Auditing and assurance services 14e by arens chapter 12

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 5 - 5The Impact of Information Technology on the Audit Process Chapter 12 http://www.authorstream.com/shen gv

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 5 - 5

The Impact of Information Technology on the Audit

Process

Chapter 12

http://www.authorstream.com/shen

gvn/

Learning Objective 1

Describe how IT improves internal control.

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 12 - 3

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.

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 12 - 5

Assessing Risks of Information Technologies

 Risks to hardware and data

 Reduced audit trail

 Need for IT experience andseparation of IT duties

Risks to Hardware and Data

Reliance on hardware and

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 12 - 7

Reduced Audit Trail

Visibility of audit trail

Reduced human involvement

Lack of traditional authorization

Detection risk

Need for IT Experience and

Separation of Duties

 Reduced separation of duties

 Need for IT experience

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 12 - 9

Learning Objective 3

Explain how general controls and application controls reduce IT risks.

Internal Controls Specific to

Information Technology

General controls

Application controlsInformation technology controls

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 12 - 11

Relationship Between General

and Application Controls

Categories of General and

Application Controls

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 12 - 13

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

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 12 - 15

Systems Development

Typical teststrategies

Pilot testing Parallel testing

Physical and Online Security

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 12 - 17

Backup and Contingency

Planning

Offsite storage of critical files is a key element to a backup and contingency plan

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 12 - 19

Application Controls

Input controls

Processing controls

Output controlsApplication controls are designed for each

software application

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 12 - 21

Batch Input Controls

recordsTotal of records

in a batch

Correct processing order?

Accuracy of processed data?

Data exceeds preset amounts?

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 12 - 23

Learning Objective 4

Describe how general controls affect the

auditor’s testing of application controls.

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 12 - 25

Impact of Information Technology on

the Audit Process

 Effects of general controls on system-wide applications

 Effects of general controls on software changes

 Obtaining an understanding of client general controls

 Relating IT controls to transaction-related audit objectives

 Effect of IT controls on substantive testing

Auditing in IT Environments

with Varied Complexity

MORE

Audit around the computer

Audit though the computer

LESS

Smaller companies IT controls < effective

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 12 - 27

Auditing Around and Through

the Computer

Learning Objective 5

Use test data, parallel simulation, and

embedded audit module approaches when auditing through the computer.

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 12 - 29

Test Data Approach

1 Test data should include all relevantconditions that the auditor wants tested

2 Application programs tested by theauditors’ test data must be the same asthose the client used throughout the year

3 Test data must be eliminated from theclient’s records

Test Data Approach

Application programs (assume batch system)

Control test

Input test transactions to test

key control procedures

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 12 - 31

Test Data Approach

Auditor makes comparisons

Differences between

actual outcome and

predicted result

Parallel Simulation

The auditor uses auditor-controlled software

to perform parallel operations to the client’ssoftware by using the same data files

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 12 - 33

Parallel Simulation

Auditor makes comparisons between

client’s application system output and

the auditor-prepared program output

Exception report noting differences

Production transactions

Auditor-prepared

program

Auditor results

Master file

Client application system programs

Client results

Embedded Audit Module

Approach

Auditor inserts an audit module in theclient’s application system to identifyspecific types of transactions

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 12 - 35

Embedded Audit Module

Approach

Learning Objective 6

Identify issues for e-commerce systems and other specialized IT environments.

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 12 - 37

Issues for Different IT

Environments

Network Environments

Database Management Systems

e-Commerce systemsOutsourced

IT

End of Chapter 12