Operational Auditing Concepts PDF

Operational Auditing Concepts Definition 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 improveme...

Operational Auditing Concepts Definition 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) Definition 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. Definition 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 Operational Audit - Emphasizes whether - Emphasizes historical information effectiveness and was correctly recorded efficiency - Oriented to the past - Focuses on improving future performance Distribution of the Reports Financial Audit Operational Audit - Typically distributed to - Primarily to management external users of FS - Varies considerably from - Requires well-defined audit to audit due to structure and wording limited distribution and due to widespread diverse nature of audits distribution for efficiency and effectiveness Inclusion of Nonfinancial Areas Financial Audit Operational Audit - Limited to matters that - Covers any aspect of directly affect fairness efficiency and of FS presentation effectiveness in an organization Others Financial Audit Operational Audit - To look into the - To see that the correctness of financial financial accounting data and records along records have been with correctness of the properly designed accounting procedure and maintained to followed furnish Management with timely info for decision making purposes Others Financial Audit Operational Audit - To see that the internal - To see that the internal control system has control system has been working properly been designed from the point of view of achieving better efficiency an whether the same have been functioning effectively Others Financial Audit Operational Audit - To see that all - To study whether some payments have been expenditure of sizeable made with proper magnitude could have authorization and been avoided and approval reduced Others Financial Audit Operational Audit - To see that credit - To study the credit control has been control system for strictly followed suggesting better measures where considered necessary Others Financial Audit Operational Audit - To see that the FS have - To examine whether the been prepared following operational functions GAAP and that the same are in tune with the display a true and fair management objectives view of the business and to carry out the cost transactions and also of benefit analysis for the position as of helping management in particular date making decisions Challenges of Operational Audit? Challenges of Operational Audit? Give at least 4 challenges of operations audit and explain each in no more than 3 sentences. 1 whole sheet yellow paper