Operations Audit PDF

Operations Audit – a systematic process of evaluating an organization’s effectiveness, efficiency, and economy of operations under management control and reporting to appropriate persons the results of the evaluation along with recommendations for improvement. (IIA) Operations Audit – a future orie...

Operations Audit – a systematic process of evaluating an organization’s effectiveness, efficiency, and economy of operations under management control and reporting to appropriate persons the results of the evaluation along with recommendations for improvement. (IIA) Operations Audit – a future oriented, 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 Operations Audit – a review of activities performed in a program or process in the pursuit of its objectives by individuals, who are often supported by a variety of tools. Risk-Based Internal Auditing - A methodology that links internal auditing to an organization’s overall risk management framework. - It allows internal audit to provide assurance to the board that risk management processes are managing risks effectively. Operational Risk - Risk of loss resulting from inadequate people, internal processes and systems - Uncertainties and hazards a company faces when it attempts to do its day-to-day business activities within a given field or industry. Skills and Qualities Required for Effective Operational Audits (IIA Research Report) 1. Communication skills 2. Problem identification and solution skills 3. Ability to promote the value of internal audit 4. Knowledge of industry, regulatory and standards changes 5. Organization skills Skills and Qualities Required for Effective Operational Audits (IIA Research Report) 6. Conflict resolution, negotiation skills 7. Staff training and development 8. Accounting frameworks, tools & techniques 9. Change management skills 10. ICT framework, tools & techniques 11. Cultural fluency and foreign language skills Behavioural Skills 1. Confidentiality 2. Objectivity 3. Communication 4. Judgment 5. Work well with all management levels 6. Possess governance and ethics sensitivity 7. Be team players Behavioural Skills 8. Relationship building 9. Work Independently 10. Team building 11. Leadership and Influence 12. Facilitation 13. Staff management 14. Change catalyst skills Financial Audit v. Operational Auditing The 3 major differences between financial and operational audit are: 1. The purpose of the audit 2. Distribution of the report 3. Inclusion of non-financial areas in operational auditing Purpose Financial Audit - Emphasizes whether historical information was correctly recorded - Oriented to the past Operational Audit - Emphasizes effectiveness and efficiency - Focuses on improving future performance Distribution of the Reports Financial Audit - Typically distributed to external users of FS - Requires well-defined structure and wording due to widespread distribution Operational Audit - Primarily to management - Varies considerably from audit to audit due to limited distribution and diverse nature of audits for efficiency and effectiveness Inclusion of Nonfinancial Areas Financial Audit - Limited to matters that directly affect fairness of FS presentation Operational Audit - Covers any aspect of efficiency and effectiveness in an organization Financial Audit - To look into the correctness of financial data and records along with correctness of the accounting procedure followed Operational Audit - To see that the financial accounting records have been properly designed and maintained to furnish Management with timely info for decision making purposes Others Financial Audit - To see that the internal control system has been working properly Operational Audit - To see that the internal control system has been designed from the point of view of achieving better efficiency an whether the same have been functioning effectively Others Financial Audit - To see that all payments have been made with proper authorization and approval Operational Audit - To study whether some expenditure of sizeable magnitude could have been avoided and reduced Others Financial Audit - To see that credit control has been strictly followed Operational Audit - To study the credit control system for suggesting better measures where considered necessary Others Financial Audit - To see that the FS have been prepared following GAAP and that the same display a true and fair view of the business transactions and also of the position as of particular date Operational Audit - To examine whether the operational functions are in tune with the management objectives and to carry out the cost benefit analysis for helping management in making decisions