Which of the following would provide the best audit evidence regarding the effectiveness of an applied research department?
Which of the following would provide the best audit evidence regarding the effectiveness of an applied research department?
The best audit evidence regarding the effectiveness of an applied research department would be to develop a report on revenue generated by or cost savings directly attributable to newly developed products. This option directly measures the outcomes of the research department in terms of financial benefit, providing clear and quantifiable evidence of the department's impact on the company's profitability and cost efficiency. Other options, such as cost-per-product analysis, industry comparisons, or comparing the number of new product developments over time, do not provide as direct or specific evidence of effectiveness.
An effectiveness report (not efficiency report) is certainly the result/the outcome of a relevant analysis performed directly by the internal auditor.
Why not C?
I think because it would be very hard for IA department to obtain sufficient information about competitors situation and their effectivness trends so I would say that B is the only right choice.
The percentage of research to revenue may not reflect the effectiveness of research department because some companies are so hesitate to invest on research which may result the low %.
Operational research must optimize revenue, minimize costs and select the best possible alternatives (using BPR for example). Cost analysis (option A), benchmark (option C), examination of variations in number of products, don’t establish a relationship between innovation and gross margin. In option B, the relationship is direct; directly established by the internal auditor.