Table of Contents
Introduction
Without a doubt, in the current market conditions, quality is the main criterion of competitiveness. A modern company cannot stably generate income if the quality is not the cornerstone of its policy. Currently, the most popular form of recognition of the company’s efforts to ensure the quality of products or services is the certification of its quality management system in compliance with international standards (Behn, Choi & Kang) On the basis of the requirements of these standards, companies develop their quality management systems and present them for certification in credible and independent bodies conducting appropriate checks. These checks are called external audit quality. Upon successful completion of this test, the company receives a certificate confirming that the quality management system complies with the requirements of ISO 9000 (Stimson 2001). Meanwhile, some companies do not pay enough attention to internal audit quality these days. However, internal audit quality makes it possible to determine if required and taken procedures and planned activities are properly established, performed, and directed for the prevention of adverse effects. At the same time, there is an interaction of internal and external quality audits as the standards of external audit include the use of work of internal auditors during the audit checks. Initially, audit appeared in the financial area. Gradually, its application extended to other fields, such as quality and the environment (Senft, Gallegos & Davis 2003). Talking about the extent of the development of the concept of quality assurance, the value of audits in this area grew. Insensibly, audits were divided in audit of products, processes, and quality systems (Stimson 2001). Audit was first applied to check the quality system in the United States (Stimson 2001). However, later with the advent of ISO 9000, the audit process has spread in Europe (Stimson 2001). Audit quality is a systematic and detailed analysis that helps to determine the compliance with the operations and results in terms of the quality of the planned activities; it also estimates the effectiveness of the implementation of measures and their suitability for achieving the set goals. The purpose of the research paper is to study the general notion of audit, identify the concept of audit quality and its types.
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General Notion of Audit
Quality audit is a process of obtaining audit evidence (checking) characterized by systematic, documented, and independent approach. It involves objective evaluation to determine the degree of the implementation of the agreed criteria of audit or inspection. Nevertheless, a number of authors have expanded the definition of audit. David O’Regan defines quality audit as a systematic and independent research conducted to determine whether the activity in the field of quality corresponds with the planned requirements, how effectively these requirements are implemented, and whether they are suitable for reaching the goals (O’Regan 2004).
The authors Angel Otero, Sandra Senft, and Frederick Gallegos examine in detail the different definitions of audit, both in the contexts of quality management and the financial area (Otero, Senft & Gallegos 2008). Their approach to the concept of audit is slightly wider than of other authors (Otero, Senft & Gallegos 2008). The researchers propose to recognize audit not only as a business activity of independent verification conducted by a third party autonomous of the audited organization but also as non-commercial work of an internal nature (Otero, Senft & Gallegos 2008). They also suggest expanding the possible scope of inspections on the entire range of the enterprise’s external activities; and not only on the accounting and financial statements or individual subsystems of the enterprise, for example, the quality management system and sub-system of environmental management (Otero, Senft & Gallegos 2008).
In general, there are the following types of audits: financial, environmental, technological, energy, and quality audit. “Auditing, as practiced today, has its roots in financial applications” (Arter 2003, p. 1). A traditional way of financial audit is a retrospective analysis of the company. According to international standards of ISO 14000 series, environmental audit is conducted. The meaning and the content of environmental audit involves obtaining and evaluating information about the impact of enterprises and organizations on the environment. Environmental audit emerged at the end of the1960s. However, some experts believe that the mechanism of environmental audit is not thoroughly developed. Technological audit of the industrial enterprise determines the type of technology and the role of the company in relation to competitors. One of the types of technological audit is energy audit. It covers such important areas as resource conservation and economy. “It has been suggested that audit quality depends on both technical competence and independence” (O’Regan 2004, p. 35).Quality audit checks the compliance with ISO 9000 standards as well as the industry standards developed on their basis.
In such a way, a comprehensive assessment of the activity of the enterprise is the basis for the development of investment projects. To be more precise, the totality of the results of all conducted audits guarantees investors the return of their investments. The activities of the quality audit should be distinguished from other activities of quality assurance such as quality control, supervision, and inspection of the quality (Carey & Simnett 2006).
