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Chapter 8 - Assignment

This document provides answers to questions about operational auditing and process improvement techniques. It discusses how internal auditors can use financial statement assertions and the 7Es framework to assess operational success. All processes should aim for the Six Sigma level of quality to reduce errors. Six Sigma can help service organizations improve customer satisfaction and response times. The seven ISO 9001 quality principles and the DMAIC methodology are also explained.

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Laiza Joyce Sales
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386 views4 pages

Chapter 8 - Assignment

This document provides answers to questions about operational auditing and process improvement techniques. It discusses how internal auditors can use financial statement assertions and the 7Es framework to assess operational success. All processes should aim for the Six Sigma level of quality to reduce errors. Six Sigma can help service organizations improve customer satisfaction and response times. The seven ISO 9001 quality principles and the DMAIC methodology are also explained.

Uploaded by

Laiza Joyce Sales
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
  • Operational Events as Examples for Internal Auditors
  • Six Sigma Application in Service Organizations
  • Six Sigma and ISO 9001 Implementation
  • DMAIC Methodology Elements

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.

Common questions

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While Six Sigma can enhance operational efficiency and product quality, not all processes require such high precision due to cost and complexity. For some areas, achieving near-zero error may not be economically justified if the incremental improvement does not significantly impact overall business objectives or customer satisfaction .

Internal auditors can use the accuracy assertion to ensure that costs related to materials, labor, and other expenditures are accurately recorded in financial statements. By verifying accuracy, auditors can identify discrepancies that may affect operational budgeting and financial reporting, ensuring accurate reflection of financial health and performance .

Six Sigma in service organizations like banks involves defining objectives, collecting and analyzing process data, and applying corrective actions to cut down on wait times. This improves customer satisfaction by enhancing service efficiency and reducing errors, ultimately leading to a better customer experience .

Challenges include resistance to change, lack of statistically skilled staff, and difficulty in measuring intangible service outcomes. Addressing these can involve comprehensive training, fostering a culture of continuous improvement, and developing tailored measurement systems that align with service-specific metrics .

Completeness assertion ensures all transactions, errors, defects, and inefficiencies are fully recorded, which is vital for the accuracy of operational audits. It helps auditors identify unrecorded issues that may impact operational efficiency, enabling organizations to address gaps in processes and improve decision-making .

Internal auditors can assess organizational equity by reviewing processes related to hiring and promotion to ensure they are unbiased and equitable. This is important because inequitable practices can lead to reputational damage and affect business operations negatively by demotivating employees and potentially leading to high employee turnover .

The ecology aspect involves ensuring compliance with environmental regulations and evaluating the sustainability of operations. Internal auditors can use it to help organizations minimize environmental impact, which can enhance public reputation and reduce costs through efficient resource usage, supporting long-term sustainability efforts .

The engagement of people principle in ISO 9001 emphasizes the importance of involving employees at all levels for a successful quality management system. Engaged employees are more motivated to improve processes, contribute to solutions, and maintain a culture of continuous quality improvement, thereby enhancing overall organizational performance .

Utilizing DMAIC allows a company to strategically manage its processes through systematic problem-solving and process improvement. It helps in clearly defining issues, measuring performance, analyzing causes, improving processes, and controlling outcomes, leading to more reliable and efficient operations that enhance competitiveness and profitability .

Internal auditors can use the economy aspect to analyze how resources are being procured and manage to ensure they are acquired cost-effectively. By assessing purchase timing, price, and volume, auditors can recommend more economical purchasing strategies that optimize resource use while reducing costs .

Chapter 8 – Assignment 1. Use operational events as examples to show how internal auditors can use financial statement asser
of the organization. Through this, the internal auditor could advise the leaders on how to keep on track with their goals and
method, profits would be increased, employees would be more productive which would increase their confidence, and the quality
The elements of DMAIC are the following: D—Define the current process, system, high-level project goals and capture details

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