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Operational Auditing--Fall 2010 1 Operational Auditing Fall 2010 Professor Bill O’Brien
Operational Auditing--Fall 2010 1-2 Definition of Internal/Operational Auditing n Formal: “Internal auditing is an independent, objective, assurance and consulting activity designed to add value and improve an organization’s operations.” n Informal: “Internal auditing is an independent activity designed to help an organization stay under control and achieve its objectives.”
Operational Auditing--Fall 2010 1-3 An Organization Achieves Its Objectives by: n Staying under control as evidenced by n Safeguarding of assets n Compliance with laws and regulations n Organizational goal & obj. achievement n Reliability & quality of information n Effectiveness & efficiency of business operations
Operational Auditing--Fall 2010 1-4 Roles of I/A in Relation to the Formal Definition n Helping the organization achieve objectives n Evaluating risk, control and governance n Adding value and improving operations n Remaining independent and objective n Utilizing a systematic approach
Operational Auditing--Fall 2010 1-5 COSO n Committee of Sponsoring Organizations n FEI, AICPA, IMA, IIA and AAA n Sponsored the Treadway Commission in 1987 n Issued guidelines for Internal Control in 1992: COSO Cube n Issued guidelines for Enterprise Risk Management in 2004: COSO 2
Operational Auditing--Fall 2010 1-6 Relating COSO (2004) to SCORE n Strategic objectives n Organizational goal & obj. achievement n Operations objectives n Effectiveness & efficiency of business operations n Safeguarding of assets n Reporting objectives n Reliability & quality of information n Compliance objectives n Compliance with laws and regulations
Operational Auditing--Fall 2010 1-7 Independence: Organizational Relationship n Reporting responsibility n As high as possible…the Audit Committee n Administrative responsibility n To a key interested party
Operational Auditing--Fall 2010 1-8 Systematic Approach n Planning: n Selecting the BPO n Pre-site planning n Evaluating: n Conducting the preliminary survey n Review internal controls n Expanding tests as necessary n Generating findings n Communicating: n Reporting the results n Conducting follow-up n Assessing the process n Note Exh. 2-6 and Exh. 13-4
Operational Auditing--Fall 2010 1-9 SAS 65-now part of AICPA Auditing Standards Codification n Defines roles n Defines function n Discusses competency & objectivity n Considers nature of the work n Discusses coordination n Guidelines for evaluation n Role of direct assistance
Operational Auditing--Fall 2010 1-10 Typical Int. Audit Assistance with External Auditors n Design of control systems n Reduction of risk assessment n Reduction of substantive testing
Operational Auditing--Fall 2010 1-11 SAS 99-now part of AICPA Auditing Standards Codification n Auditor’s responsibility to detect fraud
Operational Auditing--Fall 2010 1-12 Create a Cooperative Bridge with Management n Coordination n Risk assessment alert n Control system disclosure n Common sampling tools n Pooled IT knowledge n Different perspective n Constant general communication
Operational Auditing--Fall 2010 1-13 Roles of Internal Auditing n Auditing or assurance n System design & implementation n Performance appraisals n Consultations n Strategic planning n Merger & acquisition analysis n Market appraisals n Investment analysis
Operational Auditing--Fall 2010 1-14 The Institute of Internal Auditors n The professional organization of internal auditors n Established in 1941 n Provides the following: n Professional guidance n Professional certifications n Research n Educational products and services
Operational Auditing--Fall 2010 1-15 Competencies of Internal Auditors n Inherent qualities n Integrity n Passion n Work ethic n Curiosity n Creativity n Initiative n Flexibility n Skills and credentials n Technical expertise n Software expertise n Communication skills n Analytical skills…connecting the dots n The “What” and the “How”
Operational Auditing--Fall 2010 1-16 General Business Skills: the “What” n Business perspective n Organizational focus n Bias for action n Communication excellence n People proficiency
Operational Auditing--Fall 2010 1-17 Implementation Styles: the “How” n Cc: communication versus control n KTT: knowing the territory n MBWA: managing by wandering around n R ƒ R 3” : respect is a function of n Responsiveness n Reliability, and n Relevancy
Operational Auditing--Fall 2010 1-18 Ops. Audit as a Profession n Transition from public accounting n Career internal auditor n Operational finance professional n Operations professional n Pathway to senior management
Operational Auditing--Fall 2010 1-19 Hints for Starting or Taking Over a Dept. n Report to the Audit Committee or the highest level possible n Avoids conflict of interest n Have an administrative manager as well n Establish an agreed upon review approach n For example, operations v. compliance n Prepare a set of achievable objectives n Commit to IIA standards n Establish a team approach with BPOs n Invest in continuing education
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