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Discuss the similarities between financial statement audits, operational

audits, and compliance audits. Give an example of each type.

Jul 12th, 2015

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Operational vs. Compliance Auditing

Operational Audits

Operational audits are for determining the operational efficiency of a company or organization. An operational audit might assess the entire organization as a whole, or a single operating unit within the company, such as the shipping department. Operational audits examine such factors as purchases, shipping and receiving activities, data processing, front office operations, and logistics. In short, an operational audit is an examination and evaluation of specific activities and how they contribute to the overall growth of a company.

Compliance Audits

Compliance audits differ significantly from operational audits. Compliance audits are used to determine whether or not a company has complied with the various laws and regulations required in the industry. This type of audit is especially important in the financial industry, where activities are regulated primarily by the Securities and Exchange Commission. A compliance audit generally results in the completion of a report that is provided to the appropriate government agency in charge of overseeing the industry.


One place in which both operational and compliance auditing can be used is in a financial audit of a company and its accounting procedures. Most businesses comply with generally accepted accounting procedures, called GAAP. These are principles established by the Financial Accounting Standards Board. Companies that comply with GAAP will generally perform occasional audits of accounting procedures to ensure that company financial statements are correct. This can have an effect on company operations also, since many activities are dependent upon spending and revenue-generating activities.


Ethical components exist in both operational and compliance auditing. Both types of auditing provide management with an opportunity to ensure that a company is on the up-and-up. Operational auditing ensures that resources are being used wisely, but it also takes into account state and federal laws. It ensures that your work force is being maximized for efficiency and profit, but without unlawful exploitation. Operational accounting can reveal when various compliance issues may be of concern, and can precipitate the need for a full-blown compliance audit. Compliance audits have an inherent ethical dimension and are designed to ensure that companies operate in the best interest of the public.

  • The Institute of Internal Auditors (IIA) defines internal auditing as an independent, objectiveassurance and consulting activity designed to add value and improve an organization's operations. Ithelps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluateand improve the effectiveness of risk management, control, and governance processes. The IIA'sprofessional standards encompass attributes of internal auditors and performance of the internal auditfunction.

  • An operational audit is the examination of an operating unit or a complete organization to evaluateits performance, as measured by management's objectives. The stages of an operational audit mightbe summarized as definition of purpose, familiarization, preliminary survey, program development,fieldwork, reporting the findings, and follow-up.

  • Compliance auditing involves testing and reporting on whether an organization has complied with therequirements of various laws, regulations, and agreements.

  • The objective of a compliance audit engagement is the issuance of a report on the subject matter oran assertion by management regarding the organization's compliance with specified requirements, orregarding the organization's internal control over compliance with laws or regulations.

  • The objectives of compliance auditing of federal financial assistance programs are (a) to determinewhether there have been violations of laws and regulations that may have a material effect on theorganization's financial statements and major federal financial assistance programs, and (b) to provide abasis for additional reports on compliance and internal controls. Compliance auditing is involved in(a) audits of financial statements in accordance with generally accepted auditing standards, (b) auditsconducted in accordance withGovernmentAuditing Standards, and (c) audits conducted in accordancewith the federal Single Audit Act of 1984.

  • Audits of governmental organizations in accordance with generally accepted auditing standards mustreflect the fact that such organizations are subject to a variety of laws and regulations that may havea direct and material effect on the amounts in the organization's financial statements.

  • In audits in accordance with Government Auditing Standards, the auditors issue a report on thefinancial statements and also report on compliance with laws and regulations and on internal control.

  • Audits in conformity with the Single Audit Act of 1984 are specifically designed to help ensure thatthe billions of dollars in federal financial assistance are appropriately spent. The focus of theseaudits is on organizations receiving significant amounts of federal assistance in a year. The auditorsare required to report on requirements of major programs for which federal assistance has beenreceived.

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