Module 1 Part 2

Gerardo M. Castro, MBA

 What is Internal Audit?

Internal auditing is an independent, objective assurance and

consulting activity designed to add value and improve an
an organization’s operations. It helps an organization accomplish
its objectives by bringing a systematic, disciplined approach
to evaluate and improve the effectiveness of risk management,
control, and governance processes.

Institute of Internal Auditors (IIA)

So…….
What is Operational Auditing?

Future- Improve
Oriented Profitability
Management
Independent
Management-Controlled
Systematic Attain
Organizational Activities
Business- Organizationa
Management-Controlled
Focussed l Objectives
Third Party Activities
Evaluation
 Other Aspects of Operations Audit

Evaluates Management Performance.

Verifies employees’ adherence to policies and procedures.
Verifies qualitative aspects of the organization and its activities.
Verifies the relevance of documents.

Checks the organizational structure.

Evaluates effectiveness and efficiency of business activities,
processes, programs, functions, and units.
Responsible for risk management.
 A probability or threat of damage,
Risk injury, liability, loss, or any other
negative occurrence that is caused
by external or internal vulnerabilities,
and that may be avoided through
preemptive action.
 Risk-Based Audit

Accounting & Poor Customer

Financial Risks Service
Excessive Customer/
Delays Employee Turnover

Waste Poor Quality Data

Inefficiency Systems Failure

Identifies and evaluates Requires in-depth understanding
internal controls without of the organization’s
enough regard to their business, and a
value to the process. mechanism to address
past, present, and
Control-Based future vulnerabilities
Audit and scenarios
Risk-Based that threaten the
Audit achievement of
business objectives.
 Auditing Beyond Accounting,
Financial, and Regulatory Requirements
 Reflection
In the past, internal auditors predominantly had
accounting degrees, generally were recruited
from external public accounting/audit firms, and held
CPA licensure certifications. As such, their focus
and experience was acquired in the accounting field
and saw most audit matters through the prism of
accounting requirements.
 Auditing Beyond Accounting,
Financial, and Regulatory Requirements

Operations Management Corporate Social Responsibility

Human Resources Marketing

Information Technology Environment, Health & Safety

 Auditors’ Value

√ Promote the efficient and effective use of resources.

√ Avoid any conflict of interest.
√ Help to assure that all relevant stakeholders’ interests are met.
√ Help to assure that organizational behaviours are aligned
with organizational objectives.
√ Serve the public and common interests.
Economic/Primary
Stakeholders Employees

Investors Suppliers

Creditors Customers
Non-Economic/Secondary
Stakeholders
Government

General
Public Media

Communities
Activists

Business
Support
Groups
 Primary Stakeholders, Interests and Power
Stakeholder Interest Power
Employees Employment stability Bargaining power,
Fair pay, safe workplace strike, lawsuits,
and environment publicity
Suppliers Regular orders for Refuse to take orders,
goods & services, Su
payment pply to competitors
Customers Value & quality for Order from competitor,
money, safe & reliable Boycott, payment
products refusal
Creditors Payment for loans, Lawsuits to demand
collect debts with payment, repossession
interests of assets
Investors Satisfactory return on Voting rights, inspect
investment, value company records and
appreciation reports.
 Secondary Stakeholders, Interests and Power
Stakeholder Interest
Governments Economic development,
Taxes
Media Public information, monitoring of
company actions
Activists Monitor company actions for
ethical & legal behaviour
Business Support Groups Research & information to
improve competitiveness
Communities Ensure local development,
employ local residents
General Public Minimize risks, achieve
prosperity for society
Power
Laws, regulations, licenses,
permits
Publicizing events that affect the
public, create public opinion.
Lobbying government for
regulations,
Gaining public support
Use staff to help companies,
Provide legal & political support
Lobbying for government
regulations, issuing & issuing
operating licenses
Supporting activists, pressing the
gov’t. to act, praising or
condemning companies.
 Secondary Stakeholders, Interests and Power
Stakeholder Interest
Governments Economic development,
Taxes
Media Public information, monitoring of
company actions
Activists Monitor company actions for
ethical & legal behaviour
Business Support Groups Research & information to
improve competitiveness
Communities Ensure local development,
employ local residents
General Public Minimize risks, achieve
prosperity for society
Power
Laws, regulations, licenses,
permits
Publicizing events that affect the
public, create public opinion.
Lobbying government for
regulations,
Gaining public support
Use staff to help companies,
Provide legal & political support
Lobbying for government
regulations, issuing & issuing
operating licenses
Supporting activists, pressing the
gov’t. to act, praising or
condemning companies.
Source:

Murdock, H. (2017). Operational Auditing: Principles and Techniques

for a Changing World. CRC Press Taylor & Francis Group, London,
New York.

Note: This is the prescribed textbook for the course Operations Audit (ELE 1).
End of Asynchronous Session