For most companies, external audits are mandatory. This process involves independent auditors assessing a company’s financial statements. Based on that, they conclude whether those statements include material misstatements. However, companies must also examine their internal processes. This process falls under internal auditing. Within that process, companies may conduct operational audits.
What is an Operational Audit?
An operational audit is an internal process of evaluating a company’s operations. Usually, it includes assessing all the processes involved in performing operating activities. Unlike external audits, operational audits don’t consider financial information only. These audits are more thorough compared to other forms of examination. In essence, operational audits involve examining how companies conduct their operations.
Operational audits require companies to analyze their procedures, processes, and systems. Usually, these audits do not consider a specific area or department. In most cases, operational audits don’t focus on financial issues. Instead, they examine a company’s management practices. Companies may use external auditors or an internal team to conduct these audits.
The aim of operational audits also differs from other types of audits. With this process, companies seek to identify inefficient processes or operations. Once they do so, they can assess whether those areas need improvement to achieve efficiency. In contrast, external audits examine financial statements and other related information.
How does an Operational Audit work?
Operational audits involve several steps. The first of these includes establishing whether to use external auditors. In most cases, companies use an internal team to conduct these audits. Sometimes, however, they may not have an internal audit department. Therefore, they will obtain the services of an external audit firm. The primary objective of this process is also to ensure the auditors are independent.
The second step in the operational audit process is for auditors to plan it. This process is similar to other audits. However, it focuses on operations and processes. During the planning stage, auditors will also establish their goals and strategies for the audit. These strategies will differ based on the underlying objective of the audit.
Once auditors complete the planning stage, they will conduct the audit. This stage involves examining the processes and procedures involved within operations. In most cases, the primary objective of the audit is to identify any weaknesses in those operations. Once they evaluate the processes, they will assess whether any inefficiencies exist.
Subsequently, auditors will prepare a report that includes their findings during the operational audit. This process is similar to other audits. However, this report focuses on operations and the inefficiencies within them. Similarly, auditors will also present their recommendations on how the company can improve those areas. The last step will involve performing a follow-up on those recommendations.
What are the advantages and disadvantages of an Operational Audit?
Operational audits can be highly beneficial for companies. These audits allow a company to assess its operations and identify any inefficiencies. Similarly, it can help build on the effectiveness of processes and procedures. Operational audits also provide companies with an objective opinion. Furthermore, these audits can also identify any risks and opportunities within operations.
However, operational audits may also involve some disadvantages. The most crucial of these is the costs involved with these audits. Companies must compare those costs with the benefits obtained from these audits. Similarly, operational audits may require companies to make changes to their operations. They can also be time-consuming and affect productivity.
An operational audit is a process auditors use to evaluate a company’s operations. Through these audits, companies can identify inefficient activities. Usually, operational audits involve several steps, similar to other audits. However, the primary objective of operational audits differs. These audits also have several advantages and disadvantages, as listed above.