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Financial Auditing
and Operational Auditing
Chapter 26
5-5
Learning Objective 1
Explain the role of internal auditors in
financial auditing.
26 - 2
Internal Auditing
Internal auditing is an independent objective
assurance and consulting activity designed
to add value and improve an organizations
operations.
Risk Management
Controls
Governance Processes
26 - 3
Internal Auditing
Provide value through improved operational
effectiveness while performing traditional
responsibilities.
Reviewing
management
information
Safeguarding
assets
Ensuring
compliance
26 - 4
Confidentiality
Ethical
Principles
Competence
Objectivity
26 - 5
Confidentiality
Rules
of
Conduct
Competency
Objectivity
26 - 6
26 - 7
Learning Objective 2
Describe the auditing and reporting
requirements under Government
Auditing Standards and the Single
Audit Act
26 - 8
Governmental Financial
Auditing
The primary source of authoritative literature
for performance of government audits is
Government Auditing Standards,
which is issued by the GAO.
Because of the color of the cover, it is usually
referred to as the Yellow Book.
26 - 9
Governmental Financial
Auditing
The Yellow Book standards are often called
generally accepted government auditing
standards (GAGAS).
26 - 10
Compliance
auditing
Reporting
26 - 11
26 - 12
Reporting Requirements
An opinion on
Statements
in accordance
with GAAP
Schedule of
federal awards
A report on
Internal
controls
Legal
Compliance
Findings and
Questioned
costs
26 - 13
Learning Objective 3
Distinguish operational auditing from
financial auditing.
26 - 14
Operational Auditing
The purpose of operational auditing is to
determine the effectiveness or efficiency
of any part of an organization
Financial Auditing emphasizes whether
historical information was correctly
recorded while operational auditing
emphasizes effectiveness and efficiency
26 - 15
Learning Objective 4
Provide an overview of operational
audits.
26 - 16
Effectiveness Versus
Efficiency
Effectiveness refers to accomplishing
objectives
Efficiency is defined as reducing cost
without reducing effectiveness
26 - 17
Effectiveness Versus
Efficiency
Inefficiency
Example
26 - 18
Effectiveness Versus
Efficiency
Inefficiency
Example
26 - 19
Relationship Between
Operational
Auditing and Internal Controls
Reliability of financial reporting
Efficiency and effectiveness of operations
26 - 20
Organizational
Special
assignments
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley
26 - 21
CPA firms
2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley
26 - 22
Competence
Independence
26 - 23
Learning Objective 5
Plan and perform an operational audit.
26 - 24
Specific Criteria
More specific criteria are usually desirable
before starting an operational audit
Sources of criteria include:
Historical performance
Benchmarking
Engineered standards
Discussion and agreement
26 - 25
Phases in Operational
Auditing
Planning
Staffing
Scope
Controls
Evidence
gathering and
evaluation
Eight types
Documentation
Reporting
and
follow-up
Scope
Findings
Recommendations
26 - 26
End of Chapter 26
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