Operational Auditing PDF

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Operational Auditing...

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OPERATIONAL AUDITING I.

DEFINITION Operational auditing is the systematic process of evaluating an organization’s effectiveness, efficiency, and economy of operations under management’s control, and reporting the results of evaluations with recommendations for improvement.

II.

CHARACTERISTICS A.

Purpose 1. To help all levels of management improve planning and control by identifying aspects of systems and procedures to improve and make recommendations. 2.

B.

C.

To place emphasis on helping future performance (financial emphasis on past compliance, past adherence).

Independence 1. Free of personal involvement/responsibility of the audited unit - although managers may assist in the evaluation process through participative auditing 2.

Develop programs without undue influence or pressure

3.

Full access to evidence/personnel

4.

Objective in gathering and evaluating evidence

5.

Able to report all matters deemed necessary

Systematic Approach 1. Well-planned 2.

Comprehensive understanding      

D.

Performance Criteria 1. Established standards 2.

E.

Environment Objectives Evidence Conclusions Reporting Follow-up

Comparison

3. Develop reasonable criteria in absence of standards Audit Evidence

F.

1.

Theory of evidence

2.

Collection techniques

Reporting and Recommending 1. Evaluate and report 2.

III.

Make recommendation to improve (must consider usefulness of recommendation -- most important aspect of operational audit)

FIVE PHASES OF OPERATIONAL AUDIT

Preliminary Preparation A.



Field Survey 

Preliminary Preparation 1. Study and evaluate available information          

B.

C.

Program Audit Development  Application 

Industry Input markets of firm Output markets of firm Production technology Control and regulation (internal & external) Management style, characteristics, and values Organizational structure Geographic distribution Production process Reporting, planning, and control systems

2.

Develop background files  Charters  Organizational charts  Policy & procedures manuals  Budgets  Financial statements  Systems descriptions  Audit reports and memos

3.

Perform analytical procedures

Field Survey - determines scope/emphasis--on site - pinpoints specific problems 1. Interviewing key personnel 2.

Reviewing systems/reports

3.

Observing operations

Program Development 1. Documents audit planning/control of audit 2

Report & Follow-up

D.

2.

Guide for evidence collection

3.

Should be written -- individually designed

4.

Links audit objectives with procedures

Audit Application (most time consuming phase) 1. Step-by-step completion of program 2.

Process - should be flexible and modifiable depending on findings Gather and analyze Draw conclusions Develop recommendations Show cause and effect Document in workpapers

     E.

Reporting and follow-up 1. Reporting - only report what can be documented    

State facts precisely and clearly Support conclusions with findings Practical recommendations that address problems Review with auditee

e.g.

2.

background scope opinions findings recommendations  replies by auditee

Follow-up  What actions were taken  Management decisions on whether to taken action  Report open until auditor satisfied us to actions Policy developed by upper management reporting timely response to audit report

3...