University:
California State University, Northridge
Course:
ACCT 460 | Auditing Principles and Analytics
Academic year:

2024
Views:

349

Pages:

34
Author:

kloriran5o

The Impact of Information Technology on the Audit Process Chapter 12 Learning Objective 1 Describe how IT improves internal control. How Information Technologies Enhance Internal Control  Computer controls replace manual controls  Higher-quality information is available Learning Objective 2 Identify risks that arise from using an IT-based accounting system. Assessing Risks of Information Technologies  Risks to hardware and data  Reduced audit trail  Need for IT experience and separation of IT duties Risks to Hardware and Data  Reliance on the functioning capabilities of hardware and software  Systematic versus random errors  Unauthorized access  Loss of data Reduced Audit Trail  Visibility of audit trail  Reduced human involvement  Lack of traditional authorization Need for IT Experience and Separation of Duties  Reduced separation of duties  Need for IT experience Learning Objective 3 Explain how general controls and application controls reduce IT risks. Internal Controls Specific to Information Technology  General controls  Application controls Relationship Between General and Application Controls Risk of unauthorized change to application software Risk of system crash Cash receipts application controls Sales application controls Payroll application controls Other cycle application controls Risk of unauthorized master file update GENERAL CONTROLS Risk of unauthorized processing General Controls  Administration of the IT function  Separation of IT duties  Systems development  Physical and online security  Backup and contingency planning  Hardware controls Administration of the IT Function The perceived importance of IT within an organization is often dictated by the attitude of the board of directors and senior management. Segregation of IT Duties Chief Information Officer or IT Manager Security Administrator Systems Development Operations Data Control Systems Development Typical test strategies Pilot testing Parallel testing Physical and Online Security Physical Controls:  Keypad entrances  Badge-entry systems  Security cameras  Security personnel Online Controls:  User ID control  Password control  Separate add-on security software Backup and Contingency Planning One key to a backup and contingency plan is to make sure that all critical copies of software and data files are backed up and stored off the premises. Hardware Controls These controls are built into computer equipment by the manufacturer to detect and report equipment failures. Application Controls  Input controls  Processing controls  Output controls Input Controls These controls are designed by an organization to ensure that the information being processed is authorized, accurate, and complete. Batch Input Controls  Financial total  Hash total  Record count Processing Controls  Validation test  Sequence test  Arithmetic accuracy test  Data reasonableness test  Completeness test Output Controls These controls focus on detecting errors after processing is completed rather than on preventing errors. Learning Objective 4 Describe how general controls affect the auditor’s testing of application controls. Impact of Information Technology on the Audit Process  Effects of general controls on control risk  Effects of IT controls on control risk and substantive tests  Auditing in less complex IT environments  Auditing in more complex IT environments Learning Objective 5 Use test data, parallel simulation, and embedded audit module approaches when auditing through the computer. Test Data Approach 1. Test data should include all relevant conditions that the auditor wants tested. 2. Application programs tested by the auditors’ test data must be the same as those the client used throughout the year. 3. Test data must be eliminated from the client’s records. Test Data Approach Input test transactions to test key control procedures Master files Contaminated master files Application programs (assume batch system) Control test results Transaction files (contaminated?) Test Data Approach Control test results Auditor makes comparisons Differences between actual outcome and predicted result Auditor-predicted results of key control procedures based on an understanding of internal control Parallel Simulation The auditor uses auditor-controlled software to perform parallel operations to the client’s software by using the same data files. Parallel Simulation Production transactions Master file Auditor-prepared program Client application system programs Auditor results Client results Auditor makes comparisons between client’s application system output and the auditor-prepared program output Exception report noting differences Embedded Audit Module Approach Auditor inserts an audit module in the client’s application system to identify specific types of transactions. Learning Objective 6 Identify issues for e-commerce systems and other specialized IT environments. Issues for Different IT Environments  Issues for network environments  Issues for database management systems  Issues for e-commerce systems  Issues when clients outsource IT