This document provides an overview of operational auditing. It defines operational auditing as the evaluation of organizational activities through a future-oriented and systematic review. The objectives and phases of an operational audit are described. Objectives may include addressing new rules, poor performance, compliance issues, or anomalous revenues/expenses. Phases include planning, fieldwork, reporting, and follow-up. Planning involves scoping and risk assessment. Fieldwork determines if controls are designed and performing effectively. Reporting communicates findings and recommendations. Follow-up ensures corrective actions were implemented. Operational audits require diverse skills and provide a flexible way to assess an organization's pursuit of its mission and vision.

1. • OPER ATIONS
AUDITING
• MODULE 1
Definitions and Characteristics of Operations Audit
Objectives and Phases of Operational Audits

2. Learning Objectives
After studying the resources and accomplishing the activities given for
this lesson, you are expected to be able to:
1. Describe the characteristics of operational auditing
2. Understand the objectives of Operations audit.
3. Identify the phases of Operational audits.
4. Explain an audit program and types of evidence

3. Definition and Characteristics
Operational Auditing
is a future oriented, systematic, and independent
evaluation of organizational activities. Financial
data may be used but the primary sources of
evidence are the operational policies and
achievements related to organization objectives.
Internal controls and efficiencies may be
evaluated during this type of review.

4. Definition and Characteristics
AUDITING
EXTERNAL INTERNAL COM PLIAN C
E
F S Audit (Primary)
F S assertions
Risk Based Approach
F S Audit (Not
Primary)
Management Audit
Operations Audit
Risk Based Approach
Compliance with
laws
Compliance with
rules and policies
Risk Based Approach

5. Definition and Characteristics
FINANCIAL
INTERNAL
MAANUAGDEIMTENT OPERATIONS
Audit of Financial
Information
Audit of
M anag ement
Policies
Audit of Operational
Policies

6. Definition and Characteristics
Skills Required for Effective Operational Audits:
1. Communication Skills
2. Problem Identification and Solution Skills
3. Ability to promote internal audit
4.Knowledge of Industry, regulatory and standard
changes
5. Organization Skills

7. Definition and Characteristics
Skills Required for Effective Operational Audits:
6. Conflict resolution/negotiation
7. Staff training and development
8. Accounting framework, tools and techniques
9. Change management skills
10.IT Framework, tools and techniques
11. Cultural fluency and foreign language skills

8. Definition and Characteristics
IIA Standards
Attribute Standards Perform a nce
Standards
Purpose, Authority,
Responsibility
Independence and Objectivity
Proficiency and Due Professional
Care
Quality Assurance and
Improvement Program
M a n a gi n g Internal Audit
Activity
Nature of Work
Engagement Planning
Performing the Engagement
Communicating Results
Monitoring Progress
Resolution on Acceptance of
Risks

9. Definition and Characteristics
RISK-BASED AUDIT
• Objectives and Operational Consideration (to
identify risks)
• Risk Assessment (for Internal Control)
• Risk Response (Audit Approach)
• Evidence Gathering

10. Definition and Characteristics
INTEGRATED AUDITING
• Inclusion of business and IT subjects in the review
• Designed to address IT questions while
simultaneously examining business dynamics
• (over time it became apparent that accounting/financial controls
are increasingly dependent on computer systems)

11. Definition and Characteristics
IN SUMMARY:
• Internal audit is an evolving profession
• Internal auditors’ scope of work is expanding to
examining how effective an organization in its
pursuit of its stated mission and vision.
• Skills requirements are increasingly diverse.

12. • OPER ATIONS
AUDITING
• MODULE 1
Definitions and Characteristics of Operations Audit
Objectives and Phases of Operational Audits

13. Objectives and Phases
Objectives of Operational Audits review could
be driven by:
• New rules
• Poor Performance
• Compliance Issues
• Anomalous Revenues /Expenses

14. Objectives and Phases
Phases of Operational Audit:
• Planning
• Fieldwork
• Reporting
• Follow-Up

15. Objectives and Phases
Planning
• includes scoping, budgeting, defining the
population of interest, how testing will be
performed and announcing the audit
• performance of the risk assessment

16. Objectives and Phases
Fieldwork
• Determining if the process or program under review is
designed effectively so that the related goals and
objectives are likely to be achieved
• Verify that the controls in place are performing as
designed by management

17. Objectives and Phases
Types of Audit Evidence:
• Strongest
• Document Inspection
• Observation
• Inspection
• Professional Skepticism
• Inquiry ( 3rd party)

18. Objectives and Phases
• Moderate
• Recalculation/Reperformance
• Working Papers
• Flowcharts
• Internal Control questionnaire
• Weak
• Testimonial (Employees)
• Inquiry (Employees)

19. Objectives and Phases
Reporting
• Consists of communicating findings, observations,
and best practices noted during the review and
developing recommendations for corrective
action.

20. Objectives and Phases
Attributes of Effective Audit Findings:
Source: Operational Auditing, Murdock

21. Objectives and Phases
Follow-Up
• A follow-up review means that the auditor is
checking to make sure the corrective action was
performed, so it consists of checking what
management did to address the issue reported.

22. Objectives and Phases
Metrics
• Metrics exist to assess the performance and
provide a comparison between what should have
been done and what was actually done.

23. Objectives and Phases
In Summary:
• Operational audits are versatile
• Identification of risks play a pivotal role
• Audit evidence is essential to document the
arguments made by the auditor.

24. Module 1- Introduction to Operational Audit
Seatwork:
Do you think operational audit is versatile /
flexible?
Discuss and cite examples

25. Module 1- Introduction to Operational Audit
THANK YOU!

26. Module 1- Introduction to Operational Audit
References:
Operational Auditing, Hernan Murdock
The Operational Auditing Handbook. Andrew Chambers and
Graham Rand