Audit is one of the most important instruments of the quality management systems of the organization. With the help of audit, company executives and service staff get an idea on the actual or formal work of QMS and the effectiveness of its functioning. Such a management tool as self-assessment is related to the audit of the QMS (Thesberg 2004). These days, organization and performance of self-assessment of the company or organization in the area of quality is recognized as one of the elements of quality management. For example, Swedish experts believe that it is necessary to start work on the decision of quality issues not with the introduction of ISO 9000 but with self-assessment criteria of the national Quality Award (Behn, Choi & Kang 2008). The method of self-assessment is a simple tool, which assesses the activities of a production structure, the company as a whole or its branches and departments, to meet the challenges of its continuous improvement and ensure the identification of the largest gaps and discrepancies in the plans and processes of implementing improvements. However, self-assessment is not a mandatory requirement of ISO 9000 and 14000 in contrast to such a compulsory requirement as internal audits.
Preconditions for the Emergence of Audit
The audit history dates back to ancient Rome, when the decision of the government was announced by official spokesmen. Every spokesman was accompanied by an auditor to read the decision correctly. It was a special person who knew the text of the resolution and monitored its proper reproduction. In the early XX century, audit was widely used in financial activities. At the end of the XX century, the use of audit extended to such areas as quality management and environmental management.
Nowadays, audit checks are considered an extremely powerful management tool. Due to the rapid growth of the worldwide interest in the problem of improving quality, audit has attracted much attention as a tool that improves the effectiveness of management systems. Audit as well as other quality management system activities should be regarded as a process. It is clear that audit is subjected to continuous control, monitoring, analysis, and improvement (Felix, Gramling & Maletta 2001). In such a way, audit must be managed as a process, which needs specific requirements of the relevant documents. Management of the process is performed by various means. It consists of a provisional assessment and the management of functional activities. Managing audit as a process requires a continuous closed cycle. It consists of the audit planning stage, the stage of implementation of a corrective action, and the stage of change management. As any process, internal audit can be judged by the characteristics of effectiveness and efficiency. However, to measure the effectiveness of a model, the model effect/expenses are often used, in which the emphasis is made on the identification of economic performance. The definition of performance indicators of processes causes the greatest difficulty. These indicators are established for each process according to the definition and purpose of the process. Since effectiveness characterizes the degree of the achievement of the goal and planned results, the rate of productivity is determined by the very purpose of the process.
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Auditors consider quality audits an important tool for the successful future of the company. According to them, audit checks serve as a proof of the system effectiveness, and it is conducted by the certification body to issue, renew, and cancel the certificate quality system (Phillips 2009). Auditors state that internal quality audit is an x-ray of the company. It shows its strengths and weaknesses. Also, it is a source of its vitality. Audit contains the potential that enables the enterprise to function and survive in the market.
Types of Quality Audits
Depending on the orientation, there are three main types of quality audits: system audit, process audit, and products audit. System audit is the most time-consuming process. It lasts from two to five days. System audit is implemented to determine the quality management system and the organization’s plans towards the set requirements. System audit can be external or internal. For system audit, it is necessary to establish the purpose and scope. Quality system audit of the supplier may be conducted before making a decision on conclusion of a contract. The purpose of pre-contractual survey is to evaluate the ability of a potential supplier to deliver goods or services that meet customer requirements as well as determine whether a supplier needs any help for the production of the desired product. If the company has significant changes that affect the quality of products, system audit is conducted. It is often called revisions of the quality system. This type of audit may be also required when the quality of products has worsened or during the changes in the structure of the organization. An organization may be a subject of user audit.
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The next type of quality audit is process audit. It is usually aimed at one or more specific processes of goods or services production. It can be both external and internal. Process audit needs less planning than system audit. It also requires less documentation. They can be performed for quite a short period of time, from one hour to two days. It depends on the scale of audit, various processes to be examined, manufacturing lines, the requirements of standards, and other factors. These audits usually require less staff than system audits. The scope of audit will help to determine the required number of auditors. For example, to perform a simple internal audit process, one auditor is needed. For outside audit, it is necessary to have two or more auditors. This type of audit verifies following the procedures, standards, methods, and other requirements.
Products audit is an assessment of the properties of the final product or service and their conformity with the requirements. Products audit is focused on the consumer. It is implemented from their point of view. It can be produced by at least one auditor. However, this type of audit may also require a large group of specialists.
The most widespread kind of quality audits is audit of conformity assessment, audit of procedures and assessment. Audit of conformity assessment is used to confirm that the system, processes, and products match the pre-established contractual requirements, agreements, and standards agreed in advance. Audit of procedures is applied to assess compliance with documentation and formalized procedures. Assessment is undertaken if the purpose of audit is a preliminary examination. In this case, it is not necessary to have all documentation specified in ISO 19011: 2002 (Pickett 2013).
