Copyright © Daniel Cullinane CPA.
2500 Plaza 5 25th fl Jersey City NJ 07311 phone 732-516-1648 fax 732-516-9778
Daniel Cullinane CPA
25 Plaza 5 25th fl Jersey City NJ phone 732-516-1648 fax 732-516-9778
OPERATIONS VS COMPLIANCE AUDIT
Auditing is an essential activity for small-business owners. Following proper auditing procedures helps businesses avoid tax problems later on, and helps companies assess their financial situations properly as they plan for the future. Operational and compliance auditing are two types of auditing that businesses use to enhance productivity and stay on track.
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 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.