Financial vs Operational Auditing
Auditing is a systematic examination and verification of works or records by professionally qualified people, known as auditors, to make an independent opinion that the work done is fairly good and well on the track, as laid by professional bodies and the government, to regulate the activities.
Financial audit is simply an attestation that the client’s financial statement is accurate. Financial audit or audit of financial statements is a statutory requirement of each and every registered company. Financial statements’ audit is carried out by professionally qualified personnel’s known as auditors. The primary objective of carrying out financial audit is to obtain an unbiased and independent opinion from auditors that the financial statements are giving a true and fair view, and they are out of material misstatements. For all companies, it is mandatory to carry out financial audit, done by external auditors, before publishing the financial statements. The share holders or owners of the company appoint auditors to verify that the work done and financial statements prepared by the stewards-the management appointed by them are correct and show the clear picture of the company’s financial status.
Operational audit is a structured review of the systems, internal controls, and procedures of an organization inorder to evaluate whether they are being constructed efficiently and effectively and to make suggestions to improve them, if necessary. The operational audit is designed to assess the control level exercised by management, and it mainly focus on effectiveness and efficiency of operations, reliability and integrity of financial and operational information, safeguarding of assets, and compliance with laws, rules and regulations. Generally, operational audit is carried out by internal auditors. Internal auditors are the auditors who are, basically, employees of the organization. Operational auditors are generally internal auditors who are there to facilitate the activities of management via checking the efficiency and effectiveness and hence making suggestions to improve efficiency.
What is the difference between Operational Auditing and Financial Auditing?
As their name indicates, both financial audit and operational audit have some differences between them.
• Financial audit is carried out with the intention of obtaining an independent opinion of ‘true and fair view’ on financial statements, while operational audit is carried out to check whether the operations of the organization are being carried out effectively and efficiently.
• In general, financial audit is carried out by external auditors, while operational audit is carried out by internal auditors.
• Financial audit report has a standard format, while operational audit report does not have a standard format.
• Financial audit reports must be published publicly, but operational audit reports need not to be made public.
• Professionals who are performing financial audit are external auditors that are not controlled by the management while auditors performing operational audit are employees of the entity and hence controlled by the management.