A system-based audit examines the general effectiveness, efficiency and economy of processes, systems, controls and performance in an operational unit or in a complete organization. It can assure that every component of an organization works to attain goals. An auditor using a system-based audit must obtain a comprehensive knowledge of the unit or company's objectives, organizational structure and operational characteristics. Thorough preliminary study and data analysis are completed before the audit begins. A system-based audit has advantages and disadvantages.
Timely Curbing of Problems
A system-based audit assesses a unit's performance in relation to management objectives and compliance to policies and procedures. Inadequacies and weaknesses are addressed to ensure no material deviations from the set direction. Recommendations can help to improve efficiency and effectiveness, and eventually fully accomplish organizational goals. The emphasis is always on improving ineffective operations.
Optimal Use of Resources
This kind of audit requires an understanding of the client’s relevant activities as well as internal controls pertaining to the activities. Such an understanding is vital given that organization units are different. High-risk areas are identified and given priority during a system-based audit. This ensures that most of the limited audit resources.involve problem areas.
Difficulty in Obtaining Evidence
A disadvantage of a system-based audit is that it requires comprehensive evidence in support of a desired measurement of efficiency, effectiveness and performance. Commonly used tests include documentation, observation and analysis. If the audit examines complex activities, then obtaining and interpreting the evidence is difficult or requires technical expertise for specialized fields, and technical expertise may not be available.
Lack of Standard Assessment
An assessment criterion must be developed for each situation, usually in consultation with the client's personnel, which makes each audit equally involving. The auditor has to study historical trends, examine peer group standards or use absolute and negotiated standards to determine an appropriate criterion. Additionally, no reporting standards exist for a system-based audit because each audit has specific requirements and results.