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Operational auditing

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  1. Introduction.
  2. Description of internal auditing functions.
    1. Who uses internal auditing/ who performs it?
    2. Internal auditor's role in corporate governance.
  3. What is internal auditing?
    1. What is internal control?
    2. What is the relation between internal control and internal auditing ?
  4. The institutional framework for internal auditing.
    1. Code of ethics.
    2. Standards for performing internal auditing.
  5. Risk analysis.
    1. Risk management.
    2. Risk assessment.
  6. Operational audit and frauds.
    1. What is a fraud?
    2. Management fraud programs.
  7. Conclusion.

According to the Institute of Internal Auditors, Internal Auditing could be defined as "an independent, objective assurance and consulting activity designed to add value and improve an organisation's operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes". Internal auditing, which is therefore a process, usually involves three distinct identities: "the process owner" (who owns the company), "the internal auditor" (the person who is delivering his evaluation), "the user" (who is going to use the evaluation). The goal of an operational auditing is to ensure that financial reporting complies with the accounting principles broadly accepted. Compliance is therefore a key concept in operational auditing. "Audits based on compliance focus on the adequacy and effectiveness of management controls governing adherence to external laws and regulations" (definition of compliance given by COSO, The Committee of Sponsoring Organizations of the Treadway Commission).

[...] An operational auditing must abide by the Financial Accounting Standards Board (FASB). The role of FASB is an essential body since it is "the designated body in the private sector responsible for establishing and improving standards of financial accounting and reporting for non- governmental public and private enterprises, including small businesses" (Sources: FASB). The missions of FASB, implemented in 2003, is to ensure a homogenisation of the way to conduct financial reports by establishing standards. "The mission of the Financial Accounting Standards Board is to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information" (Sources: FASB). [...]


[...] Internal Auditing is presented in every company (Part I). Internal Auditing differs from Internal Control most notably in terms of responsibility because both are aimed to assess the company (Part II). The creation of an institutional framework for Internal Auditing is in the interest of the companies because they are more world-wide implanted than they used to be which has become especially true with the reduction of obstacles that hamper free trade (Part III). Internal auditing enables the reduction of the risks incurred by a company (Part IV). [...]


[...] What is the relation between Internal Control and Internal Auditing ? The responsibility for the production of reliable financial reporting differs Internal Control may promote the reliability of financial reporting. What is more, Internal Control helps to indicate if the company abides by accounting principles in effect. It is not an absolute process. "Internal control is, to some degree, the responsibility of everyone in an organisation" (COSO). At the opposite, Internal auditing ensures the compliance of financial reporting with standards and guarantees for it. [...]

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