Internal controls are an area of high significance for all companies. These controls establish an effective and efficient base for a company’s operations. Through that, they also enhance the company’s financial reporting and other processes. Traditionally, companies did not focus on internal controls. Due to the emphasis on it, companies have now established departments to look after these areas. One of these includes internal auditing departments.
Internal auditing is a department within companies that focuses on several areas. The most substantial of these include risk management and internal controls. Internal auditing is a crucial part of many companies and is often mandatory in many jurisdictions. Internal auditors work differently compared to external auditors. However, there are some areas where both may perform the same procedures. One of these includes operational audits.
What is an Operational Audit in Internal Auditing?
Operational audits constitute audit engagements that involve reviewing a company’s key processes, procedures, and systems. These audits aim to improve the effectiveness and efficiency of a company’s operations. Since a company’s overall productivity relates to its operations, an operational audit can be critical in streamlining its processes.
Since operational audits focus on efficiency and effectiveness, these also involve identifying deficiencies in a company’s operations. These deficiencies may come from processes, procedures, or systems that involve wastage of resources. As a result, operational audits may differ from one company to another. On top of that, its scope may also vary based on the company’s requirements. Usually, these audits may occur on a lower or broader level.
Operational audits usually relate to internal auditors as these involve a company’s operations. However, these may also impact financial reporting, which can expand its impact on external auditors. Unlike other audits, operational audits don’t look at specific departments or a company’s finances. Instead, it goes deeper into the company’s operations and reviews all the processes.
Why Do Companies Need Operational Audits?
Operational audits are significantly crucial for companies. As mentioned, these audits focus on efficiency and effectiveness. Through these, it also enhances productivity within a company. Operational audits can also help companies identify areas where wastage occurs and stop them from happening. On top of that, it can also allow companies to look at their operations in more detail. This way, they can identify any potential enhancements that can be beneficial.
Maximize efficiency and effectiveness
Operational audits relate to maximizing efficiency within a company’s operations. When internal auditors perform these audits, they look at every process in detail. Through this, they can gain a greater understanding of these processes. They can also identify areas where these processes lack efficiency and improve on them. By doing so, they can significantly enhance the effectiveness of the process and the company’s operations.
Operational audits also help internal auditors with identifying risks, which is a critical internal audit area. Usually, these involve singling out the operational risks that companies face. These may further include other risks such as IT risks, health, and safety risks, litigation risks, etc. An operational audit can identify any risks that companies face due to their operations and any problems related to fraud and compliance.
Operational audits can be crucial in helping companies streamline their processes. These audits help companies examine every step that occurs within a process. This way, internal auditors can dive deeper into these processes. On top of that, it can help them establish how any changes to internal controls can impact a company’s operations.
What is the Operational Audit in the Internal Auditing Process?
There are several steps involved in operational audit in internal auditing. Like any other audit, it starts with planning. This step is crucial in ensuring the process goes without any restrictions or obstructions. During this process, auditors need to obtain an understanding of the company and its operations. Once they do so, they can contemplate how to execute the audit, which is the next step.
During the execution phase, internal auditors will focus on going through a company’s operations. As mentioned, it will include reviewing processes, procedures, and systems. During this process, they will validate the control involved in each step and how these controls are performing. Similarly, they will identify any deficiencies that will exist within these processes and procedures. This step is usually the longest and requires a lot of resources.
Once internal auditors complete their operation audit execution, they must report their findings. Like other audits, these findings will come in the form of a report. This report will include any deficiencies identified during the execution phase and recommendations from the auditor. The last process during operational audits includes following up on the report. Finally, the auditors will look at whether the management has taken the required procedures to fix the deficiencies reported.
Internal audit departments have become a critical part of how companies operate. Operational audit in internal auditing is a process aimed at examining a company’s operations. The objective of operational audits is to improve efficiency and effectiveness within a company’s operations. These audits are crucial in maximizing efficiency and effectiveness, identifying risks, and streamlining processes. Operational audits include various steps, as mentioned above.