Initiators of Audit
Depending on initiators and clients, there are several types of audit – first-party, second-party, and third-party. In business relations, there are three sides. The first side is a manufacturer. The second side is a consumer or a customer. The third side is an independent organization that has a license and accreditation from relevant bodies invited to conduct audit.
The first-party audit is also called self-esteem. Originally, self-esteem appeared to justify the application of the system to a document, for example, the international standard ISO 9000. In recent years, self-assessment on the basis of criteria of the national awards in the field of quality is widely developed. This type of audit is also called internal. It is conducted by the organization or on its behalf to analyze management and other internal purposes. It can serve as the foundation for a conformity declaration. Quite often, independence may be reflected in the absence of necessity to check work or activities. It is particularly true in small organizations.
The second-party audit is conducted on the initiative of the customer. The positive result of this audit is also called the approval of the supplier. Consumers very meticulously check the organization to have confidence that money they pay is not wasted. Moreover, if the audit is successful, it could open opportunities to attract new customers. The third-party audit is usually preceded by certification. It is held by a certification body. Certification can be initiated by the organization at the request of consumers or on the initiative of both sides.
Audits of the second and third parties are generally called external. The second-party audit is conducted by the parties that are interested in the activities of the organization, for example, customers or people acting on their behalf. The third-party audits are handled by independent external auditing companies that provide certification or registration according to ISO 9001 and 14001 standards.
Purposes of Audit
The main purpose of quality audit is to check the effectiveness of control programs implemented by the management. Quality assurance is based on the prevention of problems before they are detected. If the problem is already there, its early detection, depth, and causes are particularly important. In terms of the depth of the objectives, audits are divided in audits conducted to obtain initial estimates needed for strategic decision-making and monitor of the current status. Monitoring provides timely information for operational decision-making (Krishnan 2005).
Audit’s aim is to determine if the production fits its purpose. It checks if appropriate written procedures exist and are applied. Its aim is also to observe regulatory and legal requirements and detect shortcomings in the production or management systems. Audit monitors the implementation of technical conditions and positive results of a corrective action. It determines efficient and inefficient use of company resources. Audit quality monitors the existence of the standardized organizational techniques and methods for improving. The conduction of quality audit provides management with the feedback based on facts giving the opportunity to make informed decisions. The first purpose of audit is to be profitable for the service, which is being checked. Audit can be defined as the action of collecting information that helps to assess the need for improvement or correction of some actions. It is not an inspection. The auditor must remember this fact.
Philosophy of Audit
Quality audits are formalized, systematized, and independent. Their findings are based on facts. The efficiency and completeness of audit are highly dependent on the auditor’s skill and experience =. The philosophy of audit is based on several key assumptions. The first one is the fact that auditors should detect the facts and not just fix mistakes. The second assumption is that audits should not be held secretly and suddenly. The last assumption lies in the fact that it is necessary to remember that the audited company is an informal consumer of audit. Services provided by the audited entity are audit reports, whose primary intention is to improve.
The Importance and Value of Internal Audit in the Organization
Undoubtedly, quality audit is extremely significant for any organization. However, first of all, great attention should be paid to internal audit because it takes precedence over external. “Internal auditors perform work that is relevant to their host entities’ financial reporting processes; yet, little research attention has focused on the effects of internal auditing on companies’ external financial reporting” (Prawitt, Smith & Wood 2009, p. 1255). During internal audit, an organization examines its system, procedures, and activities and determines their adequacy and compliance. Internal audit provides organization with important updates about the effectiveness of the whole system of management, whether their policy is satisfactory or not, and what changes are needed. The significance of the results of internal audits lies in the fact that they give useful information to independent experts during external audit – certification.
The main advantage of internal audit over external is that internal auditors know features of the enterprise; there is no biased relation between the employees of the audited subdivisions and the internal auditors, who are not perceived as foreign people for the company. Another advantage is right amount of time during the audit, which limits the possibility of a more detailed study of the inspected units. An important benefit is relatively minor costs of internal audits.
The modern quality system should effectively respond to both internal and external changes. Internal audit can guarantee the response to these changes. Without constant supervision, the management system loses its value and effectiveness as well as the ability to change the organization for the better. The frequency of audits is established taking into account the effect of inspections on the progress of work in the organization or the results of previous audits. It is necessary to have a clear notion about the outcome of each detected inconsistency to choose the right corrective action (Pickett 2013).
If audits are performed properly, every audit can serve as a motivation for the staff at all levels and help to create and maintain the quality of this environment. Proper organization of the internal audit process helps each employee determine how accurately he/she performs the assigned functions and the interaction in the process.
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