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Operational Auditing. 2012 Professor Bill O’Brien. Definition of Internal/Operational Auditing. Formal: “Internal auditing is an independent, objective, assurance and consulting activity designed to add value and improve an organization’s operations.” Informal:

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operational auditing

Operational Auditing

2012

Professor Bill O’Brien

Operational Auditing--2012

definition of internal operational auditing
Definition of Internal/Operational Auditing
  • Formal:

“Internal auditing is an independent, objective, assurance and consulting activity designed to add value and improve an organization’s operations.”

  • Informal:

“Internal auditing is an independent activity designed to help an organization stay under control and achieve its objectives.”

Operational Auditing--2012

an organization achieves its objectives by
An Organization Achieves Its Objectives by:
  • Staying under control as evidenced by
    • Safeguarding of assets
    • Compliance with laws and regulations
    • Organizational goal & obj. achievement
    • Reliability & quality of information
    • Effectiveness & efficiency of business operations

Operational Auditing--2012

roles of i a in relation to the formal definition
Roles of I/A in Relation to the Formal Definition
  • Helping the organization achieve objectives
  • Evaluating risk, control and governance
  • Adding value and improving operations
  • Remaining independent and objective
  • Utilizing a systematic approach

Operational Auditing--2012

slide5
COSO
  • Committee of Sponsoring Organizations
    • FEI, AICPA, IMA, IIA and AAA
  • Sponsored the Treadway Commission in 1987
  • Issued guidelines for Internal Control in 1992: COSO Cube
  • Issued guidelines for Enterprise Risk Management in 2004: COSO 2

Operational Auditing--2012

relating coso 2004 to score
Relating COSO (2004) to SCORE
  • Strategic objectives
    • Organizational goal & obj. achievement
  • Operations objectives
    • Effectiveness & efficiency of business operations
    • Safeguarding of assets
  • Reporting objectives
    • Reliability & quality of information
  • Compliance objectives
    • Compliance with laws and regulations

Operational Auditing--2012

independence organizational relationship
Independence: Organizational Relationship
  • Reporting responsibility
    • As high as possible…the Audit Committee
  • Administrative responsibility
    • To a key interested party

Operational Auditing--2012

systematic approach
Systematic Approach
  • Planning:
    • Selecting the BPO
    • Pre-site planning
  • Evaluating:
    • Conducting the preliminary survey
    • Review internal controls
    • Expanding tests as necessary
    • Generating findings
  • Communicating:
    • Reporting the results
    • Conducting follow-up
    • Assessing the process
  • Note Exh. 2-6 and Exh. 13-4

Operational Auditing--2012

sas 65 now part of aicpa auditing standards codification
SAS 65-now part of AICPA Auditing Standards Codification
  • Defines roles
  • Defines function
  • Discusses competency & objectivity
  • Considers nature of the work
  • Discusses coordination
  • Guidelines for evaluation
  • Role of direct assistance

Operational Auditing--2012

typical int audit assistance with external auditors
Typical Int. Audit Assistance with External Auditors
  • Design of control systems
  • Reduction of risk assessment
  • Reduction of substantive testing

Operational Auditing--2012

sas 99 now part of aicpa auditing standards codification
SAS 99-now part of AICPA Auditing Standards Codification
  • Auditor’s responsibility to detect fraud

Operational Auditing--2012

create a cooperative bridge with management
Create a Cooperative Bridge with Management
  • Coordination
  • Risk assessment alert
  • Control system disclosure
  • Common sampling tools
  • Pooled IT knowledge
  • Different perspective
  • Constant general communication

Operational Auditing--2012

roles of internal auditing
Roles of Internal Auditing
  • Auditing or assurance
  • System design & implementation
  • Performance appraisals
  • Consultations
  • Strategic planning
  • Merger & acquisition analysis
  • Market appraisals
  • Investment analysis

Operational Auditing--2012

the institute of internal auditors
The Institute of Internal Auditors
  • The professional organization of internal auditors
  • Established in 1941
  • Provides the following:
    • Professional guidance
    • Professional certifications
    • Research
    • Educational products and services

Operational Auditing--2012

competencies of internal auditors
Competencies of Internal Auditors
  • Inherent qualities
    • Integrity
    • Passion
    • Work ethic
    • Curiosity
    • Creativity
    • Initiative
    • Flexibility
  • Skills and credentials
    • Technical expertise
    • Software expertise
    • Communication skills
    • Analytical skills…connecting the dots
  • The “What” and the “How”

Operational Auditing--2012

general business skills the what
General Business Skills: the “What”
  • Business perspective
  • Organizational focus
  • Bias for action
  • Communication excellence
  • People proficiency

Operational Auditing--2012

implementation styles the how
Implementation Styles: the “How”
  • Cc: communication versus control
  • KTT: knowing the territory
  • MBWA: managing by wandering around
  • R ƒ R3”: respect is a function of
    • Responsiveness
    • Reliability, and
    • Relevancy

Operational Auditing--2012

ops audit as a profession
Ops. Audit as a Profession
  • Transition from public accounting
  • Career internal auditor
  • Operational finance professional
  • Operations professional
  • Pathway to senior management

Operational Auditing--2012

hints for starting or taking over a dept
Hints for Starting or Taking Over a Dept.
  • Report to the Audit Committee or the highest level possible
    • Avoids conflict of interest
    • Have an administrative manager as well
  • Establish an agreed upon review approach
    • For example, operations v. compliance
  • Prepare a set of achievable objectives
  • Commit to IIA standards
  • Establish a team approach with BPOs
  • Invest in continuing education

Operational Auditing--2012

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