Also known as management audits and performance
Conducted to evaluate the effectiveness and/or
efficiency of operations.
Examinations of all or part of an entity to determine the
degree of its operational efficiency, effectiveness and
Also refers to the auditor’s study of business operations for the purpose of making recommendations about
economic and efficient use of resource, effective
achievement of business objectives and compliance with
The term operational auditing is the most widely used
Definition of terms
OPERATIONAL – implies a focus on operations, as
opposed to financial position.
MANAGEMENT – implies that the information
obtained in the audit process is useful to
management decision making.
PERFORMANCE – implies an evaluation of the
performance of persons or units in executing the
OBJECTIVES OF OPERATIONAL AUDIT
Primary objective: to assess the quality of operations
and whether it is in line with the company’s prescribed
Also help to facilitate the granting of loan from lenders,
facilitate insurance claims, facilitate the decision to
invest, determination of purchase consideration of a
business, discovery of errors and fraud, etc.
OPERATIONAL AUDITING vs. FINANCIAL AUDITING
AUDITING (OA) AUDITING (FA)
economy. was correctly
Reports are •
intended typically goes
primarily for to many
management. users of FS.
Reports vary •
from audit to because of
audit of the widespread
nature of of the report.
AREAS the fairness
EFFICIENCY vs. EFFECTIVENESS
Refers to how well an
entity uses its resources
to achieve its goals.
Refers to an entity’s or a
unit of an entity’s success
in actually achieving its
goals and objectives.
Also described as
reducing cost without
CRITERIA FOR EVALUATING EFFECTIVENESS & EFFICIENCY
Different approaches can be used to evaluate efficiency
One approach is to look at an entity’s overall level
There are several sources that the operational auditor
can utilize in developing specific evaluation criteria.
Based on actual results from prior periods (or
Idea is to determine whether things have
become “better” or “worse” in comparison.
Advantage: they are easy to derive
Disadvantage: they may not provide much
insight into how well or poorly the audited
entity is really doing.
An excellent source for developing criteria.
Often time consuming and costly to develop
as they require considerable expertise but
may be very effective in solving a major
operational problem and well worth the cost.
Discussion and agreement
Sometimes difficult and costly to obtain and
criteria are developed through simple
discussion and agreement.
Parties involved in the process: management
of the entity to be audited, the operational
auditor, and the entity or persons to whom
the findings will be...