Chapter 8 – Assignment
1. Use operational events as examples to show how internal auditors can use
financial statement assertions in their operational audits. 10points
Answer:
The occurrence assertion can be used in the operational audit to determine whether
the sales transactions actually occurred.
The accuracy assertion can be used in the operational audit to determine whether the
costs of the materials, labor and other expenditures are accurate.
The existence assertion can be used in the operational audit to determine whether the
computer software, furniture, machinery and other equipment actually existed and being
used in the operations.
The valuation assertion can be used in the operational audit to determine whether
amount of the depreciation, operating costs and loan balances are correct.
The completeness assertion can be used in the operational audit to determine whether
all the records of the transactions, errors, defects, and wastes are recorded.
2. Use operational events as examples to show how internal auditors can use the
7Es to assess and improve operational success. 15 points
Answer:
Economy – It can be used by internal auditors to check whether the organization uses
their resources optimally, purchasing only when it is important and only at the right time,
price and volume. Through this, the internal auditor could give recommendations on
how the organization could improve in handling their purchases and financial resources.
Efficiency – It can be used by internal auditors to review the operations of the
organization and see whether there are wastes such as in time, energy and materials.
Through this, internal auditors could give recommendations on how the organization
could improve their operations to increase productivity and to maximize the use of their
available resources.
Effectiveness – It can be used by internal auditors to review the operations of the
organization and to determine whether these are aligned with the goals and objectives
of the organization. Through this, the internal auditor could advise the leaders on how to
keep on track with their goals and avoid involving in unrelated processes.
Ethics – It can be used by internal auditors to review the performance of the
organizations and its members and determine whether it is ethical and aligned with their
business culture. Also, it can be used to check whether the practices included in the
business culture are still acceptable not only by the members of the organization but
also by the public. Through this, the internal auditor could suggest revisions on the
business culture, and recommend methods to monitor actions of the members of the
organization.
Equity – It can be used by internal auditors to determine whether the organization’s
operations and processes especially in hiring and promoting employees are equal to all
individuals and without any bias. Through this, the internal auditor could determine how
it affects the operations of the business as well as its reputation to the public. Also, the
internal auditor could give advice to the leaders to modify their operations and operate
with equity.
Ecology – It can be used by internal auditors to determine whether the organization
follows the rules and regulations with regards to the environment. Through this, the
internal auditor could warn and advise the leaders of the organization to be compliant
with the laws and perform activities that could not only make their reputation good for
the public, but could also help maintain the sustainability of their operations as well as
minimizing their costs.
Excellence – It can be used by internal auditors to review the quality of the products
and services of the organization and determine whether it is a factor on how the
organization did not meet their target profit and made their costs higher. Through this,
the internal auditor could advise the leaders of the organization on how to improve their
products and services, lessen their defects and rework, attract customers, and increase
their profits while minimizing costs.
3. Should all processes operate at the Six Sigma level? Why or why not? 5points
Answer:
Yes. Through Six Sigma, the organization would be able to clearly measure the level of
their errors and identifying and correcting it would be much quicker. Through this
method, businesses would be much capable in improving their business operations,
lessen their defects/errors and reduce deviations/variations from their processes. This
method, profits would be increased, employees would be more productive which would
increase their confidence, and the quality of their products and services will improve.
4. Give two examples to show how Six Sigma can be applied in a service
organization. 5 points
Answer:
Service organizations depend on their human assets; therefore these are also prone to
many human errors. For example, Six Sigma is used by banks to satisfy their
customers. It is applied through defining the objectives and boundaries of their
processes, collecting and analyzing statistical data in consultation with managers,
applying corrective measures in order to cut down on wait times, and monitoring the
measures applied and determining whether it is effective. Another example is when call
centers used six sigma in order to determine the accuracy and response time of their
websites in order to attract more customers to use it and likewise satisfying them.
5. What are the seven quality management principles of ISO 9001? 5 points
Answer:
The seven quality management principles of ISO 9001 are the following:
a. Customer focus
b. Leadership
c. Engagement of people
d. Process approach
e. Improvement
f. Evidence-based decision-making
g. Relationship management
6. What is the error rate (DPMO) for a process operating at the Six Sigma level?
5points
Answer:
The error rate (DPMO) for a process operating at the Six Sigma level is 3.4 defects per
million opportunities or 99.99966% of all opportunities to produce are statistically
expected to be free of defects. Therefore, if your higher your DPMO, the higher your
error rate and the more it shows that your operations and process is underperforming.
7. What are the elements of the acronym DMAIC? 5points
Answer:
The elements of DMAIC are the following:
D—Define the current process, system, high-level project goals and capture details
about customer requirements and expectations.
M—Measure key aspects of the current process, collect relevant data, and determine
the capability of the process in its current state.
A—Analyze data to investigate and verify cause-and-effect relationships.
I—Improve the current process based on the data analysis performed.
C—Control the future state process to ensure that any deviations from the
performance targets are corrected before they become defects.
