to the guidelines?

Directly obtained evidence by the auditor Signup and view all the answers

Which of these types of audit evidence refers to written or oral statements made by individuals?

Testimonial Signup and view all the answers

What factor increases the sufficiency of audit evidence?

Corroborated evidence Signup and view all the answers

Which guideline enhances the reliability of the evidence?

Evidence that is documented Signup and view all the answers

In the context of performance, what should the auditor do first during fieldwork?

Conduct tests to gather evidence Signup and view all the answers

What is the primary purpose of audit working papers?

To record the work done during the audit Signup and view all the answers

Which aspect of audit findings assesses what was expected?

Criteria Signup and view all the answers

What should auditors remember during fieldwork to minimize disruption?

To build a friendly environment with management Signup and view all the answers

What is meant by 'analytical – recalculation or reperformance' in audit procedures?

Checking calculations for accuracy Signup and view all the answers

What must internal auditors do to support their conclusions?

Gather and evaluate sufficient appropriate evidence Signup and view all the answers

Which type of documents are included as examples of working papers?

Audit work program and organizational charts Signup and view all the answers

What is a key reminder for auditors regarding documentation during fieldwork?

If it is not documented, it did not happen Signup and view all the answers

Which of the following best describes the role of the 'Cause' in audit findings?

The root cause of the problem identified Signup and view all the answers

Study Notes

Objectives of Operational Auditing

Assess and report on the efficiency, effectiveness, and economy of operations, activities, and programs.
Determine if internal controls are sufficient to produce optimal efficiency and effectiveness.
Improve the efficiency of day-to-day operations.
Optimize efficiency.

Primary Outcomes of Successful Operational Audit

Maximizing efficiency.
Understanding risks.
Fine-tuning internal controls.

Professional Skepticism

A questioning mind, alert to conditions that may indicate possible misstatements due to error or fraud.
A critical assessment of evidence.
Taking nothing for granted, continuously questioning what is heard and seen.
Critically assess audit evidence.
Verifying information provided, corroborating testimony received, and observing behavioral changes that could indicate deceit.

Reasonable Assurance

Assurance provided by the auditor, giving the confidence and statements regarding the condition of matters within the organization.
A level of assurance supported by generally accepted auditing procedures and judgments.
Applies to judgments surrounding the effectiveness of internal controls, the mitigation of risks, the achievement of objectives, and other engagement-related conclusions.

Phases of Operational Audit

Planning.
Fieldwork.
Reporting.

Planning

Scoping, budgeting, defining the population of interest, testing methods, and announcing the audit.
Determining the scope of the engagement and communicating it to the organizational unit.
Staffing the engagement properly.
Obtaining background information about the organizational unit.
Understanding internal control.
Deciding on the appropriate evidence to accumulate.

Planning Considerations

Determine engagement objectives and scope: Establish the objectives of the engagement and outline the scope to articulate the time, geographical, and procedural boundaries.
Understand the auditee: Understand the auditee’s objectives, the tasks undertaken within the area under review to achieve those objectives, and the ways in which performance is monitored and success is measured.
Identify and assess risks: Determine specific events or scenarios that could prevent the achievement of the auditee’s objectives, as to impact and likelihood of the risk scenarios.
Identify key controls: Key controls mitigate the auditee’s risk to an acceptable level.
Evaluate the adequacy of control design: Evaluate whether the controls, if they operate effectively, will mitigate the risks that could prevent the achievement of objectives.
Create a test plan: Outlines how each key control will be tested to help the internal auditor evaluate how effectively those controls are operating.
Develop a work program: A formal work program outlines the key tasks in the engagement process. It covers key administrative tasks to be undertaken by internal auditors, key meetings, planning tasks, fieldwork tasks, wrap-up steps, and reporting tasks.
Allocate resources to the engagement: Based on the tasks to be performed during an engagement, personnel with the appropriate level of experience and skills must be identified and assigned to ensure the engagement is completed timely and effectively.

Fieldwork

Performing tests that were outlined in the planning phase and evaluating the results.
Using documentation, client inquiry, analytical procedures, and observation.

Fieldwork Tasks

Conduct tests to gather evidence.
Evaluate gathered evidence and reach conclusions.
Develop observations and formulate recommendations.

Persuasiveness of Audit Evidence

Audit evidence is persuasive if it enables the internal auditor to formulate well-founded conclusions and advice confidently.

Persuasiveness of Audit Evidence Guidelines

Evidence obtained from independent third parties is more reliable than evidence obtained from auditee personnel.
Evidence produced by a process or system with effective controls is more reliable than that produced with ineffective controls.
Evidence obtained directly by the internal auditor is more reliable than evidence obtained indirectly.
Documented evidence is more reliable than undocumented evidence.
Timely evidence is more reliable than untimely evidence.
Corroborated evidence is more sufficient than uncorroborated evidence.
Larger samples produce more sufficient evidence than smaller samples.

Types of Audit Evidence

Testimonial.
Physical.
Documentary.
Analytical.

Types of Audit Evidence Explained

Testimonial: Verbal or written.
Physical: Observe or inspect.
Documentary: Accounting records, contracts.
Analytical: Recalculation or reperformance.

Audit Procedures

Specific tasks performed by the internal auditor to gather evidence required to achieve the prescribed audit objectives.
Internal auditors may use manual audit procedures, CAATS, or a combination of the two to gather sufficient appropriate evidence.
Internal auditors must gather and evaluate enough evidence to support well-founded conclusions and advice.
Observe the timing when tests will be done and the period covered of the audit, as planned.

Audit Working Papers

Documents created by auditors to record the work done.
Collection of evidentiary material showing the planning done, fieldwork activities performed, and the support for all information mentioned in the audit report.
Evidence that the audit was done according to the standards.
Facilitate supervision of the engagement and review of the work done.
Indicate whether engagement objectives were achieved.

Examples of Working Papers

Audit work program.
Engagement time budgets and resource allocation worksheet.
Audit questionnaire.
Process maps or flowcharts used to document processes.
Minutes of meeting with process owners.
Written testimonies of process owners.
Organizational chart, job description.
Operating and financial policies.
Evidence obtained from third parties.

Fieldwork Reminders

Carry out fieldwork as indicated in the audit plan/work program.
Obtain cooperation from management and staff to identify, obtain documentation, and conduct interviews.
Remember that if it is not documented, it did not happen!
Conduct fieldwork with minimal disruption to operations.
Build a friendly environment with management.
Avoid friction in the relationship with management.
Be tactful.

Reporting

Communication of findings, observations, and best practices noted during the review, and developing recommendations for corrective action.

Attributes of Effective Audit Findings

Criteria: What was expected? It consists of what should exist or occur.
Condition: What actually exists? What the auditor discovered as a result of the performance of audit procedures.
Cause: Root cause of the problem.
Effect: Impact.

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Description

This quiz covers the essential objectives and outcomes of operational auditing, including the importance of internal controls and professional skepticism. Understand how auditors assess efficiency and effectiveness while ensuring the integrity of financial operations.