Operational Audit
NATURE OF OPERATIONAL AUDIT
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Also known as management audits and performance audits. •
Conducted to evaluate the effectiveness and/or efficiency of operations.
•
Examinations of all or part of an entity to determine the degree of its operational efficiency, effectiveness and economy. •
Also refers to the auditor’s study of business operations for the purpose of making recommendations about economic and efficient use of resource, effective achievement of business objectives and compliance with company policies.
•
The term operational auditing is the most widely used today. •
Definition of terms o OPERATIONAL – implies a focus on operations, as opposed to financial position. o MANAGEMENT – implies that the information obtained in the audit process is useful to management decision making. o PERFORMANCE – implies an evaluation of the performance of persons or units in executing the entity’s objectives.
OBJECTIVES OF OPERATIONAL AUDIT
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Primary objective: to assess the quality of operations and whether it is in line with the company’s prescribed polices/plans •
Also help to facilitate the granting of loan from lenders, facilitate insurance claims, facilitate the decision to invest, determination of purchase consideration of a business, discovery of errors and fraud, etc.
OPERATIONAL AUDITING vs. FINANCIAL AUDITING
OPERATIONAL FINANCIAL
AUDITING (OA) AUDITING (FA)
PURPOSE OF
•
Emphasizes •
Emphasizes
THE AUDIT effectiveness, whether efficiency historical and information economy. was correctly
•
Concerned recorded. with •
Past-oriented
operating future performance.
NATURE AND
•
Reports are •
Report
DISTRIBUTION intended typically goes
OF REPORT
primarily for to many management. users of FS.
•
Reports vary •
Wordings are considerably well-defined from audit to because of audit of the widespread
diverse
•
Also known as management audits and performance audits. •
Conducted to evaluate the effectiveness and/or efficiency of operations.
•
Examinations of all or part of an entity to determine the degree of its operational efficiency, effectiveness and economy. •
Also refers to the auditor’s study of business operations for the purpose of making recommendations about economic and efficient use of resource, effective achievement of business objectives and compliance with company policies.
•
The term operational auditing is the most widely used today. •
Definition of terms o OPERATIONAL – implies a focus on operations, as opposed to financial position. o MANAGEMENT – implies that the information obtained in the audit process is useful to management decision making. o PERFORMANCE – implies an evaluation of the performance of persons or units in executing the entity’s objectives.
OBJECTIVES OF OPERATIONAL AUDIT
•
Primary objective: to assess the quality of operations and whether it is in line with the company’s prescribed polices/plans •
Also help to facilitate the granting of loan from lenders, facilitate insurance claims, facilitate the decision to invest, determination of purchase consideration of a business, discovery of errors and fraud, etc.
OPERATIONAL AUDITING vs. FINANCIAL AUDITING
OPERATIONAL FINANCIAL
AUDITING (OA) AUDITING (FA)
PURPOSE OF
•
Emphasizes •
Emphasizes
THE AUDIT effectiveness, whether efficiency historical and information economy. was correctly
•
Concerned recorded. with •
Past-oriented
operating future performance.
NATURE AND
•
Reports are •
Report
DISTRIBUTION intended typically goes
OF REPORT
primarily for to many management. users of FS.
•
Reports vary •
Wordings are considerably well-defined from audit to because of audit of the widespread
diverse