What Is Technical Auditing? ( Explained)

Business organizations working in different industries need their processes, financials, databases, etc., to be examined and approved as satisfactory for long-term operations.

The examination aims to avoid unethical practices, financial embezzlements, etc. The standard procedure for this purpose is an audit, and you must be a bit familiar with the concept.

The audit is generally considered to be examining the financial statements to ensure the accuracy of the information.

But, it’s more than that. Besides, another term known as the technical audit is thought to be something specifically for certain industries.

But is it true?

In today’s article, we will explore if it’s true or not.

 This article will discuss audits, different types of audits, technical audits, and their comparison with technology audits.

The article will comprehensively discuss technical auditing, its purpose, benefits, and how it works.

So let’s get into it.

What Is Auditing?

Without going into the definition of auditing that is commonly used, we can define audit as,

Auditing deals with evaluating and investigating of financial information, workplace dangers, IT risks, etc., for any business entity.

Another definition of auditing is as follows:

Auditing is the assessment and ascertainment of any business entity’s operational, financial, and strategic goals & processes to ensure compliance with principles and regulations for respective areas.

Different Types Of Audit

We can segregate the types of audit depending on the audit and execution. Here are the types of audits with respect to the outcome:

  • Financial Audit
  • A process/product audit
  • IT Procedure Audit
  • Internal Control Audit
  • Compliance audit
  • HR audit
  • Technical Audit

If we talk about auditing regarding execution, here are the following types:

1.    External Audit

External audits are mandatory audits for business organizations, and external auditors perform these.

The main purpose of external audits is usually checking the accuracy of the financial statements and highlighting any biases or discrepancies in the financial reporting.

After completion of the audit, the auditor issues a report stating his opinion about the accuracy of the statements.

The main users of the information expressed in the audit reports of an external audit are the external users like shareholders, prospective investors, creditors, etc.

2.    Internal Audit

If we talk about the internal audit, it is conducted by business organizations on their own. Internal audits aim to ensure the internal control procedures and standards are in place and financial reporting is accurate.

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The internal auditor might be an external consultant or the company’s internal employee depending on the scope of the internal audit.

3.    Government Audit

Government audits are also a type of audit, and this term is usually referred to as IRS audits. When the Internal Revenue Service performs the audit, the purpose is to verify the accuracy of the taxpayer’s financial statements.

Depending on the subject matter, the outcome of government audits can be the same tax liability, a change accepted by the taxpayer, or a change not accepted by the taxpayer.

Technical Audit

So what is a technical audit, and where does it fall? All types of the audit we have discussed revolve around verifying and investigating the financial data.

How do we define technical auditing or technical audit?

There are many definitions of the technical audit, and we will quote as many as possible to help you understand the scope and purpose of technical audits.

Finally, we will conclude with one general definition that can fit all scenarios.

So the first one is from Law Insider, which states:

A technical audit is conducted by an auditor or empaneled auditor during the term to make sure that all processes are compliant with Content Protection Systems.

A technical audit can also be of the financial statements, and in that case, we will define it as:

Evaluate the books, vouchers, and records of responsible employees/individuals to ensure that he has performed their duties according to stated principles and directions.

If we talk about general definitions of the technical audit, it will be defined as,

Independent & objective assurance and consulting are planned and implemented to evaluate the efficiency and efficacy of any company’s operations. We can also say that a technical audit is a compliance audit where the actual purpose is not evaluating accuracy but ensuring that the standards are followed, ultimately resulting in accuracy.

Another way to define technical audit is as follows:

When an auditor, engineer, or subject-matter expert investigates and evaluates the processes, systems, or procedures to assess any discrepancies or areas of improvement, it is called a technical audit.

In general, the purpose of the technical audit is to work on the technical aspects of any project or process in a business organization.

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Therefore, in whatever area technical audit is to be conducted, the auditor must have deep knowledge.

As a general practice, the industries that usually employ technical audits are manufacturing concerns, construction projects, technology-based processes, etc.

What Is the Job Of A Technical Auditor?

If we don’t go into details of what industry technical audit has to be conducted, having a deep knowledge of the field is necessary for conducting the technical audit.

What else is the job of a technical auditor?

He is responsible for developing and implementing audit plans regarding the area to be studied within the scope of the technical audit.

It can be internal control procedures, technical infrastructure, or manufacturing processes. Besides, the technical auditor is responsible for reporting and recommending improvement options and ways to enhance performance based on audit findings.

If we sum up the activities or duties of a technical auditor working on a project, he has to do the following things for a complete technical audit:

  1. Evaluation
  2. Prepare reports with findings and recommendations for senior management of the company
  3. Monitor the implementation of corrective action plans for alleviating discrepancies and performance gaps
  4. Evaluation of internal compliance to established standards and policies.
  5. Inspection and audit of processes, materials, etc., according to technical descriptions and specifications

Objectives Of Technical Audit

The need for technical audits in any organization is motivated by certain objectives. Here are the main objectives why companies in different industries go for technical audits:

  • Ensuring that all technical requirements are fulfilled, and standards are met when performing different tasks or processes
  • A technical audit of procured materials and supplier’s products is to ensure that the technical specifications are up to the mark as per requirements
  • Evaluation of internal control to highlight any deficiencies and ensure compliance with set standards and regulations
  • The objective of conducting the IT and Infosys technical audit is to get assurance about the compliance of operating activities with adequate standards and organizations’ policies

The objective of technical audits might vary depending on the department and industry they are being implemented in.

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For instance, the construction industry’s objectives and scope of technical audits will differ from manufacturing.

How Does Technical Audit Work?

Usually, technical audits are conducted for projects, manufacturing, construction, etc. However, the general areas that are focused on technical audits are as follows:

1: Planning & Design

It relates to the need analysis and demand analysis of the technical audit.

Why is it necessary to conduct the technical audit, what will be the scope of the audit, how will it proceed, what quality assurance measures will be exercised, etc., are the questions addressed in the planning stage.

Besides, the experience of the auditor regarding subject matter is also an important consideration when planning the audit.

2: Procurement

Moving forward to the technical audit, the first step in the audit is typically the financial side of the project.

In procurement and purchase audits, the auditor checks if procurement methods and procedures are consistent and compliant with the financial manuals.

It also involves the evaluation and assessment of proposals received by different suppliers. The supplier’s evaluation must be independent without any coercion or bias.

3: Implement

The next focus of the technical audit is evaluating if the project was completed within the prescribed time frame and timeline.

In case of non-compliance, the provision of liquidity damage is also evaluated. Also, this stage of technical audit looks if the completion of the project is according to the standards.

Therefore, the acceptance test report is an important document at this point.

4: Impact of Project

The final stage is where the project’s overall impact is assessed by comparing it with KPIs, set expectations, and goals.

At this stage, the auditor also recommends reducing operational costs, increasing revenues, increasing customer loyalty, and decreasing customer churn.

Final Words

We have discussed everything that you need to know about technical auditing. If we talk about the benefits of technical auditing, it includes improved internal control systems, reduction in project costs, and timely completion of projects.

Therefore, more companies are adopting the practice of technical audits to improve their overall performance.