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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


Operational auditing
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