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Chapter-1 (2nd Part)

The document provides an overview of operational audits including: - An operational audit examines all internal departments and processes to increase effectiveness beyond just finances. - Reasons for an operational audit include maximizing efficiency, understanding risks, and finetuning internal controls. - The operational audit process involves preliminary meetings, interviews, testing procedures, and a final audit report.

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anan wahid khan
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29 views3 pages

Chapter-1 (2nd Part)

The document provides an overview of operational audits including: - An operational audit examines all internal departments and processes to increase effectiveness beyond just finances. - Reasons for an operational audit include maximizing efficiency, understanding risks, and finetuning internal controls. - The operational audit process involves preliminary meetings, interviews, testing procedures, and a final audit report.

Uploaded by

anan wahid khan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter one

Discover the background and operational systems:


It requires analyzing the processes, procedures and systems used within the
company. This type of audit looks beyond the organization's financial
circumstances and examines its management practices.
The auditor will review prior audits in business area.The auditor will also research
applicable policies and statutes and prepare a basic audit program to follow. He
should study the complete accounting system of the client, the scope and
effectiveness of internal control system and the list of books maintained by the
client. To understand the nature of transaction, knowledge of technical aspects of
business is must.

Examining your business's internal processes on a regular basis ensures that all operations are
running as efficiently as possible. Auditing can improve sales figures and reduce operational
costs, making a business more competitive. Here's a look at how the process works and why an
operational audit can be beneficial.

What is an operational audit?


An operational audit refers to the process of evaluating a company's operating activities – both
on a day-to-day level and a broader scale. While other types of audits might look solely at a
single department or the company's finances, an operational audit delves deeper. It serves as a
detailed look at all of the internal departments and processes that make up a business's
operations. Whereas a regular audit evaluates financial statements, an operational audit
examines how a company conducts its business, with the aim of increasing overall
effectiveness.

Operational audits could be conducted by outside specialists or an internal audit team.

Reasons to perform an operational audit


The aim of an operational audit is ultimately to optimize efficiency. By auditing the business's
internal policies and procedures, the company can identify trouble spots and operate more
effectively. The outcomes gleaned from the audit are most useful to the management team, who
can take these recommendations on board to streamline future processes. Here are three of the
primary outcomes of a successful operational audit:

1. Maximize efficiency: Gain a greater understanding of how future policies and


procedures can boost effectiveness.
2. Understand risks: Businesses run many operational risks, ranging from health and safety
issues to cyber threats. A full operational audit identifies risks like these, as well as
potential problems related to fraud and compliance.
3. Finetune internal controls: By examining each step of the operational process, an audit
can dive deeper into the impact of any changes to internal controls.

Operational audit process


A pre-audit meeting lays the foundation for the operational audit process. At this preliminary
stage, the auditor sits down with the management team to gather relevant information. Collecting
background information about the business helps identify any areas of concern or industry-
specific challenges that need to be addressed. At this preliminary stage, the auditor will also
thoroughly explain the auditing process to the managers.

The auditor can then conduct interviews with managers in control of potentially risky areas.
Objectives and activities are documented, with risks highlighted and sent back to managers for
confirmation. Using the operational trouble spots, the auditor can design testing procedures at the
control level. Tests are conducted, with results meticulously documented, to show which new
processes or goals can improve the organization's efficiency.

Finally, the auditor writes up a comprehensive audit report. Follow-up visits with management
can help to finetune any ongoing issues with new systems or controls.

Operational audit checklist


The specific areas of scrutiny in an operational audit will depend on the type of business being
audited. We've outlined the general process above, but here is a quick operational audit checklist
of procedures for better flow:

1. Select and screen auditors


2. Define audit plans and scope
3. Pull together reference documents
4. Identify administrative support
5. Research operational procedures
6. Collect statistical evidence
7. Audit evidence from all sources
8. Evaluate evidence
9. Compile audit findings
10. Share audit conclusions
11. Give actionable advice
12. Follow up with questions and concerns
Operational auditing benefits
There are many reasons to consider an operational audit. When performed by an outside party, it
provides a business with an objective overview of company operations. These can yield new
insights leading to improved sales, quicker production processes, and streamlined systems.
Identifying risks ahead of time can future-proof the business against damages.

Operational auditing challenges


One factor to consider before ordering an operational audit is that it does cost both time and
money. When managers and employees are engaged with the audit, they will be pulled away
from their usual activities. For complex organizations, an operational audit can be relatively
time-consuming because each step of the process must be analyzed.

Business owners should also be aware that operational audits can turn up unexpected problems
that take time to repair. This might involve a complete overhaul of existing systems, requiring
new training for employees. In the long run, these disruptions can be worth the trouble, should
the operational audit lead to a more efficient method of doing business.

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