Operation Audit: Concept and Objectives

After reading this article you will learn about Operation Audit:- 1. Concept of Operation Audit 2. Objectives of Operation Audit.

Concept of Operation Audit:

William Leonard describes operational auditing as a comprehensive and constructive review of organisational structure or components thereof, i.e. method of operation and use of physical facilities’. Operational Auditing is essentially a frame of mind, a method of approach; one can approach any area from a financial or accounting point of view or from operating or management point of view.

A control system via appraisal system to keep the management informed of ‘opportunities gained’ and ‘opportunities lost’ is Operation Audit or Operational Auditing. Federal Financial Officers’ Institute in Canada defines Operational Audit as a systematic independent appraisal activity within an organisation for a review of the entire departmental operations as a service to management.

The overall objective of operational auditing is to assist all levels of management in the effective discharge of their responsibilities by furnishing them with objective analyses, appraisals, recommendations and pertinent comments concerning the activities reviewed.

This definition does not specifically mention about financial and accounting areas of the operation but a careful review of the use of the words ‘entire departmental operations’ in the definition characterizes the inclusion of both financial and operational areas.

Thus operational audit may be conceived of as a body of knowledge which seeks to:

(a) Determine effectiveness of performance in each delegated functional area, and

(b) Establish potential impact of successes and failures (especially, failures) in the specialised functional areas of operation.

Objectives of Operation Audit:

The objectives of any company are:

Productivity, profitability, market expansion, innovation, efficient managerial performance, upgrading the employees attitude and work performance and discharging social responsibilities. The operational audit may serve the business in discharging these objectives.

The objectives of the operational auditing may, therefore, be stated as below:

i. Appraisal of company’s objectives,

ii. Evaluation of company’s policies,

iii. Evaluation of company’s plans,

iv. Evaluation of the structure of organisation,

v. Evaluation of controls,

vi. Appraisal of performance, which involves examination of work flow, determination of work force, performance of work load, measurement of productivity, measurement of profitability, performance of job, and appraisal of costs,

vii. Evaluation of company’s social responsibilities, e. g. extent of benefits passed on to the consumers, creation of employment opportunities, etc..