Difference between operational audits and compliance audits?

Answer 1

Operational Audits

An operational audit is a review of any part of an entity's operating procedures and methods for the

purpose of evaluating efficiency and effectiveness. At the completion of an operational audit,

recommendations to management for improving operation are normally expected.

An example of an operational audit is evaluating the efficiency and accuracy of processing payroll

transactions in a newly installed computer system. Another example, where most Accountants would feel

less qualified is evaluating the efficiency, accuracy, and customer satisfaction in processing the distribution

of letters and parcels by a courier company such as TCS.

Because of the many different areas in which operational effectiveness can be evaluated, it is impossible to

characterize the conduct of a typical operational audit. In one organization, the auditor might evaluate the

relevancy and sufficiency of the information used by management in making decisions to acquire new fixed

assets, while in a different organization the auditor might evaluate the efficiency of the paper flow in

processing sales.

In operational auditing, the reviews are not limited to accounting. They can include the evaluation of

organization structure, computer operations, production methods, marketing, and any other area in which

the auditor is qualified.

The conduct of an operational audit and the reported results are less easily defined than for either of the

other two types of audits. Efficiency and effectiveness of operations are far more difficult to evaluate

objectively than compliance or the presentation of financial statements in accordance with accounting

conventions and principles; and establishing criteria for evaluating the quantifiable information in an

operational audit is an extremely subjective matter.

In this sense, operational auditing is more like "management consulting" than what is generally regarded as

"auditing". Operational auditing has increased in importance in the past decade.

Compliance Audits

The purpose of a compliance audit is to determine whether the entity is following specific procedures, rules,

or regulations set down by some higher authority.

A compliance audit for a private business could include determining whether accounting personnel are

following the procedures prescribed by the company controller, reviewing wage rates for compliance with

minimum wage laws, or examining contractual agreements with bankers and other lenders to be sure the

company is complying with legal requirements.

In the audit of governmental units such as districts school, there is extensive compliance auditing due to

extensive regulation by higher government authorities. In virtually every private and non profit organization, there are prescribed policies, contractual agreements, and legal requirements that may call for compliance

auditing.

Results of compliance audits are typically reported to someone within the entity being audited rather than to

a broad spectrum of users.

Management, as opposed to outside users, is the primary group concerned with the extent of compliance

with certain prescribed procedures and regulations. Hence, a significant portion of work of this type is done

by auditors employed by the entity itself.

There are exceptions; when an organization wants to determine whether individuals or entities that are

obligated to follow its requirements are actually complying, the auditor is employed by the entity issuing the

requirements.

An example is the auditing of taxpayers for compliance with the federal tax laws, where the auditor is

employed by the government to audit the taxpayers' tax returns.

Following table summarizes the three types of audits and includes an example of each type and an

illustration of three of the key parts of the definition of auditing applied to each type of audit. for more study

Examples of the Three Types of Audits

Answer 2

Operational audits focus on the review and assessment of a business process. ... Compliance – Compliance audits review the level of compliance with internal policies or external regulatory requirements