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THE IMPACT OF INFORMATION TECHNOLOGY ON AUDIT PROCESS pic_mind_map…

- - - - Audit software are used during substantive testing to determine the reliability of accounting controls and integrity of computerized accounting records. Typical testing includes:-
        
        Calculation checks, check addition,
        select high value, negative value
        
        Detecting violation of system rules.
        e.g. the program checks all accounts on sales ledger to ensure that no customer has a balance above credit limit
        
        Detecting unreasonable items – e.g. check that no customers are allowed trade discount of more than 50%
        
        Conducting new calculations and analyses – e.g. obtain analysis of static and slow moving stocks
        
        Selecting items for audit testing – e.g. obtain the sample to sent confirmation.
        
        Completeness checks – e.g. checking continuity of sales invoices to ensure they are all accounted for.
      - Factors that the auditor to consider in deciding whether to use CAATs:-
        
        If no visible evidence available and
        the only way is CAATs
        
        Cost that associated with CAATs
        
        The extent of the ability of CAATs to perform test on various financial statements items.
        
        Time. Report need to be produced by the auditors within comparatively short time period. In such cases it may be more efficient to use CAATs.
        
        The condition of hardware (computer) and the ability to support CAATs.
      - This can be further categorized into:
        
        Package Programs or Generalised Audit Software (GAS)
        
        Designed to perform data processing functions such as read and extract data from entity’s computer files or database for further audit testing, perform calculation, selecting sample and provide report.
        
        For example, application of package program on Account Receivables.
        
        1st step: Set audit objectives, i.e. to test accuracy of AR, select sample for confirmation and print out confirmation and monthly statement of selected sample.
        
        2nd Step: Design the application, i.e. identify data and design format of confirmation.
        
        3rd Step: Ensure package program able to read data
        
        4th Step: Process the application,
        i.e. access the entity’s AR database with package program. The program will process automatically according to the instruction.
        
        5th Step: Evaluate the result. i.e. verify output, review confirmation letter and monthly statement and sent confirmation.
        
        Written Programs or Custom Audit Software.
        
        Written by the auditors for specific audit tasks and it is necessary when the entity’s CIS system is not compatible with Generalized Audit Software. It is good to develop if the auditor can use it in doing auditing for the future.
        
        However, it is expensive, take longer time to develop and need modification for every time an entity’s change their system. Auditor also need an IT expert to help in developing the program.
    - - Data used by the auditor to test the operation of the enterprise’s computer program.
      - The auditor uses test data primarily for testing the application controls in the entity’s computer programmes.
      - For example: Auditor creates a set of simulated data which include both valid data and invalid data. Then, the auditor manually calculates the result from the simulated data.
      - With the simulation data entered into the entity’s computer program, the valid data should be properly processed and invalid data should be identified as error. The results are compared to the auditor’s predetermined result
      - Another example: Unauthorized password may be used in an attempt to gain entry, transaction with incorrect coding and transaction with non-existing customer or suppliers. These to ensure that the system is properly rejects invalid transactions